August 28/Gold continues into steep backwardation in London/Saudi Arabia crosses into Yemen as oil rebounds to $45.00 per barrel/Atlanta Fed lowers 3rd quarter GDP to only 1.2%/China continues to sell USA treasuries as yuan appreciates in value/USA consumer spending falters/U. of Michigan Consumer Sentiment also disappoints/gold and silver rise/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1133.10 up $10.70   (comex closing time)

Silver $14.54 up 12 cents.

In the access market 5:15 pm

Gold $1134.50

Silver:  $14.58

 

Here is the schedule for options expiry:

Comex:  options expired last night

LBMA: options expire Monday, August 31.2015:

OTC  contracts:  Monday August 31.2015:

needless to say, the bankers will try and contain silver and gold until Sept 1.2015:

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

At the gold comex today, we had a good delivery day, registering 618 notices for 61,800 ounces  Silver saw 7 notices for 35,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 225.59 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest fell by 3457 contracts as silver was down in price by 56 cents yesterday. Again, our banker friends used the opportunity to cover as many silver shorts as they could .  The total silver OI now rests at 163,807 contracts   In ounces, the OI is still represented by .819 billion oz or 117% of annual global silver production (ex Russia ex China).

In silver we had 7 notices served upon for 35,000 oz.

In gold, the total comex gold OI collapsed to 415,637 for a loss of 7166 contracts. We had 618 notices filed for 61,800 oz today.

We had no change  in tonnage at the GLD today/  thus the inventory rests tonight at 682.59 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 fall by 3457 contracts down to 163,807 as silver was pummeled by 56 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 7166 contracts to 415,637 contracts, as gold was down by $2.20 yesterday. We still have 15.70 tonnes of gold standing with only 14.70 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. COT report

(Harvey)

4. Four stories on China tonight.  The markets were again rescued by POBC as nobody wants to be arrested.  The big news yesterday was official announcement of China selling its hoard of USA treasuries. China is angry at the USA as they state that the market crash is USA’s fault. Today the yuan was bought in volumes by the POBC and thus wads of USA treasuries were again sold.

(Reuters/Bloomberg/Dave Kranzler/zero hedge)

5. Yesterday, we brought you the story that the Ukraine has been offered a debt deal with a haircut. Only one problem:  Russia states that it will not accept any haircut and Putin wants the entire 3 billion USA returned.  Today, Bank of America explains why Putin will receive his money

(zero hedge/Bank of America)

 6.  Two Oil related stories
i) Saudi Arabia invades Yemen as oil shoots up above 45.00 dollars
ii) Canadian banks getting hurt by the low oil price as they must take write downs
(London’s Financial times/zero hedge)

7 Trading of equities/ New York

(zero hedge)

8.  USA stories:

a)USA investors revolt as we witness large redemptions

(two commentaries/zero hedge)

b) U. of Michigan Consumer sentiment tumbles to lows not since in a year.

(U of Michigan consumer sentiment report/zerohedge)

c) Consumer spending misses expectations/lowest in a year

(zero hedge)

d) Atlanta Fed lowers 3rd quarter GDP to 1.2%

(Atlanta Fed/zero hedge)

e. China’s largest automobile maker warns of a huge global glut and warns about huge increases in inventory.

f.  VIX today orchestrates another short squeeze/the ETF is still in backwardation.  (backwardation in VIX ETF”s means there is a greater number of shorts vs the number of shares outstanding)

g.Michael Snyder today comments on the CNN report where they state that there will be no market crash’

(Michael Snyder/EconomicCollapse Blog)

h. This week’s wrap up with Greg Hunter

(Greg Hunter/USAWatchdog)

 

9.  Physical stories:

  1. JPMorgan customer delivers another 54,000 gold oz/picked up by Goldman (Jessie/Americain cafe and Dave Kranzler explains its significance.
  2. Avery Goodman/Fed spent 23 billion usa in last 3 days trying to prop up USA stocks
  3. Chris Powell: Is the Fed behind the USA stock crashes.
  4. Andrew Maguire on gold LBMA/comex trading, reports on permanent and severe backwardation and delays in repatriation of gold to Germany.  (I reported to you that last month zero oz of gold left for Germany.
  5. Bill Holter delivers a terrific paper:  “What will historians say…?”
  6. Steve St Angelo of the SRSRocco report shows in chart form how demand for physical gold is miles ahead of demand for paper silver.
  7. Turd Ferguson discusses the movements of gold at the comex(Craig Hemke/Turd Ferguson/TFMetals)

Let us head over and see the comex results for today.

The total gold comex open interest fell from 422,803 down to 415,637, for a loss of 7166 contracts as gold was down $2.20 with respect yesterday’s trading. Seems our specs have been obliterated.  For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. Last night we had a net 739 contracts outstanding for 73,900 oz of gold outstanding.  Today the gold contract went off the board and yet last night only 618 notices/739 were filed. Thus I have no idea if the last 121 contracts or 12100 oz has been served upon. It seems that our banker friends are having trouble locating physical gold. The August contract month is now officially off the board.  The next delivery month is September and here the OI fell by 170 contracts down to 273. The next active delivery month is October and here the OI fell by 1,494 contracts up to 28,144. The big December contract saw it’s OI fall by 4911 contracts from 293,384 down to 288,473 The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was fair at 120,361. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 157,013 contracts.
Today we had 618 notices filed for 61,800 oz.
** just before this goes to print, the CME downloaded another 58 gold contracts for 5800 oz.  They actually have until midnight Monday night to serve upon any naked gold long contract. It looks like no additional notices will be filed. I will now amend the data for official gold oz standing for August.
 
And now for the wild silver comex results. Silver OI fell by 3457 contracts from 167,264 down to 163,807 as  silver was whacked by 37 cents in price yesterday . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. However this time in silver the OI did not see such a huge fall. The bankers continue to pull their hair out trying to extricate themselves from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena (judging from the high volume every day at the comex).  We are now off the delivery month of August and enter the active delivery month of September. Here the OI fell by 18,265 contracts to 6,009. We have one more reading day which is Monday, August 31.2015.The estimated volume today was excellent at 41,017 contracts (just comex sales during regular business hours).  The confirmed volume yesterday (regular plus access market) came in at 122, 482 contracts which is huge in volume. (equates to 612 million oz or 87.4 % of annual global production)
We had 7 notices filed for 35,000 oz.

August contract month:

final standings

 

August 28.2015

AMENDED to include the last 58 notices filed

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  382.802 oz
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil
No of oz served (contracts) today off the board
No of oz to be served (notices) 739 contracts (73,900 oz)
Total monthly oz gold served (contracts) so far this month 5113 contracts(511,300 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 664,121.9   oz
Today, we had 0 dealer transactions
total Dealer withdrawals: nil  oz
we had 0 dealer deposits
total dealer deposit: zero
we had 1 customer withdrawals
 i) out of Manfra: 385.802 oz
total customer withdrawal: 385.802 oz 
We had 0 customer deposits:

Total customer deposit: nil  oz

We had 0  adjustment:

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

.
Today, 0 notices was issued from JPMorgan dealer account and 616 notices were issued from their client or customer account. The total of all issuance by all participants equates to 618 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 55 notices were stopped (received) by JPMorgan customer account.
 
To calculate the final total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (5055) x 100 oz  or 505,500 oz , to which we cannot add the difference between the open interest for the front month of August (off the board) and the number of notices served upon today (618) x 100 oz equals the number of ounces standing.
 
Thus the final standings for gold for the August contract month:
No of notices served so far (5113) x 100 oz  or ounces + {OI for the front month (676) – the number of  notices served upon today (676) x 100 oz which equals 511,300 oz officially standing  in this month of August (15.902 tonnes of gold).

Thus we have 15.902 tonnes of gold standing and only 14.70 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.

Total dealer inventory 472,783.087 or 14.705 tonnes
Total gold inventory (dealer and customer) =7,220,331.902 or 224.58  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.59 tonnes for a loss of 78 tonnes over that period.
 
The Comex is still bleeding gold.
This concludes and should finalize the non active month of August
end
And now for silver

August silver final standings

August 28 2015:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 33,259.700 oz (Brinks,Delaware)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory 919.05 oz (Delaware)
No of oz served (contracts) 7 contracts  (35,000 oz)
No of oz to be served (notices) off the board
Total monthly oz silver served (contracts) 380 contracts (1,900,000 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 9,162,951.6 oz

total dealer deposit: nil   oz

Today, we had 0 deposits into the dealer account:

we had 0 dealer withdrawal:
total dealer withdrawal: nil  oz
We had 1 customer deposit:
i) Into Delaware:
919.05 oz

total customer deposits: 919.05 oz

We had 2 customer withdrawals:
i) Out of Brinks:  31,209.700 oz
ii) Out of Delaware:  2050.000 oz ???

total withdrawals from customer: 33,259.700  oz

we had 0  adjustments
Total dealer inventory: 54.775 million oz
Total of all silver inventory (dealer and customer) 171.161 million oz
The total number of notices filed today for the August contract month is represented by 7 contracts for 35,000 oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (380) x 5,000 oz  = 1,900,000 oz to which we add the difference between the open interest for the front month of August (probably 7) and the number of notices served upon today (7) x 5000 oz equals the number of ounces standing.
Thus the final standings for silver for the August contract month:
380 (notices served so far)x 5000 oz + { OI for front month of August (7) -number of notices served upon today (7} x 5000 oz ,= 1,900,000 oz of silver standing for the August contract month.

This should finalize the month the active month of August.

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com
end

 

The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China
And now the Gold inventory at the GLD:
August 28.2015:/no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes
(I believe that the GLD has now run out of physical gold and they cannot supply China from this vehicle)
August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes
August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes.
August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes
August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes
August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes
August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
August 28 GLD : 682.59 tonnes
end

And now SLV:

August 28.2015: no change in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 27.no change in inventory at the SLV/Inventory rests at 324.698 million oz  (for the 11th straight trading day)

August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

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 28/2015:  tonight inventory rests at 324.968 million oz
end
 
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 8.0 percent to NAV usa funds and Negative 8.2% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 63.2%
Percentage of fund in silver:36.5%
cash .3%( August 28/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to-.50%!!!! NAV (August 28/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV  rises to – .39% to NAV August 28/2015)
Note: Sprott silver trust back  into positive territory at -.50% Sprott physical gold trust is back into negative territory at -.39%Central fund of Canada’s is still in jail.

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

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

>end
At 3:30 pm we receive the COT which gives position levels of our major players.
First the Gold COT:

wow!!

