sept 17/FOMC: rates still at zero/one Fed governor hints of negative interest rates in USA/gold/silver shoot up/In reality the Fed has no idea what it is doing or what will happen to the economy at zirp/nirp/Lousy Philly Mfr report/Revisions to the job report lowers the “jobs” by 208,000 (and private jobs by 255,000), Kyle Bass states that China has banking assets of 31 trillion usa or 300 x GDP: a 10% hit will wipe out all of China’s reserves/Malaysia and South Africa also in deep trouble with mega twin deficits/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1117.30 down $1.90   (comex closing time)

Silver $14.98 up 10 cents.

In the access market 5:15 pm


Gold $1132.00

Silver:  $15.14

Before heading into my commentary, I would like to emphasize tonight that the results of the FOMC meeting today shows that the Fed has no idea what to do and they are in a fog just like all the other bankers.

Stay with us and we will guide you through the upcoming financial collapse.

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

At the gold comex today we had a poor delivery day, registering 0 notices for nil ounces  Silver saw 1 notice for 5,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 213.93 tonnes for a loss of 89 tonnes over that period.

In silver, the open interest fell by 3,619 contracts despite the fact that silver was up in price by 56 cents yesterday. Again, our banker friends tried to use the opportunity to cover as many silver shorts. They must be really frightened as to what might happen in a default situation.  The total silver OI now rests at 154,388 contracts In ounces, the OI is still represented by .772 billion oz or 110% of annual global silver production (ex Russia ex China).

In silver we had 1 notice served upon for 5,000 oz.

In gold, the total comex gold OI rose to 414,289 for a gain of 956 contracts. We had 0 notices filed for nil oz today.

We had no changes in tonnage at the GLD,  thus the inventory rests tonight at 678.18 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex.   In silver, we had no change in silver inventory at the SLV/Inventory rests at 320.915 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 3619 contracts down to 154,388 despite the fact that silver was up by 56 cents in price with respect to yesterday’s trading.   The total OI for gold rose by 956 contracts to 414,289 contracts, as gold was up $16.40 yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3.  China opens for trading 9:30 pm est Wednesday morning/Thursday morning 9:30 Shanghai time

(zero hedge)

4.Two separate commentaries on the calculation of how much USA dollars/treasuries have left China. It seems that in the last 2 1/2 months 308 billion USA has left
(zerohedge/2 commentaries)
5. Kyle Bass talks about the risks to the global economy with respect to  China, Malaysia and South Africa.
(Kyle Bass/Octafinance)
6 More on the refugee crisis
(zero hedge)

7.  USA stories/Trading of equities NY

a)  Jobless claims remain at 42 year lows  (BLS)

b)  Philly manufacturing Index plummets into negative territory totally missing analysts expectations of a gain

(Philly Mfg Index/zero hedge)

c) BLS, on its annual revision removes 208,000 jobs  (and 255,000 private jobs) from their figures. It means that in actually we had total misses on each and every month


d) Jefferies reports negative fixed income and thus provides a harbinger of terrible earnings for our banks next month

(Jefferies/zero hedge)

e)  FOMC results:  no hike and the Fed has no idea what it is doing;

5 commentaries /very important to read all of them!!

(zero hedge)

8.  Physical stories

i) Ronan Manly on the new faulty gold fix

ii) Koos jansen on backwardation inside the LBMA and comex

iii)Why you should own silver/Profit Confidential/John Whitefoot



and well as other commentaries…

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

The total gold comex open interest rose from 413,333 up to 414,289 for a gain of 956 contracts as gold was up $16.40 with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter continued with its decline as gold ounces standing rose. We now enter the delivery month of September and here the OI fell by 19 contracts down to 91 . We had 4 notices filed yesterday so we lost 15 contracts or 1500 additional oz will not stand for delivery in this non active month of September. The next active delivery month is October and here the OI fell by 1445 contracts down to 20,844. The big December contract saw it’s OI rise by 1737 contracts from 282,256 up to 283,993. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was estimated at 105,497 which is poor. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 139,220 contracts.
Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI fell by 3,619 contracts from 158,007 down to 154,388 despite the fact that silver was up by 56 cents  with respect to yesterday’s price . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month.  The bankers continue to pull their hair out trying to extricate themselves from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena (judging from the high volume every day at the comex). We are now in the active delivery month of September. Here the OI fell by 68 contracts to 372. We had 55 notices filed yesterday, so we lost 13 silver contracts or an additional 65,000 oz  will not stand for delivery in this active delivery month of September.
The big December contract saw its OI fall by 3402 contracts down to 119,275. The estimated volume today was estimated at 27,004 contracts (just comex sales during regular business hours) which is poor.  The confirmed volume yesterday (regular plus access market) came in at 53,191 contracts which is excellent in volume.
We had 1 notice filed for 5,000 oz.

