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

Gold quantities are spiking off the LBMA:

(courtesy Jessie of Americain cafe)

30 August 2015

Gold Coming Off the LBMA Spiked Last Week

There was a interesting spike in physical gold activity last week on the LBMA.

It could be some seasonal phenomenon connected with the end of August and the approach of the prime season for gold.

But it also seems consistent with the ‘tension on the tape’ that I have been seeing. And a number of little indicators and some interesting things, like the generally ‘well informed’ Goldman taking delivery of gold at the Comex for their house account.

One outcome of this increase in physical gold flows *might* be the realization of the cup and handle bottom formation on the gold chart, and a quick run to target around the 1250 to 1270 area. And depending on what else goes with it, that might just be for openers.

Or it might once again be ignored and come to nothing.

But it does seem that the gold flows from the West to the markets in China and India are intensifying at these prices based on a number of diverse data points.

One cause of this could be a divergence between the paper price of gold with leverage and the actual physical markets because the price of gold as set in London and New York is below the clearing price in dollars as part of a momentum trend in the forex markets.

If a commodity price is set below the natural clearing price, one would expect to see the demand for the real underlying asset increasing.

Those who flatly dismiss the possibility there can be such a divergence between the market price and the natural clearing price have not been paying attention to what has been going on in any number of rigged markets over the past few years.

The excessive speculation fueled by a surfeit of paper money in a few hands and slack regulation that permits the unsustainable reckless pyramiding of positions is a good contender for the theme of the last two decades.

For what it is worth, I am seeing what appear to be increasing signs of ‘fragility’ in the precious metals market. And in a nutshell, I am thinking that we are seeing a bear market bottom. Trends, especially in forex related markets, often tend to overshoot and overstay their time.

But like the proverbial search for the lost keys, we will find the end of this era of financial madness in the last crisis, and perhaps that will be the one that breaks the Banks.

The chart below was provided by Nick Laird at goldchartsrus.com.

***

end

Fascinating!! and not promote gold???

(courtesy Reuters)

Polish Government Confirms Discovery Of Nazi “Gold Train”, Warns It May Be Booby-Trapped

Last weekend we reported that in the past month two men, a Pole and German, claimed to have discovered the legendary Nazi “gold train” – a 150 meter long German train alleged to be full of gold, gems and weapons, which disappeared just before the end of World War II – in the proximity of the Polish town of Walbrzych, close to where the Nazi are said to have loaded up the train with valuables for its final voyage in the town of Wroclaw, just as the Soviet forces approached in 1945.

As we detailed, the train is said to have been entombed in the vast tunnel labyrinth located close to Ksiaz castle, which served as Nazi headquarters during World War II…

Ksiaz castle, Nazi headquarters during World War II

… and specifically, was said to be located at the foot of the Sowa mountain, in the woods three miles outside the town of Walbrych.

The “gold train” is said to be located under this hill

While many were skeptical that the mystical Nazi treasure train had been finally discovered after many years of searching, an official update last Friday by the Polish government suggested that that may indeed be the case. As the Mail reported on Friday, a representative of the Polish culture ministry, Poland’s National Heritage and Conservation Officer Piotr Zuchowski, said that the man who helped hide the train had revealed its location shortly before he died, and that proof of the train has been observed on radar.

Zuchowski added that “Information about where this train is and what its contents are were revealed on the deathbed of a person who had knowledge of the secret of this train.’ He added that Polish authorities had now seen evidence of the train’s existence in a picture taken using a ground-penetrating radar. He said the image – albeit blurred – showed the shape of a train platform and cannons.

Piotr Zuchowski, Poland’s National Heritage and Conservation Officer, confirmed the ‘unprecedented’ find

Mr Zuchowski said the find was ‘unprecedented’, adding: ‘We do not know what is inside the train.‘Probably military equipment but also possibly jewellery, works of art and archive documents.

‘Armored trains from this period were used to carry extremely valuable items and this is an armored train, it is a big clue.’ He said authorities were now ’99 percent sure the train exists’ and whatever is on it will be returned to the rightful owners, if they can be found. ‘We will be 100 per cent sure only when we find the train,’ Mr Zuchowski added.

The train found in the mountains is an ‘armored train’ which looks similar to the one pictured

Mr Zuchowski told reporters that the train was about 100 metres long but added: ‘It is not possible to disclose the exact location of where the train can be found. Still, he noted cryptically that “The local government in Walbrzych knows where it is.”

