sept 3/ECB to adjust QE with increases in allotments/Higher QE sends gold down?/London’s financial times return tightness in gold/Gold hit today as China is off on a holiday/ Silver rises slightly again/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1123.70 down $8.80   (comex closing time)

Silver $14.70 up 4 cents.

In the access market 5:15 pm

Gold $1125.50

Silver:  $14.70

Today China is closed and this country is a major purchaser of gold. Thus without these players, it was easy for our bankers to manipulate gold today.  Surprisingly they could not knock silver down.

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

At the gold comex today we had a poor delivery day, registering only 3 notices for 300 ounces  Silver saw 320 notices for 1,600,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.56 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest rose by 1128 contracts despite the fact that silver was up in price by only 5 cents yesterday. Again, our banker friends used the opportunity to cover as many silver shorts as they could but failed.  The total silver OI now rests at 158,141 contracts   In ounces, the OI is still represented by .790 billion oz or 113% of annual global silver production (ex Russia ex China).

In silver we had 320 notices served upon for 1,600,000 oz.

In gold, the total comex gold OI collapsed again to 408,785 for a loss of 1489 contracts. We had 4 notices filed for 400 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 a small change in silver inventory at the SLV, a withdrawal of 140,000 oz/ Inventory rests at 324.923 million oz.

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

1. Today, we had the open interest in silver rise by 1128 contracts up to 158,141 despite the fact that silver was up by only 5 cents in price with respect to Wednesday’s trading.   The total OI for gold fell by 1128 contracts to 408,785 contracts, as gold was down by $6.20  yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3.  The Big ECB announcement of further QE adjustments (6 commentaries)

4. Important zero hedge commentary on Japan (zero hedge)

5. Important commentary from David Stockman on the USA economy and on the plight of the emerging markets.  He uses Brazil as an example.  (David Stockman)

6 Oil related story:  Saudi Arabia cuts oil price to the world;

(zero hedge)

11 Trading of equities/ New York

12.  USA stories:

a) 1 story today on NY trading

b) Challenger Gray Christmas report on layoffs on tap to equal 2008:


c. Markit services PMI surprises to the upside/may influence the Fed

d) Initial jobless climbs rise by the most in 2 months (BLS)

e.2nd largest USA pension fund set to liquidate 12% of portfolio ahead of the next crash.  (zero hedge)

13.  Physical stories:

  1. London’s Financial times reports on tightness in LBMA gold (London’s Financial Times)
  2. Jessie of American cafe addresses the fact that tightness in the gold market is being reported by mainstream media.
  3. Alasdair Macleod on the dangers of eliminating cash
  4. Peter Cooper of Arabian Money suggests that there maybe something to the probe into gold/silver manipulation by the EU
  5. Bill Holter interview with SGT

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

The total gold comex open interest fell from 410,274 down to 408,785 for a loss of 1489 contracts despite the fact that gold was down $6.20 with respect to 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. We now enter the  delivery month of September and here the OI fell by 7 contracts down to 190 . We had 4 notices filed yesterday so we lost 3 contracts or 300  oz will not stand for delivery in this non active month of September. The next active delivery month is October and here the OI fell by 881 contracts up to 26,779. The big December contract saw it’s OI fall by 1261 contracts from 281,397 down to 280,136. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was estimated at 105,259 which is poor  . The confirmed volume on Wednesday (which includes the volume during regular business hours + access market sales the previous day was poor at 118,205 contracts.
Today we had only 3 notices filed for 300 oz.
And now for the wild silver comex results. Silver OI rose by 1,128 contracts from 157,013 up to 158,141 despite the fact that  silver was up by 5 cents in price yesterday . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. Today we witnessed a rather large contraction in OI. 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 in the active delivery month of September. Here the OI fell by 107 contracts to 1241. We had 78 notices filed yesterday, so we lost 29 contracts or an additional 145,000 oz will not stand for delivery in this active delivery month of September. The estimated volume today was estimated at 20,717 contracts (just comex sales during regular business hours) which is poor.  The confirmed volume on Tuesday (regular plus access market) came in at 41,109 contracts which is good in volume.
We had 320 notices filed for 1,600,000 oz.

September contract month:

Initial standings

September 3.2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz
nilDeposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 32.15oz (Delaware)


1 kilobar

No of oz served (contracts) today 3 contracts  (300 oz)
No of oz to be served (notices) 187 contracts (187,000 oz)
Total monthly oz gold served (contracts) so far this month 12 contracts(1,200 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 5280.5   oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 0 customer withdrawals:
total customer withdrawal: nil oz
We had 1 customer deposits:
 i) Into Delaware; 32.15 oz
(0ne kilobar)

Total customer deposit: nil  oz

We had 0  adjustments:

JPMorgan has 4.41 tonnes left in its registered or dealer inventory. (142,044.079 oz)  and only 830,783.754 oz in its customer (eligible) account or 23.05 tonnes

Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 3 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 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 (12) x 100 oz  or 900 oz , to which we  add the difference between the open interest for the front month of September (190 contracts) minus the number of notices served upon today (3) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the September contract month:
No of notices served so far (12) x 100 oz  or ounces + {OI for the front month (190) – the number of  notices served upon today (3) x 100 oz which equals 19,900 oz  standing  in this month of Sept (.6189 tonnes of gold).
Total dealer inventory 324,677.368 or 10.098 tonnes
Total gold inventory (dealer and customer) =7,219,619,271 or 224.56  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.56 tonnes for a loss of 78 tonnes over that period.
And now for silver

September silver initial standings

September 3 2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 131,513.067 oz


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 432,487.710 oz (Brinks, Scotia)
No of oz served (contracts) 320 contracts  (1,690,000 oz)
No of oz to be served (notices) 921 contracts (4,605,000 oz)
Total monthly oz silver served (contracts) 611 contracts (3,055,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil
Total accumulative withdrawal  of silver from the Customer inventory this month 4,392,982.7 oz

Today, we had 0 deposits into the dealer account:

total dealer deposit; nil oz

we had 0 dealer withdrawal:
total dealer withdrawal: nil  oz
We had 2 customer deposits:
 i) Into Brinks:  131,675.34 oz
ii) Into Scotia: 300,812.37 oz

total customer deposits: 432,487.710  oz

We had 2 customer withdrawals:
i) Out of CNT:  120,310.45 oz
ii) out of Delaware; 11,202.617 oz

total withdrawals from customer: 131,513.067  oz


we had 2  adjustments
i) Out of CNT:
55,261.38 oz was removed from the dealer account and this landed into the customer account of CNT
Out of HSBC:
ii) 10,220.20 oz was removed from the dealer and this landed into the customer account of HSBC
Total dealer inventory: 52.757 million oz
Total of all silver inventory (dealer and customer) 168.241 million oz
The total number of notices filed today for the September contract month is represented by 320 contracts for 1,600,000 oz. To calculate the number of silver ounces that will stand for delivery in September, we take the total number of notices filed for the month so far at (611) x 5,000 oz  = 3,055,000 oz to which we add the difference between the open interest for the front month of September (1241) and the number of notices served upon today (320) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
611 (notices served so far)x 5000 oz + { OI for front month of August (1241) -number of notices served upon today (320} x 5000 oz ,=7,660,000 oz of silver standing for the September contract month.


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:
sept 3/no change in gold tonnage at the GLD/inventory rests at 682.59 tonnes.
Sept 2.2015: no change in gold tonnage at the GLD/inventory rests at 682.59 tonnes
Sept 1/2015: no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 31./no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
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
Sept 3/2015 GLD : 682.59 tonnes

And now SLV:

sept 3/we had a small withdrawal of 140,000 oz of silver from the SLV/Inventory rests at 324.923 million oz

Sept 2:  we had a small withdrawal of 859,000 oz of silver from the SLV vaults/inventory rests tonight at 325.063 million oz

September 1/no change in inventory over at the SLV/Inventory rests tonight at 325.922 million oz

August 31.a huge addition of 954,000 oz were added to inventory today at the SLV/Inventory rests at 325.922 million oz

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

August change in inventory at the SLV/Inventory rests at 324.698 million oz

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

September 3/2015:  tonight inventory rests at 324.923 million oz
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 9.9 percent to NAV usa funds and Negative 9.8% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.6%
Percentage of fund in silver:37.1%
cash .3%( Sept 3/2015).
2. Sprott silver fund (PSLV): Premium to NAV falls to+.08%!!!! NAV (Sept 3/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to – .31% to NAV September 3/2015)
Note: Sprott silver trust back  into positive territory at +.08% Sprott physical gold trust is back into negative territory at -.31%Central fund of Canada’s is still in jail.

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

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

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

(courtesy/Mark O’Byrne/Goldcore)

“No Safe Assets Anymore” So “Focus On Precious Metals” – Faber


Today’s Gold Prices: USD1130.05, EUR 1005.88 and GBP 739.63 per ounce.
Yesterday’s Gold Prices: USD 1140.00, EUR 1010.73 and GBP 746.46 per ounce.

“No Safe Assets Anymore” So “Focus On Precious Metals” – Faber

Respected economist and historian and the editor of the ‘Gloom, Boom & Doom Report’ Marc Faber warned on Bloomberg TV’s Market Makers yesterday that there are now “no safe assets” including deposits and said that he is focusing “on precious metals.”

In another informative and interesting interview, Faber spoke about dangerous central bank policies and the stupidity of QE, the cause of inequality including competitive currency devaluations and warned that even deposits are no longer safe.

Marc Faber - No Assets Safe Anymore

Marc Faber – There Is No Safe Asset Anymore (via Bloomberg TV)

“I think that because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks there is no safe asset anymore. When I grew up in the ’50s it was safe to put your money in the bank on deposit. The yields were low, but it was safe.”

