Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1102.40 down $18.20 (comex closing time)
Silver $14.57 down 18 cents.
In the access market 5:15 pm
First, here is an outline of what will be discussed tonight:
At the gold comex today we had a poor delivery day, registering 4 notices for 400 ounces Silver saw 3 notices for 15,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 219.98 tonnes for a loss of 83 tonnes over that period.
In silver, the open interest fell by 1891 contracts despite the fact that silver was up in price by 21 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 155,615 contracts In ounces, the OI is still represented by .778 billion oz or 111% of annual global silver production (ex Russia ex China).
In silver we had 3 notices served upon for 15,000 oz.
In gold, the total comex gold OI surprisingly rose to 421,732 for a gain of 2,730 contracts. We had 4 notices filed for 400 oz today.
We had no changes 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 big withdrawal in silver inventory at the SLV to the tune of 1.336 million oz/Inventory rests at 322.06 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver fall by 1891 contracts up to 155,615 despite the fact that silver was up by 21 cents in price with respect to yesterday’s trading. The total OI for gold rose by 2739 contracts to 421,732 contracts, despite the fact that gold was down by 20 cents yesterday.
2.Gold trading overnight, Goldcore
3. Trading overnight from Japan
4. Trading overnight from China.
5. You have to love this guy Gartman. Last night he covered his short position on the markets and then went long..just in time to lose a fortune again as the Dow plummeted
6. World bank economist warns the USA not to raise interest rates on Sept 17.
7.Willem Buiter states that only “Helicopter Money” can save the world
8.David Stockman puts everything into perspective with respect to Japan’s collapsing economy, China’s imploding economy together with the massive liquidation of USA treasuries from the entire globe
(David Stockman/Contra CornerBlog)
9. Spain votes on Sept 27 for independence. The Spanish defense minister warns that he may have to call in the army to defend Spain.
10. The Mises institute economist, Wilson states that the Greek government should repudiate their debt
11. Russia continues to supply armaments to Syria and they are warned by the USA. Showdown coming
12. Turkey now closer and closer to civil war as citizens torch Kurd operations in Istanbul, Izmir, Ankara and southern cities
13. USA stories/Trading of equities NY
a) Puerto Rico will run out of cash by either year end or the latest in June 2016. trouble ahead! (zero hedge)
b) the JOLTS report shows a big increase in job openings. This is the figure that Janet Yellen likes to show that slack in the job market is waning
c First off today, it was World Bank Economist Basu who stated that the USA should not raise interest rates on Sept 17. Later in the day it was Keynesian and Nobel prize winner Krugman also stated that the raising of USA rates will be harmful
(Paul Krugman/zero hedge)
d) Dave Kranzler talks about the USA’s latest retail sales reporting:
14. Physical stories:
- Something snapped at the comex (zero hedge)
- One commentaries on the faulty data at the comex (Dave Kranzler IRD)
- One commentary explaining the high ratio of paper gold to real gold at 207/1
- Greg Hunter interviews David Morgan who states categorically that the silver market has seized up.
- The Indian government again is trying to coax its citizens to give up their physical gold to receive paper gold and an interest rate on that. Good luck to them. They fail each time they try (Bloomberg)
- Bill Holter’s commentary tonight is titled: “The Breaking Point?”
- Peter Hambro explains to Bloomberg that there is a difference between paper gold and real gold (Bloomberg/Peter Hambro)
- Silver premiums rising exponentially/Profit Confidential
and well as other commentaries…
Let us head over and see the comex results for today.
September contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||229.645 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil oz|
|No of oz served (contracts) today||4 contracts (400 oz)|
|No of oz to be served (notices)||211 contracts (211,000 oz)|
|Total monthly oz gold served (contracts) so far this month||16 contracts(1,600 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||153,840.9 oz|
Total customer deposit: nil oz
JPMorgan has only 0.6133 tonnes left in its registered or dealer inventory. (19,718.722 oz) and only 863,683.63 oz in its customer (eligible) account or 26.86 tonnes
September silver initial standings
September 9 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 1,843,791.062 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,197,145.082 JPMorgan|
|No of oz served (contracts)||3 contracts (15,000 oz)|
|No of oz to be served (notices)||700 contracts (3,500,000 oz)|
|Total monthly oz silver served (contracts)||807 contracts (4,035,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||nil|
|Total accumulative withdrawal of silver from the Customer inventory this month||7,865,087.3 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit; 0 oz
total customer deposits: 1,197,145.082 oz
total withdrawals from customer: 1,843,791.062 oz
And now SLV:
we had another huge withdrawal of 1.336 million oz of silver from the vaults of the SLV/Inventory rests at 322.06 million oz
Sept 8/we had a huge withdrawal of 1.524 million oz of silver from the SLV/Inventory rests tonight at 323.396 million oz.
Sept 4.2015:no changes in inventory at the SLV/rests tonight at 324.923 million oz
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 27.no 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
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. * * * * *
1.the huge increase in UK household debt
2. in London the huge 5% premium on gold bullion USA eagles and 8,5% on sovereigns, 4% on Krugerrands and Canadian maples
3. in silver, premiums on regular bars: 9.5%
4. in silver, silver maples are 32% ie. spot plus $4.75 and the huge delays in receiving them.
Britain’s £173 Billion “Debt Timebomb”
UK households are sitting on a £173 billion debt time bomb after once again being lured into a spending splurge by banks and credit card companies.
The startling rise in debt levels due to people splashing out on new cars, TVs, conservatories, luxury items, consumer goods and home improvements was uncovered in an investigation by Money Mail.
With a rise in interest rates imminent for the first time in more than eight years, fears are growing that many families will be left struggling with repayments.
The amount of borrowing being taken on by households continues to grow at a startling rate, spurred on by hundreds of offers for credit cards and loans.
Bank of England governor Mark Carney has sent a letter to all fund managers asking for reassurance they are able to deal with an anticipated rush of investors making emergency cash withdrawals to cover their mortgages and other debts.
Read full This Is Money article
Today’s Gold Prices: USD 1122.30, EUR 1002.50 and GBP 730.38 per ounce.
Yesterday’s Gold Prices: USD 1120.85, EUR 1003.49 and GBP 728.27 per ounce.
Note: Premiums on gold have remained steady but silver premiums continue to move higher – especially on silver eagles.
Gold has moved marginally lower today but remains just above $1,120 per ounce, not far from where they were this time yesterday, after they snapped four days of losses yesterday to rise 0.2%.
Gold in Singapore was marginally lower and in early European trading as it gave up the gains from yesterday. Lacklustre trading continues and gold remains locked in a tight $19 range between $1,117.50/oz and the high yesterday of $1,126.30/oz for the last three days.
Silver is down 0.3%, after it outperformed yesterday rising 1.8%, its biggest one-day rally in nearly two weeks.
Platinum’s down 0.3%, and palladium is up 0.6% up for a third day and up 11% in recent days as it bounces from five year lows.
Gold Climbs for Second Day on Dollar Weakness Amid Asian Rally – Bloomberg
Gold firms above 3-wk low as traders await Fed’s rate view – Reuters
Gold prices gain in Asia as investors cautious ahead of Fed next week – Investing.com
Palladium Poised for Biggest Gain This Month on Supply Threat – Bloomberg
Treasure hunter says he has found 100 tons of Soviet gold hidden from Nazis during WWII – RT Question More
Platinum upgrade to golden reserve status seen as monetary alchemy – Reuters
Advice to Putin: Default on foreign debt, put reserves into gold and BRICs bonds – Goldseek.com
When Governments mess with the price of money… – Casey Research
Britain sitting on a £173bn debt time bomb – and with rates set to rise its ticking even louder – The Mail Online
Isle of Man tax haven with tailless cats becomes Bitcoin hub – Bloomberg
I brought this to your attention last night with the release of inventory movements. Needless to say, is the fact that gold is bleeding from the comex and they may not have enough registered or “for sale’ gold to cover what is asked for delivery in Oct, November and December:
(courtesy zero hedge)
Something Just Snapped At The Comex
Just over one month ago, when looking at the latest changes in registered gold held at the Comex ,we were stunned not only by the collapse in this series to a record low of just over 350k ounces or barely over 10 tons, but also by the surge in “gold coverage”, or the amount of paper gold claims on physical gold, which exploded to a record high 124 per ounce.
This is what we said on August 3:
While on its own, gold open interest – which merely represents the total potential claims on gold if exercised – is hardly exciting, as we have shown previously it has to be observed in conjunction with the physical gold that “backs” such potential delivery requests, also known as the “coverage ratio” of deliverable gold.
It is here that things get a little out of hand, because as the chart below shows, all else equal, the 43.5 million ounces of gold open interest and the record low 351,519 ounces of registered gold imply that as of Friday’s close there was a whopping 123.8 ounces in potential paper claims to every ounces of physical gold.
This is an all time record high, and surpasses the previous period record seen in January 2014 following the JPM gold vault liquidation.
Another way of stating this unprecedented ratio is that the dilution ratio between physical gold and paper gold has hit a record low 0.8%. Indicatively, the average paper-to-physical coverage ratio since January 1, 2000 is a “modest” 19.1x. As of Friday it had soared to more than 6 times greater.
We showed this record surge in gold claims as follows:
But if last month was shocking, then what the COMEX revealed yesterday was absolutely jaw-dropping.
Here is the most recent update provided by the CME on eligible and registered gold.
What it reveals is that while JPM saw another 90,000 ounces of gold once again withdrawn from its vault, this time in the eligible category, for some reason a whopping 121,124 ounces of registered gold were reclassified as eligible. In doing so, JPM’s registered gold (red line in chart below) tumbled to a record low of just 19,718 ounces – an 86% collapse in just one day – and well under 1 ton of gold, some 600 kilos of physical gold available to meet delivery requests to be specific!
JPM’s dramatic adjustment also meant that total Comex registered gold has likewise tumbled to the lowest in history of just 202,054 ounces – just over 6 tons – available for delivery.
Zooming in only on the registered gold since 2014:
Not surprisingly, the latest collapse in registered gold took place while the gold open interest remained flat, and in fact has been modestly rising in the past year as seen below:
Which brings us to the punchline chart: the Comex gold “coverage” ratio, or the amount of paper claims for every ounce of physical. As of Friday this number was literally off the chart (it would not have fit on the chart below), soaring to a mindblowing 207 ounces of paper gold claims for every ounce of deliverable gold. This also means that the dilution ratio between physical gold and paper gold has hit a new all-time low of just 0.48%!
And while we know what caused this epic surge in potential claims on gold – namely the relentless outflow in registered gold – what we don’t know is whether this is a systemic event, one which threatens the next Comex gold delivery request with an “insufficient product” response, and a potential default, or simply a one day abnormality.
What we do know is that, if only for one day, something at the Comex has snapped.
We will keep a close eye on today’s Comex update to see if JPM reverse this “adjustment” and adds at least a few more tons of deliverable gold to its vault, and if not, perhaps a phone call or two may be in order.
“The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.” – disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013 – Investment Research Dynamics – June 4, 2013
Yesterday I published an article detailing the Comex gold futures to deliverable physical gold ratio that is now north of 200:1. But an erudite colleague of mine, John Titus of “Best Evidence,” correctly pointed out that: “They are probably bluffing. In other words, the real number is significantly higher than 200:1.”
For the record, John does more thorough research on the economic numbers and reports that he studies than anyone I’ve ever come across. And he does it with the trained analytic eye of a seasoned patent litigation attorney.
Let’s put everything in perspective. The numerical reports from which fancy graphs and and dry detailed data presentations are created originate from the Too Big To Fail Banks. I’ve said for quite some time that IF the bullion banks who control the Comex and the LBMA are submitting honest data reports for the Comex and LBMA, it would be the only business line in which they do not hide the truth and report fraudulent numbers. What is the probability of that?
JP Morgan was recently caught stuffing proprietary Comex futures short-sell trades into the “Managed Money” account category of the COT report. The CFTC scolded JPM and slapped them with a whopping $650,000 – LINK. Does anyone really believe that the CFTC wrist-slapping corrected any fraudulent data reporting by the likes of JP Morgan? Really?
Put your “think like a criminal hat” on for a moment. You know that the people who care about this sort of thing already know that the there’s a paper vs. physical problem in the market. So just show them a number that they’ll buy into and that will be “the number.” Most analysts will accept that number at face value and use that in their articles and blog posts. That number then becomes accepted in goldbug circles as the “real” number.
But the truth of the matter is that they are more than likely reporting numbers they want us to see, not the real numbers. For instance, the silver market is now seizing up from lack of supply. Please see this report from Greg Hunter and David Morgan if you are still skeptical: Retail Silver Has Seized Up.
Yet, the Comex bank custodians are reporting over 51 million ounces of silver available fore delivery – LINK. In fact, CNT – an official supplier to the U.S. mint – is showing 13.3 million ounces of deliverable silver. So why is there’s a shortage of silver at the U.S. mint? IF that silver were actually in the vault, the U.S. mint could buy a spot contract – September has a silver contract open – and take immediate delivery.
Also, why did the CME, unannounced, start slipping that little accuracy disclaimer into its daily gold and silver inventory reports in 2013? I’ll let you draw your own conclusion about the truth.
The silver market is seizing up which means that there’s a severe shortage of silver available. It is also showing up in the LBMA wholesale market based on the backwardation in gold and silver forward contracts that have been observed for several weeks. It means that any visible inventories reports from ETFs and Comex/LBMA banks custodial vaults are fraudulent. That includes SLV reports.
It also means that the recent discovery that the LBMA altered its gold refining flow statistics, revising what was originally reported to be 6,601 tonnes of gold cleared by the LBMA in 2013 down by 2,000 tonnes to 4600 tonnes, are likely off the mark. That’s a big miss, given that the total global mine production annually is around 2500 tonnes.
The significance of this is that it’s easier to explain how 4600 tonnes of gold was refined into bars and sent to Asia than 6600 tonnes, given that the total global supply of gold from mine production + scrap production was reported to be slightly more than 3000 tonnes.