 

Gold COT Report – Futures
Large Speculators Commercial Total
Long Short Spreading Long Short Long Short
189,893 119,160 53,016 156,659 219,295 399,568 391,471
Change from Prior Reporting Period
4,181 -24,893 4,300 -9,403 23,285 -922 2,692
Traders
130 125 87 47 54 219 230
 
Small Speculators  
Long Short Open Interest  
32,586 40,683 432,154  
348 -3,266 -574  
non reportable positions Change from the previous reporting period
COT Gold Report – Positions as of Tuesday, August 25, 2015
Our large specs:
Those large specs that have been long in gold added a large 4181 contracts to their long side.
Our large specs that have been short in gold saw the light and covered a monstrous 23,285 contracts from their short side.
Our commercials:
Those commercials that have been long in gold pitched a huge 9403 contracts from their long side.
Those commercials that have been short in gold added a monstrous 23,285 contracts to their short side.
Our small specs:
Those small specs that have been long in gold added 348 contracts to their long side.
Those small specs that have been short in gold pitched 3266 contracts from their short side.
Conclusion: our commercials go net short by a whopping 32,686 contracts.  speechless!
And now for silver:  big difference between gold and silver
Silver COT Report: Futures
Large Speculators Commercial
Long Short Spreading Long Short
58,687 43,129 14,926 71,182 95,152
-848 -2,372 -3,051 -38 539
Traders
90 59 49 42 42
Small Speculators Open Interest Total
Long Short 167,243 Long Short
22,448 14,036 144,795 153,207
-2,365 -1,418 -6,302 -3,937 -4,884
non reportable positions Positions as of: 152 136
Tuesday, August 25, 2015   ©
Our large specs:
Those large specs that have been long in silver pitched 848 contracts from their long side.
Those large specs that have been short in silver covered 2372 contracts from their short side.
Our commercials;
Those commercials that have been long in silver pitched a tiny 38 contracts from their long side.
Those commercials that have been short in silver added a tiny 539 contracts to their short side.
Our small specs;
Those small specs that have been long in silver pitched 338 contracts from their long side.
Those small specs that have been short in silver covered 2806 contracts from their short side.
Conclusions: commercials go net short by only 577 contracts.
It seems that positions are not changing much.
end
And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Einstein, Physics, Gold and The Formula To End Economic Decay

We continue to have a wonderful dialogue with and frequent editorial submissions from readers and clients. Today, we have a thought provoking and important article that should greatly contribute to the debate on the merits of continuing to use artificial money.  David Bryan draws on the genius of Einstein and uses science as the basis for policies that would end economic decay and rejuvenate local and national economies and indeed the global economy.

Einstein, Physics, Gold and The Formula To End Economic Decay
“It Can Be No Other Way

Albert EinsteinBy backing their productivity with artificial money, people have been tricked into giving banks a counter party claim to their wealth. The assets used or owned by their forefathers are now incorporated within vast corporations or pledged as debt in exchange for central banker’s script.

Einstein was the greatest mind of this century and when he states the formula for reality we should pay full attention to what he says. Beliefs spun into economic or social systems do not improve the economy or add to the social health of a nation.

“Everything is energy and that is all there is to it. Match the frequency of the reality you want and you cannot but get that reality. It can be no other way. This is not philosophy. This is Physics.” Einstein

Read David Bryan’s full essay here.

DAILY PRICES
Today’s Gold Prices: USD 1,125.50, EUR 998.23 and GBP 730.99  per ounce
Yesterday’s Gold Prices:  USD 1128.50, EUR 999.38 and GBP 728.91 per ounce.
(LBMA AM)

Month to Date Relative Performance

Gold Outperforms All Assets In August
Yesterday, gold rose a marginal $0.20 to $1124.30 in New York.  Silver rose 27 cents or nearly 2% to $14.45 per ounce.

Gold prices moved higher in Asian trade overnight and bullion for immediate delivery rose as much as 0.8 percent to $1,132.55 an ounce prior to selling in Europe capped gains.

Gold has declined 2.5 percent this week in dollar terms, the first weekly loss in three but importantly it remains nearly 3% higher for what was the volatile month of August (see table).

Earlier in the week, gold had breached the $1,150 level on safe haven demand as stock markets around the world plummeted on concerns about both the Chinese and indeed the global economy.

Gold in USD - 5 Year

Gold in US Dollars – 5 Years

Gold then fell as sentiment improved and stock markets bounced from oversold levels.

The question is whether this is another correction and stocks will continue marching to giddy new highs in the coming months or whether this is a typical dead cat bounce prior to further losses and a new bear market.

We are of the belief that it is likely the latter and investors and owners of pensions who are overweight stocks and bonds should use rallies to reduce allocations to stocks and bonds and increase allocations to gold.

Gold remains very undervalued on a whole host of various measures (see analysis and charts in Commentary today) vis-a-vis both stocks, bonds and indeed many property markets internationally. Silver even more so.

Silver per oz of Gold in USD

In the last two weeks, gold has held its own nicely amid the stock market bloodbath. Indeed, the fact that it is higher despite market carnage bodes very well indeed for the coming months.

Gold is acting like a safe haven again -at a time when arguably financial assets and investors are facing significant risks and need a safe haven and wealth preservation most.

Frequently, gold is correlated with equities in the very short term and can fall when stock markets suffer sharp one day corrections.However, over the month and the quarter, gold has an inverse correlation with equities.

We are extremely busy and this was one of the busiest weeks of the year so far – both in terms of number of transactions and total volume in dollar sales terms. This increase in physical demand should lead to higher prices in the coming weeks.  This has been the case for bullion refiners, mints and dealers all of whom say very high demand for physical this week.

Once again, gold and silver prices appear completely divorced from the reality of physical demand.
Paper and electronic selling of futures contracts and hedge fund and bank liquidations and trading machinations continue to dominate the price, for now.

As ever, it is vitally important to focus on asset performance and investments over the long term – months, quarters and of course years.

As month end approaches, gold has outperformed the vast majority of major assets (see table above) and is nearly 3% higher in August while leading stock indices have fallen by more than 6% and some crashed by 20% this week prior to the recent bounce.

Gold’s hedging and safe haven characteristics are being shown again and we believe this important safe haven importance of gold in a diversified portfolio will again become evident in the coming months.

IMPORTANT NEWS

Gold Up in Asia Trade – The Wall Street Journal
Gold Pares Biggest Weekly Drop in Month on U.S. Growth Concern – Bloomberg
European Stocks Decline, Erasing Gains in Roller Coaster Week – Bloomberg
Oil prices extend gains after biggest daily climb in six years – Reuters
Federal Reserve Increasing Scrutiny of Bank Payment Systems – The Wall Street Journal

IMPORTANT COMMENTARY
Reflation threat to bonds as money supply catches fire in Europe – The Telegraph
Optimism for Africa despite threat from China downturn – The Telegraph
This Weird Story Suggests Gold and Miners Are Near a Bottom – Casey Research
Gold and Silver Have Never Been This Cheap – GoldSeek
Expect markets to fall 20 to 40 percent: Marc Faber – Yahoo Finance

Download Essential Guide To Storing Gold Offshore

end

Avery Goodman: Fed spent $23 billion in three days but still had trouble pushing up stocks

Section:

5:03p ET Thursday, August 27, 2015

Dear Friend of GATA and Gold:

Colorado securities lawyer Avery Goodman writes today that the U.S. stock market’s recent recovery is entirely a matter of the Federal Reserve’s injection of unprecedented amounts of money via “temporary open market operations” through primary dealers in U.S. government securities — and for a while even the unprecedented amounts failed to halt the market’s slide.

Goodman writes: “Absent money printing, there will be a very large decline in stock prices. We do not yet know the timing. If the decision is to print more money, as is likely, stocks will rise when looked at in nominal terms. However, the Fed will lose so much credibility that the value of the dollar will be greatly impacted. For that reason a significant delay in making that decision will probably occur. Stocks must fall first, and the techniques they are now using must be proven to be a definitive failure.”

People should send Goodman’s analysis to their members of Congress and ask them to report whether the Fed is operating as he describes and, if so, if the country has exchanged free markets for a covert command economy.

Goodman’s analysis is headlined “The Fed Spent $23 Billion in 3 Days But Still Had a Hard Time Pushing Up Stocks” and it’s posted at Seeking Alpha here:

http://seekingalpha.com/article/3472286-the-fed-spent-23-billion-in-3-da…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

(courtesy Chris Powell/GATA)

Is the Fed behind the stock market and commodity crashes?

Section:

5:32p ET Thursday, August 27, 2015

Dear Friend of GATA and Gold:

Suspicion is growing that the Federal Reserve is behind the crash of the stock market as well as the crash of the commodity market.

Financial writer Charles Hugh Smith, in commentary reposted at Zero Hedge yesterday, headlined his analysis “What If the Crash Is as Rigged as Everything Else?”:

http://charleshughsmith.blogspot.com/2015/08/what-if-crash-is-as-rigged-…

Today Leonard Brecken of Oilprice.com asks, “Did the Fed Intentionally Spark a Commodity Selloff?”:

http://oilprice.com/Energy/Energy-General/Did-The-Fed-Intentionally-Spar…

Of course back in 2001 the British economist Peter Warburton, in his essay “The Debasement of World Currency: It Is Inflation But Not as We Know It,” wrote that Western central banks were using their investment bank agents and derivatives to suppress commodity prices generally to prevent commodities from being used as hedges against monetary inflation:

http://www.gata.org/node/8303

And last year it was disclosed by filings at the U.S. Commodity Futures Trading Commission and Securities and Exchange Commission that CME Group, operator of the major futures exchanges in the United States, offers secret futures trading accounts and discounts to central banks and governments and considers central banks and governments to be among its major customers:

http://www.gata.org/node/14385

http://www.gata.org/node/14411

These are matters financial journalism would pursue if it existed in the West.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

(courtesy Andrew Maguire/Kingworldnews)

At KWN, Maguire cites ‘permanent’ backwardation, repatriation delays

Section:

3p ET Friday, August 28, 2015

Dear Friend of GATA and Gold:

Interviewed today by King World News, London metals trader Andrew Maguire describes increasing strains in the gold banking system, including “permanent” backwardation and delays in gold repatriations. Maguire’s interview is excerpted at the KWN blog here:

http://kingworldnews.com/andrew-maguire-warns-recent-chaos-is-a-prelude-…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

 

Dave Kranzler of IRD gives his thoughts on why Goldman sachs is picking up gold being issued by JPMorgan:

(courtesy Dave Kranzler/IRD)

Goldman’s Gold Delivery – Real Or Paper?