September contract month:

Initial standings

September 17.2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz 12,404.831 oz




Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  (nil)
No of oz served (contracts) today 0 contracts

 (nil oz)

No of oz to be served (notices) 91 contracts (9,100 oz)
Total monthly oz gold served (contracts) so far this month 24 contracts

(2,400 oz)

Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 380,817.8   oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 2 customer withdrawals:
 i) Out of Scotia: 11,942.583 oz
 ii) Out of Manfra:  462.242 s
total customer withdrawal: 12,404.831 oz
We had 0 customer deposit:

Total customer deposit: nil  oz

We had 0  adjustments:

JPMorgan has only 0.3350 tonnes left in its registered or dealer inventory. (10,777.29 oz)  and only 874,018.71 oz in its customer (eligible) account or 27.18 tonnes

Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the final total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (24) x 100 oz  or 2000 oz , to which we  add the difference between the open interest for the front month of September (91 contracts) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the September contract month:
No of notices served so far (24) x 100 oz  or ounces + {OI for the front month (91)– the number of  notices served upon today (0) x 100 oz which equals 11,500 oz  standing  in this month of Sept (0.3576 tonnes of gold).
we lost 15 contracts or an additional 1500 oz will not stand in this non active delivery month of September.
Total dealer inventory 162,034.084 or 5.0399 tonnes
Total gold inventory (dealer and customer) =6,877,840.107 or 213.93  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 213.93 tonnes for a loss of 89 tonnes over that period.
 the comex continues to massively bleed gold
And now for silver

September silver initial standings

September 17/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  606,161.500oz

(CNT, HSBC,Scotia)

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 601,107.065 JPMorgan,
No of oz served (contracts) 1 contracts  (5,000 oz)
No of oz to be served (notices) 371 contracts (1,855,000 oz)
Total monthly oz silver served (contracts) 1094 contracts (5,470,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month 603,500.075 oz
Total accumulative withdrawal  of silver from the Customer inventory this month 16,623,982.8 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit; nil oz

we had 0 dealer withdrawals:
total dealer withdrawal: nil  oz
We had 1 customer deposits:
ii) Into JPMorgan: 601,107.065  oz

total customer deposits: 601,107.065 oz

We had 3 customer withdrawals:
i)Out of CNT:  525,319.930 oz
ii) Out of HSBC:  20,041.300 oz
iii) Out of Scotia;  60,800.27 oz

total withdrawals from customer: 606,161.500   oz

we had 2  adjustments
 i) Out of CNT:
we had a withdrawal of 921,269.820 oz from the dealer and this entered the customer account of CNT
ii) out of Scotia:
we had 20.310.71 oz leave the dealer and this entered the customer account of Scotia
total removal from dealer:  941,880.530
Total dealer inventory: 46.863 million oz
Total of all silver inventory (dealer and customer) 167.535 million oz
the silver comex has its dealer or registered (for deliverable sale) continuing to bleed silver. 
The total number of notices filed today for the September contract month is represented by 1 contract for 5,000 oz. To calculate the number of silver ounces that will stand for delivery in September, we take the total number of notices filed for the month so far at (1094) x 5,000 oz  = 5,470,000 oz to which we add the difference between the open interest for the front month of September (372) and the number of notices served upon today (1) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
1094 (notices served so far)x 5000 oz +( 372) { OI for front month of September ) -number of notices served upon today (1} x 5000 oz ,=7,325,000 oz of silver standing for the September contract month.
we lost 13 contracts or an additional 65,000 oz will not stand in this active month of September.


The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China
And now the Gold inventory at the GLD:
sept 17.2017: no changes in gold tonnage at the GLD/Inventory rests at 678.18 tonnes
Sept 16/2015:  no change in gold tonnage at the GLD/Inventory rests at 678.18 tonnes
Sept 15./no change in gold tonnage at the GLD/Inventory rests at 678.18 tonnes
Sept 14./no change in gold tonnage at the GLD/Inventory rests at 678.18 tonnes.
Sept 11/no changes in tonnage at the GLD/inventory rests at 678.18 tonnes
Sept 10. late last night, a huge withdrawal of 4.41 tonnes/this gold is no doubt heading towards Shanghai/Inventory 678.18 tonnes
Sept 9/2015: no changes in gold inventory at the GLD/rests tonight at 682.35 tonnes
Sept 8/ a slight withdrawal and this no doubt was to pay for fees/withdrawal of .24 tonnes/GLD inventory tonight at 682.35 tonnes
Sept 4/ again no changes in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
sept 3/no change in gold tonnage at the GLD/inventory rests at 682.59 tonnes.
Sept 2.2015: no change in gold tonnage at the GLD/inventory rests at 682.59 tonnes
Sept 1/2015: no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 31./no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 28.2015:/no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes
Sept 17/2015 GLD : 678.18 tonnes

And now SLV:

sept 17.2017:no change in inventory at the SLV/rest tonight at 320.915

million oz/

sept 16.2015: no change in inventory at the SLV/rests tonight at 320.915 million oz/

Sept 15./no change in inventory at the SLV/rests tonight at 320.915 million oz

Sept 14./we had another withdrawal of 1.145 million oz from the SLV/Inventory rests at 320.915 million oz

Sept 11.2015: no changes in silver inventory at the SLV/inventory rests at 322.06 million oz

Sept 10.2015: we had no changes in silver inventory at the SLV/rests tonight at 322.06 million oz

Sept 9.2015:

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

September 17/2015:  tonight inventory rests at 320.915 million oz
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 8.8 percent to NAV usa funds and Negative 8.3% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.7%
Percentage of fund in silver:37.0%
cash .3%( Sept 17/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+1.47%!!!! NAV (Sept 17/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV falls to – .40% to NAV September 17/2015)
Note: Sprott silver trust back  into positive territory at +1.47% Sprott physical gold trust is back into negative territory at -.40%Central fund of Canada’s is still in jail.

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

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

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

(courtesy/Mark O’Byrne/Goldcore)


Gold Up Before Federal Reserve – Myth Of All Powerful Central Bank Continues


Gold rose 1.3% yesterday ahead of the Federal Reserve interest rate announcement today. Markets remain divided and uncertain whether the Fed will increase rates by 25 basis points today (1900 GMT).

The Fed last raised interest rates in June 2006, by 25 basis points to 5.25%, shortly after that America’s central bank found itself reducing rates and since December 2008 the Fed’s benchmark interest rate has been set between 0.0% and 0.25%. Gold prices rose in the months after the interest rise and were 23% higher in 2006.