“But nowadays, you don’t know what will happen next in terms of purchasing power of money. What we know is that it’s going down.”

He was trenchant in his criticism of central bank monetary policies:

“In my humble book of economics, wealth is being created through, essentially, a mixture of capital spending, and land and labor. And if these three production factors are used efficiently, it then creates a prosperous society, as America became prosperous from its humble beginnings in 1800, or thereabout, to the 1960s, ’70s. But it’s ludicrous to believe that you will create prosperity in a system by printing money. That is economic sophism at its best.”

Faber said that investors should “focus on precious metals” and gold and precious metal mining shares.

“I would rather focus on precious metals, gold, silver, platinum because they do not depend on the industrial demand as much as base metals, as industrial commodities.”

Marc Faber is a long-time advocate of owning physical gold which action he describes as being “your own central bank” and he believes that Singapore is the safest place to store gold internationally.

Marc Faber Video on Storing Gold in Singapore

Essential Guide To Storing Gold In Singapore

Essential Guide To Storing Gold Offshore



Tightness reported in London gold market


Gold Demand from China and India Picks Up

By Henry Sanderson
Financial Times, London
Wednesday, September 2, 2015

London’s gold market is showing tentative signs of increased demand for bullion from consumers in emerging markets, after the price of the precious metal fell to its lowest level in five years in July.

The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.

The rise “does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi. …

… For the remainder of the report:



And Jessie of Americain cafe comments on the fact that mainstream is getting the idea of the tightness of gold in London:

(courtesy Jessie/Americain/cafe)



02 September 2015

Financial Media Wakes Up to ‘Physical Tightness’ In London Gold Bullion Market

How interesting that the Financial Times has finally noticed ‘tentative signs of increased demand for bullion from consumers in emerging markets.’ You know, those obscure places with difficult names such as I-N-D-I-A and C-H-I-N-A.

It’s not all that new of a phenomenon, mates. Our friend Nick has been tracking it, and we have been talking about that here at Le Cafe, for a couple years now. See the charts below.

And we have also been hearing about ‘physical tightness in the market for gold for immediate delivery.’ While the ‘cost of borrowing gold has risen sharply in recent weeks.’

Even while the price of gold was shoved lower on the non-delivery paper markets of The Bucket Shop, helping to crater the deveopment and production of mining companies.

Sounds like borrowing gold for physical delivery is starting to be a dodgy business, a little hard to manage at such high leverage of claims to items.

Wait until people start realizing that there is a diminishing mix of deliverable and of ‘borrowed gold’ backing up a pyramid of derivatives and paper claims. Is that the sound of a spoon scraping the bottom of the pot yet?

What happened to the theory of higher prices to relieve demand in excess of supply?

And where is that ‘borrowed gold’ coming from, by the by? It must belong to someone, and they may even think it is safely tucked away while it is on its way to Asia via Switzerland.

If the LBMA has been doing what some think they have been doing with demand and available supply, then we haven’t seen anything yet.

Never be the last one out of the pool.

But let’s see how all this plays out.



(courtesy Peter Cooper/Arabian

Don’t dismiss the EU investigation into alleged gold and silver price fixing

Posted on 03 September 2015 with no comments from readers


Goldbugs are bemused by reports that the European Union competition watchdog is investigating alleged ‘anti-competitive behavior’ by participants in the precious metals market.

But anybody who remembers how the EU broke up the cement cartel a couple of decades ago will know that this is a watchdog that has very powerful teeth. It’s fines can bankrupt even very large companies or banks.

Prior evidence

True the goldbugs have watched and waited in the past when various investigations into alleged precious metal price fixing have been launched in the US, UK and Germany. These investigations have quietly concluded that nothing was wrong, despite some very convincing evidence from market watchers and industry experts.

The general view in the gold community is that the central banks themselves manipulate the gold price to help dampen inflation expectations. And the central banks are above the law in such matters.

However, they may have met their match in the EU competition watchdog. According to the Treaty of Rome and its later additions, EU law is the supreme authority, and even central banks are subservient to its law.

The European Union is particularly strong on maintaining a level playing field in terms of business competition and market pricing. There was a time big cement firms thought they were above EU law, until one day investigators turned up first thing in the morning to seize documents and take away computers.

After rather a short period of time the huge fines were made, hundreds of millions of dollars that really hurt profits. The cement cartel collapsed and prices fell, and so did their share prices.

EU calling

Could the bullion banks be the next to get that knock on the door early one morning? The EU investigators could do worse than start by reading back pages of the website which regularly documents the false trades used to depress gold prices that are so blatant a blind man in a coal cellar could see them.

Why are these trades initiated? Who does it? On who’s orders are they operating? What is the benefit to them of these blatant price manipulations.

These are a few of the awkward questions the EU competition guys might like to put to those few players who count in the precious metals market. Could this be another cement cartel for them to bust? Why not? It is just as obvious.




Posted on 03 September 2015

(courtesy Alasdair Macleod)

On the danger of eliminating cash.

Alasdair Macleod: The danger of eliminating cash


By Alasdair Macleod, St. Helier, Channel Islands
Thursday, September 3, 2015

n the early days of central banking, one primary objective of the new system was to take ownership of the public’s gold, so that in a crisis the public would be unable to withdraw it.

Gold was to be replaced by fiat cash which could be issued by the central bank at will. This removed from the public the power to bring a bank down by withdrawing their property. A primary, if unspoken, objective of modern central banking is to do the same with fiat cash itself.

There are of course other reasons for this course of action. Governments insist that they need to be able to trace all private sector transactions to ensure that criminals do not pursue illegal activities outside the banking system, and that tax is not evaded. For the government, knowledge of everything individuals do is necessary control. However, in the monetary sense, anti-money laundering and tax evasion are not the principal concern. Central banks are fully aware that the financial system is fragile and could face a new crisis at any time. That’s why cash in their view must be phased out. …

… For the remainder of the commentary:…



 Bill Holter/interview with SGT:

Published on Sep 2, 2015

Bill Holter is back and he says “Something Just Happened”. In fact, something changed three weeks ago and a series of events began which has led to a cascading collapse in global markets and some very strange happenings in the precious metals markets.

In silver last week there was confirmed volume of 122,482 contracts traded in a single day which represents 612 MILLION ounces of physical silver … or over 87% of annual global silver production. Meanwhile China has sold $100 billion worth of Treasury bonds over the last two weeks.

Bill warns, the leverage in all markets suggests a “holiday” will occur because the unwinding cannot be orderly. The “unwinding” by the way will need to undue the credit built upon credit going all the way back to Aug. 15, 1971.

Mr; Holter concludes: “We’re going to have an absolute Biblical collapse of our standard of living, and no one even has a clue that it’s coming.”

Attachments area


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

1 Chinese yuan vs USA dollar/yuan rises by a tiny bit, this  time to   6.3549/Shanghai bourse: closed 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 86.99   or 0.48.%

3. Europe stocks all in the green     /USA dollar index down to  95.92/Euro up to 1.1217

3b Japan 10 year bond yield: rises to .406% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.06

3c Nikkei now below 19,000

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

3e WTI:  46.10 and Brent:  50.30

3f Gold up  /Yen down

3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil up for WTI and up for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to .793 per cent. German bunds in negative yields from 4 years out.(China must be selling copious amounts of German bunds)

 Greece  sees its 2 year rate rises to 12.56%/Greek stocks this morning up by 2.45%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield rises to  : 9.39%

3k Gold at $1127.75 /silver $14.64  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 1/3 in  roubles/dollar) 67.27,

3m oil into the 46 dollar handle for WTI and 50 handle for Brent/Saudi Arabia increases production to drive out competition.

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (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 .9700 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0883 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 closer to negativity to +.796%

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 2.18% early this morning. Thirty year rate below 3% at 2.95% / yield curve flatten/foreshadowing recession.

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


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

With China’s Market Chaos Offline, Futures Levitate On ECB Easing Hopes

With China closed today, the usual overnight market manipulation fireworks out of Beijing were absent but that does not meant asset levitation could not take place, and instead of the daily kick start out of China today it has been all about the ECB which as we previewed two days ago, is expected– at least by some such as ABN Amro to outright boost its QE, while virtually everyone else expects Draghi to not only cut the ECB’s inflation forecast, which reminds us of the chart which in March we dubbedthe biggest hockeystick ever (we knew it wouldn’t last)…


… but to verbally jawbone the Euro as low as possible (i.e., the Dax as high as it will get) even if the former Goldmanite does not explicitly commit to more QE.

Elsewhere in Asia, stock markets traded mostly higher amid a rebound in the recent global stock market rout, with Chinese markets closed for Victory Day. The Nikkei 225 (+0.5%) outperformed as risk on sentiment saw all sectors trade in the green, driven by another burst of USDJPY levitation early in the session. ASX 200 (-1.4%) bucked the trend after Myer (-16.81%) fell the most on record following reports of a share sale, while a miss on Australian retail sales also weighed on sentiment. 10yr JGBs traded lower as strength in Japanese equities dampened demand for safer assets, while a well-received enhanced liquidity auction failed to spark demand.

Despite the looming risk events, most notably tomorrow’s NFP payrolls which is the September rate hike make-or-break event, stocks in Europe traded higher (Euro Stoxx: 1.5%) as market participants used the decrease in volatility amid the close of markets in China for Victory Day parade as an opportunity to re-establish longs. Nevertheless, the upside was led by health care sector, underpinning the fragility of the latest bounce. In terms of notable equity movers, EasyJet (+5.3%) shares surged higher after the carrier raised its FY pre-tax view, on the other hand EDF (-4.2%) shares traded lower since the open after the company announced that their new nuclear plant in Normandy is being pushed back until the end of 2018 and will run USD 2.2bIn over budget.