My good friend and colleague, “Jesse,” of Jesse’s Cafe Americain wrote an insightful and piercing commentary on the Comex report from last night showing that Goldman took delivery of 442 contracts on the other side of JP Morgan.  Supposedly it was for Goldman’s “House” account.

This would make sense in light of the fact that Goldman ALWAYS takes the other side of its research recommendations – in this case Goldman is quite bearish on gold.  The problem is, as Jesse points out, we will never know for sure if Goldman took delivery or real gold that will moved from JP Morgan’s vault to wherever Goldman safekeeps its valuables.

HOWEVER, in light of an interesting news report just hitting the tapes that King Salman of Saudi Arabia is visiting the White House next week – news of which Goldman no doubt had insight knowledge – perhaps Goldman has been loading up on real physical gold ahead of this meeting.  Why?

This is pure speculation on my part, but I suspect that Saudi Arabia is going to start trading their oil in yuan.  The Chinese are clearly dumping dollars know and they are making it clear that their preferred method of trade settlement is to us yuan.  Perhaps the good King will also let Obama know that they are losing their appetite for buying Treasuries.

The petro-dollar is being dismantled systematically by the non-US vassal world – i.e. the eastern hemisphere, for the most part.  It would make sense that entities like Goldman with access to real inside information would be loading up on gold ahead of an event like this.

end

 

 

And they take another 54,000 oz of gold today ( reported on this in yesterday’s summary of gold inventory movements:

 

(courtesy Jessie/Americaine cafe)

 

 

JPM Customers Issue and Goldman Takes Another 54,100 Ounces of Gold For the ‘House Account’The receipts for another large chunk of bullion changed ownership from a JPM Customer to the Goldman ‘house account’ at $1,122 per ounce.

With all the usual caveats, and just taking note.

This is especially interesting since Goldman has been publicly beating the drums for gold to drop well below $1000.

We ought not to presume anything about how naive the customer might be, or the sly cunning of any particular buyer. For all we know the ‘customer’ could be a large and highly competent ETF or fund, and not some naive or desperate or perhaps whimsical individual.

And as for the buyer and its motives, my friend Dave offered some speculation on this phenomenon here. While it is based on a ‘guess’ founded in possibly disparate facts, it is no more untoward than those who dismiss the whole thing, and seemingly ascribe no significance to anything whatsoever, except that the price of gold and silver must go lower.

And I am sure that all of it is God’s work, and not sly cunning in service to earthly greed, from such a kindly and selfless institution.

***

end

 

A terrific paper from Steve St Angelo on the demand for paper silver vs real silver

 

(courtesy Steve St Angelo/SRSRocco report)

 

MUST SEE CHART: Something Quite Interesting Happened In The Silver Market

Something quite interesting took place in the silver market and I believe few investors realize the significance. After looking over the data, I came across some fascinating evidence that shows just how fearful individuals are about investing in the paper precious metal markets.

While analysts and investors are familiar with the data put out by the Silver Institute and World Silver Surveys, we can see an entirely different picture when we combine the figures in a certain way. What I am trying to say here is this… by crunching the official data (even though it might be understated or manipulated) we can see very interesting trends that aren’t noticeable when looking at the individual figures.

This is one of the more important analytic tools I like to use at the SRSrocco Report. By crunching the numbers and looking at figures in a certain way, I can see certain trends that may not be apparent to most investors.

Before we look at the chart that (I believe) proves investors have become increasingly fearful of the paper markets, let’s look at the chart below. This chart shows the difference between the build of Silver ETF inventories versus Silver Coin and Bar investment demand:

Silver ETF Build vs Coin & Bar Investment

As we can see, Silver ETF inventories and Silver Coin & Bar demand both increased after the collapse of the U.S. Investment Banking System and Housing Market in 2007. Global Silver ETF’s saw their inventories increase from a build of 54.6 million oz (Moz) in 2007 to 156.9 Moz in 2009. While physical Silver Bar & Coin demand increased from 51.2 Moz in 2007 to 187.3 Moz in 2008, it fell nearly 100 Moz in 2009 to 87.5 Moz.

For whatever reason, Global Silver ETF inventories increased in 2009, even though the average annual price of silver fell to $14.67 compared to $14.99 in 2008. When the price of silver jumped to an average of $20.19 in 2010, the build of Global Silver ETF inventories fell to 129.5 Moz (compared to 156.9 Moz in 2009), while demand for Silver Bar & Coin increased to 143.3 Moz.

However, something interesting took place in 2011. This was the year the price of silver nearly touched $50. As you can see from the chart, Global Silver ETF inventories actually suffered a net 24 Moz decline in 2011, while Silver Coin & Bar demand skyrocketed to 210.6 Moz. A significant portion of this physical silver investment was due to a large increase of Indian silver bar demand in 2011.

If we look at the next several bars in the chart (2012-2014) we can see a serious change in the silver market. Even though there was a 55.1 Moz build in Global Silver ETF inventories in 2012, the next two years saw very little silver enter into this investment market. There was a paltry increase of Global Silver ETF inventories of 1.6 Moz in 2013 and 1.4 Moz in 2014.

Now, on the other hand, Silver Bar & Coin demand shot up to a record 243.6 Moz in 2013 and 196 Moz in 2014.Basically, savvy precious metal investors decided to take advantage of the lower silver price in 2013 and 2014 by stocking up on a great deal of physical silver while Main Stream investors brainwashed by Wall Street, had no motivation to park their money into Silver ETFs.

Of course, some analysts will say the flat Global Silver ETF inventories in 2013 and 2014 were due to a falling price and lack of investment demand. Well, that might be true for paper or digital silver, but not so for physical silver investment. Why? Let’s look at the chart that says it all.

The Silver Chart That Proves Investors Prefer Physical Over Paper

Silver ETF Build vs Coin & Bar (4 yr period)

What a difference in the two four-year periods… aye? From 2007 to 2010, the build of Global Silver ETF inventories and Coin & Bar demand were pretty even. As we can see, a total of 442.3 Moz went into the World’s Silver ETFs, while 469.3 Moz was consumed as Silver Bar & Coin investment during this four-year period.

But, something changed significantly in the next four-year period. From 2011 to 2014, the net increase of Global Silver ETFs was a paltry 34.1 Moz compared to a staggering 788.2 Moz of Silver Bar & Coin demand. This proves, investors rather purchase physical silver than take their chances playing in the Paper Silver ETF market.

Here is the net change between these two periods:

Global Silver ETFs: 2007-2010 vs 2011-2014 = 92% decline

Silver Bar & Coin: 2007-2010 vs 2011-2014 = 70% increase

Again, I realize analysts will say the relatively flat inventory levels of Global Silver ETFs over the past couple of years were due to falling silver prices in 2013 and 2014. Yeah, I get that. However, that still doesn’t change the fact that a certain segment of the investment public purchased record amounts of Silver Bar & Coin even though prices declined significantly in 2013 and 2014.

The chart above proves that investors rather stockpile physical silver than gamble it in the paper silver market.Now, I realize there has been speculation put forth by the precious metal community that all the silver supposedly stored by custodians of the Silver ETFs might not be there. Unfortunately, there is no way of knowing.

That being said, most precious metal investors rather have guaranteed silver in their sweaty palms than a paper (or digital) promise in the future. I totally agree.

The world’s stock markets are currently experiencing some of the most worst volatility in years. One day the Chinese Hang Seng Index was down 1,000 points, then another day, it was up 600. The Dow Jones lost 1,800 points over a four-day period, then came back nearly 1,000 points over the past two days.

The markets are totally broken. I believe a small percentage of investors realize this as they purchased 23 oz of Silver Bar & Coin for each 1 oz build in paper Global Silver ETFs during 2011-2014. I think physical silver investment demand will only get stronger over the next several years as the broader stock and bond markets continue to disintegrate under massive leverage and debt.

If you haven’t checked out THE SILVER CHART REPORT, there’s a great deal of information on the Silver Industry & Market not found in any single publication on the internet. There is one chart in this report (Chart #19) that I can guarantee that 99.9% of precious metal investors haven’t seen before.

CLICK HERE: For The Silver Chart Report

I use this bird’s-eye approach when I create my easy to understand charts. The Silver Chart Report is a collection of my top silver charts from articles published over the past six years, and includes in-depth, never-before-seen charts and content that indicate that silver is on the rise. There are 48 charts in the report, broken down in five sections.

Please check back for new articles and updates at the SRSrocco Report. You can also follow us at Twitter below:

SRSroccoReport Twitter Button

end

 

(courtesy zero hedge)

 

Gold Surges On NIRP Hint

The Fed’s ultimate dove has been unleashed and this time he means business. Faced with the inevitable rate hike, Kocherlakota has come out swinging to explain how cataclysmic inflation is and why The Fed should use its asset-purchase tools and lower interest rates further… i.e. to negative… Gold reacted instantly…

  • *KOCHERLAKOTA SAYS FED HAS ASSET-PURCHASE TOOLS
    *KOCHERLAKOTA: THERE ARE WAYS TO LOWER INTEREST RATES FURTHER

 

And sure enough gold surges…

end

TF Metals Report: August gold delivery update

 

 

Section:

10:35a ET Friday, August 28, 2015

Dear Friend of GATA and Gold:

The TF Metals Report’s Turd Ferguson today reviews deliveries reported for August gold contracts on the New York Commodities Exchange and concludes:

“The entire Comex delivery scheme is nothing but a paper shuffle of warehouse receipts. Very little real gold is ever moved. Each ‘delivery’ month is just a shell game where the banks simply pass ownership claims back and forth.”

Far from making a market, the point of the Comex in gold seems to be to prevent a market from ever developing.

The TF Metals Report’s analysis is headlined “August Gold Delivery Update” and it’s posted here:

http://www.tfmetalsreport.com/blog/7099/august-gold-delivery-update

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

 

 

Bill Holter…..

What will historians say…?

 

 

Two weeks back I asked the question whether or not the “Final War” had started, between the EAST AND WEST. I was called a number of politically incorrect names for suggesting the Tianjin explosion might have been an “attack” and took even more heat,… because I included the word “nuclear”. Since then there have been many theories as to what happened, some of them pretty far fetched. Yesterday another article was published in Veterans Today, http://www.veteranstoday.com/2015/08/25/confirmation-tianjin-was-nuked/which scientifically suggests the explosion was in fact “nuclear.” I am inquiring as to whether the science used as proof is in fact sound. In the meantime, I would like to hear from readers why or why not the science used in this article is correct or is not. Please do not send me “opinion” or tell me Veterans Today is a poor source. Please specifically attack the science!