Janet Yellen Federal Reserve

Lower than expected U.S. inflation numbers yesterday eased fears the Fed will hike interest rates later this session. The dollar came under pressure today after the weak inflation data led traders to pare bets that the U.S. Federal Reserve will deliver an interest rate hike.

The ‘will they or won’t they’ speculation is rife and all consuming in markets. The Fed will hold rates near unprecedented historic lows at 0.25% and not have its first interest rate rise in nearly a decade, according to a little over half of economists in a Reuters poll who only last week narrowly predicted the Fed will increase rates by 0.25% today.

Since last week’s poll, five economists have changed their prediction for a hike and now expect the Fed to keep rates at 0.25%. None changed their view from a hold to a hike, suggesting that momentum is moving against a Fed move this week. The number of economists predicting no change in rates now outnumbers those betting on a hike by 45 to 35. Among primary dealers, 12 banks expect the Fed to hold and the remaining 10 expect a hike.

Markets do not like uncertainty and there is the possibility of volatility and sharp moves in markets during and after the decision.

With regard to gold, the perception and narrative is that a rise in rates, even by a very marginal 25 basis points will be negative for gold. This may be true in the short term as perception, even misguided perception, can drive markets in the short term. As can hedge funds and banks who are short the market or desire lower gold prices – for whatever reason.

GoldCore: Gold price 70s

However, economic reality determines prices in the long term. Ultimately, gold’s fundamentals remain sound as long as interest rates remain near zero in major western markets and as importantly as long as we have negative real interest rates.

Rising interest rates are not bearish for gold per se as was seen in 2006 and again in the 1970s. What is bearish for gold is positive real rates of return whereby depositors and savers are again rewarded with a positive real rate of return. This will likely only happen towards the end of an interest rate tightening cycle as was seen in 1980.

It is important to remember that gold rose in tandem with interest rates in the 1970s.

The simple fact that the Fed is struggling to increase interest rates from near 0% after seven long years should give pause for concern. It underlines the vulnerability of the U.S. economy and means that another recession is very likely. Indeed, the huge levels of debt at all levels of U.S. society and the significant increase in global debt levels during the last seven years mean that another recession is almost certain.

GoldCore: Total global credit-market debt owed

When it comes, the Fed has little monetary ammunition left besides negative base rates and further QE. Indeed, there balance sheet shows that they are in effect insolvent as is the U.S. itself with its $18.3 trillion national debt and over $100 trillion in unfunded liabilities.

The Fed knows this and hence their inability to increase interest rates in any meaningful way. The increasingly negative global economic backdrop is bullish for gold.

We believe that ultra loose monetary policy will continue. Indeed further QE and money printing remains very likely given the poor structural state of the U.S. and indeed the global economy.

We advise investors to fade out the short term noise emanating from the Fed today and from Janet Yellen and focus on the reality that ultra loose monetary policies will continue for the foreseeable future. In this environment, currencies remain vulnerable to competitive currency devaluations.

It is important to remember that central bank’s ultra loose monetary policies was primary factor in the first global debt crisis. Low interest rates by central bankers and Alan Greenspan in particular led to rampant speculation and risk taking on Wall Street, the subprime crisis and the stock and property bubbles.
Will a continuation of the same monetary policies that got us into the financial crisis get us out? Conventional wisdom is that yes it will. We do not think it will and indeed believe that will make the next crisis much worse.

The myth of the all powerful central banker continues for now…



Today’s Gold Prices: USD 1118.15, EUR 987.46 and GBP 720.64 per ounce.
Yesterday’s Gold Prices: USD 1109.75, EUR 987.54 and GBP 719.82 per ounce.

Gold rose 1.3% or $14.20 to $1,124.22 while silver gained 3.5% or 48 cent to $14.91 an ounce on the COMEX yesterday ahead of the Federal Reserve interest rate announcement today.

GoldCore: Gold in GBP - 1 Year

Gold in GBP – 1 Year

Gold in Singapore was essentially flat and remained tethered to the $1,020 per ounce in European trading.

Silver bullion has ticked higher to $15.04, following the 3.5 percent jump in the previous session, its biggest one-day jump since May. Platinum and palladium are slightly lower today.



Gold Shortage Theory Derided as Comex Seen Well Supplied – Bloomberg
Gold retains gains on soft US inflation data; all eyes on Fed – Reuters
Gold Futures Rise as U.S. Consumer-Price Drop Eases Rate Concern – Bloomberg
Gold logs largest 1-day price gain in nearly a month – MarketWatch
Gold rises after unexpected drop in U.S. inflation – Reuters



Ronan Manly: Like the old one, London’s new gold fix is manipulated and secretive


4:14p ET Wednesday, September 16, 2015

Dear Friend of GATA and Gold:

Gold researcher and GATA consultant Ronan Manly reports today that the London Bullion Market Association’s new daily gold price auction is manipulated, secretive, and sleazy, just like the old one.

Manly writes that the auction’s operator, the Inter-Continental Exchange (ICE) Benchmark Administration, has reported to the United Kingdom’s Financial Conduct Authority that there have been suspicious price spikes in Comex gold futures just prior to the afternoon fixing in London, that these suspicious price spikes have influenced the London afternoon fixing, and that as a result the ICE Benchmark Administration is “de-emphasizing” use of Comex futures to establish a starting price for the London fixings.