From where did that extra 1600 tonnes come? The REAL question is, from where did the extra 2600 tonnes come if we use the original number? And is the 6600 tonne number a good number? Was the real number even higher?
The obvious conclusion is that the supply deficits in gold and silver are being remedied by hypothecating gold and silver bars from allocated accounts held at bullion banks, including the accounts held in behalf of the gold/silver ETFs, like GLD and SLV. This is why ABN Amro and Rabobank stopped allowing their physical gold account investors to take physical delivery of the gold they thought they have invested in – the gold was not there to deliver. This also occurred in 2013.
Now for the final blow to any skeptics. You’ll note that the LBMA revised down the amount of gold it cleared from refineries in 2013. But you’ll also note that the Comex inventory report disclaimer at the top of this post was first inserted into the daily Comex inventory reports in June 2013. See any coincidences? Bueller…
Bill Murphy and GATA have maintained for years that the fraud and corruption in the precious metals market would eventually be revealed as the biggest financial fraud scheme in history. It would seem that the cracks in the wall of this scheme are growing wider and it’s becoming easier to see rays of truth.
History tells us that all Ponzi schemes and market interventions fail. I believe we are on the cusp of a massive failure in the scheme to cover up the truth about the precious metals market.
(courtesy Dave Kranzler /IRD)
Sure, you can’t eat a bar of gold and it just sits in storage like a Pet Rock that’s been cast aside by its bored owner. But try selling the Indians or Chinese a paper gold bar and see how far you get. You might end up with a knife in your forehead.
The stench has been growing stronger by the day. Many of us have been writing for years about the extreme imbalance between the paper futures open interest vs. the underlying amount of gold being reported as available for delivery. The latest disclosure from the CME is that the ratio of paper gold vs. the amount of deliverable ounces has spiked to over 200:1.
As of last Friday, JP Morgan had 89.4k ounces withdrawn from the “customer”/ eligible account in its vault and it moved 122k ounces of gold from its “deliverable”/ registered account into its customer account. What the true nature of those transactions were – i.e. who the counterparties were and did in fact any real gold actually leave JP Morgan’s gold vault – is anyone’s guess due the intentional opacity of disclosure on the Comex.
But the bottom line is that, as of last Friday, the Comex vaults collectively now show 202k ounces of gold in the “registered” / deliverable accounts of the Comex vault custodians. As of today’s trading, the “preliminary” gold futures open interest rose to 419k contracts representing 41.9 million ounces of paper gold. This would, preliminarily, put the ratio of paper gold to deliverable physical gold at an astonishing 207:1 ratio.
The amount of “deliverable” gold on the Comex is the lowest that I’ve seen it in the time I’ve been following the Comex data avidly since 2002. Please note that the preliminary open interest is almost always revised, most typically a bit lower, by the time the Final report is issued the next day. But based on many years of tracking this data, it is likely that any revision will not move the “needle” on that 207:1 ratio by much in either direction.
Nothwithstanding all the other information contained in this disclosure, this number represents the confirmation that the Comex is nothing more than a pure paper gold market. It’s nearly 100% derivatives. It’s the imposition of derivatives by the Fed and the U.S. Treasury – via their agent bullion banks – on the gold market in order to control the pricing discovery mechanism.
In other words, the Comex gold market is now a 100% artificial gold market.
I find it it quite interesting that the elitists overseeing this operation on the Comex are willing to advertise the 200:1 paper:gold ratio when they have the means at their disposal to hide that number or to make it look a lot smaller.
There’s some kind of message they’re sending to anyone who cares about this sort of thing. It’s either “f*ck you” we’re in control” or “help, we’re in trouble on our paper gold short position.” Or a combination of both.
The implications embedded in all three of those possibilities are quite horrifying to contemplate.
It’s quite obvious that there’s a problem with the supply of physical gold that is readily available for delivery. The same is true of the retail silver market, in which available supply at the retail level shrinks by the day. Premiums on a simple roll of 20 silver eagles are now over $5 at big coin dealers claiming to have inventory. Most dealers have been wiped out of most if not all of their entire inventory of silver SKU’s.
In my opinion, that head-splitting 200:1 ratio of paper to deliverable gold on the Comex is the surest sign that the market for gold and silver is in crisis mode. The term “crisis” also describes the state of condition of the U.S. stock market and, ultimately, the entire current U.S. financial and economic system.
My goodness, we must be hitting home: mainstream is beginning to get the idea that there is a difference between paper gold and real gold
(courtesy Bloomberg/Peter Hambro)
Mining exec Hambro tells Bloomberg that ‘paper gold’ isn’t real metal
Submitted by cpowell on Wed, 2015-09-09 15:05. Section: Daily Dispatches
11:04a ET Wednesday, September 9, 2015
Dear Friend of GATA and Gold:
Mining entrepreneur Peter Hambro, founder and chairman of the Russian mining firm Petropavlovsk, today explained to a couple of Bloomberg Television journalists the difference between “paper gold” and real metal in hand. The former, Hambro noted, carries serious counterparty risk. Hambro also noted that central banking has turned into the propaganda business, the business of “managing expectations.”
The interview with Hambro is a little less than 5 minutes long and can be viewed at the Bloomberg News Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The Indian government continues to try and confiscate the wealth of its citizens’ gold. This scheme is 4 years old and every time they try it, the citizens say absolutely no, “we are not handing in our physical gold to receive paper gold”
Indian government approves scheme for paperizing gold
Submitted by cpowell on Wed, 2015-09-09 15:33. Section: Daily Dispatches
India’s Modi Moves Closer to Tapping Gold Hoard to Cut Imports
By Bibhudatta Pradhan and Swansy Afonso
Wednesday, September 9, 2015
India moved a step closer to selling gold-backed bonds and allowing banks to tap idle jewelry and bars held by households and temples to cut reliance on imports.
Prime Minister Narendra Modi’s cabinet today approved the gold monetization plan and sale of sovereign bonds by the Reserve Bank of India, the government said in a statement. The plans were announced by Finance Minister Arun Jaitley in February as measures to woo Indians away from physical gold. …
The monetization plan will allow Indians to deposit their jewelry or bars with banks and earn interest, while the banks will be free to sell the gold to jewelers, thereby boosting supply. The deposits can be for a period of one year to 15 years with the interest on short-term commitments to be decided by the banks and those on long-term deposits by the government in consultation with the central bank. …
The plan may fail to draw people in large numbers because of Indians’ inherent love for holding physical gold and low interest rates likely to be offered by the banks.
Inadequate banking facilities in rural India, which makes up for 60 percent of physical gold demand, may also scupper the plan, according to the All India Gems & Jewellery Trade Federation.
“The schemes will succeed only if the banks offer interest rates of about 2.5 percent and do not require customers to declare the source of deposited gold below a certain limit,” Bachhraj Bamalwa, director of the federation, said by phone from Kolkata. “Indians’ love for physical gold and investment sentiment in the rural areas, which do not believe in such investment products, will determine the success of the plans.”
… For the remainder of the report:
Silver premiums skyrocketing (spot plus 32%)
(courtesy Profit Confidential)
Silver Price Forecast: Rush to Physical Silver Indicates System is On the Verge of Economic Collapse
Greg Hunter talks with David Morgan who states that the silver market is seized up:
And now Bill Holter…
Before getting to the rate hike thoughts, a bit of backdrop is needed. World equity (and credit/currency) markets are in disarray. 20-40%+ drops in equity bourses around the world are now common. In plain English, the world is already in a bear market of significant historical proportions. Credit markets particularly in Europe are showing signs that illiquidity is taking over. The German bund trading to .8% up from nearly 0% is just one illustration.
In the U.S., the 10 year Treasury is now moving through the 2.23% level to the upside which has been strong resistance. I believe a close over 2.4-2.5% will be a stake in the heart of American credit. I say this because we already have real estate markets stretched and higher mortgage rates will lower “purchasing power” of new buyers. As for autos, higher rates almost don’t even matter because what was once less than a 5 year loan market is now 7 years with negative equity to start, laughable!
Non financial yes but of very high importance are the now FOUR chemical plants explosions/four immediate retaliations (have you even heard of the latest explosion in Minnesota? http://kfgo.com/news/articles/2015/sep/07/natural-gas-pipeline-explodes-in-northwestern-minnesota-along-canadian-border/ ). Could it be sabotage on the ground? Yes of course it could. Could it simply be coincidence …after coincidence? I leave that to you. Say whatever you would like, something very odd is occurring with regularity and the case can be made a new type of weapon is being used. I believe the public has not been informed or able to keep up with warfare technology. Whatever the “cause”, it is safe to say we are in the “sparring” stage prior to war.
1 Chinese yuan vs USA dollar/yuan lowers in value, this time at 6.3667/Shanghai bourse: green and Hang Sang: green
Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.
2 Nikkei up 1343.43 or 7.71.%
3. Europe stocks all in the green (on USA/Yen ramp) /USA dollar index up to 96.28/Euro up to 1.1150
3b Japan 10 year bond yield: rises to .366% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.69
3c Nikkei now above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 45.25 and Brent: 48.83
3f Gold down /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 down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .693 per cent. German bunds in negative yields from 4 years out
Greece sees its 2 year rate falls to 10.32%/Greek stocks this morning up by 3.11%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield falls to : 8.78% (ridiculous!!)
3k Gold at $1120.00 /silver $14.71 (8 am est)
3l USA vs Russian rouble; (Russian rouble down 6/100 in roubles/dollar) 68.01,
3m oil into the 45 dollar handle for WTI and 48 handle for Brent/Saudi Arabia increases production to drive out competition.
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (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 .9773 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0897 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p Britain’s serious fraud squad investigating the Bank of England/
3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.693%
3s The ELA lowers to 89.1 billion euros, a reduction of .6 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 2.22% early this morning. Thirty year rate below 3% at 2.996% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Risk-On Euphoria: Japan’s Nikkei Soars 7.7%, Biggest One Day Move In Seven Years; Futures Surge
And to think all it took was Gartman going short of stocks in 25% correction terms yesterday…
Yesterday morning we remarked that while China staged a massive intervention in the market in the last hour of trading to push stocks higher, it came far too late to benefit Japan’s Nikkei 225, which closed red for the year, just before a dramatic move lower in the Yen prompted by the latest Chinese intervention. Because it was just after yesterday’s Nikkei close that we saw the coordinated effort of Chinese and Japanese authorities send the world’s carry trade, the USDJPY, soaring by over 100 pips, and combined with today’s latest jump of over 50 pips, the result has been nothing short of a near-record one-day move in the Japanese Nikkei stock average, which jumped the most in nearly seven years in percentage terms, and the biggest point move in over 21 years.
The Nikkei Stock Average surged 7.7%, or 1343.43 points, to 18,770.51, marking the benchmark’s biggest daily percentage gain since October 2008. In point terms, it was the biggest gain since January 1994.
In addition to the central bank intervention to push the USDJPY higher over the past 24 hours, a major catalyst of the move was short covering. According to Mizuho’s head of equity research, Yoshihisa Okamoto, hedge funds shorted Japanese index futures Tuesday afternoon speculating that Chinese stocks would fall after weak trade data, and are pushing Japan shares higher Wednesday as they close out positions. In other words, China’s terrible trade data was just the equity surge catalyst the world needed.
Mizuho added that hedge funds had used Japanese futures as China proxy because regulations restrict their mainland trading, and very much incorrectly observed that “investors also closing out shorts amid growing speculation that BOJ will add to easing.” Needless to say, not only will the BOJ not boost QE, but as a result of no marginal sellers, will soon be forced to taper it. But for now, price action dictates the newsflow, and certainly logic, and after a 7.7% move, there is no logic left.
Meanwhile, a modest two day rebound is all China needed to proclaim the “systemic financial risk” over:
Supposedly this means no more monetary easing or market intervention, right? Yeah, that’s what we thought…
The ongoing intervention in China where the Composite closed +2.3% now that index futures no longer trade, and Japan’s mega short squeeze unleashed the biggest jump in the MSCI Asia-Pacific index since September 2011, pushing equities higher across the board. There were also broad based gains across the region’s bourses with the ASX 200 (+2.1 %) and Hang Seng (+4.1 %) up on increased speculation of additional measures after yesterday’s weak trade data.
JGBs traded lower as strength in equities dampen demand, while the BoJ also entered the market to purchase JPY 780b1n in government bonds ranging between 5yr to the super long end. In other meaningless from a trading standpoint news, Japan PM Abe said he will reduce corporate tax next year by a minimum of 3.3 percentage points and could seek a larger reduction if feasible. Considering Japan’s actual underlying economy is in a tailspin, and about to undergo its 5th recession since Lehman, we somehow doubt any Japanese predictions and plans, especially those about the future, will hold.
Asia’s euphoria carried over into Europe where stocks opened broadly higher, in reaction to the bolstered sentiment, with Asian equity indices rallying to see the Nikkei 225 posted its largest gain in a session since 2008. Despite opening sharply lower in reaction to the pick-up in sentiment, Bunds have gradually come off the worst levels throughout the European morning as stocks pared part of the initial gains, but remain in the red as supply factors keep prices lower.
Europe’s Stoxx 600 rises 2.1% as of 12:30 pm CET time on volume that is ~105% of the 30-day average, tracking a sharp rally on Wall St and in Asian shares. Europe’s basic resources sector leads rally, up 4.1%; still down ~16% YTD, Europe’s worst sector performance so far in 2015. Despite this week’s gains, Stoxx 600, S&P 500 have not yet retraced 50% of July-August slump. German 2025 Bond Sale Yield 0.69% Vs. 0.61% Prior Auction
In FX, JPY continues to trade weaker across the board in reaction to the overnight announcement by PM Abe to cut corporate tax next year, with USD/JPY above 120.00 and in close proximity to the 200DMA line . The optimism filtered through to money market rates, where the 2y swap rate fell to its lowest since early January amid expectation of more aggressive policy easing measures.