He explained it is hidden along a 4km stretch of track on the Wroclaw-Walbrzych line.

Mr Zuchowski said the person who claimed he helped load the gold train in 1945 said in a ‘deathbed statement’ the train is secured with explosives. The official declined to comment further about the man who said this but speculation is now rife that it was a former SS guard or a local Pole who stumbled upon the train before hiding it.

Deputy Mayor of Walbrzych, Zygmunt Nowaczyk told the press: ‘The city is full of mysterious stories because of its history. ‘Now it is formal information – we have found something.’

Key excerpts from the press conference by the Polish official can be seen on the Euronews clip below:

The confirmation of the discovery unleashed a surge of treasury hunters, and forced the Polish government to warn the population to stop looking because it could be booby-trapped and dangerous. Zuchowski said “foragers” have become active since two people claimed to have discovered the train last week and urged eager fortune-hunters to stop searching, saying they risk injury or death.

Zuchowski adds that “there may be hazardous substances dating from the Second World War in the hidden train, which I’m convinced exists. I am appealing to people to stop any such searches until the end of official procedures leading to the securing of the find. There’s a huge probability that the train is booby-trapped.’

If anything, tthese warnings are sure to unleash an even more aggressive wave of seekers now that the train’s existience has been confirmed, and the government is actually warning seekers to be careful in their search.

But perhaps what is more interesting is just what the discovery, which would be straight out of an Indian Jones sequel, will contain, and whether someone already got to the precious cargo over the past 7 decades. The answer should be made public shortly.

end

(courtesy Newsmax)

Report: Putin Could Seize Nazi Gold Train for Alleged Soviet Reparations

Report: Putin Could Seize Nazi Gold Train for Alleged Soviet Reparations

Sunday, 30 Aug 2015 02:02 PM

© 2015 Newsmax. All rights reserved.

Read Latest Breaking News from Newsmax.com http://www.newsmax.com/Newsfront/nazi-gold-train-russia/2015/08/30/id/672660/#ixzz3kORNFsaO
Urgent: Rate Obama on His Job Performance. Vote Here Now!

end

Saturday morning August 29, saw the FRBNY report its earmarked gold.

The report showed that :

(courtesy zero hedge)

Since 2014 Foreign Central Banks Have Withdrawn 246 Tons Of Gold From The NY Fed

First it was Germany who redeemed 120 tons of physical gold in 2014; then it was the Netherlands who “secretly” redomiciled 122 tons of gold; then this past May, we learned that Austria would be the third “core” European nation to repatriate most of its offshore gold, held primarily in the Bank of England, redepositing it in Vienna and Switzerland.

In short, beginning in 2014 and continuing through today, the gold “bleeding “from the vault located 90 feet below street level at 33 Liberty Street (and which may or may not be connected by a tunnel to the JPM gold vault locatedjust across the street at 1 Chase Manhattan Plaza) has continued. As the chart below shows, while central banks assure the population that there is nothing to worry about when it comes to paper money, and in fact it is the evil ISIS terrorists who plot and scheme to crush the benevolent Fed with their terroristy “gold dinars” and if not that then their made in Hollywood propaganda movies, they have been quietly pulling gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve.

According to the latest just released monthly update of foreign official assets held in custody at the NY Fed, in July the total holdings of foreign earmarked, i.e., physical, gold declined to just over $8 billion when evaluated at the legacy “price” of $42.22 per ounce. In ton terms, this means that after declining below 6000 tons in January, for the first time since FDR’s infamous gold confiscation spree, the total physical gold held at the NY Fed dropped another 9.6 tons in July, down to 5,950 tons.

This is the lowest amount of gold held by the NY Fed in custody in decades, is the 18th consecutive month of flat or declining gold, and when added to previous outflows, amounts to 192 tons of gold withdrawn in the past 12 months, and a whopping 246 tons pulled since the start of 2014.

Indicatively, during the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed’s bailout of the western financial system.

If past is prologue, one should ask: what current or future event is driving the ongoing redemption of gold from the NY Fed this time?

end

(courtesy London’s Daily Mail/GATA)

ISIS advertises its new gold coins but still pays its gunmen in U.S. dollars

(courtesy Canadian Press/Toronto)

App for that? BitGold looks to take gold savings mainstream

end

A huge 73 tonnes of gold was withdrawn from vaults last week.