Further, Manly reports, when he asked the ICE Benchmark Administration to make available to him the “publicly available procedures” that ICE had proclaimed would be used in determining the starting price of the new gold fixing, ICE instantly removed from its Internet site the assertion that the procedures would be “publicly available.” ICE even thanked Manly for pointing out that it had promised to disclose what it now doesn’t want known.Manly also reports that ICE refuses to identify the rotating chairmen of the auctions used in the new fixing. As far as anyone is allowed to know, the rotating chairmen of the gold auctions could include the chairman of the Federal Reserve.

So much for the integrity and transparency that were promised when the London gold fixing system was changed six months ago.

Manly’s sensational report is headlined “Six Months on ICE — The LBMA Gold Price” and it’s posted at Bullion Star here:…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



Koos Jansen
Koos Jansen
Posted on 17 Sep 2015 by

New York And London Gold In Backwardation

Not often in financial markets is the future price of gold is lower than the spot price (live), but lately we’ve witnessed such an event in both the New York and London gold market. This is called backwardation, the opposite of contango.

What causes backwardation and will it increase the price of gold? In my opinion there are two possible scenarios: the market expects the gold price to fall in the future, or there is scarcity now.

Before we dive in let’s get a better understanding of this subject. Below is a visual interpretation of backwardation. I’ve drawn a graph that resembles the futures curve on the COMEX (New York) 15 September 2015. You can see that the price of gold 1-MONTH, 2-MONTHS and 3-MONTHS out is lower than the SPOT MONTH.

COMEX backwardation
Source CME.

On 15 September the London (Over The Counter – OTC) forwards curve looked like this:

London backwardation
Source CME.

Both graphs do not show the full-length futures/forwards curve, only the first six months.

Just to be sure, let’s read the definition of backwardation from both trading platforms. From COMEX:


Market situation in which futures prices are lower in succeeding delivery months. Also known as an inverted market. The opposite of contango.

From the London Bullion Market Association:


A market situation where prices for future delivery are lower than the spot price, caused by shortage or tightness of supply.

Current market conditions exactly fit the description form the LBMA and COMEX, there can be no confusion, what we see in the graphs is backwardation. Oddly, CPM Group released a Market Commentary (The Non-Existence Of A London Gold Forward Backwardation) on 14 September 2015 stating gold is not in backwardation. From CMP Group:

Since 2009 the CME Group has operated a system allowing for London over the counter forwards to be cleared through the CME Clearinghouse, and publishes a daily curve of Cleared OTC London Gold Forwards. Few London forwards actually are cleared via CME’s contract, but the CME gathers actual forward quotes from banks and dealers every day and publishes a forward price curve based on these actual quotes,…

These quotes [page 2] show a clear positive forward carry, or contango.

The quotes (prices) CPM attached to the document are from 11 September 2015 and are clearly in backwardation. Why CPM denies the obvious signs of backwardation is beyond me.

The Market Expects The Gold Price To Fall In The Future 

Scenario one: at the same time we’re watching Western gold markets, an interesting event is unfolding in iron ore futures at the Chinese Dalian Commodity Exchange (DCE). These futures are trading at a severe discount to spot prices.

DCE iron ore futures

Does this signal scarcity or is the market expecting the price of iron ore to fall? China is the largest consumer of iron ore worldwide, but its economy is slowing down. Consequently, demand for iron ore is clearly dampening and if the market thinks the price of iron ore will decline in the future, the price of corresponding futures contracts will go down. This could be the case for gold as well.

Gold Is Scarce Now

Scenario two: the market does not expect the gold price to fall, and there is less supply than demand now. This results in the spot price to be pushed up relative to bets (contracts) in the future.

Currently, owners of physical gold located in New York or London can strike a profit by selling metal spot, while simultaneously buy back the gold at a lower price through a futures contract – in New York on the COMEX or through a forward contract in the London OTC market. Over time, when the futures/forward contract matures and the gold isreturned, the initial owners have the same amount of gold as before but for a lower price than they sold it for. The profit is fiat currency (US dollars).

One reason why gold futures prices are normally higher than spot (contango) is because it costs money to store gold into the future. In addition, if gold futures decline relative to spot the arbitrage opportunity just described would increase spot supply and future demand, and thus push the market out of backwardation.

While witnessing backwardation, registered gold inventory at the COMEX available for delivery has diminished to a mere 5.1 tonnes. Are backwardation and a declining inventory related? I would say they are.

Picture COMEX gold inventory
Courtesy Registered stocks have fallen significantly. Eligible stocks can be switched to registered, though gold futures traders on COMEX own not all eligible stocks, it can be industry professionals just using COMEX designated vaults for storage.

Actually, I think backwardation and contango cause inventory to go down and up, because of the cash and carry trade. First, the situation how contango increases inventory: when there is a steep enough contango futures curve all prices in the future are significantly higher than spot. An arbitrage opportunity arises where traders can borrow USD funds, buy spot gold and store it (in a COMEX vault) to sell through a futures contract at a higher price. If the difference between the spot and the future price over period X is higher than the interest to be paid plus the cost of storage over period X, it becomes profitable to cash and carry.

For example, simplified: the spot gold price is 1,000 USD per ounce, the one-year gold futures price is 1,050 USD per ounce, the cost to store 100 ounces of gold for one year is 900 USD and the USD interest rate (LIBOR) is 0.5 %. Paul borrows 100,000 USD at 0.5 % and buys 100 ounces of gold to store at the COMEX. At the same time he sells short a 100 ounce futures contract at 1,050 USD per ounce. Paul’s total costs are, 500 USD interest and 900 USD storage costs, equals 1,400 USD. His revenue is 5,000 USD, as he will receive 105,000 USD for the gold in one year that he bought for 100,000 USD. 5,000 minus 1,400 USD, is 3,600 USD in profit.