Elsewhere, AUD continued to consolidate above 0.7000 level , as commodity sensitive currencies benefited from the pick-up in copper prices and expectation of further accommodation by China.Also of note, GBP/USD tested the 200DMA level to the downside following the release of disappointing industrial and manufacturing production reports, with the ONS attributing the drop to decline in motor vehicle output.
But keep a close eye on the USD: last night Krugman joined Goldman in saying he doesnt think the Fed will hike rates next week: “I don’t think they are moving next week,” economist Paul Krugman says at conference in Tokyo on Wednesday when asked about timing of possible interest rate increase by U.S. Federal Reserve.
“I still think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake.” Krugman added that the Fed keeps sounding like it’s eager to raise rates. “It’s almost as if there exists an urge at the Fed to repeat the mistakes of the BOJ and ECB.”
So a big part of today’s move higher in US equity futures, which are up another 18 points most recently, is the market is now pricing in that the Fed is getting cold feet about a rate hike now that both Goldman and Krugman are saying a delay is inevitable.
The irony of course is that the higher stocks rise, the greater the probability the Fed does hike rates, so we go right back to square one.
In commodities, the price action was fairly muted across the energy complex amid light newsflow and a relatively flat USD. In the metals complex, copper prices advanced to its highest level since mid-July , benefiting from the pick-up in sentiment and also in reaction to the announcement made by Glencore earlier in the week which would result in the removal of 400,000 tonnes of copper from the market. Looking ahead, today sees the API crude oil inventories aftermarket having been delayed a day due to the long Labour Day weekend, as a reminder last week saw a build of 7,600K.
Going forward, today sees market participants digest the release of the latest US JOLTS report and the Bank of Canada rate decision.
- S&P 500 rose 2.5%, second-biggest gain this year
- Nikkei 225 jumped 7.7%, largest surge since 2008
- Shanghai Composite Index up 2.3%
- S&P 500 futures up 1% at 1985.6
- Indexes: FTSE 100 up 1.9%, CAC 40 up 2.6%, DAX up 1.8%, IBEX 35 up 2.4%, FTSE MIB up 1.8%, Euro Stoxx 50 up 2.4%
- All of 19 Stoxx 600 sectors rise; autos sector up 2.9%, second-best performance after basic resources
- V2X down 12% at 28.5
- Euro spot down 0.4% at 1.1162; yen spot down 0.6%
- GBP drops to 1.5361 vs USD session low after July IP, manufacturing data miss est
- LME 3m Copper up 0.6% at $5375/MT
- Brent crude down 0.3% at $49.35/bbl
Bulletin Headline Summary from Bloomberg and RanSquawk
- Asian equities traded higher led by the Nikkei 225 (+7.7%) which soared nearly 1000 points after PM Abe announced a reduction in corporate tax next year
- USD/JPY trades above 120.00 and in close proximity to the 200DMA after PM Abe’s announcement, while GBP/USD tested the 200DMA level to the downside following disappointing industrial & manufacturing production
- Today’s highlights include US JOLTS report, Bank of Canada rate decision and API crude oil inventories after the closing bell on Wall Street
- Treasury yields rise in overnight trading, led by the long-end as equities rally; U.S. will auction $21b 10Y (reopen), WI yield 2.215% vs. 2.115% in August.
- Japanese stocks soared, with the Nikkei 225 Stock Average staging the steepest advance since the aftermath of the 2008 Lehman Brothers bankruptcy, amid speculation a selloff that drove valuations to an 11-month low was overdone
- Five-year Treasury notes are near their most expensive level in 15 months relative to two- and 30-year securities before the Federal Reserve meets next week to decide whether to raise interest rates for the first time in almost a decade
- U.K. industrial production unexpectedly declined and goods exports plunged the most in nine years, indicating a loss of economic momentum that may keep the Bank of England on a cautious policy footing
- Citigroup’s chief economist, Willem Buiter, said there is a 55% chance of some form of global recession in the next couple of years, most likely one of moderate depth and length
- Chinese Premier Li Keqiang sought to soothe global concern about the nation’s economy and stock market, saying growth is stabilizing and employment data show that it’s operating in a reasonable range
- Add the world’s biggest stock-index futures market to the list of casualties from China’s interventionist campaign to stop a $5 trillion equity rout
- Sovereign 10Y bond yields mixed, with Greek 10Y yield falling ~23bps. Asian and European stocks gain, U.S. equity- index futures rise. Crude oil and gold fall; copper gains
DB’s Jim Reid concludes the overnight wrap:
Onto the latest in Asia this morning and following a late surge in Chinese equities yesterday, which in turn kick started a strong relief rally across markets in Europe and the US, bourses have followed it up this morning with another strong showing with the Shanghai Comp (+1.69%), CSI 300 (+1.69%) and Shenzhen (+2.70%) all heading into the midday break with decent gains. The latest rally appears to have been supported by comments from China’s Ministry of Finance late yesterday, stating that it would ‘accelerate the implementation and improvement of proactive fiscal policy and related measures’ as well as speeding up reform measures to support stable growth and promoting healthy economic development.
The better sentiment has spread to the rest of bourses in Asia this morning. The Nikkei has bounced +5.69% and the most since March 2011, while the Topix is currently up +4.98%. Elsewhere, the Hang Seng (+2.97%), Kospi (+2.25%) and ASX (+1.70%) have all followed suit. Asia credit markets are also benefiting from the strong risk tone, trading 4bps tighter this morning while S&P 500 futures are currently up just over half a percent, with 10y Treasury yields a couple of basis points higher.
Back to yesterday. More state intervention chatter was attributed to the strong surge in Chinese equities yesterday as the Shanghai Comp reversed course shortly after the midday break (and after we went to print), rallying over 5% off the intraday lows to close up just shy of 3%. As discussed above this triggered a relief rally wave across risk assets yesterday. In Europe the Stoxx 600 ended up +1.18%, while over in the US markets surged following a three-day break with the second best daily returns this year for the S&P 500 (+2.51%), Dow (+2.42%) and Nasdaq (+2.73%). It was similar story in credit markets too. In Europe Crossover rallied 8bps while across the pond CDX IG was over 4bps tighter and buoyed by a bumper day for primary market issuance following a 13-day drought for new deals. Meanwhile the VIX fell over 10% to close at 24.9 and back to the lowest level since August 20th.
In the Oil space Brent (+3.97%) had a strong day and more or less wiped out Monday’s losses, although WTI (-0.24%) closed slightly down after playing catch up from the three-day break. Copper (+3.83%) surged on the back of production cuts while Aluminium (+1.91%), Zinc (+2.31%) and Nickel (+2.56%) also had a strong showing. The relief also spread through to a decent session for commodity sensitive currencies with +1% gains for currencies in South Africa, Russia, Colombia, NZ, Australia, Norway and Mexico.
The better tone in markets saw Treasury yields rise steadily over the day. The 10y eventually closed up 5.8bps at 2.184% while 2y yields finished +2.6bps higher at 0.735% and back pretty much to the highs for the year. Data wise there wasn’t too much to report in the US with the calendar light as usual post payrolls. The highlight was a slight rise in the August NFIB small business optimism index, up 0.5pts to 95.9 (vs. 96.0 expected). This was the second consecutive monthly gain but still well off the December 2014 highs of 100.4. The labour market conditions index rose 0.3pts last month to 2.1, while consumer credit for the month of July came in slightly above market ($19.1bn vs. $18.8bn expected). All told, the probability of a September hike from the Fed now is sitting at 28%, a slight fall from 30% on Friday. On this note, the World Bank’s Chief Economist has added to the recent chorus of opinions, warning that a move in September risks triggering ‘panic and turmoil’ in emerging markets and adding that it’s the compounding effect of the last two weeks of bad news with China’s devaluation that would likely trigger this panic.
Closer to home in Europe yesterday, sentiment was also given a lift following the preliminary Q2 GDP print for the Euro area, coming in at +0.4% qoq and a tenth ahead of expectations. That saw the annualised rate edge up three-tenths to 1.5% yoy and the highest since June 2011. Meanwhile, Germany’s trade data surprised to the upside in July with the trade balance of €22.8bn reaching a new historical peak. This was after exports out of Germany bounced back in July (+2.4% mom vs. +1.0% expected and -1.1% mom in June), although imports were also notably higher during the month, rising 2.2% mom (vs. +0.7% expected) after a negative showing in June. Our colleagues in Germany noted that nevertheless, despite the good start to Q3, sentiment indicators (PMI and IFO export expectations in particular) point to a strong deceleration of German exports in the coming months. They point out that so far about half of nominal export growth was driven by the valuation effect caused by a mainly weaker Euro and that this depreciation has already faded. They also expect the demand side momentum to slow, especially given the slowdown of US vehicle sales and ongoing challenges in larger EM’s.
Onto today’s calendar now. We kick off in the UK this morning where the focus will be on the July trade data along with industrial and manufacturing production readings. Over in the US this afternoon the main focus will be on the July JOLTS job openings print, which as we’ve noted previously is an important release given that the data is among Fed Chair Yellen’s favorite series with the jobs openings rate, hiring rate and quits rate of particular significance.
Tuesday night, 9:30 pm/Wednesday morning Shanghai 9:30 am
China calls for global stability/asks for market intervention and gets it!
(courtesy zero hedge)
China Panics: Calls On US To “Jointly Ensure Global Stability”, Exclaims “Economic Outlook Is Very Bright”
Hot on the heels of The World Bank demanding The Fed not hike rates, China issued a statement “calling on US to jointly ensure global economic stability”tonight following a farcical intervention last night on record low volumes and a small devaluation of the Yuan. Foreign Minister Wang added “China and U.S. should also properly handle disagreements and safeguard current international order,” just as another minister spewed forth “China’s economic outlook is very bright,” – well apart from the record debt, collapsing asset values, and massive over-capacity, you mean. Further measures detailing the new capital restrictions for forward FX transactions were announced (which will likely do for CNH what regulators did to Chinese index futures). Chinese stocks are extending their gains in the pre-open on vapid volume as China leaves Yuan practically unchanged.
As a reminder, here is last night’s (and Monday’s) epic farce of a “market”… after dropping 100s of billion of Yuan to “stabilize” the market already, why not do some more…
On the lowest volume EVER!!!
And then have the balls to issue a ststement, demanding this…
- *CHINA CALLS ON U.S. TO JOINTLY ENSURE GLOBAL ECONOMIC STABILITY
China and the U.S. should jointly ensure global financial and economic stability, Chinese Foreign Minister Wang Yi said when meeting with a former U.S. National Security Council official.
China and U.S. should also properly handle disagreements and safeguard current international order, as China President Xi Jinping is scheduled to visit the U.S. later this month, Wang said Sept. 7
But the propaganda did not stop there…
Liu He, director at the Office of China’s Central Leading Group on Financial and Economic Affairs, said that China’s economic outlook is “very bright” and the country will overcome current difficulties, Zhejiang Daily reports, citing Liu who commented during a trip to Zhejiang province.
Middle class is on the rise and domestic demand is “huge”
China needs to stabilize market expectation while working on reforms
Margin Debt dropped – after rising yesterday for the first time in over 2 weeks.
But stocks are extending gains in the pre-market futures trading…
- *CHINA’S CSI 300 STOCK-INDEX FUTURES RISE 2.8% TO 3,364
As PBOC leaves Yuan practically unchanged…
- *CHINA SETS YUAN REFERENCE RATE AT 6.3632 AGAINST U.S. DOLLAR
Japan’s Nikkei 225 Just Gained 1000 Points In 20 Hours
Presented with little comment aside to ask, just what did The G-20 agree to behind the scenes?
After ripping 500 points instantly at Japan’s open yesterday, then crashing back 900 points lower, Nikkei 225 Futures have now soared over 1000 points off last night’s lows…
6% in 20 hours? makes perfect sense!!
Because – despite what G-20 said… China does not seem to have got the message…
- FORMER CHINA SAFE OFFICIAL SEES FOREX INTERVENTION NECESSARY
and our illustrious buffoon covered his shorts, keeping his perfect record of 100% losses on his calls.
However, bulls be warned: after covering his losses he then went net long!!
The above was written at 10 am with the Dow up by 80 points or so. And as luck may have it, the Dow plummeted on the day causing Gartman to lose again.
(courtesy zero hedge)
Gartman Covers His Shorts, Goes “Marginally Net Long” One Day After Calling For Bear Market
Yesterday we asked a simple question: “is this the real reason futures are soaring” and pointed to Gartman’s latest flipflop as follows:
Trend Line Support, We Fear, Is A Very Long Way Down: This is a sobering thought, but this chart… which we included in our commentary yesterday… should give everyone a case of very real concern for support for the S&P is several hundred points below where the market closed on Friday. Strength is to be sold into…. We remain here at TGL modestly net short of the market generally and we’ve no intention of changing that focus other than to become a bit shorter still as time and market conditions demand.
Less than 24 hours later we find that he did indeed have an “intention of changing that focus.” Here is his latest “focus”:
In our retirement fund here at TGL… the only money which we manage directly… we came into yesterday’s session decently net short; not aggressively so, but not marginally so either. However, it made no difference; we were short in a rampaging bullish move and we had no choice but to rush to cover much of the net short position immediately upon the opening of trade on the NYSE.... Within moments of the opening we had reduced that net short position almost entirely. Would that we had had the temerity and the foresight to have reversed our derivatives position entirely, but we are neither that insightful nor that heroic.
Today, almost certainly we’ll be covering in a bit more of our derivatives positionand at the same time we’ll be buying more of our single “tanker” stock to take our “net” position to one that is modestly, marginally net long. We’ve no choice. The market has spoken and it has spoken loudly.
Bulls you have been warned.