(courtesy Smaulgld)

Shanghai Gold Exchange volume for the week ended August 21, 2015.

The Shanghai Gold Exchange withdrawals were 72.91 tons of gold during the week ended August 21, 2015.

Withdrawals on the Shanghai Gold Exchange were the fourth largest ever.

Total gold withdrawals on the Shanghai Gold Exchange year to date are 1,658.22 tons.

Withdrawals on the Shanghai Gold Exchange are running 37.2% higher than last year.

China’s Insatiable Demand for Gold

The Shanghai Gold Exchange (SGE) delivered 72.91 tons of gold during the week ended August 21, 2015. The prior week the SGE delivered 65.31 tons of gold.

The two week total of withdrawals is over 121 tons of gold and the year to date total is1,585.31 tons, for an annualized run rate of approximately 2,600 tons.

Shanghai Gold Exchange Withdrawals During the Two Week Period Ended 8/21/2015 vs. Comex 2014 Deliveries

Volume of Gold Withdrawals on the Shanghai Gold Exchange

The volume of withdrawals of gold on the Shanghai Gold Exchange as of August 21, 2015, is running 37% higher than 2014 during the same period and 13.3% higher than 2013’s record pace.

China is becoming the center of the Asian gold world. A $16 billion China Gold Fund was announced in May and the Shanghai Gold Exchange continues to establish itself as viable competitor to the gold trading centers in London and Chicago. China’s gold imports, trading and mining production are one of the cornerstones of China’s de-dollarization/Yuan strengthening initiatives that focuses no so much on selling U.S. Treasuries but creating alternative financial systems like the Asian Infrastrucure Investment Bank.

China is widely believed to be making a play for inclusion in the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) Program later this year. If China fails to gain inclusion in the SDR, its recent initiatives to strengthen its currency and gain greater acceptance of the Yuan may provide a strong alternative to the IMF regime.

China Updates its Gold Holdings

China recently announced their first update to their official gold holdings since 2009. The People’s Bank of China announced that their gold holdings had climbed from 1054 tons to 1658 tons, making China the fifth largest gold holding nation in the world.
China chose to incude six years worth of gold accumulation (over 600 tons) all in the month of June.

Earlier this month China reported that they added 19.3 tons (610,000 ounces) of gold to their reserves in July bringing their total to 1,677 tons (53.93 million ounces).

end

Jessie, of Americain cafe on the same subject as to the huge 73 tonnes of gold demand coming from the citizenry of China:

28 August 2015

Shanghai Exchange Has 73 Tonnes of Gold Withdrawn In 4th Largest Week In History

There were a little over 73 tonnes of physical gold withdrawn from the Shanghai Gold Exchange in the latest week ending August 21st.

This is the 4th largest withdrawal of bullion in its history.

It is hard to tell what exactly is going on in such a dodgy, highly leveraged market, with its determined attempts to keep the price knocked lower so often during the late London to NY trading hours.

But I am sensing a change in the market, and more things running under the surface than meets the eye.

Goldman is no major player in the gold bullion market, but it did strike me as odd that they are suddenly stopping large amounts of bullion for their own house account this month. It is not that they are a player in gold, because they are not. But that they are wired into many sources of information, are good at spotting trends, and are more like a hedge fund, comfortable running on the edge of the markets.

And the gold chart, for what it is worth in these times of market interventions, seems to be trying to form a rounded bottom in the form of a cup and handle, with a successful retest of the handle this week. This calls out a price around the bottom of the old trend channel at 1270.

It could also be nothing. I will pursue the details of such a chart formation if we see the right kinds of follow through next week.

And I will certainly be watching silver very carefully for any signs of life. It may be pivotal next month.

Let’s see what next week brings. Gold is just one market among many, and it is certainly not the largest one in play.

And while I have your attention, I thought I would include a long term chart of the relation of deliverable gold at current prices to open interest. It might mean nothing. But it doesn’t seem to be anything familiar before 2013.

The charts below courtesy of data wrangler Nick Laird at goldchartsrus.com.

***

end

This is interesting

they do not know why they defaulted!!