Contango can cause inventory to increase, whereas a lack of contango unwinds inventory. Also, during backwardation a reversed cash and carry trade arises: borrow gold to sell for USD and buy long a futures contract to settle the debt when the gold loan matures. The price of the futures contract would be lower than that of the gold borrowed. Whenever demand to borrow gold increases, the gold lease rate (GLR) goes up, which is exactly what happened recently.

Now we can see how GLR and LIBOR are related and how LIBOR can affect the gold futures curve. If LIBOR is lower than GLR there is gold backwardation, if LIBOR is higher than GLR there is contango. Hence…

LIBOR – GLR = Gold Forward Offered Rate (GOFO) 

We could say, negative GOFO signals scarcity in the gold market. Unfortunately the LBMA ceased publishing GOFO rates with effect from 30 January 2015 “following discussions between the LBMA and … Market Makers”. Ironically, GOFO rates went dark right after dipping into negative territory in 2013 and 2014.



Remember exactly a year ago when silver inventory at the Shanghai Futures Exchanged (SHFE) had decreased from over 1,100 tonnes to below 100 tonnes?

SHFE backwardtion inventory

Indeed, when silver on the SHFE was in backwardation there was scarcity in the Chinese silver market and the price in Shanghai ran up relative to the international price. Only after SHFE silver backwardation flipped into contango inventory came of its lows.

Currently there is said to be scarcity in gold in the market. Which of the two scenarios described above is true will be exposed in the future!

Koos Jansen
E-mail Koos Jansen on:




Reasons to hold silver:


(courtesy ProfitConfedential/John Whitefoot)

Silver Forecast 2016: Major Catalysts to Spark Rally in Silver Prices

By Thursday, September 17, 2015

Silver PriceSilver investors cannot be happy right now. At least not those who purchased silver after its bumpy ride down in early 2013. But if the operative, if not simplified, goal of investing is to buy low and sell high, the window of opportunity for silver is wide open for precious metal investors. That doesn’t mean silver prices will soar 400%+ in the coming weeks. But there are fundamental and technical plays in place that suggest silver prices are poised to experience a significant rebound.

Have Silver Prices Bottomed?

Silver prices have been routed. When you look at the broader market over the last number of years, this may not be a total surprise. Precious metals like silver, gold, and platinum have a negative correlation to the stock market. When times are good, investors shun silver; when the markets are in trouble, investors turn their attention to the grey metal.

Case in point; since bottoming in March 2009, the S&P 500 has advanced roughly 196%; the NYSE is up 140%, while the NASDAQ has climbed a whopping 285%. Silver, on the other hand, is up just 8.2%. But that figure is misleading. Since peaking in April, 2011 at $49.82, silver prices have fallen 71%.

Currently trading at a six-year low near $14.40 per ounce, most analysts expect silver prices to fall even further. If so, 2015 will mark a record fourth consecutive year of declines.

With silver prices still down 8.5% so far this year, and at its lowest levels since the summer of 2009, silver is sitting in a pretty attractive range. That hasn’t stopped most analysts from saying that while silver looks cheap, there are few catalysts to spark a rally.

Though I think most analysts are wrong. Physical silver continues to be a great long-term investment. And I do mean long-term. Silver doesn’t typically make explosive one-day gains. But there have been periods of strong gains over the last 15 years.

Silver as a Hedge Against Economic Uncertainty

Silver Catalyst #1: Investors shouldn’t discount precious metals.

Silver, gold, and platinum are wise investments meant to diversify your portfolio against market volatility. And despite silver’s poor performance over the last four years, it remains a versatile and necessary product.

Where gold is used primarily as an investment tool and jewelry, silver is used as both an industrial metal and a precious metal. As a precious metal, it is used to hedge against economic uncertainty. And there are many reasons why investors should be nervous.

First, there is China. The world’s second-biggest economy is in trouble. Or it is relative to the last 35 years of extraordinary growth. China disappointed the rest of the world when it said its economy would grow at just seven percent annually. Yes, that’s lower than before, but it’s still miles ahead of what the United States, the world’s biggest economy, is doing. And the rest of the free world for that matter.

Regardless, the Chinese economy remains weak and fears are it will hinder global growth. That’s because the rest of the world relied on China to help it stave off a global recession in 2008. And a staling Chinese economy could send global stocks into a tail spin.

I enter as evidence. Data on China’s manufacturing sector, falling to a three-year low in August, points to a struggling economy. The country’s official manufacturing purchasing-managers index fell to 49.7 in August from 50 a month earlier. A reading above 50 suggests expansion where a reading below 50 points to contraction. The government’s nonmanufacturing PMI also fell on a month-over-month basis to 53.4 in August from 53.9 in July. (Source:, September 1, 2015.)

China has already cut interest rates five times since last November (to 4.85%) and devalued the yuan to encourage lending and boost growth. Making a currency weak to help boost exports can only work if those on the other end have lots of money to spend.

And that’s why the economic data coming out of China is so scary. The rest of the world has been relying on zero interest rates and Chinese growth to carry the global economy. But what if the latter fails to materialize?

Central Banks have done their part, artificially lowering interest rates to kick-start their local economies. The only problem is; it hasn’t worked. Case in point, since 2008, America’s gross domestic product (GDP) has grown at just over 10%. China’s economy has increased by more than 65%.

Aside from a weakening China and faint economic heartbeat from the U.S., the eurozone continues to underwhelm with economic millstones like France, Italy, and Greece. Japan’s economy shrank in the second quarter. And Canada, the U.S.’s biggest export market (accounting for 19% of all exports compared to China’s seven percent) has slipped into a recession.