Last night, world bank chief economist warns a Fed rate hike will unleash panic, turmoil and a new market crisis:
(zero hedge/World Bank Economist,Basu)
Fed Hike Will Unleash “Panic And Turmoil” And A New Emerging Market Crisis, Warns World Bank Chief Economist
If it was the Fed’s intention to make the upcoming rate hike seem like a welcome event, one that presaged a new Golden Age in the US (and global) economy because, lo and behold, the wise Fed would never hike unless the economy is flourishing and thus create a self-fulfilling prophecy in which the rate hike itself – an event of tightening financial conditions even when inflation expectations are the lowest they have been in years – becomes a catalyst for growth, then it has failed spectacularly.
First, it was the IMF warning a rate hike would be a big mistake, then Larry Summer (who for some reason progressives thought was hawkish when it was a choice between him and Aunt Janet), then even China got into the fray saying the Fed should delay its rate hike as it could push emerging markets (such as China) into crisis.
But it wasn’t until today that we got the most glaring confirmation there had been absolutely zero coordination at the highest levels of authority and “responsibility”, when the World Bank’s current chief economist (a position previously held by such ‘luminaries’ as Larry Summers, Joseph Stiglitz and Stanley Fischer), Kaushik Basu warned that the Fed risks, and we quote, triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned.
While apparently the World Bank economist is unfamiliar with the concept of reflexivity, and does not understand that the only reason the global economy is not on “surer footing” is because of the 12+ month , near endless pricing in of the Fed’s first rate hike since 2006, which has unleashed an unprecedented capital flight out of all emerging markets, a record series of rate cuts across the globe including NIRP in Europe, and China’s first official currency devaluation in years not to mention the first stock market correction in 4 years, what is critical is that by making this statement, Basu destroys with just two words the narrative that i) the Fed knows what it is doing and that ii) contrary to logic, a rate hike at a time when the world clearly and desperately needs, and is addicted, to global central bank liquidity, will lead to even further asset price plunges.
In fact, Basu may have just admitted, in not so many words, that Deutsche Bank’s sinking feeling that the Fed’s rate hike is nothing but a “controlled demolition” of the market, one which would send global equities 20-40% lower, is spot on.
This is what else Basu told the FT:
Rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences.
His warning highlights the mounting concern outside the US over the Fed’s potential “lift-off”. It follows similar advice from the International Monetary Fund where anxieties have also grown in recent weeks about the potential repercussions of a September rate rise.
That means that if the Fed’s policymakers were to decide next week to raise rates they would be doing so against the counsel of both of the institutions created at Bretton Woods as guardians of global economic stability.
And just in case casually tossing the words “panic in turmoil” was not enough, Basu decided to add a few more choice nouns, adding a rate hike “could yield a “shock” and a new crisis in emerging markets… especially as it would come on the back of concerns over the health of the Chinese economy that have grown since Beijing’s move last month to devalue its currency.”
He said that, even though it had been well-advertised by the Fed, any rise would lead to “fear capital” leaving emerging economies as well as to sharp swings in their currencies. The likely strengthening in the dollar would also hamper US growth, he said.
Finally at least one person in a position of authority realized just what Quantitative Tightening means:
“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation] . . . In the middle of this it is going to cause some panic and turmoil.
Precisely, and as a reminder between the Fed’s tightening and China’s QT, the world would suddenly find itself starting at a finacial liquidity abyss, and abyss which forDeutsche Bank means the S&P could trade at “half its value.”
His conclusion: “The world economy is looking so troubled that if the US goes in for a very quick move in the middle of this I feel it is going to affect countries quite badly,” he said.
And if someone should know (clearly not the Fed whose predictions have become the butt of all jokes even for tenured economists), that would be the chief economist of the World Bank.
But fear not: recall that over the weekend Goldman made it very clear that a September rate hike (and maybe December) is not coming. And what Goldman wants, Goldman always gets, even if it means the Fed ends up losing all credibility in the process.
Finally, just in case there is still any confusion what a Fed rate hike means, we repeat what Bank of America said last week:
Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.
As noted above, a rate hike with a stroke ends this era.
Buiter: Only “Helicopter Money” Can Save The World From The Next Recession
It is to be expected that economists – even economists working for the same team – have different views about the likelihood of different future outcomes. Economics isn’t rocket science, and even rockets frequently land in the wrong place or explode in mid-air.
That rather hilarious characterization of the pseudoscience that is economics comes from the desk of Citi’s Chief Economist Willem Buiter and it’s apparently evidence that even if you don’t think too much of his views on “pet rocks” (gold is a 6,000 year-old bubble) or on the efficacy and/or utility of physical banknotes (ban cash), you’d be hard pressed to disagree with him when it comes to critiquing his profession. Of course we don’t want to give Buiter too much credit here because the quote shown above could simply be an attempt to stamp a caveat emptor on his latest prediction in case, like his predictions on when Greece would ultimately leave the euro, it turns out to be wrong.
As tipped by comments made at the Council of Foreign Relations in New York late last month, Buiter is out with a damning look at the global economy which he says will be drug kicking and screaming into a recession by the turmoil in China and the unfolding chaos in EM. Here’s the call:
In the Global Economics team, however, we believe that a moderate global recession scenario has become the most likely global macroeconomic scenario for the next two years or so. To clarify further, the most likely scenario (40% probability), in our view, for the next few years is that global real GDP growth at market exchange rates will decline steadily from here on and reach or fall below 2%.
The culprit, as mentioned above, is China (where Citi says real GDP growth is actually somewhere in the neighborhood of 4%) and EMs more broadly which are suffering mightily in the face of sluggish Chinese demand, slumping commodity prices, and, most recently, the devaluation of the yuan:
Should China enter a recession – and with Russia and Brazil already in recession – we believe that many other EMs, already weakened, will follow, driven in part by the effects of China’s downturn on the demand for their exports and, for the commodity exporters, on commodity prices.
The main driver of global underperformance during the past two years has been EM weakness. No EM of any significant size is outperforming our forecasts since the beginning of the year or earlier; most are underperforming. Even the success stories, like India, central and eastern Europe, and to a certain extent Mexico, are not outperforming our forecasts. Brazil and Russia are in recession, and GDP growth there has turned negative. South Africa is in a recession, with output below potential and output growth below potential output growth. The most significant underperformer is China. For reasons explained earlier, we don’t think there is much point in forecasting official GDP growth. We therefore focus on our best guess as to the ‘true’ growth rate of real GDP, which, as noted earlier, is probably somewhere around 4% now.
Evidence of weakness, Buiter continues, is everywhere:
The evidence for a global slowdown is everywhere. Global growth is weakening since 2010 as is evident from Figure 6, which shows global real GDP growth since 1980 at both market and PPP exchange rates, as well as EM and DM real GDP growth at PPP exchange rates. A modest pickup in GDP growth in the DMs since 2012 is swamped by a sharp decline in EM growth. There are other informative indicators of global weakness, notably the very weak – indeed negative – world trade growth in the first half of 2015, the continued weakening of (real) commodity prices, the weakness of the global inflation rate (measured by the GDP deflator), the recent decline in global stock prices, measured by the MSCI ACWI, plus indications that corporate earnings growth is slowing down in most countries, and the unprecedented decline in nominal interest rates, shown in Figure 7 – Figure 11.
And China – the epicenter of it all – is ill-equipped to cope because, as we’ve discussed at length, the country’s many spinning plates have elicited an eye-watering array of conflicting directives and policies which are now tripping over each other at nearly every turn:
The policy response to the weakening of domestic (and external) demand in China is likely to be too little and too late. China is not a command economy or a centrally planned economy – indeed, unlike the former Soviet Union, it never was. Like most real-world economies today, it is a messy market economy of the state-capitalist/crony-capitalist variety, where policy ambitions are not matched with effective policy instruments and where macroeconomic management and financial crisis prevention and mitigation competence are in short supply.
The mishandling of the housing boom, bubble and bust, and of the latest stock market boom, bubble and bust together with the recent RMB kerfuffle don’t inspire confidence in the ability of the authorities to prevent a cyclical hard landing for China.
Finally, DM central planners are in no shape to combat the China/EM contagion because – and this will come as no surprise – they are simply out of ammunition having thrown everything in the Keynesian toolbox at their respective economies in the post-crisis years with limited (and swiftly diminishing) returns:
Most advanced economies are, as regards countercyclical policy ammunition, in the position that either they don’t have very much of it or are unwilling and/or unable (because of domestic or external political constraints) to use what ammunition they have.
Expansionary monetary policy in the US, the UK, the Eurozone, Japan and most smaller advanced economies is operating in the zone of severely diminishing returns.
As you might have guessed, Buiter thinks there’s only one way out of this: helicopter money.
And not just in the US, but in Europe (against the protestations of what Buiter calls the “Teutonic fringe”) and indeed across all DMs and also in China.
Helicopter money drops would be the best instrument to tackle a downturn in all DMs.
In the Eurozone, a significant Teutonic fringe believe that a fiscal stimulus is contractionary and that monetization of public debt and deficits is a sure road to hyperinflation. It is a widely held view that Article 123 of the Treaty on the Functioning of the European Union forbids monetization of public debt and thus makes a helicopter money drop in the Eurozone impossible. Debt-financed (non-monetised) fiscal expansions run into the twin obstacles of an already excessive public debt in most Eurozone member states and the pro-cyclical nature of the constraints imposed by the Stability and Growth Pact and its myriad offspring, operated out of Brussels.
In the US, the fiscal stance is, from a cyclical perspective, not unlike a clock that is halted and points at the right time only twice a day. Fortunately, today is one of these times. Should the country need a fiscal stimulus (or indeed a fiscal contraction), it is in our view highly unlikely that the Congressional gridlock could be overcome sufficiently to do what is necessary when it is necessary. So as regards countercyclical policy, the US, like the Eurozone, has to rely on progressively less effective monetary stimulus alone.
The fiscal position of the Japanese sovereign is by far the worst of any large advanced country, despite its large stock of foreign exchange reserves and the positive net foreign investment position of Japan as a whole. Only a permanently monetised fiscal stimulus would be feasible if the markets were to wake from their decades-long slumber and wonder whether, and how, the Japanese sovereign can reach the shores of solvency without inflating its debt away.
Fiscal policy can undoubtedly come to the rescue and prevent a recession in China.But what is needed is not another dose of the familiar post-2008 fiscal medicine: heavy-lifting capital expenditure on infrastructure with dubious financial and social returns, and capital expenditure by SOEs that are already struggling with excess capacity, all funded, as if these were commercially viable ventures, through the banking or shadow banking sectors. As regards funding the fiscal stimulus, only the central government has the deep pockets to do this on any significant scale.The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.
So basically, these central banks which Buiter just admitted are already “operating in the zone of severely diminishing returns,” should not only do more of the same, but a lot more of the same and in fact, they should all dive head first into the Keynesian abyss by simultaneously cranking the knob on their respective printing presses to the max:
We expect to see QE #N, where N could become a large integer, as part of the monetary policy response in the US and the UK, and QEE2 in Japan. The ECB will likely have to continue its asset purchases beyond September 2016 and it may cut its policy rates further. All this will not be enough to prevent most advanced economies from performing worse in 2016 and 2017 than in 2015, and worse than our current forecasts for the next two years.
There you have it. “QE#N where N could become a large integer”, and paradoxically, by not normalizing policy when it had the chance, the Fed has now made this inevitable because as we’ve shown, tightening into an EM FX reserve drawdown will only exacerbate said drawdown making an embarrassing about-face by the FOMC a foregone conclusion. In other words, this is game over. We’ve entered the monetary Twilight Zone where the only way to keep the increasingly wobbly house of cards standing is to continue to monetize everything that’s monetizable and when we hit the limit we must then move to issue more debt for the sole purpose of monetizing it and immediately canceling it.
But as Buiter noted at the outset, these are all just the musings of a pseudo-scientist, who, by the very nature of his profession, is prone to making predictions that, much like the Fed’s “liftoff”, are just as likely to “explode in mid-air” as not.
30Y Treasury Yield Bursts Above 3.00% – 6-Week Highs
30Y Treasury yields are up 40bps from the Black Monday flash-crash panic low yields, breaking back above 3.00% for the first time since the end of July. It appears China selling (and rate locks) is trumping Element Capital’s buying (for now).
At 3.02%, 30Y just broke another resistance level and is at its highest since July 23rd.
Your most important read of the day. David Stockman tackles ZIRP, the phony Japanese stock market, the huge bond purchases by Japan of its bonds as well as the phony jobs report and what it means…
a must read…
(courtesy David Stockman/ContraCornerBlog)
The Endless Emergency – Why It’s Always ZIRP Time In The Casino
Based on the headline from the latest Jobs Friday report you wouldn’t know that we are still mired in an economic emergency – one apparently so extreme that it might entail moving to the 81st straight month of zero interest rates at next week’s FOMC meeting. After all, the unemployment rate came in smack-dab on the Fed’s full-employment target at 5.1%.
But that’s not the half of it. The August unemployment rate was also in the lowest quintile of modern history.
That’s right. There have been 535 monthly jobs reports since 1970, yet in only 98 months or 18% of the time did the unemployment rate post at 5.1% or lower.
In a word, the official unemployment rate is now in what has been the macroeconomic end zone for the past 45 years. Might this suggest that the emergency is over and done?
Not at all. The talking heads have been out in force insisting on yet another deferral of “lift-off” on the grounds that the economy is allegedly still fragile and that the establishment survey number at 173,000 jobs came in on the light side. Even the so-called centrists on the Fed—–Stanley Fischer and John Williams—–have gone to full-bore, open-mouth, two-armed economist mode, jabbering incoherently while they await more “in-coming” economic data.
Self-evidently, the only “incoming” information that can matter between now and next Wednesday is the stock market averages. To wit, if last October’s Bullard Rip low on the S&P 500 holds at 1867, the FOMC will declare “one and done”, at least for the year; and if the market succumbs to another spot of vertigo, the Fed will concoct yet another lame excuse for delay.