In terms of fixed income, Bunds head into the North America crossover in modest positive territory ahead of the risk event of the day in the form of the ECB rate decision, with market participants looking out for any indications of a possible extension to ECB QE.

In FX, EUR gained across the board, albeit modestly, as market participants positioned for the upcoming ECB policy meeting and reduced carry trade allocation. This in turn saw shorter-dated vols collapse, however there is a risk of another leg higher in case the President of the ECB delivers a dovish statement, which in widely expected to focus on the developments surrounding China and Eurozone inflation.

Despite the recovery in riskier assets overnight, AUD remains under selling pressure, with the selling driven by less than impressive Australian retail sales data which printed its 1st decline in 3 months which saw AUD/USD fall below 0.7000 level.

Going forward, market participants will get to digest the ECB rate decision and accompanying press conference as well as the release of the latest US weekly jobs report and ISM non-manufacturing.

With China offline, another asset class missed its usual acrobatis: oil. The energy complex heads into the NYMEX pit open fairly flat after light newsflow overnight, while the metals complex sees an unwind of recent trends, with gold lower on the day, while palladium underperforms after the recent pressure on the metal given that China makes up 20% of global palladium consumption.

Market Wrap

  • Europe’s Stoxx 600 rises 1.6%
  • DAX up 1.9%, FTSE 100 up 2%
  • V2X down 9.3% at 30.5
  • Euro up 0.05% at $1.1232
  • LME 3m Nickel up 2.1%, LME 3m Copper up 2.1%
  • S&P 500 futures up 0.4% at 1955.70
  • Credit: iTraxx Main down 1.7 bps to 72.51, iTraxx Crossover down 4.8 bps to 336.07
  • Chinese markets closed for 2-day holiday

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Despite the looming risk events, stocks in Europe traded higheras market participants used the decrease in volatility amid the close of markets in China for Victory Day parade as an opportunity to re-establish longs
  • EUR gained across the board, albeit modestly, as market participants positioned for the upcoming ECB policy meeting and reduced carry trade allocation
  • As well as the ECB rate decision, market participants will get to digest the release of the latest US weekly jobs report, ISM non-manufacturing and EIA natural gas storage change data
  • Treasuries steady before ECB rate decision, Draghi press conference; market focus on tomorrow’s August payrolls report, est. 217k, unemployment rate 5.2%.
  • Weaker commodity prices, slowing trade and a rout in global equities make it likely the ECB will downgrade its quarterly inflation forecasts at his press conference on Thursday
  • The ECB is seeking to acquire as much as EU645m ($725m) of Dutch and Irish mortgage bonds as it increases efforts to buy asset-backed securities, according to three people familiar with the matter
  • Bill Gross says if the Fed raises rates in September, policy makers are likely to wait at least six months before a second hike. Market measures indicate the wait may be twice that long
  • The war of words between Republican presidential candidates Donald Trump and Jeb Bush took another personal turn on Wednesday when Trump admonished his rival for not speaking English on the campaign trail
  • Chinese hedge fund Shanghai Chaos Investment Co. apologized to investors for losses from a deepening rout in the country’s financial markets
  • As fighter jets streaked through the skies of Beijing and tanks rolled through Tiananmen Square to commemorate the end of World War II, Chinese President Xi Jinping told the world that the nation was committed to peace and announced the biggest cuts to the army in almost two decades
  • One IG deal, a SSA, priced $1b yesterday, first in 11 sessions. No HY since August 19. BofAML Corporate Master Index -1bp to +169; reached +172 last week, widest since Sept 2012; YTD low 129. High Yield Master II OAS -5bp to +573; reached +614 last week, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly higher. Asian stocks mostly higher, European stocks gain, U.S. equity-index futures rise. Crude oil falls, gold lower, copper gains

US Event Calendar

  • 7:30am: Challenger Job Cuts y/y, Aug. (prior 125.4%)
  • 8:30am: Initial Jobless Claims, Aug. 29, est. 275k (prior 271k)
    • Continuing Claims, Aug. 22, est. 2.255m (prior 2.269m)
  • 8:30am: Trade Balance, July, est. -$42.2b (prior – $43.8b)
  • 9:45am: Markit US Composite PMI, Aug. F (prior 55)
    • Markit US Services PMI, Aug F, est. 55 (prior 55.2)
  • 9:45am: Bloomberg Consumer Comfort, Aug. 30 (prior 42)
  • 10:00am: ISM Non-Mfg Composite, Aug., est. 58.2 (prior 60.3)
    • Central Banks
  • 7:45am: ECB Main Refinancing Rate, est. 0.05% (prior 0.05%)
  • 8:30am: ECB’s Draghi holds news conference
  • 9:00pm: Fed’s Kocherlakota speaks in Missoula, Mont.
  • 11:00am: U.S. to announce plans for auction of 3M/6M bills, 3Y/10Y notes, 30Y bonds

DB’s Jim Reid completes the overnight recap

With China off on holidays for the rest of the week, one source of recent volatility will be off the table until Monday at least. However before you relax and put your feet up remember that its ECB meeting day today and payrolls tomorrow, the latter being the most important economic print left before one of the most eagerly anticipated FOMC meetings in a decade 10 days later.

With regards to the ECB, Draghi’s press conference will be closely watched. DB’s Mark Wall expects the council to, as a minimum, highlight downside risk, reiterating its commitment to QE and signaling its ‘readiness’ to act. However Mark thinks that this may not be enough and instead the rhetoric may go further than in the last meeting. In particular, the Governing Council and Draghi could explicitly mention that there is an increased likelihood that the ECB will have to do more to achieve a sustainable inflation path towards 2%. This could eventually include extending the duration or increasing the monthly target of asset purchases. Also worth watching will be the staff inflation forecasts where Mark expects the 2017 forecast to be revised marginally lower. This fits in with our view that central banks will likely be forced to do more for some time to come.

We’ll fully preview payrolls tomorrow but it’s been interesting reading Joe LaVorgna’s work over the last few weeks. He thinks there is a negative seasonal bias in the August report that if repeated again tomorrow could be the final nail in the coffin for a September hike. So his forecast is 170k on payrolls versus 217k on the street.

In a prelude to Friday’s report, there was a fair degree of attention on yesterday’s ADP employment change reading, which while coming in slightly below expectations at 190k (vs. 200k expected), was sufficient enough to keep payrolls forecasts unchanged for the most past. July’s reading was revised down a touch (to 177k from 185k) while gains last month – with the exception of the energy industry – were said to be largely broad based. The data saw 10y US Treasury yields nudge up 4bps to an intraday high of 2.197%, before paring all of that move following some weak July factory orders data (+0.4% mom vs. +0.9% expected), only to then move higher into the close again to finish up 3.2bps on the day at 2.185%. A decent rebound in US equity markets with the S&P 500 closing up 1.83% was the other notable highlight yesterday, seemingly on the back of some relief out of China as bourses there rebounded off the day’s lows following some more reports of state intervention ahead of the two-day holiday.

With China out, it’s been a decent start to trading in Asia and one that’s felt a lot calmer relative to recent sessions. Markets in Japan in particular are following the lead from the US yesterday with the Nikkei (+1.40%) and Topix (+1.64%) enjoying a strong session. The Kospi (+0.09%) has seen some more modest gains while the ASX is down -1.03% as we to print. S&P 500 futures are more or less unchanged and 10y Treasuries are down around a basis point. In the FX space it’s been a relatively mixed start across most EM currencies, while DM currency moves are highlighted by more weakness for the Aussie Dollar which has fallen 0.3% and pushing close to breaking through $0.70 following a softer than expected retail sales print this morning.

Back to markets yesterday. One source of volatility which continues to plague markets at the moment is the Oil complex where yesterday we saw WTI (+1.85%) bounce back after the heavy losses on Tuesday. That closing level masked a steep decline of some 6% yesterday afternoon following the latest US supply numbers out of the EIA which showed supplies last week rose 4.7m and the most since April after expectations for a rise of just 900k. However after the falls, a late-afternoon rally helped the complex close back in positive territory.
The rest of the US dataflow was a tad more mixed meanwhile. Nonfarm productivity for Q2 surprised to the upside with a 3.3% qoq saar reading (vs. +2.8% expected) although unit labour costs for the same quarter surprised to the downside (-1.4% qoq saar vs. -1.2% expected). There seemed to be more attention than usual on the Fed’s Beige Book however (although perhaps a sign of just a quieter day all round for news-flow) after the findings revealed that 11 out of the 12 Fed districts reported moderate or modest growth while several districts were said to have reported increasing wage pressure as a result of labour market tightening. Of interest also were the notable mentions of China by some of districts in various contexts including as a source of slowdown in certain industries. The country was mentioned eleven times in all having not been mentioned in the July release. All told though there’s been no change to the current pricing for a September liftoff relative to this time yesterday with it staying at 32%.

It was a pretty quiet session closer to home in Europe yesterday. After reasonably muted moves during the session, most European equity markets closed up with the Stoxx 600 (+0.27%) in particular snapping a two-day losing run. European credit markets finished more or less unchanged while 10y Bunds ended 1.5bps lower in yield at 0.780% and trading in a fairly tight range with very little data in the region to react to. An in-line Euro area PPI print for July (-0.1% mom) the only notable release yesterday.

Of more interest in Europe was Greece and specifically with regards to the latest GPO opinion poll which showed New Democracy taking a small lead over Syriza. The poll showed Syriza gaining 25% of the total votes which was behind New Democracy at 25.3%. These polls will take on more importance as we run closer to the September 20th election date, but for now it’s interesting to see the first signs of ND taking a (albeit marginal) lead over Syriza. Expect to see more and more polls out over the next couple weeks.