(courtesy Reuters/GATA)

Dubai gold retailer defaults on $136 million

end

And now Bill Holter with an important paper tonight…

(courtesy Bill Holter/Holter-Sinclair collaberation)

“Something” just happened! (reprint)

 “Something” happened three weeks ago.  While we cannot be sure “what” exactly happened, we can speculate.  We have many dots and lots of data points to help us but first it needs to be pointed out, even if wrong in conclusion …just the knowledge alone that “something changed” is enough.  If you know something has changed, you can take clues and look at various markets for inflection points.  Currently, most markets are stretched to various limits.  Whether it be zero bound credit markets, equities, real estate, commodities or gold and silver, all values had reached extreme highs or lows. 

end

Sunday night 9:30 pm/(Monday morning 9:30 am Shanghai time): Chinese markets open.  Stocks open down 2.1% as China arrests 4 major citizens.

courtesy zero hedge)

Chinese Stocks Slump After “Arrest-Fest”, Yuan Strengthens Most In 9 Months, Goldman Cuts Outlook

Update: So much for the “no more intervention” Since the government bailout fund has run dry of money, the brokerages have to step up – CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT

A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 – this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -01.8%).

• *SHANGHAI COMPOSITE INDEX FALLS 1.8% AT OPEN
• *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 1% TO 3,307.40

Yuan fixed stronger for 2nd day in a row…

• *CHINA SETS YUAN REFERENCE RATE AT 6.3893 AGAINST U.S. DOLLAR
• *CHINA RAISES YUAN REFERENCE RATE BY 0.15% TO 6.3893/USD

Then Goldman slahes China growth…

• *CHINA 2016 GDP GROWTH FORECAST CUT TO 6.4% VS 6.7% AT GOLDMAN
• *CHINA 2017 GDP GROWTH FORECAST CUT TO 6.1% VS 6.5% AT GOLDMAN
• *CHINA 2018 GDP GROWTH FORECAST CUT TO 5.8% VS 6.2% AT GOLDMAN

A “double-dip” in China’s growth in 2015…

China’s economic growth was very weak in early 2015, reflecting a combination of slowing money/credit growth, reform-driven fiscal tightening, and an appreciating CNY, among other factors. Policy easing starting in March seemed to help revive growth in May and especially June. But growth has slowed anew in July and August, prompting market and policymaker concerns and a further spate of easing measures. We retain our 2015 real GDP growth forecast of 6.8%, but note that alternative indicators of activity suggest a sharper slowdown, and mark down our 2016/17/18 forecasts to 6.4%/6.1%/5.8% respectively from 6.7%/6.5%/6.2% previously. We now expect short-term interest rates to fall further, to 1.5% by end-2016 (from 2.25% previously).

…and increased policy uncertainty…

Policy uncertainty has increased. Measures to contain local governments’ off-balance sheet financing have taken a back seat for now to a focus on reviving infrastructure spending. Equity market volatility has been large, diminishing the near-term potential for this channel to reduce reliance on debt financing. The snap 3% depreciation in the CNY is small in a macro context, but represents the sharpest weakening in two decades that were dominated by stability/appreciation vs USD, and has prompted an acceleration in capital outflows, heightening the risk of a larger move down the road.

But before all that, this happened…

First, as The FT reports, China “says” it will abandon buying stocks...

China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.

 

For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.

 

…

 

Traders and officials said the latest intervention was aimed at providing a “positive market environment” in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression”.

 

Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.

Which could be a problem as all that stopped total and utter carnage last week was their buying…

But then they unleashed full scale fractional reserve banking…

• *SCRAPPING OF LOAN CAP TO HELP STABILIZING ECO GROWTH: FIN. NEWS

Though we suspect this is as much use as a chocalate fireguard for the already maximally-indebted Chinese public.

But nothing stops the propaganda from flowing…

• *CHINA ECO FUNDAMENTALS BETTER THAN OTHER MAJOR ECONOMIES: 21ST

As authorities begin wide-scale crackdowns on rumor-mongers and nay-sayers…

• *CHINA DETAINS REPORTER ON SUSPECTED SPREADING RUMORS: XINHUA
• *CHINA DETAINS CSRC OFFICIAL ON SUSPECTED INSIDER TRADING:XINHUA

As The FT goes on to note,

In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.

 

“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,”said an editorial in the state-controlled Securities Daily newspaper last week.

As SCMP’s Goerge Chen details…

As China.org further details,

Chinese authorities have held several people, including a journalist, an official of China’s securities watchdog and four senior executives of China’s major securities dealer for stock market violations.