Indeed, the Fed’s true Humphrey-Hawkins target is transparent. Namely, avoidance of a “risk-off” hissy fit at all hazards.
So let’s just call the whole thing a cosmic farce and dispense with the macroeconomic hair-splitting. Ordinary people everywhere on the planet are in grave danger because governments and their central banking branches have put the gamblers in charge of the economic show.
That’s self-evident in Europe where the Brussels/Frankfurt apparatchiks are deathly afraid of a stampede toward the exits by the front-running gamblers who “rented” (on repo) the sovereign bond market on Draghi’s “whatever it takes” ukase. So they have now turned Greece into an outright debtors’ prison, extinguishing the last remnants of democratic self-rule and imposing debt obligations that will approach $500 billion when Greece’s new bailout and existing massive ECB debits are reckoned.
Greece’s battered and still shrinking $200 billion economy, therefore, will either become an economic Atlantis lost under the Aegean or an exploding debt bomb. That is, when Greece finally defaults, it will trigger the demise of the Euro, the European Project and the continent’s rickety banking system——-stuffed to the gills, as it is, with the unpayable debts of aging, sclerotic socialist economies.
Likewise, the lunatic twosome of Abe and Kuroda in Japan have succeeded in putting the Japanese economy back into recession—-even as they run the greatest sovereign buyback Ponzi in history. To wit, the BOJ is buying up Japan’s stupendous one quadrillion yen of public debt faster than new debt is being created, thereby pegging the 10-year JGB at a ridiculous 36 basis point yield and flushing Japan’s domestic investors into a rampaging stock bubble that is an accident waiting to happen.
In the nearby land of red capitalism the statist fix gets more preposterous by the day. Having sent out Brink’s trucks loaded with $300 billion to buy unwanted stocks and a fleet of paddy wagons to arrest anyone even a tad too eager to sell, China’s chief money printer told the G-20 on Saturday that China’s $5 trillion stock market meltdown was over.
But when the Shanghai market opened nearly 2% down last night, the “national team” went berserk hitting the “offers” in a desperate effort to prove him right. On a dime, the red casino suddenly ripped to 3% higher by the market’s close.
So the suzerains of red capitalism now depend on a blunderbuss PPT (Plunge Protection Team) to keep the grim reaper at bay. With more retail stock account holders (90 million) than communist party members (80 million) and more separate trading accounts (287 million) than the combined population of Japan, South Korea, Taiwan and Thailand (267 million), a supreme irony has come to pass. Namely, that Beijing’s heirs of Mao’s anti-capitalist revolution have no choice except to prop-up the stock market in order to obfuscate the deflationary whirlwind battering Mr. Deng’s hothouse economy.
Even then, the giant Red Elephant in the room is hard to hide. That’s why capital is in full flight, as underscored by last night’s disclosure that China’s vaunted FX reserves dropped by $94 billion in August alone—-notwithstanding a huge current account surplus.
That’s also why China’s imports plunged by 14% and exports by nearly 6% last month, and why car sales have dropped sharply again in August. Indeed, flat-lining industrial production, power consumption and freight shipments all show an economy floundering at stall speed or worse.
At least the rulers in Beijing make no bones about the fact that they are rigging the stock index. After all, “command and control” is what the communist party does.
Not so for the hypocritical posse of cowards, dissemblers and Keynesian dogmatists who run the Fed. These folks presumably have a passing regard for the rudiments of capitalism and free markets.
Yet they insist that the most important market in all of capitalism—–the money market where traders and speculators fund trillions of positions and inventories—-is no market at all; and that, instead, it’s an administrative department of the central bank to be governed by the writ of 12 FOMC members based on their subjective assessment of the “incoming” macroeconomic noise.
Stated differently, the Fed has extinguished any and all market prices for money, and indeed any price at all; and in the process has caused the falsification of debt and equity prices throughout the capital markets. So Wall Street and its equivalents around the world have become little more than casinos where the gamblers trade against the croupiers domiciled in the major central banks.
But heavens forfend that our monetary central planners should admit to the unseemly bended knee estate to which they have been reduced. So in what amounts to mindless ritual incantation they persist in gumming about what is self-evidently seasonally maladjusted, constantly revised, inherently incomplete noise. At the end of the day that’s the frail reed on which the whole contemporary central banking enterprise is based.
The truth is, central banks emit credits conjured from thin air into a borderless planetary financial system that is now populated by the demons and furies of bubble finance. These free money enabled gamblers and speculators never stop confecting new forms of carry trades, collateralized finance and momentum chasing algorithms that rip the casino loose from the real economy.
Moreover, all the central bank interest rate pegging at zero is beside the point insofar as the real economy is concerned. That’s because over the last two decades the central banks have fueled a debt binge of staggering proportions. Overall credit market debt has grown from $40 trillion in 1995 to $200 trillion last year. That $160 trillion credit expansion was nearly 4X the modest global GDP growth of $45 trillion during the same period.
Accordingly, the world has simultaneously reached a condition of “peak debt” in the DM world, where 90% of households are tapped out or on welfare; and “peak capacity” in the EM world, where a digging, building and investment spree has left economies drowning in excess industrial capacity and white elephant public infrastructure.
In that context, the only thing that zero interest rates can do is fuel a few more spasms of “risk-on” rips in the casino; and supply a drip of cheap capital to DM companies wishing to buy back their own stock, and a temporary lifeline to EM and commodity sector zombies hemorrhaging cash.
But what it can’t do is anything to deliver the so-called Humphrey-Hawkins target of maximum employment; or the goal of price stability as per the Fed’s perverse definition of it as 2% on the PCE deflator—— less food and energy or whatever else the monetary politburo chooses to delete from the figure.
The measured inflation rate, of course, is now being powerfully suppressed by the very global deflation flowing from peak DM debt and peak EM capacity that the central bank money printers have generated over the last two decades. Beyond that, there is not a shred of valid evidence from economic history or logic that says you get more sustainable growth in living standards from 2% consumer inflation than from 0%.
But at the end of the day all of the Fed’s jawing in support of ZIRP is rooted in an utterly obsolete model of bathtub economics in one nation. That is, the notion that central bank credit is injected into a closed domestic economy, not a wide-open global casino, and that these injections will eventually cause an invisible economic ether called “aggregate demand” to rise to the brim of full employment.
Since the year 2000 the Fed has emitted $4 trillion of central bank credit. But as the Friday Jobs report actually showed, 5.1% on the official unemployment rate has had nothing to do with filling the US economic bathtub to its purported full employment potential.
As shown below, notwithstanding hitting the 5% unemployment target three times since the late 1990s, the real measures of labor inputs employed by the US economy have gone steadily south. The civilian employment-population ratio is down by five full percentage points or 12.5 million workers, and total nonfarm labor hours deployed by the business economy have not broken the flat-line in 15 years.
Even more to the point, the number of breadwinner jobs paying a fulltime living wage was still nearly two million below its turn of the century level in Friday’s report.
Needless to say, Friday’s report perfectly underscores why basing Fed policy on “incoming data” like the BLS employment report is so copasetic to the casino.
If the Fed take no action after the September release, it’s hard to imagine a report that wouldn’t support ZIRP or near-ZIRP in the minds of the money printers and the Wall Street gamblers they pleasure.
Spain is now worried about a Catalonia vote to separate. Catalonia houses the all important city of Barcelona, the engine of growth for Spain:
(courtesy zero hedge)
Spain Defense Minister Warns Army May Intervene Unless “Catalonia Obeys The Rules”
With Spain’s Catalan region on the verge of electing pro-independence parties and seeking autonomy from central rule, the government (clearly worried) has ramped up the rhetoric on what consequences lie ahead. In a rather stunning outburst for a supposed democracy, CNA reports, the Spanish Defence Minister, Pedro Morenés, assured that the army won’t act in Catalonia as long as “everybody fulfills their duty.”The Catalan minister for the presidency exclaimed Morenes statement was “out of this world,” and could only be made by “someone who is afraid of democracy.” The army will “enforce the Constitution,” Morenes concludes, unless “members strictly obey the rules.” As one pro-independence minister opined, “threatening and trying to intimidate means that you are only left with stupidity.”
In November, Spain got a big surprise… Prime Minister Mariano Rajoy has a problem. Despite his best legal and propoganda defenses (and harsh weather conditions) today’s symbolioc vote for Catalonia independence proceeded… and the initial results (with 88% of the vote counted) are in:
- *TURNOUT IN CATALAN BALLOT WAS ABT 2.25 MLN, GOVT SAYS
- *81% BACK INDEPENDENCE IN CATALAN BALLOT
The Spanish government is saying the “data is not valid” and is investigating the illegal ballot calling it a“useless sham.” Catalan President Mas says pro-independence parties will meet this week to put pressure on Madrid.
The Spanish Defence Minister, Pedro Morenés, assured that the army won’t act in Catalonia on 9/27 as long as “everybody fulfils their duty.” In an interview with Spanish National Radio (RNE) this Tuesday he recalled that Catalan politicians “have sworn to obey and enforce the Spanish Constitution” and said that he expected them “to do so.” When asked about the hypothetical unilateral declaration of independence after the elections, he spoke in support of the implementation of Article 115 of the Spanish Constitution, which establishes the suspension of Catalonia’s autonomy. Morenés stated that he is for “applying the laws if they are disobeyed” and underlined that the army “is an absolutely and perfectly democratic” institution whose members “strictly obey” the rules.
In the event of a unilateral declaration of independence, if pro-independence parties win the Catalan elections on 9/27, Morenés openly showed his support for the application of Article 115 of the Spanish Constitution and emphasised that “the law has to be applied when disobeyed”. Article 115 allows the Spanish Government to suspend Catalonia’s autonomy and force it to adhere to the rules.
Morenés’ statement has caused huge controversy amongst the Catalan parties and shook the Spanish political scene as a whole. Both ministers and candidates didn’t take much time to react.
The Catalan Minister for the Presidency, Francesc Homs, labelled Morenés’ words as“indescribable in a democratic context”. He stated that such statements were “not of this world” and added that it can only be hoped “that one day, a minister from the People’s Party (PP) will take Catalonia’s vote into account”.
The spokeswoman for the Catalan government, Neus Munté, responded to Morenés by saying that a statement like this could only be made by “someone who is afraid of democracy”.
The spokesman for left wing pro-independence ERC in the Spanish Parliament, Joan Tardà, described Morenés as a “fool” and a very “low-cost” person in terms of ethics. He said that it was embarrassing that a person who is supposed to be “cultured and travelled” could say “such nonsense”.
Convinced that the Spanish Minister of Defence was using words to try and “frighten” Catalan citizens on the occasion of the 9/27 elections, Tardà noted that this only showed “his weakness” and that “threatening and trying to intimidate means that you are only left with stupidity”.
“Everything is all set for Nov. 9,” says a senior Catalan regional government official as the region prepares to defy both the central government and the country’s highest court and proceed with a much-disputed weekend vote on whether to secede from Spain. And while the Spanish government has not specified what legal consequences Catalan leaders, poll workers or voters might face Sunday, when they go to vote, The LA Times reports that Madrid has reportedly readied thousands of Civil Guard police officers to travel to Catalonia this weekend if needed.
* * *
On a more serious note, Americans need to understand that Spain is merely a few years ahead of us. The question isn’t whether the status quo will be overthrown, the question is what will replace it. Something better, or something worse? Our key mission must be to ensure we get a better system after this one blows up, not something even worse.
Watch Spain closely in the months ahead. It will be another canary in the coal mine for the entire Western world.
* * *
We leave it to this Twitter user to sum it up:
@zerohedge we, catalan people, only want to vote to see what we want to be! Asking people should never be banned! Spain is not a democracy
— 9Núria (@nuriabg6) November 5, 2014
You will enjoy this one: The Mises institute’s philosophy on government debt. In a nutshell the huge Greek debt should be repudiated
(courtesy Simon Wilson/the Mises Institute)
Why The Greeks Should Repudiate Their Government’s Debt
In apportioning blame for the Greek government debt crisis, it would be difficult not to lay the major share on Greece itself. With government jobs paying three times the private sector average, a national rail service with a wage bill four times its annual revenue, a public pension system that would pay out generous benefits at fifty for anyone classified as working in “arduous” professions like hairdressing, there is no shortage of taxpayer-funded largesse running rampant through Greek society.
At this point however, dissecting the Greek’s failure to live within their means is not only nugatory – beyond proving the time-tested observation that people like something for nothing – but also obfuscates the true moral contours of the crisis. Moreover, it blurs our understanding of a fundamental truth crucial not just to the future of Greeks but all peoples: Government debt is not like private debt. In fact, government debt is fundamentally illegitimate and one might even be justified in claiming that anyone seeking to profit from it is aiding and abetting criminal activity.
Private Debt vs. Government Debt
As Murray Rothbard argued in his seminal essay, “Repudiating the National Debt,” public debt is a wholly different beast than private debt contracted between ordinary individuals. In the latter case, a creditor lends to a debtor a specified amount of their own funds in exchange for a specified payment from the debtor in the future. By making this contractual exchange from which both parties benefit (otherwise they wouldn’t enter into it) the creditor becomes the true owner of the future moneys pledged by the debtor. Consequently, if the debtor fails to make good on the future payment the debtor is really and objectively robbing the creditor of his property. In a just society, the creditor would rightfully be permitted to recover his property unjustly expropriated.
Government debt is different. When a government issues debt on the bond market, it is not pledging to make good on it out of its own resources because, as Rothbard points out, it owns no such resources:
For unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as “inflation.”
What a government pledges to its creditors is payment of the future wealth of its subjects, the taxpayers. This is wealth obtained through violent coercion and pledged without its owner’s consent. Any moral claim the creditors who buy such debt have to repayment from the victims is thus non-existent. Indeed as Rothbard avers,
[P]ublic creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future.