Turning over to today’s calendar now. It’s set to be a busier session this morning for data in Europe with the final August services and composite PMI readings for the Euro area, Germany, UK and France as well as employment data in the latter. Euro area retail sales data is also expected before the ECB meeting at lunchtime. Elsewhere and over in the US this afternoon we’ve got more employment data in initial jobless claims and Challenger job cuts although the highlight may well be the ISM non-manufacturing reading and employment component in particular. The final services and composite PMI prints will also be due along with the July trade balance.


Early this morning Sweden decided to hold waiting until the ECB makes its move as to whether they will increase QE, now that China has basically tightened:
 Sweden checks:  It is now up to the ECB!!
(courtesy zero hedge)

In Risky Move, Riksbank Holds Rates But Warns Will Cut If ECB Boosts QE

In July, Sweden’s Riksbank did a funny thing – they doubled down on QE even after it became clear that QE had failed. And we don’t just mean “failed” in the somewhat abstract sense that all global QE has failed when it comes to bringing about a robust recovery and shaking the global economy out of the demand doldrums.We mean it actually failed. As in, the Riksbank sucked up so much of the available high quality collateral that 10Y yields and the krona started moving in the wrong direction in a very non-accommodative self-feeding loop. 

Be that as it may, not everyone was convinced that demonstrable evidence of failure would be enough to deter further easing at Thursday’s meeting, but lo and behold, the Riksbank stood pat. 


Of course in a world where everyone has been forced to adopt an overwhelming easing bias, being complacent can be a death sentence, so we can only assume that the Riksbank might be simply hoping against hope that everyone else also remains on hold so that it’s not forced to triple down on the first official QE failure and indeed, the consensus seems to be that the bank’s perceived complacency will be temporary – very temporary. Here’s a look at some analyst commentary courtesy of Bloomberg:  

Nordea sticks to forecast of a Riksbank rate cut in Oct. for now, but says the odds of further easing have diminished. SEK developments remain crucial, Nordea says in note. Says Riksbank on the optimistic side on inflation forecast longer out; together with the easing bias in the rate path this suggests that Riksbank is not done yet.


Riksbank Will Need to Do More This Year: Danske Bank. Bank could cut rates further in December, and “it’s also quite likely they’ll need to do more in terms of QE,” Michael Grahn, analyst at Danske Bank, says by phone.


SEB Sees High Likelihood of Riksbank Rate Cut in Oct. Risk for krona strength if Riksbank doesn’t confirm determination to do more increases probability for more action, as market expectations for another rate cut continue to be high, SEB says in note.

You get the idea.

And of course, after the policy announcement, the krona rocketed to a 5-week high against the euro.

Swedish krona rises as much as 0.72% vs EUR to 9.4002, highest since July 24 after Riksbank holds key rate unchanged at -0.35%.

Note that this looks to have been a particularly risky thing to do ahead of today’s ECB decision, especially in light of expectations for Draghi to announce an expansion of PSPP. And the Riksbank is well aware of the potential pitfalls. From Bloomberg again:

Riksbank Governor Stefan Ingves says any rapid strengthening of krona would pose risk to inflation rise. Riksbank won’t be passive if ECB makes big changes in its policy, Riksbank Governor Stefan Ingves says at press conference.

And at the punchline to the whole charade is that, as predicted by Morgan Stanley, and as predicted here when we noted in July that Sweden is undoubtedly a proponent of the post-crisis central banker mantra of “if it’s broken, break it some more,” the Riksbank effectively acknowledged that QE had broken the market but instead of taking that as a warning, it will simply move on to breaking other markets:


And finally, as tipped above, the currency wars will continue unabated:

*  *  *
Because no Riksbank post is complete without it…
No surprises yet as rates remain unchanged.  However we must wait until the press conference to see if QE will be increased:
(courtesy zero hedge)

ECB Keeps Rates Unchanged, Focus Turns To Draghi Press Conference

As expected, there was no change in the ECB’s three key interest rates, with the main refi, lending and deposit rates staying where they were at 0.05%, 0.30% and -0.20%, respectively.

From the press release:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.20% respectively.


The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

This is not a surprise. The question is whether Draghi will hint at, or outright boost, QE in 45 minutes, how much he will cut Europe’s GDP and inflation outlook, and whether there will be another confetti shower.

Stay tuned



Then the panic button was pressed.  Draghi to “increase” QE by increasing the quantity of bonds allowed per country.  He also decreased inflation for the entire region, something that the ECB did not wish for:


(courtesy zero hedge)

Mario Draghi’s Panic Button, Birthday Presser – Live Feed

Now that the formalities are out of the way with rates unchanged, the fireworks can begin as Mario Draghi gets set for his post-meeting presser where markets hope to hear that the ECB is set to expand QE in the face of collapsing EMU inflation expectations, mounting global headwinds, rising volatility, and EM chaos.



Immediately stocks from Europe and the uSA surged:

(courtesy zero hedge)

Stocks Surge As ECB Expands QE Monetization Limits, Boost Purchase Threshold From 25% to 33% Per Issue

ABN Amro was right: moments ago Mario Draghi announced that, just as the Pavlovian Dogs were salivating, the ECB would not leave markets hanging, and while not boosting QE in size, announced he would increase the amount of monetizable assets, i.e., the ECB’s share limit per CUSIP equivalent, from 25% to 33%. The result: an immediate surge in both stocks (ES jumping 21 points) and bonds (the 10Y dropping to 2.156%).


Which has snapped EURUSD 100pips lower – erasing all the post-FOMC Minutes gains…


But wait, that’s not all: as was clear to all but the most tenured economists, Draghi also just cut Europe’s GDP outlook across the board.


And here is why more QE, also in absolute terms, is also assured:   (Harvey:  HICP =  Harmonized Consumer Prices)


Expect the stock surge to continue, because there is nothing more bullish for risk that confirmation what sent risk higher in the first place isn’t working, so even more will have to be used.



What a joke!!

Take a look at their forecasts and how accurate that they have been for the past few years:


(courtesy zero hedge)

The Bigger-est Hockeystick Ever: Presenting The ECB’s Latest Inflation Expectations

Back in March, we mocked the ECB’s inflation forecasts with a post titled “Mario Draghi Reveals Biggest. Hockeystick. Ever!”, which highlighted the ECB’s ridiculous expectation that inflation would soar from 0.0% in 2015 to 2016. We though no other hockeystick could possibly surpass this.

We were wrong.

Behold the ECB’s latest inflation expectations. Something to note: in March 2014, full year inflation for 2015 was expected to be 1.3%. 18 months later it is 0.1%. But don’t worry, the ECB will be spot on with its forecast of 1.1% inflation in 2016 (this was 1.5% 6 months ago), and 1.7% in 2017. Just you wait.

Source: the former Goldman vice chairman currently in charge of the ECB’s money printer



After about a half hour stocks erase as the ramp USA/JPY fizzles.

Later in the day it would continue to ramp southbound!!

(courtesy zero hedge)

Stocks Erase Draghi “Moar QE” Gains As USDJPY Tumbles

Draghi – we have a problem. They hoped, he came, they sold. US stocks and bonds knee-jerk rallied on the “expanding QE” promise from Draghi thi8s morning but all those gains have been erased now as USDJPY ‘fun-durr-mentals’ drag it lower. If not even the latest reduction in European economic forecasts can push stocks higher, we central banks may have a real problem on their hands.



The rally today fizzled because the QE is just not enough.
Then the USA/JPY tanked as this vehicle is the fuel for the USA stocks;
(courtesy zero hedge)


Why The Rally Just Fizzled: Draghi’s “Puff” Was Not Enough

Confused why the blistering rally off the open following Draghi’s uber-dovish commentary has faded? The following note from BMO’s Mark Steele may explain it.

Not Enough Puff


This morning, Draghi adjusts QE to continue to puff up the ECB balance sheet. That’s helpful for global risk markets, but it’s not enough. Globally, the net figure shows central banks are blowing out their reserves;

  • That puff peaked last August – Figure 1 top.
  • Pricing on investment grade corporate credit debt peaked and started to turn lower that same month – Figure 1 middle, and Figure 2.
  • Then finally equities took the blow – Figure 1 bottom.

When mama’s credit market ain’t happy, eventually ain’t nobody happy;

  • That global corporate bond index in Figure 1 is trending lower at an annual rate of 6%/year – Figure 2.
  • Commodities, which didn’t really make it onto central bank balance sheets, have been in a bear market since 2011. They are falling at an annualized rate of 17%/year, and that’s ex everyone’s (yes ours too) focus on crude oil – Figure 3.

So, unless we see a turn in the synchronized bear trends in credit and commodities (and we are always looking), we’ll continue to frame many of our buy ideas in the relative and short-sale ideas in the absolute.


* * *

And this is what next: what goes up on no volume and in lockstep with crude oil, comes down harder and faster and on heavy volume:


With Russell 2000 and Nasdaq in the red now:

The next two commentaries are extremely important.  The first deals with the bond purchases by the central bank of Japan.  As I have indicated to you on several occasions, the central bank has been purchasing bonds greater than 100% of issuance.  In order to continue to engage in QE they needed to find market quantities of bonds to monetize.  They found enough bonds in the national pension fund and as of this quarter, the Japanese pension fund has finally bought enough stocks and sold the required amount of bonds which were immediately sucked up by the central bank.  Now the government is eyeing Post Bank which has about 3 months worth of bonds enough to monetize. The fun will begin in Japan in the next 3 to 6 months as the government will not be able to find enough bonds to monetize.
(courtesy zero hedge)

Suddenly The Bank Of Japan Has An Unexpected Problem On Its Hands

Back in October of 2014, when we explained what the BOJ’s “shocking” QE expansion really meant, we showed a chart that showed the key aspect of Japan’s shock and awe monetization: Kuroda is now monetizing 100% of gross bond issuance.