None of this bodes well for the U.S. economy. Nor for global stock markets. After all, markets are only as strong as the stocks that support them.

Stock Markets Seriously Overvalued

Silver Catalyst #2: While investors have been happy to support the stock market, they can only do that for so long.

Reality will kick in and investors, as they are wont to do, will run for the exits.

As noted above, the NASDAQ, NYSE, S&P 500, and Dow Jones Industrial Average have all performed exceptionally well over the last number of years. This is in spite of weak economic data. Where investors once rewarded companies for reporting strong earnings and revenue growth, today, they reward them for not losing as much as the companies said they would.

  • According to the Case Shiller CAPE PE Ratio, the S&P 500 is overvalued by around 67%. The average CAPE ratio between 1881 and 2015 in the U.S. is 17; today it sits at 25.10. The only other times the ratio has been higher have been in 1929, 2000, and 2007. All three instances were followed by a collapse. (Source: Yale University, last accessed September 15, 2015.)

Where should the markets be according to Shiller? His ratio puts the S&P closer to 1,300. Currently at 1,981, the S&P would have to fall as much as 34%. (, August 27, 2015.)

  • The Market Cap to GDP Ratio compares the total price of all publicly traded companies to GDP. Warren Buffett calls it the single best measure of where valuations stand at any given moment. A reading of 100% suggests U.S. stocks are fairly valued. The higher the ratio over 100%, the more overvalued the stock market. It currently sits at 116.4. The Warren Buffett Indicator has only been higher once since 1950. In 1999, it came in at 153.6%. It was only at 108% before the housing bubble burst in 2008.

When the broader stock market experiences a real correction, not a short-term distraction like Black Monday, investors will flock back into precious metals like silver.

Silver Ratio Points to Upside Growth

Silver Catalyst #3: The price of silver is linked with gold.

And gold prices have been declining, like silver, since 2011. At $14.40 per ounce, it takes around 77 ounces of silver to purchase one ounce of gold ($1,107.50 per ounce). In 2011, the ratio was 32:1.

The silver/gold ratio is calculated by dividing the price of an ounce of gold by the price of an ounce of silver. This tells you how many ounces of silver it takes to purchase one ounce of gold. Since 1970, the gold-to-silver ratio has averaged about 55.

To restore the historical average silver/gold ratio, silver prices would have to increase to around $20.00 per ounce—a bullish signal for silver. And investors may not have to wait long for a restoration in the great silver/gold ratio. When the silver/gold ratio tops 70, a correction isn’t too far behind.

The last three times the silver/gold ratio topped that margin were in 1995 when silver prices gained 70%; in 2003 when silver prices climbed 200%, and in 2011 when silver gained 420%.

Correlation is not causation, but the outlook for silver remains bullish.

Dwindling Supply of Silver

Silver Catalyst #4: There is a finite supply of silver out there.

And there are two reasons why the supply of silver has dwindled. Most mining companies do not mine for silver, per se. Silver is most often mined as a by-product of gold, copper, lead, and zinc.

The plunge in gold and copper prices has translated into huge cuts in capital spending by miners—which means lower output. It also means a halt to new mines or expansions. When the global economy does get back onto solid footing, it may be hard for production to keep up with demand.

This could send silver prices considerably higher. That’s because silver is an invaluable industrial metal used in batteries, dentistry, LED chips, medicine, nuclear reactors, solar energy, semiconductors, touch screens, water purification, and many other industrial uses.

But again, the demand for silver as an industrial product will only increase when the global economy recovers. Unfortunately, economic challenges in China, Canada, Japan, Russia, the eurozone, and the United States, to name a few, make it difficult to be outright bullish on silver right now.

While the International Monetary Fund expects the global economy to grow at 3.3% this year, it is expected to approach four percent next year. This bodes well for silver bulls as we head into 2016.


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

1 Chinese yuan vs USA dollar/yuan falls a bit in value, this  time at   6.3651/Shanghai bourse: deeply in the red and Hang Sang: red

2 Nikkei up 260.67   or 1.43.%

3. Europe stocks all in the green except London      /USA dollar index down to  95.21/Euro up to 1.1316

3b Japan 10 year bond yield: falls to .371% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.96

3c Nikkei now above 18,000


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

3e WTI:  46.43 and Brent:  48.86

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 .781 per cent. German bunds in negative yields from 4 years out

 Greece  sees its 2 year rate falls to 11.36%/Greek stocks this morning up by 0.39%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 8.54%  

3k Gold at $1117.00 /silver $14.82  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 41/100 in  roubles/dollar) 65.81,

3m oil into the 46 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 .9689 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0966 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 +.781%

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 2.28% early this morning. Thirty year rate below 3% at 3.07% / yield curve flatten/foreshadowing recession.

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

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


The Fed’s Long Awaited Decision Day Arrives, And Chinese Stocks Wipe Out In The Last 15 Minutes

The long awaited day is finally here by which we, of course, mean the day when nobody has any idea what the Fed will do, the Fed included.

Putting today in perspective, there have been just about 700 rate cuts globally in the 3,367 days since the last Fed rate hike on June 29, 2006, while central banks have bought $15 trillion in assets, and vast portions of the world are now in negative interest rate territory.

As we noted yesterday, while the fed funds market implies a 32% probability of a rate hike one day ahead of the decision (which compares to 70% in 1994, 76% in 1999 and 92% in 2004) investors are even more torn, with 57% of respondents in an RBS survey saying the Fedshould hike today, but only 42% expecting the Fed willannounce a rate hike at 2pm. Of the 113 estimates on Bloomberg, 59 are calling for the Fed to stay put and 51 are calling for a 25bp hike, with the remaining 3 estimates calling for a 12.5bp move.