By Rothbard’s lights, the only moral response to the Greek crisis is for Greece to repudiate entirely its public debt and let its creditors suffer the consequences. The Greek government, like all governments, acted in a manner akin to a perspicacious school bully who instead of punching people for lunch money, simply took out a credit card in the name of his victims. The fact that the victims might have enjoyed some of trinkets thrown back at them is morally irrelevant. They cannot be held responsible for the debt incurred.
Rothbard’s rationale for repudiation is notably different from that gaining the most traction amongst those campaigning for writing down Greek debt. Many would argue that the buyers of Greek debt “deserve” to get burned because they bought it as a calculated risk with a coupon or rate of interest reflecting the probability of default. However, this view — where reneging on debt, (i.e., theft) is not seen as an inherent wrong but is rather something that can be traded off against higher interest rates — is devoid of the moral substance and precision of Rothbard’s argument.
Who is to say: how much of the creditor’s loan “deserves” writing down? The part of interest which exceeds the rate charged on a risk free-asset like a T-Bill (whatever that means in this world of distorted asset prices)? Why then shouldn’t everyone simply refuse to pay interest on any loan exceeding some arbitrary risk-free rate, knowing that such behavior should be expected by the creditor who already priced it into the originally demanded rate of interest?
Rothbard’s argument does away with such ambiguities: those who buy Greek debt or indeed the debt of any sovereign nation debt deserve to get burned, not in degree but entirely, because their actions empower the state and enable it in its abuses against its subjects.
It’s Not German vs. Greek: It’s Taxpayers vs. the State
So just who are the unscrupulous “profiteers” of human misery protracting Greece’s conundrum? Well, most agree that it is industrious German taxpayers, who now must pick up the tab for years of Greek profligacy. However, this characterization conveniently ignores how German taxpayers were put on the hook in the first place.
At the beginning of the crisis it was the major European banks holding most of Greece’s debt. Now the vast majority is held by the international bailout fund put together by the European Commission, European Central Bank (ECB), and IMF (i.e., the “Troika”). Of this, the major share, some €56 billion, is held by Germany. The Troika’s purchase of Greek debt was presented as an almost humanitarian gesture intended to save Greece from economic implosion. The reality is that they allowed the banks to offload toxic Greek assets from their balance sheets keeping them solvent and able to extend the fraudulent fractional reserve practices that caused the financial crisis in the first place.
Nothing in the Greek crisis makes sense unless it is understood in terms of the ultimate end of bailing out the European financial system and its major banks.
Now European taxpayers are being forced to bail out the bailout and the German people are bearing the brunt, but this is hardly cause for a simplistic narrative pitting German against Greek. It is eminently clear that both peoples are victims of their own governments.
What right does the German parliament have to hand over more of the wealth of its own people so that the Greek government can use it to pay off the convoluted ECB/EU/IMF bailout funds which are in turn funded by debt instruments bought up by and made liquid by the world’s biggest banks? It has about as much right as the Greek government had to take out loans in the name of its people in the first place.
It would be a welcome gesture for an incoming government to declare the actions of previous governments to be against the interests of the taxpayers and repudiate the national debt.
This would not only relieve the taxpayers of a present burden but would also mean that any future government would find it hard to borrow from international creditors forcing them to bear the negative effects of their fiscal and monetary policies much earlier and with greater severity.
Unfortunately Greece’s “anti-bailout” government’s decision to ignore a plebiscite opposing a new bailout deal and the German parliament’s recent approval of said deal (going against the will of the majority of Germans) proves that any concept of democratic legitimacy – through which government is viewed as acting on behalf of the people in a principle-agent manner – is not only logically flawed but will always be discredited in practice.
Russia will do whatever it takes to protect its natural gas distribution in Europe. The Americans want the Qatari pipeline heading through Syria and Assad stands in their way. Russia sends in armaments!
(courtesy zero hedge)
Russia Sends More Tank Landing Ships, Military Aircraft To Syria
On Wednesday, Jean-Claude Juncker unveiled Europe’s preliminary “plan” to try and cope with the massive influx of asylum seekers fleeing the violence in war-torn Syria. Brussels’ approach to the crisis will reportedly involve a list of so-called “safe countries of origin.” As WSJ reported earlier today, migrants from those countries who are denied asylum will be subject to fast-track repatriation.” Here’s what we said about the proposed “safe” countries list:
Because there are “safe” countries of origin that must mean there’s a list of “unsafe” countries of origin as well, and we can only assume that list includes Syria, which Europe will make safer by bombing it.
That was a reference to reports out earlier this week that suggested French President Francois Hollande’s response to Europe’s biggest refugee crisis since World War II would involve bombing the very place from which the refugees are fleeing. Here’s what Bloomberg (and Hollande himself) said on Monday:
Hollande is seeking a response to Europe’s biggest refugee crisis since World War II in tune with public opinion that remains largely hostile to a massive increase in immigration.
“I’ve asked the minister of defense to begin reconnaissance flights over Syria from tomorrow that would allow for strikes against the Islamic State,” Hollande said at a press conference in Paris on Monday. Hollande, who ruled out sending troops, said Syrian leader Bashar al-Assad is an impediment to peace in the country.
In many ways, this looks like a replay of the infamous YouTube chemical weapons videos which were supposed to serve as the original pretext for Western strikes on the Assad regime. That is, the US and its allies are determined to find the right mix of propaganda to justify a ground incursion and this time around, that mix will apparently include heart-wrenching pictures of migrants. As we said on Tuesday, the real tragedy here is that now, the pitiable plight of Syria’s beleaguered masses will be used as an excuse to cause them still more pain and suffering.
Well sure enough, on Wednesday, we got still more evidence that Western Europe is set to join the US and Turkey (and soon Saudi Arabia, Jordan, and Qatar) in conducting bombing raids in Syria. Here’s WSJ:
Faced with a burgeoning refugee crisis in Europe sparked by global extremism, U.S. and European officials said Tuesday there is a growing consensus that the multinational military campaign against Islamic State must focus more on targeting the group’s nerve centers in Syria.
With thousands of people flowing into Europe every day, France and England are both poised to set aside long-standing reservations and join Washington in carrying out airstrikes against Islamic State in Syria.
Western nations and U.S. allies also are responding to rising concerns about extremists in Syria planning attacks on European targets, such as a thwarted attempt last month by a lone gunman to kill passengers on a Paris-bound train.
That attack was a key factor for France in deciding to launch reconnaissance missions over Syria. French President François Hollande said Monday that his military is poised to carry out airstrikes in Syria.
On Tuesday, government officials in London said the British military also is prepared to continue targeting Islamic State extremists in Syria suspected of plotting attacks in England. The pledge came after the U.K. announced its first targeted airstrikes in Syria, which killed two British extremists.
Prime Minister David Cameron has renewed his push to convince a reluctant Parliament to clear the way for England to carry out broader airstrikes against Islamic State, also known as ISIS or ISIL, which has established its de facto capital in the city of Raqqa, Syria.
How France and the UK plan to explain, if pressed, the logic behind the idea that dropping more bombs on Syria should leave Syrians more predisposed to remaining in the country as opposed to fleeing to Europe is anyone’s guess, but even WSJ is starting to pick up on the fact that the timing here looks rather convenient, as the UK and France are now set to throw their respective air forces into the mix just as Russia moves to provide Assad with badly needed reinforcements at Latakia. Here’s WSJagain:
As Europe deepens its involvement, Russia appears to be increasing its military role in Syria. U.S. military officials said Tuesday that Russia has sent in new planes, personnel and equipment in what appears to be an effort to set up a new air hub on the Syrian coast.
American officials are concerned the Russian buildup is an attempt by Moscow to provide more air support for embattled Syrian President Bashar al-Assad, but Moscow’s intentions aren’t yet clear. The moves by Moscow could increase the risk that members of the U.S.-led coalition could face off against Russian jets in the skies above Syria.
Speaking of Russia and their expanded presence, it now looks as though the Kremlin may soon abandon all pretense that its soldiers are not in Syria to fight – although obviously, no one on either side is yet prepared to drop the ISIS charade that has served, from the beginning, as the smokescreen politicians use to keep the public hyptnotized and blissfully unaware of their respective governments’ real geopolitical agendas. Here’sBloomberg:
Russia said it’s ready to look at measures to fight Islamist insurgents in Syria if the conflict worsens, rejecting U.S. criticism of its deepening military involvement in the Middle Eastern country.
“Russia has never made a secret out of its military cooperation with Syria,” Foreign Ministry spokeswoman Maria Zakharova Zakharova said in Moscow. “Russian specialists are helping Syrians to use Russian equipment. It’s difficult to understand the anti-Russian hysteria in this regard.”
And then from Reuters:
Russia has sent two tank landing ships and additional aircraft to Syria in the past day or so and has deployed a small number of forces there, U.S. officials said on Wednesday, in the latest signs of a military buildup that has put Washington on edge.
The two U.S. officials, who spoke to Reuters on condition of anonymity, said the intent of Russia’s military moves in Syria remained unclear.
U.S. officials have not ruled out the possibility that Moscow may be laying the groundwork for an air combat role in Syria’s conflict to bolster Syrian President Bashar al-Assad.
And still more:
Russian military experts have expanded their presence in Syria over the last year, a Syrian military official said on Wednesday, pointing to a deepening of ties which Washington fears may be a buildup to support President Bashar al-Assad.
“Russian experts are always present but in the last year they have been present to a greater degree,” the Syrian official said. “All aspects of the relationship are currently being developed, including the military one,” he said.
Finally, Germany has now “warned” Moscow to tread lightly in its support of Assad:
Germany’s foreign minister warned Russia on Wednesday against increased military intervention in Syria, saying the Iran nuclear deal and new U.N. initiatives offered a starting point for a political solution to the Syrian conflict.
as you can see from the above, ISIS – the reason everyone involved cites when asked to explain their interest in intervening militarily in Syria – tends to get lost in the shuffle. That’s not a coincidence. Rather, it simply reflects the fact that, as we noted over the weekend, neither side cares too much about what does or doesn’t happen to Islamic State unless the group’s fate somehow matters in determining whether a post-civil war Syria is still governed by Assad. In short, ISIS has played its role. The Assad regime is destabilized and Damascus is up for grabs. From here on out, it’s all about whether a coalition comprised of the US, Turkey, Saudi Arabia, Jordan, and Qatar ends up in a direct military conflict with Russia and the Assad regime.
If you need a bit of anecdotal evidence to support that assessment, just ask people on the ground, many of whom can’t seem to understand, what with all the fanfare about stepped up airstrikes and a more determined coalition, why no one seems to be fighting ISIS. Once more, from WSJ:
Islamic State fighters intensified their advance in recent days on a town in northern Syria close to a vital supply route for Syrian rebels near the border with Turkey, according to opposition rebels and local residents.
A number of rebel factions are struggling to stave off the militants, who have been gradually encircling the town of Marea about 15 miles south of the Turkish border. Marea is a key town along a 60-mile stretch of the border that Turkey and the U.S. want to clear of Islamic State fighters and the group’s offensive appears aimed at thwarting those efforts.
On Friday, Islamic State briefly entered the town, only to be beaten back by rebels, Marea residents and rebels said. But the rebels have lost three villages.
Though the U.S. and Turkey have said they want to oust Islamic State from this area, rebels in the Marea area say they are battling the militants on their own and complain they have not received much support from either country.
“We are fighting ISIS by ourselves,” said Abu Firas, referring to Islamic State by one of its acronyms. near Marea in the last month.
Marea is near the so-called “ISIS-free” zone that the US and Turkey sought to establish last month after Erdogan effectively traded Washington access to Incirlik (which gives the US army a forward operating base for what will eventually be a ground incursion in Syria) for NATO’s acquiescence to the extermination of the Kurdish opposition in Turkey. Of course ISIS might have already been routed from the area were it not for the fact that Washington and Ankara have literally forbidden the Kurdish YPG from continuing their highly successful offensive along the Turkish border due to Turkey’s disdain for anything and everything Kurd-related. Given that, one would think that the very least Turkey would do, if it were genuinely concerned about ISIS that is, is make a concerted effort to stop towns like Marea from being captured but instead, Turkish President Recep Tayyip Erdogan’s army is off chasing the PKK in the mountains of Northern Iraq.
If you think this is a “friggin’ mess” (to quote the Pentagon) now, just wait until the UK, France, and Germany get involved in the face of an increasingly obstinate Russia.
This folks, is the worst circle of foreign policy hell, and it’s brought to you exclusively by governments’ never-ending struggle to gain leverage over one another by controlling the distribution of the world’s energy supply.
We are closer and closer to civil war in Turkey:
(courtesy zero hedge)
Angry Mobs Torch Kurdish Offices, Shops As Turkey Descends Into Chaos
History is replete with examples of US-backed world leaders oppressing their people with Washington’s implicit blessing and despite the fact that the eyes of the world are trained squarely on Syria and, by extension, on any neighboring country that has a role to play in determining the outcome of the Syrian civil war, Turkey’s Recep Tayyip Erdogan has managed to orchestrate a political coup of epic proportions in plain sight by plunging his people into civil war as NATO looks the other way.
What Erdogan has done, in the space of just three months, is nullify a democratic election outcome by first obstructing efforts to form a coalition government on the way to calling for new elections, then launching a military campaign against the PKK, knowing full well that if enough people are killed between now and the time Turks return to the ballot box in November, the public’s negative perception of the PKK will likely translate to diminished support for the pro-Kurdish HDP, which was in part responsible for AKP losing its absolute parliamentary majority in June.
This is all possible because Erdogan was effectively allowed to trade access to Incirlik (which gives the US army a forward operating base for what will eventually be a ground incursion in Syria) for NATO’s acquiescence to the extermination of the Kurdish opposition in Turkey.
As of Tuesday, this deal had resulted in: 1) hundreds of people killed, 2) the arrest of journalists, 3) the collapse of the lira, 4) a Turkish invasion of Northern Iraq (the fifth in two decades), and 5) no perceptible progress in the “fight” against ISIS which was the pretext for the entire effort.