We cited Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, who said that at the scale of its current debt monetization, the BOJ could end up owning half of the JGB market by as early as in 2018. He added that “The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation.

We are almost one year after this forecast (and a little over two years left before 2018), and not only is Japan’s economy not improving, but it just posted a negative GDP print for the second quarter, suggesting unless there is a remarkable comeback, Japan may suffer its fifth recession since 2007.

All of this was, or should have been, widely known.

But something that wasn’t known, and that has “suddenly” become a very big problem for Kuroda, is precisely what we warned last year would happen sooner or later, and which is a major headache for both the Fed and the ECB: a lack of monetizable supply.

Yesterday, in a story detailing the holdings of Japan’s second largest pension fund, “New Whale Seen Moving Tokyo Markets“, Bloomberg reported that with Japan’s massive $1.2 trillion GPIF “whale” pension fund having largely completely its rebalancing out of JGBs into foreign and domestic stocks (and pushing the Nikkei to 15 year highs in the process) “investors are looking at Japan Post Bank Co. as the next actor big enough to move markets.”

Fair enough: “The bank owned 101.6 trillion yen in sovereign debt at the end of June, with the ratio falling below 50 percent of holdings for the first time.”

This is where it gets interesting: as Bloomberg explains, “the Bank of Japan needs to find about 45 trillion yen in JGBs from the market to meet its annual goal for boosting money supply to stimulate the economy. Japan Post Bank, with 49.2 percent of its 206.5 trillion yen held in domestic debt, fits the profile and needs to seek higher profits ahead of a possible public share sale this year.”

In other words while the BOJ is ravenously soaking up all debt it can find, it suddenly can’t find any debt to soak up!

The punchline:

“GPIF sold massive amounts of Japanese debt and the BOJ absorbed it very quickly,” said Shuichi Ohsaki, a rates strategist at Bank of America Corp.’s Merrill Lynch unit in Tokyo. “So now that GPIF’s selling has finished, the focus will be on who else is going to sell. Unless Japan Post Bank sells JGBs, the BOJ won’t be able to continue its monetary stimulus operations.”

Oops: reread the bolded sentence again because in 6-9 months, following the next major market swoon when everyone is demanding more action from the BOJ, “suddenly” pundits will have discovered the biggest glitch in the ongoing QE monetization regime, namely that the BOJ simply can not continue its current QE program, let along boost QE as many are increasingly demanding, unless it finds willing sellers, and having already bought everything the single biggest holder of JGBs, the GPIF, had to sell, the BOJ will next shakedown the Post Bank, whose sales of JPY45 trillion in JGBs are critical to keep Japan’s QQE going.

The sale of that amount, however, by the second largest holder of JGBs, will only last the BOJ for the next 3 months. What next? Which other pension fund will have the massive holdings required to keep the BOJ’s going not only in 2016 but also 2017 and onward. The answer: less and less.

And this is where our warning from late 2014 comes in: by monetizing more than the entire Japanese budget deficit, the BOJ is running of out willing sellers. Without those, Japan’s QE, just like that of the ECB, where gross supply is also a key issue for a continent with a trade surplus, will grind to a halt. Better yet, this creates a vicious loop, because with every passing month, the inevitable D-Day when the BOJ has no more TSYs on the offer gets closer, which in turn will force those who bought stocks to sell in anticipation of the end of QE, and to seek the safety of bonds themselves, in effect precipitating the next inevitable Japanese stock market crash.

Don’t expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016’s business. However, one thing is certain: the BOJ will not boost QE, and if anything will have no choice but to start tapering it down – just like the Fed did when its interventions created the current illiquidity in the US govt market – especially since liquidity in the Japanese government market is now non-existant and getting worse by the day. All that would take for a massive VaR shock scenario to play out in Japan is one exogenous JGB event for the market to realize just how little actual natural buyers and sellers exist.

It also explains why Kuroda himself is hinting that the future the of BOJ’s easing trajectory may be limited: in a WSJ article yesterday we read that “recent economic data from Japan is stoking speculation that more easing measures could be on the horizon, but people close to the country’s central bank are playing down the need for such action.”

The real reason why such “actio”n is being played down is not because the BOJ keeps missing its deflation mandate, which is now long forgotten, but simply because the BOJ knows very well, its hands are “suddenly” tied.

The following Stockman commentary is extremely important.
Stockman breaks down his commentary into 2 parts.
Part A:
The first deals with the overvalued S and P where the real P/E is 20 x and not 15. He feels that the bubble will burst hurting a lost of poor souls along the way.
Part B:
Stockman shows by example the plight of the emerging markets and he uses Brazil as an example.
In its heyday, Brazil supplied massive quantities of commodities to China and in return accumulated massive dollars as reserves.  It’s real rose as their economy performed quite well during this period.
Now that China has devalued, it has sent this country into reverse such that they are not accumulating but dishoarding all of their dollar reserves which is causing a fall in the real value as well as causing budgetary deficits and stock market plunges.  They are inflating at 5% even though sales have plummeted by 11%.
Stockman states that the above is the same for many of our emerging markets such as Malaysia, Indonesia, South Korea etc.

( courtesy Stockman’s Corner/David Stockman/)

This Is Not A Retest—-Its A Live Bear!

By the lights of bubblevision, Tuesday’s plunge was just a bull market “retest” of last week’s lows, which posted at 1867 on the S&P 500. As is evident below, the test was passed with 80 points to spare at today’s close.

So according to the talking bull heads—–CNBC had three of them on the screen at once about 2pm—–its time to start nibbling on all the bargains. Soon you may even want to just back up the truck.

You can supposedly see it right here in the charts. The market hit the October 15 Bullard Rip low last week, and has gone careening upwards where it is now allegedly forming a new bottom around 1950. Remember, its a process. Be patient.
^SPX Chart

^SPX data by YCharts

Not on your life! The world is heading into an unprecedented monetary deflation——with output and trade falling nearly everywhere. That implosion is already rumbling through Canada, Mexico, Brazil, Australia, South Korea, Malaysia, Indonesia, Russia, Japan, the Persian Gulf oil states and countless lesser economies in between. And at the center, of course, is the unraveling of the Great Red Ponzi of China.

In the face of this on-coming economic storm, honest financial markets would have been selling off long ago, and, in fact, would never have approached today’s absurd levels of over-valuation. But financial markets have been hopelessly corrupted by two decades of massive central bank intrusion and falsification of asset prices. Consequently, Wall Street punters and their retainers and cheerleaders cannot see the forest for the trees.

Thus, one of today’s CNBC permabull threesome reassured viewers that the US economy is chugging along in fine fashion and that China is a big problem——but for the policymakers in Beijing, not the S&P 500.

The “1000 points of fright” last Monday is actually a gift. You can now buy the market at 15X, which is tantamount to a steal. So he said, and with no inconsiderable air of annoyance that anyone would think otherwise, let alone succumb to panic.

Well, let’s see. The implied “E” in that proposition is $130 per share on the S&P 500 for 2016. But that’s the Wall Street sell-side’s version of earnings ex-items.

So let’s start with where we are at the end of Q2 2015 in the real world of GAAP profits. That is, the kind of earnings that CEOs and CFOs certify to the SEC upon penalty of jail as fair, accurate and complete, according to well settled general accounting principles.

It turns out that the reported LTM net income (latest 12 months as of June 2015) of the 500 largest US companies in the index came in at $97.32 per share. But that’s down considerably from the LTM figure of $103.12 per share in the June quarter of last year, and was off by 8% from peak LTM earnings of $106 per share in the September quarter last fall.

What this means is that the market is not really trading at 15X at all, but closed today at 20X—–which is an altogether different kettle of fish. By the lights of permabulls like CNBCs 2pm trio, of course, the market is always trading at 15X and is always cheap. You might even think that Wall Street’s ex-items year-ahead EPS estimates are goal-seeked—-and you might well be on to something.

In any event, how do we leap the chasm from $97 per share and falling to $130 per share and soaring?  Well, you mount a Wall Street hockey stick, close your eyes to the rest of the world and hope for a swell ride.

In the alternative, you might want to scroll back to nearly an identical inflection point in mid-2007 when the Greenspan housing and credit bubble was nearing its apogee. To be specific, LTM GAAP earnings at the time were about $85 per share and the June 2007 quarter closed with the index at about 1500 or just 4% below its October peak of 1565.

So the market was positioned at 17.6X honest-to-goodness GAAP earnings in the eve of the Greenspan Bubble’s collapse. Needless to say, that was a pretty sporty multiple under the circumstances—–the rot in the Bear Stearns mortgage funds had already been exposed and the sub-prime market had gone stone cold in the spring. Yet it was well below today’s 20X.

Naturally, Wall Street didn’t see it that way at the time. The ex-items consensus for 2008 was $120 per share of S&P 500 earnings, meaning that it was indeed time to back-up the truck. You could buy the broad market for less than 13X, said the talking heads, or more specifically the very same trio that made its appearance today.

Indeed, the chasm between reported GAAP and the forward hockey stick ex-items was $35 per share at that point in time. Ironically, today’s spread between the reported actual and the Wall Street hopium is the exact same $35 per share.

Here’s what happened next. By the June 2008 LTM period, GAAP earnings had fallen to $51 per share and by June 2009, after the meltdown, S&P 500 earnings for the previous four quarters were, well, $8 per share!