I would like to use the Tianjin explosion as a mid point in my review of what happened before and since the tragic event. Prior to the Tianjin explosion, China announced they had accumulated 600 more tons of gold over the last 6 years. On the face of it; this number is clearly bogus as China mines 400 tons per year and none of this product leaves their border for export. I termed this 600 tons….a “polite number”. Seemingly, the number was enough to demand a place at the IMF table but not enough to be a threat to the “sacrosanct” 8,133 tons the U.S. claims. This was followed almost immediately by the IMF announcing it would review China’s inclusion in the SDR in another 9 months. Just two days later China began a series of three yuan devaluations, on day two the Tianjin explosion occurred.
Since then, China announced another 19 tons of gold accumulated. One week later the chemical explosion in Shandong destroyed one of China’s main trading cities (this chemical explosion looked nothing at all like Tianjin). Yes, I understand, different chemicals explode differently but the videos clearly look like fuel ordnance. Coincidentally, two days after the Shandong explosion… a U.S. munitions depot in Tokyo exploded. Maybe I have been sleeping or just haven’t been paying attention but when was the last time a U.S. munitions depot exploded by accident?

As we know so well; over the last two weeks, the chaos in global markets finally reached the shores of Manhattan. Market chaos, that had previously been quite widespread and headlined by China, finally gripped U.S. markets. Now we find out China has exited over $100 billion of U.S. Treasury bonds in just the last two weeks and has indicated it is dumping more through Belgium and elsewhere.

http://www.zerohedge.com/news/2015-08-27/its-official-china-confirms-it-has-begun-liquidating-treasuries-warns-washington . We knew they had been selling over past months to the tune of nearly $150 billion, but $100 billion compressed into just two weeks is mammoth! I would also add “smart” because China did this selling while fear capital was clamoring to seek “safety” in risk free U.S. Treasuries. China traders appear to have effectively used the fear bid to their advantage as an exit. Please note I wrote “two weeks” several times above. Is it just coincidence Tianjin experienced the explosion “two weeks” ago?

A total of $250 billion worth of Treasury bonds have been sold, what does this imply? The T-bond selling appears to indicate a number of things, with possible multiple ramifications. First and foremost it says “they are not buying”! Of course the next logical questions follows;….”who” will step in to fund the U.S. deficits now that China has turned from buying to selling…In China they call it a Yin Yang. Also, who will the buyers be if China keeps selling? The logical conclusion; after answering the two above questions is…. “the Federal Reserve.” The follow on question is; will the Federal reserve need to commence another round of stimulus, QE 4 and more?

No matter how you look at China’s current financial position and about face, they will clearly no longer fund U.S. budget deficits in the foreseeable future. This leaves us with the misunderstood truth “the Federal Reserve is THE Buyer of last resort.” Worse yet; the Emerging Markets have had to jump the gun and have already started to unload U.S. Treasury’s as their currency falls to reflect lower trade and China’s devaluation of the Yuan.

Apparently, the U.S. has now crossed the Rubicon of sorts and will be forced to “print” deficit spending as a last resort. It is called MONETIZATION and has ALWAYS led to hyperinflation with existing “paper currency” becoming diluted and ever more worthless. The current situation is far more troubling and far reaching than any before it, because the entire world will be fearing a dilution of their “reserve base.” Dollar instruments (U.S. Treasury issues, etc.) are held by nearly ALL central banks and act as a foundation for all other fiat currencies, “infecting balance sheets all over the world.” For what ever reason; I would call a run from the Dollar “a plague,” but in fact, the situation is more like an infestation, the effects of a diluted dollar could well be… far more than any plague in history.

I would like to ask you a few questions. Is there any way you can look at the chronological events over the last month and not conclude they are connected? Is it not clear China/Russia and the U.S. are in a trade, currency, military confrontation, one that might lead to a shooting war? Even the mainstream media reports on U.S. spying and SinoRuso hacking. The West, led by the U.S. have evolved entirely into a “credit based” society …funded in large part by China. Can you look at China’s sales of Treasury securities and say they are not pulling the credit plug? Can you in any way, from a U.S. standpoint, say this is beneficial, or helpful to the U.S.? Or, might it be overt financial war?

China is building military bases throughout the Pacific on man made islands and telling the U.S. to mind their own business, in spite of Pres. Obama’s pivot to the Pacific. The U.S. and NATO are amassing troops and hardware on Ukraine’s border. On the other side Russia is doing likewise. Now we are seeing aerial attacks in Syria, etc. John Kerry has even said; ” If the U.S. does not ratify the deal with Iran, the dollar will lose it’s reserve currency status.” He said this because five nations in Europe have already agreed and sent delegations to Iran to open trade channels. Would this not isolate the U.S. further in energy, trade and finance? As for the series of explosions, could they be coincidence? Yes. Do you believe they are? Or,.. maybe “too coincidental?”

Are there too many coincidental technological, financial and geopolitical dots lined up to come to any conclusion other than we are already in the early stages of war? I believe this is in fact the case. I still believe the Chinese would prefer to “win” via financial means, rather than physical means, but this remains to be seen. Would a ” 9/11 truth bomb,” which is now rumored more often out of Russia, be another way to neuter American hegemony without military use?

As a final thought, I believe global markets are beginning to discount or recognize the war behind the scenes. This is the reason for the chaos in equity and credit markets. Can you imagine what it looks like behind the derivatives curtain? Guaranteed;…. there are dead bodies strewn all over,… with no ability to perform or settle. When history looks back upon August 2015, I believe the consensus view will agree THE WAR had already started!

Standing watch,
Bill Holter
Holter -Sinclair collaboration
Comments welcome!
bholter@hotmail.com

 

end

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

1 Chinese yuan vs USA dollar/yuan rises considerably this  time to   6.3888/Shanghai bourse: green and Hang Sang: red

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei up 561.88   or 3.03.%

3. Europe stocks all deeply in the red   /USA dollar index up to  95.84/Euro up to 1.1278

3b Japan 10 year bond yield: rises to .390% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.20

3c Nikkei now above 19,000

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

3e WTI:  42.37 and Brent:  47.19

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 rises  to .736 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls slightly to 12.13%/Greek stocks this morning up by .01%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 9.11%

3k Gold at $1126.80 /silver $14.43  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 1  1/3 in  roubles/dollar) 67.21,

3m oil into the 42 dollar handle for WTI and 47 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 .9584 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0811 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

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

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.736%

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 2.15% early this morning. Thirty year rate below 3% at 2.88% / yield curve flatten/foreshadowing recession.

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

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

China Surge Continues, Futures Slide As Jittery Market Looks For Jackson Hole Valium

Overnight’s star attraction was as usual China’s stock market, where trading was generally less dramatic than Thursday’s furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%, facilitated by China repeating it will singlehandedly invest two trillion in pensions funds in stocks, but not to worry: there is no risk of loss. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.

Here is a quick summary of the last week seen through the perspective of Chinese stocks.

  • Aug 20: -3.4%
  • Aug 21: -4.3%
  • Aug 24: -8.5%
  • Aug 25: -7.6%
  • Aug 26: -1.3%
  • Aug 27: 5.3%
  • Aug 28: 4.8%

And if BofA Chief equity strategist David Cui, is right, it’s not over: overnight the China expert said A shares will “gap down” in coming quarters as valuations not cheap enough for general investors to buy, adding that the Shanghai Composite has to be below 2,000 for people to find some attractive valuations. In other words, the bubble has to fully burst before fundamentals kick in again.

So strap on, traders: it will continue to be a bumpy ride.

Speaking of bumpy rides, keep an eye on the USDJPY which after roaring above 121 during yesterday’s furious last hour ramp to undo the gamma exposure highlighted by us and which sent the market in a tailspin between 2 and 3pm, is back under and has dragged the E-mini lower by some 15 points this morning. Keep an eye for the daily BOJ interventions, as the USDJPY ramps higher for no reason dragging the S&P alongside with it.

Perhaps all the jittery market needs is some soothing words from today’s Jackson Hole symposium, although with Yellen absent, and the headliner Stan Fischer speaking tomorrow, it is most likely we will get nothing but more confusion from a Fed that now clearly has no idea what it is doing.

A quick look around the globe: Asian equities traded in the green following the positive close on Wall Street. Nikkei 225 (+3.0%) outperformed to trade back above 19,000 amid reports the GPIF is close to reaching its equity target allocation as it now holds an allocation of 23% vs. 25% target. Shanghai Composite (4.8%) extended on yesterday’s gains amid recent speculation of government intervention, while the Hang Seng (-1.0%) fell into the red shortly before the close.10yr JGBs (+3 ticks) traded mildly higher despite the gains seen in equities with the BoJ in the market for JPY 400bIn of 5yr-10yr government bonds.

European equities initially opened in the green, however have drifted lower throughout the session (Euro Stoxx: -0.7%) as some of the moves from earlier in the week are reversed, with losses contained as a result of outperformance in the energy sector , bolstered by the aforementioned strength in WTI and Brent seen yesterday. Bunds trade in modest positive territory in line with weak equities, while T-Notes also reside in modest positive territory ahead of the key risk events of the day in the form of US personal income, PCE deflator and final reading of University of Michigan Sentiment as well as comments from SNB’s Jordan and Fed’s Kocherlakota.

EUR has been the notable outperformer so far today, strengthening against both GBP and the USD to pare back of some its recent losses. The strength in EUR comes despite German regional CPIs coming in generally below previous, with some desks attributing this strength to the usual month end buying in EUR/GBP. Other notable data saw UK GDP print in line with Exp. however components such as exports printed higher than expected and as such granted GBP some reprieve amid softness seen through the rest of the session, with GBP/USD trading around its 200DMA at 1.5375. While USD has trended lower today after seeing strength in recent days, weighed on by EUR strength to see the USD-index lower by 0.2%. Of note, heading into the North America crossover EUR/GBP and GBP/USD saw a paring of their initial moves as EUR/GBP found resistance at its 200DMA at 0.7358 and GBP/USD bounced off its 200DMA to the downside at 1.5369.

Elsewhere, commodity currencies have come off their best levels and seen some weakness throughout the European session in line with commodities, which trade in the red today to pare some of the overnight gains which saw WTI extend on its gains to briefly trade back above the USD 43/bbl level and post its largest intra-day gain in over 6 years.