The Fed itself is not sure what to do: according to many a hawkish move would be not to hike but layer the statement with many caveats how strong the economy is (even as the Fed again chickens out) while the dovish thing would be a “one and done” rate hike with the Fed potentially unleashing a recession-inducing curve inversion.

Then there is the problem with the Fed’s rate hike machinery: the Reverse Repo-IOER corridor has never actually been tried in practice, only in very specific “in vitro” settings: at such a turbulent time will the Fed risk crushing its only possible and very much theoretical rate hike mechanism, and perhaps as importantly, with China undergoing currency devaluation and a massive capital outflow, will the Fed risk blowing up the entire Emerging Market complex (even more)?

Finally, unlike any other rate hike in the past, there are the algos to contend with: in the 2004-2006 rate hike cycle HFTs barely existed; this time the Fed’s “reaction function” has to take into consideration momentum ignition, spoofing, quote churning and countless other headline-driven market reactions.

So all eyes on the Fed’s website at 2pm, if not perhaps for Goldman’s – the firm that runs that Fed has spoken, and it see at least four more weeks of ZIRP, if not a zero-bound winter stretching well into 2016.

Should the Fed hike, the biggest question is not what stocks or the short-end of the Treasury curve do, but what the reaction of the long-bond is. After the usual initial kneejerk reaction, if the long-end concurs with the Fed’s view of economic recovery, then banks,
cyclicals and value stocks will receive a bid. Asset allocation toward “strong dollar” & “Fed tightening plays” will harden, with the exception that value will likely outperform growth. If the long-end rallies, signaling a policy mistake, then cash, volatility, gold &
defensive growth will be the way to go. Also, a quiet exit stage left may be prudent at this moment.

One thing that is certain is that while the Fed fiddles, China’s market manipulators continue to burn in ever more spectacular fashion, and while yesterday the SHCOMP entertained Chinese market watchers with a tremendous surge in the last hour of trading, today it was the opposite, when the Shanghai Composite Index fell 2.1% to close at sessions low at 3,086.06, sinking in final 15 minutes after gaining as much as 1.7% on light volume.

“The market continues to be rather volatile with investors becoming bearish at the slightest indication,” says Gerry Alfonso, Shenwan Hongyuan director. “There seems to be significant expectations for some type of policy support.” Well, and the market gets them… every other day. Then on days like yesterday when it doesn’t, it panicks.

“The market is in recovering trend, but without any significant increase in trading volume to support that, greater volatility is inevitable,” Northeast Securities Shanghai-based analyst Shen Zhengyang says by phone, adding that “investors may be selling to lock in profits; there’s also uncertainty over Fed decision.”

So in addition to US stocks, Yellen has China to worry about to. Oh, and the rest of the world too.

But going back to the overnight market, aside from China’s last minute swoon, Asian equity markets traded higher, tracking gains on Wall Street where energy outperformed in the wake of the latest DoE release. ASX 200 (+0.9%) was bolstered by strength in commodities, while Nikkei 225 (+1.4%) was led by a rebound in Telecoms. JGBs saw tepid trade with volumes ahead of the Fed’s decision, while the BoJ were also in the market for JPY 780bln in government debt.

The key event during European hours has been Altice announcing it is to buy CableVision for around USD 17.7bIn to see Altice (+3.3%) among the best performers in Europe. Price action elsewhere in equity markets has been relatively rangebound (Euro Stoxx: -0.2%), with no firm sentiment ahead of the aforementioned Fed rate decision. Similarly, Bunds reside in modest negative territory weighed upon by supply out of both France and Spain, while T-Notes are modestly higher to pare some of the losses seen yesterday after T-notes fell in sympathy with the gains seen in US equities.

In FX, the notable event of the European morning came in the form of the SNB rate decision, with the central bank keeping rates on hold as expected, with CHF strengthening on the back of the release after less dovish than expected comments from the central bank. The SNB noted that CHF has depreciated although consider it still to be overvalued, while also reiterating that they are to remain active in FX markets and downgrading their 2015 CPI outlook by 20bps to 1.20%. Elsewhere, FX markets have seen relatively light newsflow, with UK retail sales (Inc Auto Fuel Y/Y 3.70% vs. Exp. 3.80%) failing to see a sustained reaction and the USD-index residing in negative territory (-0.2%) and as such bolstering both GBP and EUR ahead of the key risk event of the week, the highly anticipated Fed rate decision at 2pm Eastern.

A look at commodities sees the energy complex with mild profit taking after yesterday’s DoE inventories showed a build (-2104K vs. Exp. 2000K), with Brent and WTI futures both lower heading into the NYMEX pit open and the former failing to hold gains above the USD 50.00 handle. In terms of metals news, copper has seen strength overnight following reports that a magnitude 8.3 earthquake struck Chile, with the rest of the metals complex seeing relatively choppy price action.

On today’s calendar, in addition to the most anticipated FOMC meeting ever until th enext one, we also get US housing starts, building permits, and weekly initial claims data as well as the Philadelphia Fed business outlook.