 

Wang Xiaolu, journalist of Caijing Magazine, has been placed under “criminal compulsory measures” for suspected violations of colluding with others and fabricating and spreading fake information on securities and futures market, Xinhua learned on Sunday.

 

Wang confessed that he wrote fake report on Chinese stock market based on hearsay and his own subjective guesses without conducting due verifications.

 

He admitted that the false information have “caused panics and disorder at stock market, seriously undermined the market confidence, and inflicted huge losses on the country and investors.”

 

Also put under “criminal compulsory measures” were Liu Shufan, an official with China Securities Regulatory Commission.He is held over suspicions of insider dealings, taking bribes and forging official seals.

 

According to Liu’s confession during the investigation, he has taken advantage of his position to secure an approval from the securities authorities for a public company and help the growth of the company’s shares.

 

In return, the head of the company offered bribes worth several million yuan to him.

 

Also, Liu has used insider information from the above-mentioned company and another company and obtained millions of yuan of illegal gains, according to his confession.

 

Liu confessed that he has forged official seals to fake a court ruling on divorce and taxation certificates for his mistress.

 

Xinhua also learned from authorities that Xu Gang, Liu Wei, Fang Qingli and Chen Rongjie, senior executives of the Citic Securities, China’s leading securities dealer, have been put under “criminal compulsory measures” for suspected insider trading. They have also confessed to their violations.

 

“Compulsory measures” may include arrest, detention, issuing a warrant to compel a suspect to appear, bail pending trial, or residential surveillance.

*  *  *

Way to go China – “open” those markets up to anyone (as long as they are buying)

Charts: Bloomberg

end

Evercore reports that the real GDP of China is -1.1%

(courtesy Evercore/zero hedge)

Origins Of China’s Credit Bubble And Stock Market Crash—–The Key Explanatory Charts

by Gwynn Guilford at Quartz

This week’s Chinese stock market implosion has been widely viewed as a reaction to the Chinese government’s devaluing the yuan on Aug. 11—a move many presume was a frenzied bid to lower export prices and strengthen the economy.

This interpretation doesn’t stand up to scrutiny. First, Chinese investors haven’t been investing based on how the economy is doing, but rather, based on what they think the government will do to prop up the market. The crash, termed “Black Monday,” was more likely a reaction to the central bank’s failure over the weekend to announce a widely expected cut to the bank reserve requirement since previous cuts in February and April had boosted stock prices. The government eventually caved andannounced a cut on Tuesday (Aug. 25).

Second, the crash happened nearly two weeks after the devaluation, and the government only let the yuan depreciate by about 3% before swooping in and propping up its value again—which hardly helps exporters since the currency’s value effectively rose some 14% in the last year.

The devaluation probably had more to do with breaking the yuan’s tightly managed peg to the US dollar, an obligation that has been draining the economy of scarce liquidity as capital outflows swell.

Both moves—the government pulling back from its market bailout and the currency devaluation—stem from the same ominous problem: China’s leaders are scrambling to find the money to keep its economy running. To understand the broader forces that led to this predicament, here’s a chart-based explainer tracing its origins:

China used its exchange rate to stoke growth

China has long pegged its currency to the US dollar at an artificially cheap rate. Keeping the yuan cheaper than it should be, even as export revenues and foreign investment gushed in, allowed China to amass huge foreign exchange reserves, as we explain in more detail here:

http://atlas.qz.com/embed/V1gTftS2

A cheap currency has also powered China’s investment-driven growth model (more on this here). By paying more yuan than the market would demand for each dollar, the People’s Bank of China (PBoC) created extra money out of thin air, sending it sloshing around in the economy. (Meanwhile, the PBoC prevented this from driving up inflation by setting its bank reserve requirements unusually high, as we explain here.)

http://atlas.qz.com/embed/NkgZcnU2

Easy money, easy lending, easy growth. This was especially true after the global financial crisis hit, when China pumped 4 trillion yuan ($586 billion in 2008 US dollars) into its economy to protect it from the fallout. The resulting double-digit growth attracted foreign investment and hot money inflows, raising demand for yuan. To buoy its faltering export industry, the PBoC had to buy even more dollars to prevent surging yuan demand from driving up the local currency’s value.