That’s right. The great Greenspan financial bubble collapsed; the global economy buckled; and corporate balance sheets were purged of 7-years worth of failed investments and financial engineering maneuvers gone astray, among sundry other losses. In the end, Wall Street’s $120 per share hockey stick got smashed into smithereens.

Eight years later we are at an even more fraught inflection point. The post-crisis money-printing binge was orders of magnitude larger and more radical, and was universally embraced by every significant central bank on the planet. As a consequence, the resulting financial bubble has become far more incendiary than the one which burst in September 2008, and the distortions, deformations and malinvestments in the global economy dramatically more insidious.

Obviously the onrushing collapse of China’s purported miracle of red capitalism is the epicenter of this great global deflation, but every nook and cranny of the world economy is implicated; and its shock waves are already wreaking havoc in areas that were especially swollen by the China trade.

On a nearby page, for example, we outlined the unfolding disaster in Brazil. This chart on the trend in year-over-year retail trade is stunning because Brazil’s inflation rate is above 5%.  So when nominal sales plunge from the boom time rate of 11% to negative 1% in June, it means that real sales are shrinking at nearly a depressionary pace.

By all accounts, in fact, Brazil is plunging into its worst recession in the last half century. After years of booming jobs growth fueled by exports and a massive internal dose of monetary and fiscal profligacy, for example, its economy is now shedding workers at an unprecedented pace.

The point here is that Brazil is just the leading edge of the  epochal worldwide monetary reversal now underway. During the last 15 years its central bank balance sheet literally exploded, rising by more than 10X, while loans to the private sector more than quadrupled in the last seven years alone.

Brazil Central Bank Balance Sheet

Brazil Loans to Private Sector

The consequence was a frenzy of government and household spending and business investment, expansion and speculation that bloated, deformed and destabilized the Brazilian economy beyond recognition. And those distortions were not contained to the Amazon economic basin alone, but where connected by a two-way highway of financial and trade flows that penetrated right into the heart of the US economy.

In the first instance, the massive but artificial and unsustainable export boom to China and its EM satellites generated enormous capital inflows to Brazil which caused its exchange rate to soar, even as its government frantically attempted to contain its rise. During that pre-2012 period, its finance minister even coined the terms “currency wars”.

The effect of the China export boom and the massive capital inflow, however, was to create an economy with apparent dollar purchasing power far greater than its sustainable real wealth and output capacity. This immense distortion is best measured by the US dollar value of its GDP. As shown below, during the six years between 2006 and 2012, Brazil’s dollarized GDP grew at a fantastic 20% annual rate!

Brazil GDP

It is no wonder Miami became a boom town. Giddy Brazilians who had enough sense to realize its socialist government had not performed an economic miracle of fishes and loaves exchanged their red hot real’s for dollars and trucked northward to condo land in south Florida.

At the same time, its booming economy was a magnet for US money managers parched for yield in Bernanke’s ZIRP repressed market and for US exporters temporarily benefited by a dollar/BRL exchange rate that made them suddenly far more competitive. Accordingly, hundreds of billions of hot dollar capital flowed into Brazilian equity and corporate bond markets, while US exports nearly quadrupled in eight years.
US Exports of Goods to Brazil Chart

US Exports of Goods to Brazil data by YCharts

Here’s the point. The US economy was not “decoupled” from Brazil in the slightest during the expansion of the great global monetary boom that has now crested. Nor will it uncouple during the deflationary bust that must necessarily ensue.

The ultimate worldwide hit to US exports is evident in the 20% drop in shipments to Brazil shown in the chart above, and that’s just for starters because its economic depression is just getting underway. Likewise, the panicked flight of hot dollars from Brazil now besetting the global financial markets is only indicative of the turmoil to come as the massive “dollar short” unwinds on a global basis.

So this is not a retest. We are in the midst of an unprecedented global deflation. A real live bear market is once again at hand.


Oil related story:  good reason for oil to rise today@!!

Saudi Arabia Just Cut Crude Selling Prices To The US, Europe And Asia

WTI Crude oil prices are in total panic buying modethis morning as the algos are fully in charge once again. WTI is up 5% this morning in a straight line since US equity markets opened (and USO went vertical). What is most ironic is that Saudi Aramco just slashed prices for crude oil to everyone around the world.


Totally human…


Here’s why Oil ramped… as equity momo algos switch to crude to spark the buying…



But Saudi just slashed prices…


As Bloomberg reports,

Saudi Arabia, the world’s largest crude exporter, cut pricing for all October oil sales to the U.S. and Northwest Europe and reduced the premium on its main Light grade to Asia by 30 cents a barrel.


State-owned Saudi Arabian Oil Co. cut its official selling price for October sales to Asia of Arab Light crude to 10 cents a barrel more than the regional benchmark, the company said in an e-mailed statement. The discount for Medium grade crude for buyers in Asia widened 50 cents to $1.30 a barrel less than the benchmark.

Charts: Bloomberg


Your early Thursday morning currency, and interest rate moves

Euro/USA 1.1217 up .0004

USA/JAPAN YEN 120.28 down .340

GBP/USA 1.5275 down .0029

USA/CAN 1.3261 down .0005

Early this Monday morning in Europe, the Euro rose by 5 basis points, trading now just above the 1.12 level falling to 1.1217; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes and today another Chinese currency revaluation northbound,  Last night the Chinese yuan strengthened a small .0051 basis points. The rate at closing last night:  6.3549 which means again that the POBC used up considerable USA treasuries to again support the yuan.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a northbound trajectory  as settled up again in Japan up by 34 basis points and trading now just above the 120 level to 120.28 yen to the dollar. 

The pound was down this morning by 29 basis points as it now trades well below the 1.53 level at 1.5275.

The Canadian dollar reversed course by rising 5 basis points to 1.3261 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. Today, the yen carry traders blew up.

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).(blew up)

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 Thursday morning: up by 86.99 or 0.48%

Trading from Europe and Asia:
1. Europe stocks mostly in the green/

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

Gold very early morning trading: $1126.60


Early Thursday morning USA 10 year bond yield: 2.18% !!! down 1  in basis points from Wednesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield rises to  2.95 down 1 basis point. Officially we got the word that got  China is selling treasuries like mad!

USA dollar index early Thursday morning: 95.92 down 6 cents from Wednesday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Thursday morning
And now for your closing numbers for Thursday night:
Closing Portuguese 10 year bond yield: 2.56% down 12 in basis points from Wednesday
Japanese 10 year bond yield: .401% !!  up .6 in basis points from Wednesday
Your closing Spanish 10 year government bond, Thursday, down 4 in basis points Spanish 10 year bond yield: 2.09% !!!!!!
Your Thursday closing Italian 10 year bond yield: 1.91% down 8  in basis points from Tuesday: trading 18 basis point lower than Spain.
Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond:  3:00 pm
 Euro/USA: 1.1126 down .0086 (Euro down 86 basis points)
USA/Japan: 119.92 down .689 (Yen up 69 basis points) *  the ramp up of the Dow falters at the end of the day.
Great Britain/USA: 1.5260 down .0044 (Pound down 44 basis points USA/Canada: 1.3189 down .0077 (Canadian dollar up 77 basis points)

USA/Chinese Yuan:  6.3549  down .00511  ( Chinese yuan up 5 basis points/


This afternoon, the Euro fell by 86 basis points to trade at 1.1126. The Yen rose to 119.92 for a gain of 69 basis points as the ramp up for NY trading fizzled as the day wore on. The pound was down 44 basis points, trading at 1.5260. The Canadian dollar rose 77 basis points to 1.3189. The USA/Yuan closed at 6.3544
Your closing 10 yr USA bond yield: down 2 basis points from Wednesday at 2.17%// ( well below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.95 down down 1 in basis points on the day
 Your closing USA dollar index: 95.31 up 32 cents on the day .
European and Dow Jones stock index closes:
England FTSE up 110.79 points or 1.82%
Paris CAC up 98.87 points or 2.17%
German Dax up 269.79 points or 2.68%
Spain’s Ibex up 104.10 points or 1.05%
Italian FTSE-MIB up 567.37.or 2.62%
The Dow up 23.38 or 0.14%
Nasdaq; down 10.13 or 0.21%
OIL: WTI:  $46.63    and  Brent:  $50.57
Closing USA/Russian rouble cross: 66.88  up 6/100 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

“JPM Omen 2.0” Sparks Stock Pump’n’Dump After Crude Surges’n’Purges

In the paraphrased words of JPMorgan’s head quant,“We’re halfway there” for the selling… and yes it appears “we are living on a [Fed/PBOC/ECB/BOJ] prayer”

But…the message from the mainstream media remains the same…


Everything trades on fun-durr-mentals… Spot The Difference!


Volume was terrible…



Here’s your stock market today… in the words of one wizened trader “gamma bitches!”


Cash indices closed mixed with Small Caps and Nasdaq red…


And while Trannies briefly got into the green for the week, it did not last…


Some context for the bounce… The Dow is back at 50% of the loss…


Once again VIX was battered lower into the close – because why wouldn’t you sell vol into tomorrow’s cliffhanger payrolls print!!??



Once again credit markets moved lower first – leading stocks…


Treasury yields dropped on Draghi’s QE promise then spiked along with stocks early on (30Y up to 2.98%) but bonds were quickly bid after that and closed modestly lower (note the steepening holding into tomorrow’s payroll print)


The Dollar jumped as Draghi’s QE promise sunk the EUR. USDJPY was unable to hold up its 120 tractor beam…(Note SEK roundtripped against the USD despite its actions)


Commodities were mixed but silver crude and copper all ramped early on.. only to giove it all back later…


Another day in paradise for crude traders as yesterday’s purge-n-surge becomes today’s surge-n-purge…


Charts: Bloomberg

Bonus Chart: About those nasty Chinese devaluers??