The energy complex heads into the North American crossover relatively flat after trading in choppy fashion throughout the European morning after coming off their highs , with some participants booking profits after WTI extended on its gains overnight to briefly trade back above the USD 43/bbl level to post its largest intra-day gain in over 6 years. The metals complex has also seen fairly choppy price action, with gold modestly in the green however prices are still on course for its worst week in over 1-month as the recovery in USD weighed on prices during the week.

Today we get data on the July PCE deflator and along with real personal spending and the University of Michigan consumer sentiment print. With the Jackson Hole symposium underway, Bloomberg TV is scheduled to hold sideline talks with Bullard, Kocherlakota, Mester and Lockhart before the main event tomorrow when Fischer will address the audience. So plenty of Fedspeak to end a fascinating week and momentum ignition triggers.

 

Bulletin headline summary from Bloomberg and RanSquawk

  • EUR has been the notable outperformer so far today, strengthening against both GBP and the USD to pare back of some its recent losses
  • WTI heads into the NYMEX pit open relatively flat as participants book profits after yesterday saw the largest intra-day gains since 2009
  • Today’s highlights include US personal income, PCE deflator and final reading of University of Michigan Sentiment as well as comments from SNB’s Jordan and Fed’s Kocherlakota
  • Treasuries gain, paring weekly losses in week that has seen 10Y yields trade in 30bps range amid volatile equities and commodities, China growth concern.
  • The rebound in China’s stocks will be short-lived because state intervention is too costly to continue and valuations aren’t justified given the slowing economy, says BofAML
  • Profits at China’s industrial companies fell 2.9% y/y in July
  • BoJ’s key inflation gauge slumped to zero for the third time this year, as tumbling energy prices counter Governor Haruhiko Kuroda’s effort to reflate the world’s third- biggest economy
  • Alexis Tsipras’s lead over Greek opposition parties narrowed ahead of an early election next month, a poll showed Friday, as a vote-weary public has soured over unkept promises to end an age of austerity
  • Democrat Tom Carper became the 30th U.S. senator to support the nuclear agreement with Iran, the Delaware News Journal reported, leaving Obama just four votes short of preventing Congress from blocking the deal.
  • Macedonia appealed for more financial aid from the EU to help it deal with the effect of the migrant crisis as what it has received so far has been “peanuts,” Foreign Affairs Minister Nikola Poposki said
  • No IG or HY deals priced this week. BofAML Corporate Master Index tightens to +170 from +172, widest since Sept 2012; YTD low 129.High Yield Master II OAS tightens 11bps to +591; reached +614 Tuesday, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian stocks gain, European stocks and U.S. equity-index futures mostly lower. Crude oil and gold little changed, copper falls

 

Kansas City Fed Symposium continues in Jackson Hole, Wyoming

  • 7:30am: Fed’s Bullard on Bloomberg TV
  • 9:15am: Fed’s Kocherlakota, Mester on Bloomberg TV
  • 12:25pm: Swiss National Bank’s Jordan speaks in Jackson Hole
  • 2:15pm: Fed’s Lockhart on Bloomberg TV
  • 4:15pm: Reserve Bank of India’s Rajan on Bloomberg TV
  • 10:25pm: Bank of England’s Carney speaks in Jackson Hole

DB’s Jim Reid completes the overnight recap

Markets have continued to rally in Asia this morning. In China the Shanghai Comp is +1.93% as we head into the midday break, seemingly also buoyed by the news late in the Asia session yesterday of some state intervention in the equity market. Without meaning to tempt fate, if the index manages to stay in positive territory for the entire duration of the session (which it so far has done this morning), it’ll be the first time the index has managed to do so since August 10th. Elsewhere the Shenzhen (+1.87%) and CSI 300 (+1.52%) are also both up, while it’s been a decent morning also for the Nikkei (+2.69%), Hang Seng (+0.50%), Kospi (+1.29%) and ASX (+0.28%). EM FX markets are generally off to better starts this morning, while WTI has risen another 1% in early trading following the huge moves yesterday, which we’ll touch on shortly.

In terms of data this morning the focus has been on Japan where inflation concerns continue to linger. Headline CPI of +0.2% yoy was in line with market expectations and down from +0.4% last month, while the core (ex food) fell to 0.1ppt to 0.0% yoy (vs. -0.2% expected), although beating expectations of a drop to -0.2%. The Yen is largely unmoved on the back of the print, after briefly weakening.

Yesterday the big mover was Oil, with WTI up +10.26% to $42.56/bbl, the largest daily percentage move since March 12th 2009 and the $4 price move the largest in three years. There were similar gains for Brent too (+10.25%) to finish at $47.56/bbl, the biggest percentage move since December 2008. The bulk of the justification for the move is being attributed to a huge bout of short covering following some decent GDP numbers from the US yesterday which in turn helped contribute to an overall better tone in markets. Saying that, it appears that the Oil complex was given a subsequent lift too from headlines out of Royal Dutch Shell that they have issued a force majeure on Bonny Light exports out of Nigeria after shutting down two pipelines and in turn cutting supply from Africa’s largest oil producer.

An oil-led second wind helped the S&P 500 close up 2.46%. That came after (in what seems to have been a similar trend for most of this week) the index did its best to wipe out the bulk of the intraday move higher, at one stage declining 2% from its peak following the early bounce from the GDP numbers. Unsurprisingly, the gains were led by energy (+4.9%) and materials (+3.6%) names to help the index log its biggest two-day gain since 2009. There were similar moves higher for the DOW (+2.27%) and NASDAQ (+2.45%) also, with the latter moving back into positive territory YTD once again while the VIX (-13.9%) closed down for a third consecutive session and is now back to more or less where it closed last Friday.

It was the US dataflow which got most of the early attention yesterday afternoon. The big upward revision for Q2 GDP to 3.7% saar qoq (from 2.3% and ahead of expectations of 3.2%) has helped muddle Fed liftoff timing expectations a bit. Revisions were fairly broad-based and included decent upgrades for structures and equipment spending in particular. Notable was the upward revision to government spending (+2.6% from +0.8%) which resulted in the largest quarterly increase for the sector since Q2 2010. Meanwhile, Q2 personal consumption was revised up a tad to 3.1% (from 2.9%) and Core PCE was kept unchanged at 1.8%. It was a mixed bag of data elsewhere. Initial jobless claims declined 6k last week to 271k (vs. 274k expected) and slightly below the four-week average of 272.5k. Elsewhere, there some disappointment in the August Kansas City Fed manufacturing activity index reading which declined 2pts to -9 (vs. -4 expected), while pending home sales for July came in a tad below consensus (+0.5% mom vs. +1.0% expected).

That GDP data helped support a decent day for the Dollar with the Dollar index closing up +0.54%. It was a much more choppy session for Treasuries however with the 10y (+0.9bps) fairly unmoved at the close at 2.185% although that’s after having traded in a 7bps range over the day. All told, September Fed liftoff expectations were raised to 30% from 24% on Tuesday, although still behind the 34% we finished last Friday.

It was a decent day also for European equities yesterday, receiving an initial boost after a late surge in Chinese equity markets. The Stoxx 600 closed up 3.46% and has now rebounded over 9% off the intraday lows we saw on Monday. There were gains also for the DAX (+3.18%), CAC (+3.49%), IBEX (+3.06%) and FTSE MIB (+3.39%) while credit markets saw a decent bounce with Crossover in particular rallying 21bps.

Staying in Europe, Ukraine generated plenty of headlines yesterday after we heard that the nation had secured a restructuring deal with its Creditors, following five months of negotiations. The agreement has seen the Creditors accept a 20% haircut to the face value of around $18bn of Ukraine’s bonds and a freeze on debt repayments for four years. Speaking following the deal, IMF Chief Lagarde said that the deal would ‘help restore debt sustainability’ and ‘substantially meet the objectives set under the IMF-supported program’.

Turning to the day ahead now, it’s set to be a pretty busy day ahead for data. We kick off this morning in France with PPI data, before we get Q2 GDP out of the UK. This will be followed by various confidence indicators for the Euro area before we get the preliminary August CPI reading out of Germany. Turning to the US session this afternoon, the July PCE deflator and core readings are set to be closely watched, along with real personal spending and the University of Michigan consumer sentiment print. With the Jackson Hole symposium underway (that word again), Bloomberg TV is scheduled to hold sideline talks with Bullard, Kocherlakota, Mester and Lockhart before the main event tomorrow when Fischer will address the audience. So plenty of Fedspeak to end a fascinating week.

 

end
Last night:  9:30 pm/Chinese stock market opens:

Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-Power

Update: China readies new bailout mechanism – pooling CNY2 Trillion of Pension funds for “investment”

Straight from Japan’s playbook…

  • *CHINA TO START PENSION FUNDS INVESTMENT AFTER FUNDS POOLED: MOF
  • *CHINA DRAFTING RULES ON POOLING, TRANSFERRING PENSION FUNDS: YU
  • *ABOUT 2T YUAN FROM CHINA PENSION FUNDS CAN BE INVESTED: YU
  • *CHINA CAN ENSURE STABLE LONG TERM RETURN ON PENSION FUNDS: YU
  • *CHINA TO CAP RISK EXPOSURE IN PENSION FUNDS INVESTMENT: YU
  • *CHINA FINANCE MINISTRY OFFICIAL YU WEIPING COMMENTS AT BRIEFING

How can we be so positive that this is another bailout – simple!

  • *CHINA PENSION FUNDS’ ROLE IS NOT TO RESCUE STOCK MARKET: YU

They denied it was! Of course even more worrying – is this a Greece-esque pooling of pension funds in a desperate grab for cash across the nation?

We are sure that will work out great!!

*  *  *

As we detailed earlier…

A busy night in AsiaPac before China even opens.Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody’s downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits – China’s bailout fund needs more money (applies for more loans from banks) – in other words –The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms – lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger – most since March, but even with last night’s epic intervention,SHCOMP looks set for its worst week since Lehman.

 

Vietnam is in trouble…

  • *VIETNAM FAILS TO SELL ANY OF 3T DONG BONDS OFFERED AUG. 27

The first of many failed auctions for EM we suspect.

  • But Some good news:
  • *VIETNAM TO RELEASE 18,500 PRISONERS ON 70TH NATIONAL DAY

*  *  *

Japanese data was mixed,..