1

The government pumped the stock market

But growth is now slowing, making the $28 trillion in debt China racked up in the process even harder to pay off.

http://atlas.qz.com/embed/VyuKC9A_

About a year ago, the government turned to pumping up the stock market. The thinking behind this move, says Derek Scissors, economist at the American Enterprise Institute, was, “Hey, why not address our huge problems by replacing debt with equity?” In other words, a bull market would help indebted companies raise new capital and pay off overdue loans. But eventually the market tanked.

http://atlas.qz.com/embed/VJ50kZvn

So starting in early July, the government launched a sweeping stock market bailout, vowing to prop up the Shanghai Composite Index until it hit 4,500. The problem is, every time it has neared that target level, investors start selling in anticipation that the government will pull back its support. As a result, the Chinese government has now spent as much as $1 trillion to prop up stocks.

Hot money fled the country

While some investors were betting on stocks, others had seen the writing on the wall and were getting out—swapping their yuan for other currencies. Starting in late 2014, the influx of hot money reversed course, and speculative investment flooded out of China. One measure of that is the drop in (mostly) short-term trade finance from foreign banks, which started in Q4 2014:

http://atlas.qz.com/embed/Vykuf_l2

Another is the fall in foreign exchange that Chinese banks are holding:

http://atlas.qz.com/embed/4yOHPwZ3

Once people started selling the yuan, others began fearing that their yuan holdings would lose value—so they sold too. Lower demand for the yuan should have lowered the currency’s value relative to the dollar. But the PBoC had to keep the yuan’s value stable. Not only had it promised to do so as a requirement of joining the IMF’s basket of central bank reserve currencies; the yuan’s stability and gradual appreciation has long attracted foreign capital into China, says Carlo Reiter, an analyst at J Capital Research. To continue propping up the yuan’s value, the PBoC started selling dollars from its precious reserves in exchange for yuan:

http://atlas.qz.com/embed/EkKbftS2

Buying back yuan lowered liquidity, however, which raised borrowing costs, putting a damper on borrowing and investment and threatening deflation:

http://atlas.qz.com/embed/4JvVGh82

Higher borrowing costs exacerbated the country’s $28 trillion in debt, much of which has been borrowed at variable interest rates.

http://atlas.qz.com/embed/NJwOs2I2

The rising stock market crimped bank lending

As investors shifted money from their banking deposits into brokerage accounts to buy stocks, liquidity tightened, leaving banks with less money to lend, says Christopher Balding, finance professor at Peking University. To keep the economy growing, the government continued to pressure banks to lend.

http://atlas.qz.com/embed/4JNc4j7P

To help keep credit flowing, the Chinese government launched a bailout in early July (which, as we mentioned earlier, cost the government more than $1 trillion.) To fund this bailout, interbank lending by state-backed entities has surged, says Carlo Reiter, analyst at J Capital Research. In July, government institutions lent 9.3 trillion yuan to banks, mostly to boost the stock market, he says.

However, the flood of interbank capital eventually caught up with the PBoC. Adding even more money into the financial system put downward pressure on the yuan.

This brings us to the Aug. 11 currency devaluation, which likely occurred because the yuan became too “expensive to defend,” says Reiter. Nevertheless, the exchange rate has leveled off over the last few trading days—a sign that capital outflow is so great that the central bank has once again resorted to selling dollars for yuan.

http://atlas.qz.com/embed/EJ3Gp3U3

Already, this “battle to stabilize the currency has had a significant tightening effect on domestic liquidity conditions,” wrote Wei Yao, economist at Societe Generale, in an Aug. 25 note. In other words, the government’s grand plans to reduce its debt woes while preventing capital from flowing out may have the perverse effect of causing more of both.

Source: Everything you’ve heard about China’s stock market crash is wrong – Qua

end

Early this morning, a grenade attack on the Ukraine Parliament killed one and injured 50 more.

(Monday morning)

Grenade attack on the Ukraine Parliament:

Ukraine Reignites – 50 Injured After Grenade Attack On Parliament

Mass Protests Sweep Malaysian Capital As Anger At Goldman-Backed Slush Fund Boils Over

If we told you that thousands of protesters donning bright yellow shirts had taken to the streets to call for the ouster of a leader in an important emerging market, you’d be forgiven for thinking we were talking about Brazil, where President Dilma Rousseff is facing calls for impeachment amid allegations of fiscal book cooking and government corruption.

But on this particular weekend, you’d be wrong.