Total jobs cut continue to rise.  Interestingly the biggest job cuts is not yet in energy but in retail..

a must read…

(courtesy Challenger Gray/Christmas job cut/job hirings report)

Total Job Cuts On Pace To Be Biggest Since 2009: Challenger

Moments ago Challenger reported August job cuts, which at 41,186 were a 60% drop from the 115,730 reported last month (the highest since September 2011), which however was driven by a one-time mass layoffs last month in military staffing. Putting August in its correct perspective, the number was 2.9% higher than the same month a year ago, when 40,010 planned job cuts were announced.

What is troubling is that this marks the seventh month this year that the job-cut total was higher than the comparable month from 2014.

What is worse is that for all the euphoria about initial claims printing at or near record lows, the reality as measured from the bottom-up, is far different and as Challenger notes, so far in 2015 employers have announced 434,554 job cuts: that is up 31 percent from the 332,931 planned layoffs in the first eight months of 2014.

What is worst, and what reveals the true picture of the economy, is that with monthly totals averaging 54,319,2015 job cuts are on track to exceed 650,000 for the year, which would be the highest year-end tally since 2009 (1,272,030).

In other words, not only is the economy no longer growing at its previous pace, but due to the ongoing oil rout, tens of thousands of highly-paid workers mostly in the oil space are getting pink slips just as the Fed is preparing to tighten. Putting a number to that estimate, Challenger says that “since the beginning of the year, oil prices have been blamed for 82,268 layoffs, mostly in the energy sector, but also among industrial goods manufacturers that supply equipment and materials for oil exploration and extraction.”

Curiously, the biggest culprit for August job cuts was not the energy sector (expect many more layoffs here), but retail. The retail sector saw the heaviest job cutting in August, with 9,601 planned layoffs reported during the month. Most of those were related to bankruptcy of east coast supermarket chain A&P, which is closing more than 100 stores and laying off a reported 8,500 workers by Thanksgiving.

The retail sector has announced 57,363 job cuts so far this year, which is a 90 percent increase over the 30,109 job cuts announced by this point in 2014.

“Overall, retail is relatively healthy, but we have seen some big layoffs this year, particularly from long-time players that simply have not been able to keep up with changing consumer trends. These retailers somehow manage to survive, but only through multiple bankruptcies, such as A&P. Earlier this year RadioShack announced 5,400 job cuts,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

The industrial goods sector saw the second heaviest downsizing activity in August, announcing 7,949 layoffs during the month. That is the largest number of job cuts for this sector since March, when 9,163 job cuts were announced.

Finally, going back to oil, Challenger was optimistic, however this optimism is misplaced. This is what it said:

“The stream of job cuts related to oil prices appears to be ebbing. The majority of these cuts came in the first four months of 2015, when we saw more than 68,000 layoffs related to oil. Since May, fewer than 14,000 job cuts have been attributed to oil prices,” noted Challenger.

There is a problem: as ConocoPhillips just announced two days ago when it fired 10% of its global workforce, oil companies which had been betting on an oil rebound, all got flatfooted by the second drop in oil price. This will lead to tens of thousands of more highly paid jobs being pink slipped in the coming months.

“It is too soon to say if we have seen the last of the big oil cuts. As we head into the final months of 2015, there are definitely some red flags that suggest we may see more layoffs from the energy sector, as well as in other areas of the economy. The problems that China is facing could send shockwaves throughout the global economy, including the United States,” Challenger continued.

Finally, one thing that is certain: of all states, Texas continues to bear the brunt of the layoff pain. And if oil continues trading in the $30/$40 range, the pain is far from over.

Initial jobless claims rise by the most in 2 months;
(courtesy zero hedge/BLS)

Initial Jobless Claims Jumps Most In 2 Months – Unchanged Since End Of QE3

Initial jobless claims have risen for 5 of the last 6 weeks with the last week showing a 12k rise to 282k. This is the biggest weekly rise in 2 months and raises the claims print overall to 2-month highs. Perhaps most remarkable is that initial jobless claims are now back up to unchanged since the end of QE3.



Charts: Bloomberg

The Markit services PMI rises surprisingly.  This may alter the Fed into raising the interest rates once and be done with it.
(courtesy zero hedge)

US Services Economy ‘Solid’ In August – Signals September Hike Back On Table

Markit’s US Services PMI printed a healthy 56.1 for August, rising for the 2nd consecutive month, comfortably beating expectations and giving The Fed more ammo for a September hike. This rise was achieved despite the weakest rise in new work in 3 months. While Markit notes that this headline print suggest ‘everything is awesome’ it suggests the need for more stimulus just in case, as prices are falling. Following the dramatic spike in the July ISM Services to 10 year highs, it dropped back modestly, thanks to slide in New Orders, with an August print of 59.0 – still the highest since Nov 2005, again offering no excuse for The Fed to stay on hold.

ISM Services hover near 10 year highs..

New Orders slipped however…

And the breakdown shows most of tyhe sub components slowing…

And US Services PMI rose for the 2nd month in a row…

As Markit notes,

“The US economy is enjoying a solid third quarter, with robust survey readings so far pointing to 2.5% annualised GDP growth. Employment growth is also holding up well, with PMI surveys signalling another month of non-farm payroll growth in excess of 200,000 in August.

Roughly translated means – The Fed has no excuse NOT to hike rates. But…

with the survey data showing average selling prices for goods and services to have fallen in August for the first time since 2010 and global economic concerns intensifying, the balance could easily tip towards the need for more stimulus.”

So – in other words – everything is awesome but please add some more stimulus anyway!!

Charts: Bloomberg


This certainly unnerved a lot of traders:

(courtesy zero hedge/JPM)

JPM Head Quant Is Back With New Warning: “Only Half The Selling Is Done; Expect More Downside”

The first two appearances by JPM’s head quant, Marko Kolanovic, caused a near-panic in the market.

The first time was the Friday before the August 24th flash crash, when as we first reported, he accurately predictedthe gamma (un)hedging unwind into the Friday close which sent the market plunging and subsequently morphed into the limit down open on Monday.

The second time was exactly one week ago, when with the market up 450 points, Kolanovic again predicted imminent violent selling, which did indeed materialize not only earlier this week, but within minutes after we posted his note, sending the market tumbling to almost unchanged, before another violent bout of buying pushed it back to the highs in just 30 minutes.

Moments ago Marko came back back with a new note, and unfortunately, once again it isn’t pretty.

As a reminder, Kolanovic was the first to explain just how the various “technical” price-insensitive trading strats, which include derivatives hedgers, Trend Following strategies (CTAs), Risk Parity portfolios and Volatility Managed strategies, were incorrectly positioned, and how the residual volatility resulting from either option gamma-hedging or due to any other reason, had become a self-fulfilling prophecy as one after another technical seller emerged and flooded any fundamental buying.

For those confused by all the jargon, we had a brief primer looking at the blow up in “risk parity” funds earlier today: it is a required read for anyone who wants to get to the bottom of the marginal market moving forces at play today.

So what is Kolanovic’ update today, and is volatility finally coming down? Not at all.

In a note released moments ago, the head JPM quant says “we have been asked to assess the remaining amount and timeline of these flows and their impact on market price and volatility. In our report, we outlined four groups of strategies: Volatility Target Strategies, CTAs, Risk Parity strategies, and Derivative Hedgers.

Here is his assessment:

  • Volatility Targeting (VT) Strategies follow fast signals (such as short term realized volatility) and rebalance quickly (e.g. 1-5 days). Selling pressure from these strategies (estimated to be $50-75Bn) peaked last week and is largely out of the way now. Short-term realized volatility increased from ~10% to ~30%, indicating these funds already reduced their exposure by ~70%. If volatility were to increase further (e.g. in-line with the peak realized volatility in 2011 of ~50%), these funds would have to sell progressively smaller amounts (e.g. an additional ~10-15%). The question is when these funds will start buying. Our view is that the re-levering of these funds is not imminent (e.g. not in the next few days). Leverage in these strategies is a function of trailing volatility (e.g. moving average of the VIX or 1M realized volatility), and even if the VIX were to start declining now,trailing realized volatility would stay elevated for the next ~3 weeks.
  • CTAs – Following our report last week, we have been getting questions about CTA equity exposure and the timeline of CTA flows. Our CTA replication models suggested that CTA equity exposure at the end of July was very high, at approximately 30% (or $80-$100Bn notional). This allocation to equities is also consistent with the performance of CTA indices in August (Bonds and Commodities were roughly flat, while Equities were down 8% – thus, a 30% equity allocation would match the -2.5% CTA observed performance). As the trend following signals (e.g. 1M, 3M, 6M, 12M price returns) started turning negative in August, CTAs started de-levering equities (in early August). As of September 1st, our CTA replicator indicates that the strategies should be ~25% short equities (short ~$70bn). This would indicate a ~$150bn swing (selling) of CTAs’ equity allocation.

However, CTA strategies don’t rebalance as quickly as VT strategies, and it often takes 1-4 weeks to achieve their target exposure. To assess where we are in the process of CTA de-leveraging, we have calculated the daily beta of a broad CTA index (HFRXSDV) to the S&P 500 shown in the figure below. Note that the CTA S&P 500 beta dropped from record levels at the beginning of August to zero currently, indicating that CTAs may have completed more than 50% of the expected equity selling (as noted above, target equity exposure is negative ~25%). We estimate that CTAs may continue selling equities for another ~2 weeks, and that the flows may total ~$40-$60bn. Once CTAs establish their September 1st target positions (short equities), they will no longer be selling, and risk becomes skewed towards CTAs buying equities. We estimate CTA flows in other asset classes include a reduction of USD exposure (from $40bn to zero), no change in bond positions, and some short covering of Oil and Gold (from short 40bn to short 30bn).