  • *JAPAN JULY OVERALL CONSUMER PRICES RISE 0.2% Y/Y (in line)
  • *JAPAN JULY RETAIL SALES RISE 1.6% Y/Y(better than expedted)
  • *JAPAN JULY HOUSEHOLD SPENDING FELL 0.2% Y/Y (much worse than expedted rise)

So Goldilocks – enough to keep BoJ in the game (as Reuters reports)

Japan’s core consumer inflation was flat in the year to July and household spending unexpectedly fell, casting deeper doubt on the central bank’s forecast that a solid economic recovery will help accelerate inflation to its 2 percent target.

 

While the Bank of Japan has said it will look through the effect of slumping oil costs on inflation, the weak figures will keep it under pressure to expand its massive stimulus programme.

 

Separate data showed household spending fell 0.2 percent in the year to July, confounding a median market forecast for a 1.3 percent rise and reinforcing concerns about the strength of Japan’s recovery.

And then there’s China…

Before we get started, we thought the following comparison of two stock indices today was in order… one is from a totally manipulated market that proclaims itself ‘open’ and ‘free’ with nothing to fear because “the underlying economy is doing great”… and the other is China…

Notice how the ramp was almost identical in style also – an initial burst, modst pull back, then big push, then rest, then final surge into close

But then again we already explained how past is prologue in this Nasdaq vs SHCOMP world.

And remember – it’s not China’s fault…

  • *CHINA STOCK ROUT NOT THE REASON FOR GLOBAL MKT PLUNGE:SEC. NEWS

And then Moody’s did the unpossible…

  • *MOODY’S CUTS CHINA ’16 GDP GROWTH FORECAST TO 6.3% FROM 6.5%

But the biggest news is…

  • *CHINA’S RESCUE FUND APPLIES FOR MORE LOANS FROM BANKS: CAIXIN
  • China Securities Finance may have applied for 1.4 trillion yuan ($219 billion) of borrowing in the interbank market, Caixin reported, citing unidentified bank officials. The government should adopt a proactive fiscal policy and further ease monetary policy, the Economic Daily wrote in a front-page commentary.

Which means the bailout fund needs a bailout after blowing its load last night.

Deleveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS FOR EIGHTH STRAIGHT DAY
  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS

Though we note that the short-selling balance rose to one-week highs.

Even with last night’s epic intervention, Chinese stocks look set for the worst week since Lehman…

 

Although they are up at the open…extending gains from the US session…

  • *FTSE CHINA A50 SEPT. FUTURES RISE 1.7%

But are fading off early highs.

And in what appears another reform aimed at improving the economy, China lifts some restrictions…

China’s central tax authority has published a list of tax breaks for which qualifying businesses and other enterprises will no longer be required to seek prior approval to enjoy.

And…

The mainland has relaxed foreign investment restrictions in its once-sizzling real estate market as worries mount on capital flight in the wake of a weakening yuan and slowing economic growth.

 

Six governing ministries, including the central bank and the commerce ministry, issued a statement scrapping previous rules that required foreign property investors to pay the full amount of registered capital for their mainland entities to mainland authorities before borrowing any loans or applying for foreign exchange transactions.

 

“The move seems to be aimed at discouraging capital outflow after the devaluation of the yuan,” said Alan Chiang, head of residential in the Greater China region for global property consultancy DTZ.

Which we are sure will not be taken advantage of.

Finally The Yuan – which remember is not being devalued – was fixed 0.15% stronger…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3986 AGAINST U.S. DOLLAR
  • *CHINA RAISES YUAN FIXING MOST SINCE MARCH

 

Problems continue to mount for the Chinese economy…

  • *CHINA JULY INDUSTRIAL COMPANIES’ PROFIT FALLS 2.9% Y/Y

After a 0.3% drop in June, it’s getting worse.

*  *  *

Charts: Bloomberg

end

 

Last night we saw the strengthening of the yuan which means that the Chinese sold a boatload of USA treasuries.  Here in simple language, zero hedge puts the selling in numbers for us to see

(courtesy zero hedge

What China’s Treasury Liquidation Means: $1 Trillion QE In Reverse

Earlier today, Bloomberg – citing the ubiquitous “people familiar with the matter” – confirmed what we’ve been pounding the table on for months; namely that China is liquidating its UST holdings.

As we outlined in July, from the first of the year through June, China looked to have sold somewhere around $107 billion worth of US paper. While that might have seemed like a breakneck pace back then, it was nothing compared to what would transpire in the last two weeks of August. Following the devaluation of the yuan, the PBoC found itself in the awkward position of having to intervene openly in the FX market, despite the fact that the new currency regime was supposed to represent a shift towards a more market-determined exchange rate.That intervention has come at a steep cost – around $106 billion according to Soc Gen. In other words, stabilizing the yuan in the wake of the devaluation has resulted in the sale of more than $100 billion in USTs from China’s FX reserves. 

That dramatic drawdown has an equal and opposite effect on liquidity. That is, it serves to tighten money markets, thus working at cross purposes with policy rate cuts. The result: each FX intervention (i.e. each round of UST liquidation) must be offset with either an RRR cut, or with emergency liquidity injections via hundreds of billions in reverse repos and short- and medium-term lending ops.

It appears that all of the above is now better understood than it was a month ago, but what’s still not well understand is the impact this will have on the US economy and, by extension, on US monetary policy, and furthermore, there seems to be some confusion as to just how dramatic the Treasury liquidation might end up being.

Recall that China’s move to devalue the yuan and this week’s subsequent benchmark lending rate cut have served to blow up one of the world’s most popular carry trades. As one currency trader told Bloomberg on Tuesday, “it’s a terrible time to be long carry,increased volatility — which I think we’ll stay with — will continue to be terrible for carry. The period is over for carry trades.

Here’s a look at how a rules-based carry strategy designed to capture yield differences would have fared in the universe of G10 CCYs (note the blow ups around the SNB’s franc shocker and the yuan deval):

In short, the music stopped on August 11 and to the extent that anyone was still dancing going into this week, the PBoC’s decision to cut the lending rate along with RRR buried the trade once and for all.

Estimating the size of that trade should be a good indicator for just how expensive it will be – i.e. how much in Treasurys China will have to liquidate – to keep the yuan stable. The question, as BofAML puts it, is this: “can China afford the unwinding of carry trades?”

The first step is estimating the total size of the trade.Although estimates vary, BofAML puts the figure at between $1 trillion and $1.1 trillion. Here’s more:

As analyzed above, the size of RMB carry could be quite high and thus exert downward pressure on RMB. But the PBoC should have scope to defend its currency if necessary. The PBoC’s toolbox includes its $3.65tn FX reserves (at end-July), as well as measurements to tighten FX controls on individuals, corporate and banks, if necessary, including imposing stricter requirements on NOP, among others. 

 

That said, we doubt if the PBoC will persistently intervene as rapid decline of FX reserves undermines market confidence anyway and imposes challenges to the PBoC. Alternatively, the PBoC could impose stricter FX controls but that would be considered as a backward move of capital account opening up.Nevertheless, we believe the PBoC intervention will still have spillover effects on the market. 

In other words, if this entire $1 trillion trade gets unwound, China will need to offset the pressure by either i) draining its reserves, or ii) taking a big step backwards on capital account liberalization. The latter option would be bad news for Beijing’s efforts to liberalize markets and land the yuan in the SDR basket.

Of course, as noted yesterday and as tipped by SocGen earlier this week, the liquidation of $1 trillion in FX reserves would put enormous pressure on domestic liquidity, tightening money markets meaningfully, and forcing the PBoC to cut RRR 10 times (assuming 50 bps intervals). As BofA notes, China can’t “afford another liquidity squeeze like June 2013 given very poor sentiment nowadays and China’s economic downturn.”

Putting the pieces together here – and here is the critically important takeaway – we know that the size of the RMB carry trade could be as high as $1.1 trillion. If that entire trade is unwound, it would require China to liquidate a commensurate amount of its reserves in order to keep control of the yuan – or else resort to FX controls. Here’s the point: if China were to liquidate $1 trillion in reserves (i.e. USTs), it would effectively offset 60% of QE3.

Furthermore, based on Citi’s review of the academic literature which shows that for every $500 billion in EM reserves liquidated, the yield on the US 10Y rises 108bps, if the PBoC were to use its reserves to offset a hypothetical unwind of the entire RMB carry trade, it would put around 200 bps of upward pressure on 10Y yields.

So in effect, China’s UST dumping is QE in reverse – and on a massive scale. Facing this kind of pressure the FOMC will at the very least need to exercise an exorbitant amount of caution before tightening policy and at the most, embark on another round of asset purchases lest China’s devaluation and attendant FX interventions should be allowed to decimate whatever part of the US “recovery” is actually real.

end
Bank of America agrees with David Stockman that the Chinese markets have 35% more to be shed.  (Stockman believes the number is even greater)

Chinese Stocks To Plunge Another 35%, BofA Says

On Monday and Tuesday, China’s plunge protection team attempted to step out of the market. The result: a 15% decline on the SHCOMP, the shockwaves from which reverberated in equity markets across the globe.

After Wednesday’s ad hoc policy rate cuts failed to shore up sentiment, the PBoC was forced to come face to face with the harsh reality that massive capital markets intervention is very difficult to unwind once implemented and indeed, China isn’t alone in grappling with the rather undesirable consequences of pulling back central bank support for markets.

Rather than watch as the SHCOMP crashed through key level after key level, China looks to have stepped back into the market on Thursday and again on Friday in a desperate attempt to restore order ahead of a military parade next month which Beijing apparently sees as an opportunity for Xi Jinping to project the country’s growing power to the rest of the world.

Here is a quick summary of the last week seen through the perspective of Chinese stocks.

  • Aug 20: -3.4%
  • Aug 21: -4.3%
  • Aug 24: -8.5%
  • Aug 25: -7.6%
  • Aug 26: -1.3%
  • Aug 27: 5.3%
  • Aug 28: 4.8%

But as is the case with the PBoC’s open FX interventions, some doubt how long China will be willing to spend money to prop up stocks and at least one analyst thinks that Chinese equities are in for further dramatic declines in the absence of the CSF bid. Here’s more from Bloomberg:

The rebound in China’s stocks will be short-lived because state intervention is too costly to continue and valuations aren’t justified given the slowing economy, says Bank of America Corp.

 

“As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again,” said David Cui, China equity strategist at Bank of America in Singapore.The Shanghai Composite Index needs to fall another 35 percent before shares become attractive, he said.

 

The Shanghai gauge rallied for a second day on Friday amid speculation authorities were supporting equities before a World War II victory parade next week that will showcase China’s military might. The government resumed intervention in stocks on Thursday to halt the biggest selloff since 1996, according to people familiar with the matter.