We’re actually talking about Malaysia, where tens of thousands of demonstrators poured into the streets of Kuala Lumpur on Saturday to call for the resignation of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account.

1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

You really cannot make this stuff up.

What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund.

So you can see why some folks are upset, especially considering Rosmah has a habit of having, how shall we say, rich people problems, like being gouged $400 for a home visit by a personal hairstylist. Here’s The New York Times with more on the protests:

Tens of thousands of demonstrators in Malaysia defied police orders on Saturday, massing in the capital in a display of anger at the government of Prime Minister Najib Razak, who has been accused of corruption involving hundreds of millions of dollars.

 

The demonstration in central Kuala Lumpur, which has been planned for weeks, has been declared illegal by the Malaysian police, and the government on Friday went as far as to pass a decree banning the yellow clothing worn by the antigovernment protesters.

 

But the demonstrators, who represent a broad coalition of civic organizations in Malaysia, including prominent lawyers, asserted their right to protest on Saturday.

 

The government has acknowledged that Mr. Najib received the money in 2013 and said it was a donation from undisclosed Arab royalty. 

 

One group of protesters on Saturday carried the image of a giant check in the amount of 2.6 billion ringgit, with a sign that read, “You really think we are stupid?”

 

The group organizing the protest goes by the name Bersih, which means clean in Malay.

 

Calls for Mr. Najib to resign have come both from within his party, which is divided, and from the opposition. One junior member of Mr. Najib’s party, the United Malays National Organization, filed a lawsuit against Mr. Najib on Friday asking for details of how the money was spent.

Of course the most prominent voice calling for Najib’s ouster is that of the former Prime Minister Mahathir Mohamad. “I don’t believe it is a donation. I don’t believe anybody would give [that much], whether an Arab, or anybody,” he says.

Meanwhile, Malaysia is facing a re-run of the 1997/98 financial crisis as the ringgit plunges amid broad-based pressure on emerging markets. With FX reserves now sitting under $100 billion some fear a return to capital controls (let’s just call it the “1998 option”) is just around the corner despite the protestations of central bank chief Zeti Akhtar Aziz. Here’s BofAML:

Capital controls are not likely, but the possibility cannot be dismissed, despite <assurances from Zeti.Introducing controls will be a regressive move and a huge setback, hurting the economy and financial sector, and derailing any ambitions of becoming an international Islamic financial center. Malaysia’s reputation and credibility remain tainted by the capital controls of 1998, even after almost two decades.

 

The ringgit has depreciated almost 13% year-to-date, the worst performing EM Asian currency. FX reserves fell to $94.5bn at mid-August, falling below the $100bn threshold and down by about $9bn in July alone. At the peak, FX reserves were $141bn in May 2013. Cover to short-term external debt is only 1x, while cover to imports stands at 5.9 months. Downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis over 1MDB. Malaysia’s vulnerability is also heightened by high leverage (household, quasi-public and external) and a fragile fiscal position (heavy oil dependence, off balance sheet liabilities)

 

The current crisis has not reached the extreme stress seen during the Asian financial crisis, when draconian capital controls were eventually introduced in September 1998. During that episode, the ringgit collapsed by about 89% from peak to trough at its worst (to 4.71 from 2.49 against the USD). The ringgit has depreciated some 26% in the current crisis. During that episode, the KLCI fell by about 79% from peak to trough (from 1,271 to 263) at its worst. The KLCI today has fallen by only about 12% from its recent peak.Nevertheless, downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis.

So in short, Malaysia is on the brink of political and financial crisis, and it looks as though the nuclear route (capital controls) may be just around the corner, which would of course only serve to alienate the country’s financial system at a time when the government looks to be on the brink of collapse. What’s particularly interesting here is the timing. Mahathir Mohamad famously clashed with George Soros during the ’98 crisis, going so far as to brand the billionaire a “moron”. Now that the country’s “founding father” is looking to oust Najib, it will be interesting to see what role he plays in shaping Malaysia’s response to the current financial crisis and on that note, we’ll leave you with a quote from Dr. Mahathir ca. 1997:

“I know I am taking a big risk to suggest it,but I am saying that currency trading is unnecessary, unproductive and immoral. It should be stopped. It should be made illegal. We don’t need currency trading. We need to buy money only when we want to finance real trade.”

 

end

(courtesy zero hedge)