For anyone who needed further proof that Erdogan won’t stop until his pro-Kurdish political opposition is wiped out entirely, consider the following from FT who reports that “a mob of several thousand people” set HDP’s Ankara headquarters on fire, sending party officials fleeing “across rooftops.” Here’s the story:
A mob of several thousand set fire to the offices of Turkey’s main pro-Kurdish party in the wake of terror attacks in which more than 100 soldiers and police officers have died.
Officials from the Peoples Democratic party, or HDP, fled for safety across rooftops after the mob shouting nationalist slogans torched the party’s headquarters in Ankara.
HDP branches in many other cities, including the southern tourist resort of Alanya and Kirsehir in the west, were also attacked and set alight.
In Istanbul about 100 people hurled stones at the main offices of Hurriyet, the secularist newspaper that has been critical of the Islamist-rooted government. They shouted slogans accusing the newspaper of supporting terrorism in the second such assault in 48 hours.
Selahattin Demirtas, the HDP’s joint leader, said: “Over the past two days more than 400 party offices, workplaces and businesses have been attacked.
“People have been pulled off buses and beaten, people walking in the street have been attacked. This is a lynch campaign, gangs are being paid to conduct these attacks and the state is behind it.”
And it wasn’t just HDP offices and press outlets that were attacked, Hurriyet (which, as noted above, has been besieged by protesters for two consecutive days) reports that Kurdish businesses were torched as well:
A number of anti-terror marches in Turkey turned violent late Sept. 8, with ultranationalist protesters attacking the headquarters of the Peoples’ Democratic Party (HDP) in Ankara, as well as its office in another Central Anatolian province.
In the neighboring province of K?r?ehir, the HDP’s local office was attacked by another group as its flag was lowered and replaced by a Turkish flag during a march by Nationalist Movement Party (MHP) supporters entitled “Damn Terrorism.”
The march turned violent when around 150 people in the crowd set fire to four shops owned by Kurdish businessmen, according to Turkish media.
The fire, which destroyed the four shops, was put out by fire brigades without causing casualties.
Then there’s this rather disconcerting account of protests in Beypazar?:
Meanwhile, a public anti-terror protest in the Beypazar? district of Ankara late on Sept. 7 turned into a lynch attempt against Kurdish seasonal workers, leaving 27 people injured.
Police arrested nine protestors in relation to the attack in Beypazar?, which is less than a one-hour drive to Ankara and is seen as one of the capital’s most popular touristic spots.
Around 500 people had gathered in the center of Beypazar? in order to protest the killing of 16 troops by the Kurdistan Workers’ Party (PKK) in the Da?l?ca district of the southeastern province of Hakkari. The group marched through the town against the recent attacks, chanting slogans against the PKK. The route of the march took the group through the Zafer neighborhood of the district, which is mostly populated by Kurdish seasonal workers.
After some protestors said some locals in the Zafer neighborhood threw stones at the protest, the crowd started to attack houses where Kurdish citizens live. Some of them also tried to set alight houses and cars in the area.
Here are some visuals from the chaos:
* * *
So all in all, just another day in a democratic paradise run by a US-backed despot.
We’ll close with the following excerpt from WSJ’s summary of Europe’s new plan to cope with the flow of asylum seekers from the Mid-East:
The European Commission is proposing to put Turkey on a list of “safe countries of origin,” which would fast-track repatriation for people denied asylum.
I give up!!
Your humour story of the day:
(COURTESY SM GIBSON)
Humpday Humor: Fox News Anchor Sues For “Emotional Damage” Over Toy She ‘Thinks’ Looks Like Her
Stop. Take a deep breath…Okay, are you sitting down? What you are about to read is real — far too real. For the sake of humanity, I would love to tell you that the following paragraphs were constructed as satire meant to mock a mainstream mouthpiece who regurgitates a corporate agenda for a living. Sadly, this story isn’t satire.
One topic both the right and left have begun to exceedingly agree upon in recent years is that anchors, pundits, and the various players in “oldstream” media are no more to be trusted than a man adorned with a pencil thin mustache, top hat, flowing cape, and a nagging habit with which to tie genteel damsels up to train tracks. No matter who you think is the most vitriolic newsperson today, when it comes to pure absurdity, one Fox News anchor has recently surpassed the insanity of her colleagues and officially jumped the shark.
Harris Faulkner, co-host of Outnumbered on Fox News and anchor of Fox Report Weekend, is suing toy manufacturer Hasbro for five million dollarsbecause she claims a plastic hamster in the Littlest Pet Shop line they produce infringes on her likeness.
The lawsuit, which was filed in a New Jersey district court, is claiming Harris has suffered “commercial and emotional damage” over the children’s toy.
The name given to the little canary colored inanimate rodent by Hasbro designers is in fact Harris Faulkner, but that is where the similarities end — at least to anyone with a functioning brain.
As for Faulkner and her legal team, they believe — according to court documents — that the harmless toy bears a “physical resemblance” to the award-winning journalist, specifically its complexion, make-up design, and eye shape.
While no one at the Anti-Media can either confirm or deny that the Fox news anchor is constructed of plastic, she certainly is not yellow with gigantic blue eyes…or a hamster with a butterfly in her hair.
It would also appear that Mrs. Faulkner believes she is the only person on the planet legally allowed to posses her name.
Her lawyers state:
“Harris Faulkner, the uniquely named, acclaimed veteran journalist and author, has worked for decades to establish and maintain her personal brand and laudable professional reputation.”
“(Hasbro) willfully and wrongfully appropriated Faulkner’s unique and valuable name and distinctive persona for its own financial gain,”
The suit also claims the television host is “extremely distressed” due to the “choking hazard” risk the toy bearing her namesake poses to children.
The silver lining is that if you’ve been in search of information regarding world affairs delivered by a news anchor who also thinks she is a hamster, you need look no further.
Euro/USA 1.1150 down .0056
USA/JAPAN YEN 120.69 up .585
GBP/USA 1.5353 down .0041
USA/CAN 1.3232 up .0032
Early this Wednesday morning in Europe, the Euro fell by 56 basis points, trading now well above the 1.11 level fallling to 1.1150; 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, flash crashes. Last night the Chinese yuan lowered in value . The rate at closing last night: 6.3670, down .0055/ Bourses were stimulated by the huge ramp in the USA/YEN
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 southbound trajectory as settled down again in Japan up by 59 basis points and trading now just above the 120 level to 120.69 yen to the dollar.
The pound was well down this morning by 41 basis points as it now trades well above the 1.53 level at 1.5353.
The Canadian dollar reversed course by falling 32 basis points to 1.3232 to the dollar. (Harper called an election for Oct 19)
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(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 Wednesday morning: up by 1,343.43 or 7.71%
Trading from Europe and Asia:
1. Europe stocks all in the green/(USA/Yen ramp)
2/ Asian bourses all in the green except Japan … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the green/
Gold very early morning trading: $1120.40
Early Wednesday morning USA 10 year bond yield: 2.22% !!! up 4 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.996 up 4 basis points.
USA dollar index early Wednesday morning: 96.28 up 42 cents from Tuesday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3768 up .0153 (Chinese yuan down)
Stocks, Commodities, Bond Yields Plunge As “Rally Fueled By Hope” Crushed
Reuters summed it up (because there really was absolutely nothing at all new from Japan or China)…
While deadlift fails and etrade babies would be appropriate, the idea of pride coming before the fall (as evidenced by so many talking heads in the last 2 days on mainstream media) seemed summed up perfectly as follows (forward to 2:10 and enjoy):
Before we start, let’s apportion some blame – Tim Cook…
We did warn you…
But it all started in Asia with some major JPY dumpage (paging Mr. Kuroda) to ramp Nikkei almost 8 ridiculous percent!!
And the disappointment is a clear inflection point in the markets…
But still higher since Friday (for now)…
We are going to need some more help from Asia…
Dow Futures give us better context for this dead-cat-bounce…
With OPEX looming, one wonder how this relationship will change this week..
Still could be worse…
Treasuries extended losses early on as rate-locks dominated amid heavy corporate issuance but as AAPL rolled over and the “hope/hype” faded, bond yields collapsed…
The US Dollar ended unch on the day, driven as usual by EUR, but JPY strength and AUD weakness broke the back of the recent exuberant carry-driven idiocy…
JPY carry momo lost its mojo…
Despite some weakness in the dollar, commodities rolled over as reflation/stimulus hype faded quickly…
With crude crumbling back to the week’s lows, closing with a $44 handle…
Puerto Rico is running out of money. There must be concessions on the part of unions and bond holders alike.
It will be very messy!!
(courtesy zero hedge)
Puerto Rico To Run Out Of Cash By Year End, Faces $13 Billion Shortfall
Remember when two months ago Schauble jokingly offered Jack Lew to “trade” Greece for Puerto Rico? Something tells us in the interim period the German finmin changed his mind because while the Greek can has been kicked again, if only for the time being until bailout #4, the full severity of the Puerto Rican insolvency was laid out for all to see moments ago when top officials and outside advisors to the commonwealth released a highly-anticipated report showing that even after implementing proposed economic reforms and budget cuts, the island’s whopping funding gap of $28 billion will at best be reduced to “only” $13 billion over the next several years.
Even worse, as the FT reports according to the report of the so-called Working Group, the Treasury’s single cash account and Government Development Bank would exhaust available liquidity before the end of the year, creating a cash shortfall in late November or early December. In other words, Puerto Rico is Greece, and unlike the German colony, Puerto Rico does not have any negotiating leverage to threaten a departure from the dollar zone, or threaten to print its own currency.
FT adds that “while the government will be able to manage around those year-end issues, the cash crunch will come to a head in June, when officials on the Working Group conceded it would be nearly impossible to tap financial markets. The plan, which will be closely scrutinised by investors who have just agreed a restructuring with Puerto Rico’s electric power authority, included proposals to consolidate the commonwealth’s education department, reorganise the Department of Economic Development and create a fiscal oversight board.”
The plan will hardly be greeted with cheers domestically as it anticipated “austerity” that makes recent Greek sacrifices seem like a walk in the park: cost cuts identified included a continued salary freeze for government employees and a request for a waiver from the Jones Act, which requires shipping to and from US ports to be conducted with American crews and vessels, increasing the territory’s transportation expenses.
This even as only 40 percent of the working population is in the workforce and island pensions face combined unfunded liabilities that topped $37 billion in fiscal year 2013.
But while domestic cuts are inevitable, the real question is how much debt will be cut: as Reuters notes, “the financial overhaul plan, the product of a task force created in June by Gov. Alejandro Garcia Padilla, anticipates the island running out of money by next May or June, and says even with sweeping spending cuts Puerto Rico needs concessions from bondholders who include mom-and-pop investors and big Wall Street hedge funds.”
Padilla’s administration will now prepare for the test of trying to implement the plan in the face of potential legislative gridlock and possible resistance from teachers’ unions. But the biggest pushback will come from creditors who like in the case of Greece will fight tooth and nail not to be impaired:
According to Padilla’s so-called working group, comprised of officials including the Governor’s chief of staff, Victor Suarez, and the head of the Government Development Bank, Melba Acosta, Puerto Rico has $47 billion of debt excluding public agencies like power utility PREPA and water authority PRASA.
Of that, $18 billion in principal and interest are due in the next five years, and this piece is targeted for restructuring, according to working group officials. This includes general obligation debt – generally seen as sacrosanct by the municipal bond market – and COFINA sales tax bonds.
One working group official said reform measures would account for around half the $28 billion budget gap with revenue growth adding a bit more, but that there is still roughly a $12 billion to $13 billion deficit that needs to be eliminated.
As Reuters wryly adds, “That could mean difficult negotiations with creditors.” Difficult, but unlike the case of Greece, not impossible, as a writedown here would not impair a central bank and put fundamental moentary policy tenets under the microscope.
Next steps include the commonwealth following the approach it adopted with restructuring PREPA, a deal it struck earlier this month which saw bondholders accept a 15 percent reduction in their principal, a member of the working group said.
In terms of austerity measures to be implemented, the group recommended cutting the size of the department of education through school closures, attrition and changes to teachers’ pensions, and cutting subsidies to the University of Puerto Rico and to some cities and towns, according to background materials provided.
The group tackled Puerto Rico’s inefficient tax collection, suggesting overhauling collection methods and changing tax laws to promote growth.
The group said Peurto Rico must control healthcare costs by standardizing health protocols, and install new accounting systems.
Of course, hints at a bailout were not absent: the proposal said Puerto Rico should the push U.S. government for help, notably to provide access to court-sanctioned restructuring laws, exempt the island from the Jones Act, offer equitable treatment under Medicaid and Medicare funding schemes, and pass tax legislation that would promote corporate growth.
For now, however, a bailout from Washington is not expected, and while some on Capitol Hill are pushing laws or reforms that could help Puerto Rico, their prospects are uncertain. Expect that to change if and when the local population revolts at the proposed austerity measures and the next president realizes Puerto Rican votes are quite critical to any successful White House campaign.
Full Working Group proposal below (link)
Janet Yellen’s “Favorite” Jobs Indicator Just Shrieked A Rate Hike Is Imminent
Following the surge in overnight screams against a rate hike, which in just the past 24 hours has added those of the World Bank’s chief economist, Paul Krugman, and Larry Summers (for the second time), all eyes were focused on Janet Yellen’s favoriote Jobs indicator – the JOLTS report, and especially the total nonfarm Job Openings. And here a big problem appeared because while the Fed is now facing tremendous pressure from the outside not to hike in September, the JOLTS report not only gave a green light, but literally shrieked a rate hike in September is inevitable.
The reason: the Job Openings number soared from 5.323MM to a new record high of 5.753MM, smashing expectations of a drop to 5.3MM. In fact, the monthly increase in openings of 430,000 was the highest stretching all the way back to April 2010, and was the fourth highest monthly jump in the history of the series!