 

China Securities Finance Corp., the state agency tasked with supporting share prices, will probably end direct market purchases within the next month or two, Cui said.

Be that as it may, it doesn’t look like CSF intends to go down without a fight – it’s either that, or the plunge protection team is looking to go out in a blaze of market-manipulating glory, because overnight, Caixin reported that the vehicle looks to have applied for around CNY1.4 trillion in new loans from banks. On the bright side, we suppose that means China will be able to report blockbuster credit growth in August or else in September, just as they did in July, thanks to the fact that loans to the plunge protection team are counted as though they represented real, organic demand for credit.

If CSF does indeed exit the market after one final trillion-yuan buying spree, it looks like next in line to prop up Chinese equities will be China’s pension fund assets, as much as 30% of are set to be funneled into stocks. Here’sThe People’s Daily will the Party line:

Some 2 trillion yuan pension fund could be invested in domestic stock market, an official estimates in a press conference in Bejing Friday.

Pension fund is allowed to be invested in new products, including domestic stock markets,but restricts the maximum proportion of investments in stocks and equities to 30 percent of total net assets.

 

Deputy Finance Minister Yu Weiping said that China will start investing of the pension fund after collection. Currently China is drafting regulations on pension collection and transfer.

 

China is capable to ensure long-term stable returns and will control the risk associated with the pension fund investment, says You Jun, Deputy Minister of Human Resources and Social Security.

 

You Jun estimates some 2 trillion yuan pension fund could be invested in domestic stock market. The role of the investment is not to support the stock market, or to rescure [sic] it.

Yes, the point is not “to support the market” and definitely not to “rescure it”, it’s just China taking a hard look at its pension fund investments and making smart decisions about how to allocate capital – or something.

But whatever the case – and the fact that stock market interventions are correlated with public spectacles like military parades is proof positive of this – Beijing is clearly aware that allowing the market to collapse completely would deal a death blow to the public’s already shaken belief in the omnipotence of the Politburo and that is a completely unacceptable outcome. At the end of the day, the masses must be appeased and, more importantly, they must be pacified and if spending a few trillion yuan is what it takes to acheive that, then so be it, and after the two-day rally everything is fine… for now at least…

end
The following is an extremely important commentary for you tonight.
Zero hedge and Deutsche bank’s George Saravelos explain perfectly the problems the world will face with a huge selling of USA treasuries from Chinese shelves.  I have pointed out to you on several occasions that the total USA short position is around 9 trillion USA and 1/3 of that is responsible for the yuan carry trade.  In simple language investors for many years have borrowed dollars and bought yuan denominated assets with the borrowed dollars.  It was a good idea then because the yuan was undervalued and the Chinese market was screaming higher. Now this is being undone and the consequences will be huge!!
a must read…
(zero hedge/George Saravelos/Deutsche bank)

The Reason China’s Crash Will Unleash A Global Bond Shockwave

One narrative we’ve pushed quite hard this week is the idea that China’s persistent FX interventions in support of the yuan are costing the PBoC dearly in terms of reserves. Of course this week’s posts hardly represent the first time we’ve touched on the issue of FX reserve liquidation and its implications for global finance. Here, for those curious, are links to previous discussions:

And so on and so forth.

In short, stabilizing the currency in the wake of the August 11 devaluation has precipitated the liquidation of more than $100 billion in USTs in the space of just two weeks, doubling the total sold during the first half of the year. 

In the end, the estimated size of the RMB carry trade could mean that before it’s all over, China will liquidate as much as $1 trillion in US paper, which, as we noted on Thursday evening, would effectively negate 60% of QE3 and put somewhere in the neighborhood of 200bps worth of upward pressure on 10Y yields. 

And don’t forget, this is just China. Should EMs continue to face pressure on their currencies (and there’s every reason to believe that they will), you could see substantial drawdowns there too. Meanwhile, all of this mirrors the petrodollar unwind. That is, it all comes back to the notion of recycling USDs into USD assets by the trillions and for decades. Now, between crude’s slump, the commodities bust, and China’s deval, it’s all coming apart at the seams.

Needless to say, this “reverse QE” as we call it (or “quantitative tightening” as Deutsche Bank calls it) has serious implications for Fed policy, for the timing of the elusive “liftoff”, and for the US economy more generally. Of course we began detailing the implications of China’s Treasury liquidation months ago and now, it’s become quite apparent that analyzing the consequences of China’s massive FX interventions is perhaps the most important consideration when attempting to determine the future course of global monetary policy.

On that note, we present the following from Deutsche Bank’s George Saravelos.

*  *  *

Beware China’s Quantitative Tightening  (Q.T.)

Why have global markets reacted so violently to Chinese developments over the last two weeks? There is a strong case to be made that it is neither the sell-off in Chinese stocks nor weakness in the currency that matters the most. Instead, it is what is happening to China’s FX reserves and what this means for global liquidity. Starting in 2003, China engaged in an unprecedented reserve-accumulation exercise buying almost 4 trillion of foreign assets, or more than all of the Fed’s QE program’s combined (chart 1). The global impact was indeed equivalent to QE: the PBoC printed domestic money and used the liquidity to buy foreign bonds. Treasury yields stayed low, curves were flat, and people called it the “bond conundrum”.

Fast forward to today and the market is re-assessing the outlook for China’s “QE”. The sudden shift in currency policy has prompted a big shift in RMB expectations towards further weakness and correspondingly a huge rise in China capital outflows, estimated by some to be as much as 200bn USD this month alone. In response, the PBoC has been defending the renminbi, selling FX reserves and reducing its ownership of global fixed income assets. The PBoC’s actions are equivalent to an unwind of QE, or in other words Quantitative Tightening (QT).

What are the implications? For global risk assets, they are clearly negative –global liquidity is falling. For fixed income, the impact on nominal yields is ambivalent because private safe-haven demand for bonds may offset central bank selling. But real yields should move higher, inflation expectations lower, and there should be steepening pressure on curves. This is indeed how markets have responded over the last two weeks: as if the Fed has announced it is unwinding its balance sheet!

The potential for more China outflows is huge: set against 3.6trillion of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go.

What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving. China’s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates. The alternative would be for China’s capital outflows to stop or at least slow down. Perhaps a combination of aggressive PBoC easing and more confidence in the domestic economy would be sufficient, absent a sharp devaluation of the currency to a new stable. Either way, it is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT.

*  *  *


end
As promised to you, Putin will not partake in the 20% haircut. Not to be undone, he will still get his 100% value for his loan.  Here is why!!
(courtesy zero hedge)

Putin To Get $3 Billion From US Taxpayers After Ukraine Bond Debacle

On Thursday, Ukraine struck a restructuring agreement on some $18 billion in Eurobonds with a group of creditors headed by Franklin Templeton. The deal calls for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon. All told, Kiev should save around, let’s just call it $4 billion once everything is said and done (there are some miscellaneous loans and bonds that still have to be worked out).

That’s the good news.

The bad news is that Ukraine also owes $3 billion to Vladimir Putin.

Now obviously, owing Vladimir Putin $3 billion is not a situation one ever wants to find themselves in, but this particular case is exacerbated by the fact that Putin did not loan the money to Ukraine as we know it now, he loaned the money to a Ukraine that was governed by Russian-backed Viktor Yanukovych. Of course Yanukovych was run out of the country last year following a wave of John McCain-attended protests.

Well, one thing led to another and here we are 18 months later with a festering civil war and a sovereign default and on Thursday, Ukrainian finance minister Natalie Jaresko offered the same restructuring terms to Russia that it offered to Franklin Templeton and T. Rowe. In effect, Jaresko was attempting to tell Vladimir Putin that Ukraine would allow him to take a 20% upfront loss on the $3 billion he loaned to Yanukovych who was overthrown by the current Ukrainian government with whom Moscow is effectively at war. As you might imagine, Putin was not at all interested.

So what happens now?

Well, it’s very simple actually. Someone owes Vladimir Putin $3 billion which he intends to collect in full and he could care less if Franklin Templeton and T. Rowe Price are willing to take a 20% hit.

Who’s going to pay him, you ask? Probably the US taxpayer. Here’s BofAML:

The $3bn Russian bond is included in debt restructuring, but Russia will not participate in debt restructuring and will either be paid $3bn from reserves in December or there will be a political decision to agree on an extension, likely without haircuts. We believe the $3bn bond is likely to be classified as sovereign debt and the IMF would likely be forced to pay it (as a holdout) in order to continue the program in December.

Got that? The IMF (so, the US with the tacit support of the taxpayer) is going to pay Vladimir Putin his $3 billion which he loaned to Viktor Yanukovych who the US effectively helped to overthrow.

And if that isn’t hilarious enough for you, consider that the rationale behind paying Putin 100 cents on the dollar is that the IMF needs to be able to justify the continual flow of IMF bailout funds to Kiev, some of which must be used to pay Gazprom which immediately remits the funds to Putin’s personal money vault.

So in a nutshell, the US is going to pay Putin in order to ensure that it can continue to pay Putin.

*  *  *

Bonus: Ukraine restructuring decision tree


end
As we have been pointing out to you these past few weeks:  the situation on the ground in Brazil is getting worse:
 (courtesy zero hedge)

“No Recovery For You!” Brazil Officially Enters Recession, Goldman Calls Numbers “Disquieting”

Well, you know what they say: when it rains it pours, especially when you’re the poster child for an epic emerging market unwind and you’re suffering through the worst stagflation in over a decade while trying to clean up the feces ahead of the summer Olympics.. or something.

Make no mistake, Brazil is in a tough spot.

Here’s a list of problems: 1) collapsing commodity prices, 2) the worst inflation-growth outcome in over a decade, 3) deficits on both the fiscal and current accounts, 4) street protests calling for the President to be sacked, 5) a plunging currency, 6) allegations of rampant government corruption. And we could go on. 

On Friday, the latest quarterly GDP print shows the country sliding into recession (of course these determinations are always backward looking and just about every indicator one cares to observe seems to show that the economy is closer to depression than it is to the early stages of recession) as output contracted 1.9% in Q2. Here’s the summary from Barclays:

Q2 15 real GDP in Brazil surprised on the downside, contracting -1.9% q/q sa and compatible with a y/y print of -2.6%. This follows a downwardly revised -0.7% q/q sa Q1 real GDP print (previous: -0.2%), and also a flat real GDP print in Q4 14 (previous: 0.3% q/q sa). As a matter of fact, the past three quarters were revised to the downside, which now implies a strong negative carry-over for this year: if real GDP is flat in H2 15, the annual growth would be -2.3%.