  • Risk Parity (RP) –We studied this allocation method in our Primer on Systematic Strategies, and argued that it is one of the soundest approaches to managing portfolio risk.Risk Parity strategies de-lever when asset volatility and correlation increase. In our report last week, we estimated that risk parity outflows from equities may total $50-100bn on account of the increase in market volatility and risky asset correlations. These rebalances have started, but, given their typically slower rebalance frequency (e.g. monthly), are largely incomplete. We believe the bulk of the risk parity flows are yet to come, and this may add selling pressure to equities over the next 1-3 weeks. To illustrate this point, one can look at a sample multi-asset Risk Parity strategy such as the Salient Risk Parity index. The beta of this index to the S&P 500 (shown in the figure above) reached highs of 60% in early August, and has dropped to about 45% currently (compared to a beta of 0% during some of the previous episodes of market volatility).

Please note that in our estimate of Risk Parity assets we have included funds that use Risk Parity as a risk management overlay and tactical allocation, and not just the dedicated Risk Parity (Quant) hedge funds. One could perhaps even broaden the definition of Risk Parity funds to include investors that change their strategic allocation based on expected volatility (e.g. such as CalSTRS announcement of plans to reduce equity exposure in the near future, recently reported in the media).

His take home assessment: only half the selling is done, and another $100 billion remains over the next 1-3 weeks:

In summary, we estimate that only about half (or slightly more than half) of total technical selling was completed to-date (mostly completed by VT funds, half by CTAs, and a smaller fraction by RPs). We estimate that a further ~$100bn of selling remains to be completed over the next 1-3 weeks. As a result, we expect elevated volatility and downside price risk to persist. In our view, the risk/reward for equity investors remains in favor of waiting, rather than being fully invested until there is more clarity from macro data and central banks.

The problem is that since this is a self-reinforcing loops, the more selling there is, the more selling there will be unless some central bank forcefully intervenes. Draghi tried earlier today, but it was not enough.

* * *

Finally, anyone still confused about the infamous 3:30pm ramp (or recently tumble) phenomenon, the answer is simple: all gamma hedging:

Gamma hedging of options, levered ETFs, variance swaps and other convex products continues to be a significant driver of price action near the market close. As we predicted in our note on Friday, the typical impact is during market down days (and is causing an acceleration of market moves from ~3:30PM to the close). Note that the impact of gamma hedging may also push the market higher (if the market is up from the previous close). For instance, on September 2nd gamma hedging likely helped squeeze the market higher into the close (figure left).We have also noticed that gamma hedgers are moving their hedging activity earlier in the day in an attempt to avoid losses. There is also a strong possibility that option hedging flows are being anticipated by speculators. This can lead to price patterns in which intraday momentum happens earlier in the day, briefly reverses as speculators exit their positions, and finally reappears at the market close as hedgers with no flexibility execute at the close (e.g. levered ETFs or var swap/put basis that often has to be done MOC). Gamma positioning of S&P 500 options remains tilted towards puts, and we expect upward pressure on realized volatility from gamma hedgers to continue over the coming weeks.


The following  is worrisome, as the second largest USA pension fund is to sell 12% of its stock portfolio in advance of another downturn.  The big question of course is who will buy all of the stocks they sell.  They might buy all of the USA treasuries that China is selling but who will be left to buy the USA stocks?

important piece…

(courtesy zero hedge)

Second Largest US Pension Fund To Sell 12% Of Stocks Holdings In Advance Of “Another Downturn”

While many continue to debate if what with every passing day increasingly looks like a global recession, one from which the US will not decouple no matter how many “virtual portfolio” asset managers claim the contrary, there are those who without much fanfare are already taking proactive steps to avoid the kind of fallout that the markets have hinted in the past month of trading, is inevitable. Some such as Calstrs: the nation’s second largest pension fund with $191 billion in assets (smaller only than Calpers), which as the WSJ reports is “considering a significant shift away from some stocks and bonds amid turbulent markets world-wide.”

The move represents “one of the most aggressive moves yet by a major retirement system to protect itself against another downturn.” A downturn which the pension fund implicitly suggests, is now inevitable.

According to the WSJ, the top investment officers of the California State Teachers’ Retirement System will move as much as $20 billion, or 12% of the fund’s portfolio, into “U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund.”

Actually considering the relative underperformace of hedge funds, which have largely underperformed the market both during the upcycle, and have fared no better during the volatility of the past month, Calstrs may want to just buy whatever Treasurys China has to sell. Which, incidentally, also answers a suddenly very pertinent question: if China is selling US paper, who will buy it? Well, pension funds for one – the same entities who have had an abnormally heavy allocation to stocks in recent years, and now are seeking to cash out. Which while favorable for bond yields, is hardly good news for stocks – because in this illiquid market, and painfully thin tape, just who will buy the tens of billions of stocks that pension funds will decide to sell.

And it will certainly be more than just Calstrs: once one fund announces such a dramatic shift in strategy, most tend to follow.

So when will the Calstrs reallocation take place? According to WSJ,” the board is expected to discuss the proposal at a meeting later today in West Sacramento, Calif. A final decision won’t be made until November.  The new tactic—called “Risk-Mitigating Strategies” in Calstrs documents posted on its website—was under discussion for several months as the fund prepared for a scheduled three-year review of how it invests assets for nearly 880,000 active and retired school employees. But the recent volatility around the world has provided a fresh reminder of how exposed Calstrs’ investments are when markets swoon.”

Furthermore, as the WSJ points out, the question is now that the market appears to have topped out (at least until the next QE), what will be the proper distribution between stocks and bonds in a typical pension fund portfolio.

Pension funds across the U.S. are wrestling with how much risk to take as they look to fulfill mounting obligations to retirees, and the fortunes of most are still heavily linked with the ebbs and flows of the global markets despite efforts to diversify their investments.State pension plans have nearly three-quarters, or 72%, of their holdings in stocks and bonds, according to Wilshire Consulting.

That number is certain to decline in the coming months.

What is also notable is that while Calstrs’ is at least considering investing in hedge funds, its cousin, the California Public Employees’ Retirement System, decided last year to exit all hedge-fund investments. Other pensions seeking to become more conservative have beefed up stakes in bonds or international stocks. “Calstrs Chief Investment Officer Christopher Ailman said in an interview he hopes the potential shift could help stub out heavy losses during gyrations because the investments don’t generally track as closely with market swings.”

Actually they do: if the past few years have shown anything, it is that not only do “hedge” funds not hedge, in broad terms, they are merely highly levered beta chasers, who will gate their LPs at the first sign of abnormal market turbulence. Which is why we wouldn’t be surprised if Calstrs ends up reallocating entirely in plain vanilla Treasurys.

As for the punchline, as usual it is saved for last: “Calstrs has not made any major moves in recent weeks amid the turmoil in China and the U.S. markets. Mr. Ailman said he knew there would be turbulence after Asian markets tumbled last month, but he said Calstrs chose to stay put because it views itself as a long-term investorand because its largess means it has limited countermoves when stock prices fall.”

Ah, “a long-term investor” – the legendary words every asset managers uses when they have a position that is so underwater, they have no choice but to hold on. Who can possibly forget Norway’s sovereign wealth fund which wasinvesting in Greek bonds for “infinity“…

* * *

And while a US pension fund is at least doing the prudent thing, and preparing to rotate out of the riskiest asset just as the market tops out, here comes Japan where things traditionally are upside down, and where we read that with the largest pension fund in the world, the GPIF, having maxed out its allocation “dry powder”, another massive pension funds is set to start selling bonds to buy stocks, even as the Nikkei continues to flirt with decade highs. Bloomberg reports:

As the world’s biggest pension fund nears the end of its switch from sovereign bonds into stocks, investors are looking at Japan Post Bank Co. as the next actor big enough to move markets.


The postal lender, the biggest holder of Japanese government bonds after the central bank, sold 5.1 trillion yen ($42 billion) in JGBs in the three months ended June, after offloading a record amount of the debt last fiscal year. The $1.2 trillion Government Pension Investment Fund, known as the whale, said last week stock and fixed-income holdings were all within 3 percentage points of their targets,suggesting it has almost completed a planned shift into riskier assets including global bonds and shares.


The Bank of Japan needs to find about 45 trillion yen in JGBs from the market to meet its annual goal for boosting money supply to stimulate the economy. Japan Post Bank, with 49.2 percent of its 206.5 trillion yen held in domestic debt, fits the profile and needs to seek higher profits ahead of a possible public share sale this year.


The postal bank said in April it plans to increase investments in assets aside from JGBs, such as foreign securities and corporate bonds, by 30 percent to 60 trillion yen in the fiscal year ending March 2018.


Like GPIF, Japan Post Bank has been reducing its dependency on domestic government bonds. The bank owned 101.6 trillion yen in sovereign debt at the end of June, with the ratio falling below 50 percent of holdings for the first time. Unlike GPIF, however, Japan Post Bank hasn’t been increasing domestic stocks. It held just 900 million yen of local equities at the end of the first quarter, unchanged from March.

It will be soon. So good luck Japanese pensioners: nothing screams fiduciary responsibility quite like your asset manager dumping a safe, government backed asset (even if there are 1.1 quadrillion of them) and buying a risky one which is trading at the highest price and valuation since the dot com bubble.

Then again, with Japan’s demographic crisis where more adult than infant diapers are sold every year, a little proactive culling of the top-heavy pyramid – courtesy of a few million “so sorry, all your pension funds have vaporized” letter – may be just what the deranged Keynesian doctor ordered.



see you tomorrow night



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