To be sure, a more than cursory scan at the components of the jump reveals that not all is well: for example the job openings were all quantity, and zero quality: the biggest increase among “job wanted” poasters was for low-paying jobs (just in case anyone is still confused why there are no wage hikes), including retail trade and leisure and hospitality.
Furthermore, the level of hiring is clearly tapering off, and 4.983MM was the lowest since last August, confirming the lagging nature of jobs data, which is now rolloing over and leading to continued decling inwages for non-supervisory workers.
And then there was the “quits” indicator – the best metric of how much job confidence employees really have, as a jump in quitting (as opposed to terminations) suggests workers have substantial faith in their skillset and that they can quickly find more lucrative jobs elsewhere. This too slumped in July, and at 2.685MM was the lowest print since November of 2014.
But to the Fed all that is largely irrelevant.
What does matter to Yellen is that the ratio of number of unemployed people per job opening is now back to pre-crisis levels. To wit: “when the most recent recession began (December 2007), the number of unemployed persons per job opening was 1.8. The ratio peaked at 6.8 unemployed persons per job opening in July 2009 and has trended downward since. The ratio was 1.4 in July 2015.”
For Yellen, this will be evidence that virtually all the slack in the labor market has been removed and if wage growth just refuses to materialize, then so be it.
Which means the Fed’s boxed-in problem just got even bigger: will Yellen defer the rate hike because of outside influence (and the market tantrum of course) and be widely perceived as a mere puppet of others, or will the Fed not lose any more credibility, and rely on the data – as it has promised repeatedly it does -and which as shown above, is now shrieking a rate hike is long overdue. Find out next week.
Krugman Joins Goldman, Summers, World Bank, IMF, & China: Demands No Fed Rate Hike
The growing roar of ‘the establishment’ crying for help from The Fed should make investors nervous.While your friendly local asset-getherer and TV-talking-head will proclaim how a rate-hike is so positive for the economy and stocks, we wonder why it is that The IMF,The World Bank, Larry Summers (twice), Goldman Sachs,China (twice), and now no lessor nobel-winner than Paul Krugman has demanded that The Fed not hike rates for fear of – generally speaking – “panic and turmoil,” however, as Krugman notes, “I think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake.”
The Federal Reserve should hold off from raising interest rates until the first half of 2016, the International Monetary Fund said as it cut its U.S. growth forecast for the second time in three months.
The lender also said that the dollar was “moderately overvalued” and a further marked appreciation would be “harmful,”in a statement released in Washington on Thursday on its annual checkup of the U.S. economy.
“The FOMC should remain data dependent and defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident,” the IMF said. Based on the fund’s economic forecast, and “barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016.”
“There is a risk that a further marked appreciation of the dollar — particularly one that takes place in an environment where policies to address growth deficiencies languish both in the U.S. and abroad — would be harmful.”
The report also discussed financial stability, with the IMF pointing to higher risks in shadow banking, a potential lack of liquidity in fixed-income markets, and greater market risk-taking in the insurance industry
“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation] . . . In the middle of this it is going to cause some panic and turmoil.
- U.S. FEDERAL RESERVE SHOULD DELAY RATE HIKE, COULD PUSH SOME EMERGING MARKETS INTO CRISIS – CHINA OFFICIAL
“China’s exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move,” Yao said. “We were wronged.”
Goldman Sachs offers up 7 reasons why Yellen should stay on hold… Shouldn’t Be Close
1. We do not expect a rate hike at the September 16-17 FOMC meeting. This call was originally based on our interpretationof the June “dot plot” and Chair Yellen’s July 10 speech, which suggested to us that her own expectation was liftoff in December, not September.If this interpretation was correct at the time, and if we are right in assuming that Yellen’s views are ultimately decisive, the key question is how the economy and the financial markets have performed relative to her expectations of 2-3 months ago. If developments have beaten her expectations, it is possible that she might now support a hike. In contrast, if developments have been in line with or weaker than her expectations, she will presumably resist a hike.
2. Even if we focus only on the economic data, it is difficult to argue that developments have beaten expectations.Although growth has been decent and the labor market has improved further, both wage and price inflation have fallen short of consensus expectations. Our wage tracker stands at just 2.1% as the Q2 employment cost index surprised on the downside, and core PCE inflation just made a four-year low of 1.24%. Moreover, the notion that the weakness in core inflation is principally due to the temporary effects of a stronger dollar and lower commodity prices does not look right; core PCE goods inflation, where such effects should be concentrated, is only 0.4pp below its 20-year average, a gap that is worth just 0.1pp for the overall core PCE index. This suggests that most of the inflation shortfall relative to the Fed’s 2% target is due to more persistent factors, including continued labor market slack.
3. Once we broaden the perspective to include financial markets, developments have been substantially worse than almost anyone expected in June or early July, leading many forecasters (ourselves included) to shave their expectations of future growth. Our GS Financial Conditions Index (GSFCI) is at the tightest level since 2010, as the dollar has appreciated further, credit spreads have widened, and stock prices have fallen substantially. At this point, our “GSFCI Taylor rule” suggests that actual financial conditions are much tighter than the level suggested by the current levels of employment and inflation relative to the Fed’s targets. In a similar vein, market inflation expectations have fallen back to the lows of early 2015; the five-year five-year forward TIPS breakeven stood at 1.88% on Friday, which we think is consistent with a market expectation for PCE inflation of just 1½%, half a point below the Fed’s target.
4. So how do we explain Vice Chairman Fischer’s relatively hawkish CNBC interview and speechat the Jackson Hole symposium? While Fischer did not comment directly on the timing of liftoff, he did provide a fairly upbeat interpretation of the labor market and inflation picture, which many have interpreted as a signal that he will support a hike on September 17. However, an alternative interpretation is a desire to avoid pre-empting the actual FOMC meeting, at a point in time when the market-implied probability of a September hike stood below 25%. In support of this interpretation, we would note that Fischer also gave a speech widely interpreted as hawkish just three weeks before the March 17-18 FOMC meeting, which featured sizable downward revisions to the committee’s inflation and funds rate paths.
5. There are also some logistical difficulties with a hike on September 17.Right now, the market-implied probability of a hike is 30%-35%. We believe that the FOMC will want to be reasonably sure that the first rate hike in nearly a decade is well anticipated by the market on the day it occurs. This implies that a strong signal between now and the meeting may be necessary to put the committee in a position where it feels it actually can hike without potentially causing a significant amount of market disruption. But again, the desire to avoid pre-empting the discussion at the meeting itself presumably argues against sending such a signal. The path of least resistance is therefore to wait, which might mean that the market-implied probability of a hike on the day of the meeting itself will be close to current levels. If so, we think that market pricing in itself would become a strong argument around the FOMC table against pulling the trigger on September 16-17 [ZH: which means that as many have suggested, it is the market’s tantrums and not the Fed, which calls the shots].
6. If we are right about the will-they-or-won’t-they issue, the next question is what message the committee will send about future policy on September 17. On this, it is harder to be confident. The tightening of financial conditions has greatly strengthened the case of commentators such as former Treasury Secretary Summers that the committee should not be signaling a 2015 liftoff; taken literally, our GSFCI rule implies that the committee should be looking for ways to ease, not tighten, policy. And the simplest way to do that would be to signal a later liftoff than the market is currently discounting. Against this, many meeting participants will argue that the tightening of financial conditions could reverse quickly and a 2016 liftoff is too late given the further improvement in the labor market and the sharper-than-expected decline in the headline unemployment rate in recent months. In the end, our baseline expectation is that the message from the meeting, including the “leadership dots”, will remain broadly consistent with liftoff in December but Chair Yellen will make it clear in the press conference that financial conditions need to improve for the committee to actually hike this year.
7. Other aspects of the meeting are also likely to be mostly dovish. Although the unemployment rate path will once again have to come down, we expect this to be largely offset by a reduction in the committee’s estimate of the structural unemployment rate. The forecasts for real GDP growth, inflation, and the longer-term funds rate are also likely to decline modestly. That said, the Fed’s funds rate expectations are likely to remain well above the distant forward rate, which now suggests a market view of the equilibrium funds rate of just 2%. We agree with the Fed’s view that this is likely too low, although the question will not be definitively settled for several years.
a Federal Reserve decision to raise rates in September would be a serious mistake.
Now is the time for the Fed to do what is often hardest for policymakers. Stand still.
And now Paul Krugman joins the fray…
“I don’t think they are moving next week,” economist Paul Krugman says at conference in Tokyo on Wednesday when asked about timing of possible interest rate increase by U.S. Federal Reserve.
“I still think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake”
Fed keeps sounding like it’s eager to raise rates.
It’s almost as if there exists an urge at the Fed to repeat the mistakes of the BOJ and ECB.
* * *
Now Yellen is really cornered.. and just exactly how are the talking heads going to spin any of this as positive?
However, Saxo Bank offers four reasons why The Fed should hike rates in September… The probability of a rate hike in September is stronger than is generally believed. There is no perfect timing for the tightening monetary policy but several arguments confirm that the Fed is able to begin this month if it so desires. Here are the four we can see:
1. The Fed is on its way to achieving its dual mandate
With a 5.1% unemployment rate, the US economy is very near “full employment” and is preparing to enter its seventh year of expansion. Notably, the current period of growth is already 16 months longer than the average seen since 1945.
As for inflation, the Fed has nearly achieved its goal as inflation (excluding oil and energy) lies at 1.8%, very close to the 2% target.
Taking oil into account, of course, inflation is down significantly. But this near-deflation situation is an external factor on which the central bank has little influence and it cannot be the only driver of US monetary policy strategy.
2. The Fed is aware of the ‘speculative bubbles’ risk
Even if preventing speculative bubbles is not officially part of the Fed’s dual mandate, this legitimate preoccupation is strengthened by the financialisation of the economy.
Economic literature dating from the beginning of the previous century underlines the necessity of central bankers’ including the price of financial assets and real estate to get a more comprehensive view on actual inflation.
Recent speculative bubbles on stocks or real estate in several industrialised countries confirm this necessity.
In the United States, the excesses that led to the 2007 crisis appear to be drawing near again. Many stock prices are disconnected from companies’ balance sheets and first-time buyers can once again take out a loan worth 97% of the price of the property they intend to purchase.
Coming back to a more orthodox monetary policy implies obvious dangers, but the first benefit would be to return “real” value to money.
3. Credit conditions will remain durably flexible
Even if the coordination of monetary policies between the main central banks is just an illusion, it does exist to a certain extent. It can be witnessed in the Swiss National Bank’s decision to give up its three-year-old cap on the value of the Swiss franc last January, just a few days before the official announcement of the European Central Bank’s QE programme.
In the event of the Fed raising its rates in September, the global monetary printing will go on. The tightening in America will be very gradual. In addition, the ECB shouldn’t hike its rates before the end of 2016, at least, and the Bank of Japan is involved in a similar process which is not intended to end any time soon.
4. The Fed’s credibility depends on it
A rate hike in September has been in the consensus for months and has led to a repositioning of portfolios in favour of USD-denominated assets since last Spring. Any backward step from the Fed could weaken its credibility, its forward guidance strategy introduced in 2008, and support the idea that market upheavals drive its decisions.
Since the Swiss franc case occurred early 2015, central bankers’ credibility has been notably affected. A postponed rate hike might then blur the American central bank’s message.
* * *
Finally, just in case there is still any confusion what a Fed rate hike means, we repeat what Bank of America said last week:
Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.
As noted above, a rate hike with a stroke ends this era.
Warren Buffet was on Fox Biz being interviewed by Liz “Fire Bush” Klayman today. I guess she must be his new babe. He said that if he were in charge of the Fed, he would not raise interest rates. We can take that to mean that the Fed won’t budge once again next week…
The stock market didn’t start getting spanked until August 19th. That means Wall Street’s financial goon squad or the White House thugs can’t blame a decline in retail spending in August on China.
The first indicator was in early August, when the NY Fed released its survey of household spending expectations. Here’s what that looked like, courtesy of Zerohedge:
Consumers reported that they expected to increase their spending by just 3.5% in the next year, the lowest reading in the history of this particular data series.
It should have come as no surprise, then, when Gallup released its August consumer spending survey this morning, which showed that daily spending in August averaged $89, which was down from both August 2014 and August 2013. It was also the fourth month in a row of year over year spending declines: Gallup August Consumer Spending Poll.
This finding is consistent with a report released last week from Thomson Reuters which showed that shopping mall traffic in August was much weaker than was expected, as same store mall sales declined .5%, missing the estimate of a .2% decline. 71% of the retails surveyed missed their sales estimates. While the author of the report did his best job of applying heavy lipstick to the pig, you can read the details here: Weak Mall Traffic In August.
Finally, the August retail sales “picture” is confirmed by Gallup’s Weekly Economic Confidence survey, which shows that the public’s confidence in the economy has been declining quickly since February:
The weekly poll hit an 11-month low last week and bounced a bit this week. But you can see from the trend in the graph to the left that American’s confidence in the economy is rapidly eroding.
The Fed and Wall Street can say what they want about the state of the U.S. economy. But the numbers are hard to refute. Sure, economic data polls have margins of error or can be manipulated into reflecting misleading results – or highly misleading results, in the case of most Government-generated data series – but when you combine the data in the Gallup surveys with the actual results being reported by retailers, it’s hard to refute the truth when it’s held up to your eyes.
Of course, no one in a position to do so is willing to hold up the actual facts to the Fed or to the pundits on CNBC/Bloomberg/CNBC and hold them accountable in a public forum. But I can guarantee one thing: there will not be an interest rate hike in September or December (caveat: they might implement a gratuitous hike in the discount rate, but no one borrows from the discount window anymore so it’s a meaningless gesture toward monetary policy “tightening).
Warning: when the Fed doesn’t hike rates in September, I have no doubt that they’ll work some form of blame on China into their Orwellian FOMC minutes narrative.
Well that about does it for tonight
I will see you tomorrow night