 

Relative to our forecast, household consumption, fixed-assets investments and imports all surprised on the downside. These components reflect the adverse conditions for domestic demand, as a reflection of higher inflation, interest rates, fall in income and weaker currency. 

And from Goldman:

The forecasted deeper 2015 recession will contaminate the 2016 growth outlook. Given the worse-than-expected 2Q figure and the downward revision to 1Q sequential growth, our profile for 2H2015 growth points now to a 2.6% contraction of real GDP in 2015 (down from our previous -2.1% forecast) and worsens the statistical carry-over for growth in 2016 to -0.8%. That is, were the economy to stay flat throughout 2016 at the expected 4Q2015 level, real GDP would contract by 0.8% in 2016. Hence, we are now forecasting real GDP to contract 0.4% in 2016 (down from the previous -0.25% forecast). This is consistent with average quarterly real GDP growth of 0.10%-0.20%, a path that is still subject to obvious downside risks given the prevailing high level of macro and political uncertainty and recognized negative skew in the distribution of domestic and external risks.

 


The latest on the political front is that President Dilma Rousseff has 15 days to explain to the the Federal Accounts Court why everyone seems to think that she intentionally delayed nearly $12 billion in social payments last year in an effort to make the books look better than they actually were. And while we won’t endeavor to weigh in one way or another on that issue, what we would say is that if someone in Brazil is doctoringthis year’s books, they aren’t doing a very good job because things just seem to keep going from bad to worse. 

Case in point, on Friday, Brazil said its primary budget deficit was R10 billion in July, far wider than expected. The takeaway: “no 2015 primary surplus for you!

Here’s Goldman with the breakdown:

The consolidated public sector posted a worse than expected R$10.0bn deficit in July, driven by the weak performance of both the central and regional governments. The central government posted a R$6.0bn deficit in July and the states and municipalities a larger than expected R$3.2bn deficit. Finally, the state-owned enterprises added another R$810mn to the overall deficit.

 

On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target.Hence, it is increasingly likely that we may observe a second consecutive year of primary fiscal deficits.

 

The overall public sector fiscal deficit (primary surplus minus interest payments) widened to a very large 8.81% of GDP, from 6.2% of GDP in the 12 months through December 2014. The net interest bill is running at 7.92% of GDP in the 12 months through July.

 

Gross general government debt worsened to 64.6% of GDP, up from 58.9% of GDP at end 2014 and 53.3% of GDP in 2013.

 

The twin combined fiscal and current account deficits now exceed a disquieting 13.2% of GDP.

 

Overall, we have yet to detect a visible turnaround in the fiscal picture. The overall fiscal deficit is tracking at a disquieting 8.8% of GDP, driven in part by the surging net interest bill, which was exacerbated by the large losses on the central bank stock of Dollar-swaps. We expect the gradual fiscal consolidation process to last at least 3-4 years, perhaps longer.

 

 

As Barclays recently argued, a downgrade to junk is now just “a matter of time,” a development which may well usher in a new era in which the world’s emerging economies begin to backslide into “frontier” status, and as we put it earlier this month, after that it’ll be time to break out the humanitarian aid packages.

*  *  *

Bonus: Charting a Brazilian nightmare

Bonus Bonus: “That aint no unpopular President, THIS is an unpopular President”…

Stay positive Brazil…


 end
Oil related stories

Oil Surges To $45 After Saudi Troops Invade Yemen

For the 3rd day in a row, crude oil prices are spiking as the short squeeze morphs into a war premium. Heberler reports that Saudi ground troops have entered Northern Yemen and seized control of two areas in the Saada province. WTI is now above $45…

As we noted previously, boots have been on the ground there (and tank tracks) since early July…

 

But, as Haberler reports, forces seize control of two areas in Yemen’s Saada province in the first actual ground offensive by The Saudis…

Saudi Arabian ground troops have advanced into northern Yemen, in a bid to push back against Houthi Shia militia and forces loyal to ousted president Ali Abdullah Saleh, military and tribal sources said.

 

This is Saudi Arabia’s first ground offensive in Yemen since it launched an extensive military campaign in March targeting Houthi positions.

 

The sources told Anadolu Agency that Saudi Arabian troops advanced into Saada province after Houthi militants recently stormed Saudi positions in the southern Saudi province of Jizan.

 

“Saudi ground forces seized control of two areas in Saada province and intend to advance toward Houthi positions,” sources said.

 

Yemen descended into chaos last September, when the Houthis overran capital Sanaa and other provinces, prompting Saudi Arabia and its Arab allies to launch a massive air campaign against the Shia group.

 

Pro-Hadi forces – backed by Saudi-led air power – have managed recently to retake Aden and Taiz from the Houthis.

And the result…

 

We have however seen this size 3-day explosion before…

 

Charts: Bloomberg

end
The fall in oil hits the Canadian banks quite hard!
(courtesy Ben McLannahan/London’s Financial times )

Oil price fall hits Canada’s big banksBen McLannahan in New York

Canada’s biggest banks have warned of more troubles to come from the fall in the oil price, as they reported surges in bad loans and chilling effects on consumer demand in the world’s 11th-largest economy.

So far the big lenders such as Royal Bank of Canada and Toronto-Dominion Bank have kept a lid on writedowns by assuming a recovery in the price of crude, while borrowers have continued to service loans by cutting spending and tapping bond and equity markets where they can.

But signs of strain are emerging. On Thursday morning TD Bank said oil and gas impairments in the third quarter to the end of July rose by about two-thirds from the second quarter to C$35m, while CIBC said they rose by a third to C$34m. Earlier in the week RBC had said that impairments in its energy portfolio roughly quadrupled to C$183m in the third quarter, while Bank of Montreal revealed a similar rise, to C$106m.

The banks also warned of a loss of consumer confidence in parts of the country dependent on oil, such as the “prairie provinces” of Alberta, Saskatchewan and Manitoba. In a call with analysts, RBC chief David McKay said that some of the group’s overall growth had been offset by “low activity” in oil-exposed regions. While some of that slowdown was from a state of “hypergrowth”, he said, “we do recognise these markets remain vulnerable to lower oil prices”.

Canadian banks have October year-ends, meaning the figures for the May-July period provide some of the first glimpses into the effects of the latest fall in the price of crude, which has tumbled about 60 per cent in the past 12 months.

The results could foreshadow problems for the big US lenders, which report results for the July-September quarter in mid-October. During the first six months of the year, rising non-performing loan ratios were mostly confined to lenders with outsized oil and gas exposures, such as Comerica and Capital One, noted Barclays.

But twice-yearly reviews are coming up in September, when banks reassess the quality of their loans by projecting likely cash flows from borrowers’ oil reserves.

Analysts say banks are unlikely to be as relaxed as they were in April, when many assumed a bounceback in the price of oil. RBC, for example, expected the average annual price to be $53 in 2015 in April, rising to the mid-$60s over time. The average so far this year is $55, but this month it has fallen to $43.

“Should oil prices remain below $45, we would expect to see further challenges,” said Mark Hughes, RBC’s chief risk officer.

Energy loans account for about 9 per cent of the big five Canadian banks’ aggregate corporate loan book. The last of the big five, Scotiabank, reports on Friday.

Reported losses so far are “the tip of the iceberg”, said Meny Grauman, a banks analyst at Cormark Securities in Toronto. Remedial measures such as cost-cutting and mergers between struggling operators can only go so far, he said. “I think there is a lot of scepticism in the market about how much more those kind of actions are available, and whether the banks can delay more significant losses,” he added.

end
Your early Friday morning currency, and interest rate moves

Euro/USA 1.1278 up .0035

USA/JAPAN YEN 120.81 down 0.209

GBP/USA 1.5381 down .0026

USA/CAN 1.3227 up .0037

Early this Friday morning in Europe, the Euro rose by 35 basis points, trading now well above the 1.12 level falling to 1.1278; 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, crumbling European bourses and today a Chinese currency revaluation northbound,  Last night the Chinese yuan strengthened a considerable .0172 basis points. The rate at closing last night:  6.3888

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 down again in Japan up by 15 basis points and trading now just above the 120 level to 120.81 yen to the dollar, 

The pound was down this morning by 26 basis points as it now trades just below the 1.54 level at 1.5381.

The Canadian dollar reversed course by falling 37 basis points to 1.3227 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 unmanageable.

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 Friday morning: up by 561.88 or 3.08% 

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

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

Gold very early morning trading: $1128.15

silver:$14.47

Early Friday morning USA 10 year bond yield: 2.15% !!! down 2  in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield fell to 2.88 down 4 basis points.  Officially we got the word that got  China is selling treasuries like mad!

USA dollar index early Friday morning: 95.56 down 21 cents from Thursday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Friday morning
And now for your closing numbers for Friday night:
Closing Portuguese 10 year bond yield: 2.60% down 2 in basis points from Thursday Closing
Japanese 10 year bond yield: .38% !!  up 1 in basis points from Thursday
Your closing Spanish 10 year government bond, Friday, par in basis points Spanish 10 year bond yield: 2.06% !!!!!!
Your Friday closing Italian 10 year bond yield: 1.92% down 1  in basis points from Thursday: trading 14 basis point lower than Spain.
IMPORTANT CURRENCY CLOSES FOR FRIDAY
Closing currency crosses for Friday night/USA dollar index/USA 10 yr bond:  3:00 pm
 Euro/USA: 1.1181 down .0061 (Euro down 61 basis points)
USA/Japan: 121.36 up .335 (Yen down 34 basis points) * allows for the ramp up of the Dow/today it prevented a rout on the Dow
Great Britain/USA: 1.5390 down .0018 (Pound down 18 basis points USA/Canada: 1.3216 up .0026 (Canadian dollar down 26 basis points)

USA/Chinese Yuan:  6.3865  down .0195  ( Chinese yuan up 19.5 basis points/and they must have sold a considerable amount of treasuries)

This afternoon, the Euro fell dramatically again falling by 61 basis points to trade at 1.1181. The Yen fell to 121.36 for a loss of 34 basis points and this fuels the Dow/Nasdaq. The pound was down 18 basis points, trading at 1.5390. The Canadian dollar fell 26 basis points to 1.3216. The USA/Yuan closed at 6.3865
Your closing 10 yr USA bond yield: up 1 basis points from Thursday at 2.18%// ( well below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.91 par in basis points on the day.