Bulletin Headline Summary from Bloomberg and RanSquawk:

  • SNB keeping rates on hold as expected, with CHF strengthening on the back of the release after less dovish than expected comments from the central bank
  • European equities are relatively rangebound, while stock specific news has seen Altice announce it is to buy CableVision for around USD 17.7bIn
  • Today’s highlights include the highly anticipated FOMC rate decision as well as US housing starts, building permits, weekly jobs data, Philadelphia Fed business outlook and EIA NatGas storage change
  • Treasuries post modest gains, curves little changed before Fed statement and updated SEP at 2pm, Yellen presser at 2:30pm as economists/analysts remain split on prospect of 1st rate increase in more than 9 years.
  • China’s stocks sank in the last 30 minutes of trading in thin volumes as traders tested the limits of state support amid the biggest price swings since 1997
  • China reduced its stake in U.S. government debt in July by about $82.7b, TICS data showed; calculation includes securities held in Belgium, which Nomura says is home to some Chinese accounts
  • Bridgewater’s Ray Dalio said in an interview with Bloomberg that he’s worried about the next economic slowdown because monetary policy will be less effective than in the past
  • The Swiss National Bank kept interest rates at record lows and signaled the recent depreciation of the franc hasn’t diminished its willingness to intervene in currency markets if needed
  • As Greeks prepare for their third vote in less than a year, election fatigue has set in, with voters are bracing for more economic pain no matter who’s elected
  • A glut of crude may keep oil prices low for the next 15 years, according to Goldman, with a less than 50% change prices will drop to $20/bbl; firm’s long-term forecast is $50/bbl
  • Sovereign 10Y bond yields mixed. Asian stocks higher with the exception of China and Hong Kong, European stocks mixed, U.S. equity-index futures decline. Crude oil, gold and copper fall

US Event Calendar

  • 8:30am: Current Account Balance, 2Q, est. -$111.5b (prior -$113.3b)
  • 8:30am: Housing Starts, Aug., est. 1.160m (prior 1.206m)
    • Housing Starts m/m, Aug., est. -3.8% (prior 0.2%)
    • Building Permits, Aug., est. 1.159m (prior 1.119m, revised 1.130m)
    • Building Permits m/m, Aug., est. 2.5% (prior -16.3%, revised -15.5%)
  • 8:30am: Initial Jobless Claims, Sept. 12, est. 275k (prior 275k)
    • Continuing Claims, Sept. 5, est. 2.258m (prior 2.260m)
  • 9:45am: Bloomberg Consumer Comfort, Sept. 13 (prior 41.4)
    • Bloomberg Economic Expectations, Sept. (prior 46)
  • 10:00am: Philadelphia Fed Business Outlook, Sept., est. 5.9 (prior 8.3)
  • 2:00pm: FOMC Rate Decision: Upper Bound, est. 0.25% (prior 0.25%); Lower Bound, est. 0% (prior 0%)
  • 2:30pm: Fed’s Yellen holds news conference


As usual, DB concludes the overnight wrap

A total of 3,367 days have passed since the Fed last raised rates. In roughly 12 hours we’ll know one way or another whether the Fed has decided to end this streak and go against the market and (slight) majority of economist expectations in commencing liftoff, or instead stand pat. Yesterday’s inflation data did little to help fuel support that a move is warranted and so we head into the final trading session before the meeting with a hike priced at 32%. That’s unchanged versus this time yesterday and we’ve been sitting in a small 4% range now for a couple weeks, but that’s well below the peak of 54% back in early August prior to the China devaluation and slightly above the YTD low of 21% back in July. As we’d noted earlier in the week it’s a much more evenly weighted split if you look across economist expectations. Of the 113 estimates on Bloomberg, 59 are calling for the Fed to stay put and 51 are calling for a 25bp hike, with the remaining 3 estimates calling for a 12.5bp move. We still maintain our long-standing call that a hike is unlikely this year, but for now it’ll be all eyes on the FOMC and Yellen tonight.

On this, DB’s Joe Lavorgna, while of the view that the Fed will hold off from raising tonight, is of the belief that Yellen will emphasize in the press conference shortly after that depending on near-term economic and financial market developments, a rate hike remains very much a possibility at the October or December meetings. Meanwhile, DB’s Alan Ruskin makes an interesting point on this too in that the Fed could feel that they could signal something about October closer to the October meeting instead, assuming they stand pat now which would likely be seen as a ‘dovish hold’. While Alan thinks a ‘hawkish hold’ is a more appropriate strong market consensus view leading into the meeting (holding but making October live), the Fed could instead choose to hold firm, not pre-signal October and wait on the data and probably more importantly markets.

Ahead of the outcome and fresh off the back of a decent day for global equities yesterday, bourses in Asia this morning are off to strong starts. The Nikkei (+1.15%) and Topix (+0.91%) have ignored any concerns following the one-notch downgrade of Japan’s sovereign rating by S&P yesterday to A+. The better sentiment is perhaps being helped by weaker than expected export numbers this morning (+3.1% yoy vs. +4.3% expected), down materially from +7.6% in July and which may help support expectations of a response from the BoJ. Elsewhere, in China the Shanghai Comp (+0.51%) and CSI 300 (+0.34%) have recovered from a soft opening start into the midday break, while the Hang Seng (+0.77%) and ASX (+1.32%) are also up. The Kospi (-0.09%) is the only index to see a decline this morning. S&P 500 futures are more or less flat and 10y Treasury yields are down 1.3bps. Credit indices in Asia are around a basis point tighter.

Back to markets yesterday. Indeed, it was a pretty supportive day all round for equity markets with the S&P 500 closing +0.87%, Stoxx 600 +1.53% and other DM markets up similar amounts. Those moves got a kick start from the big rally into the close in China (where the Shanghai Comp finished up nearly 5%).

This was followed in the European session by the news that SAB Miller had been approached for a takeover by AB InBev, helping SAB’s share price to rally nearly 20%. Then later in the day, some supportive US crude inventory data helped fuel a surge in the Oil complex which eventually saw WTI and Brent close up +5.74% and +4.19% respectively. That saw energy stocks lead gains, while the rest of the commodity complex also had a relatively decent day with broad BCOM commodity index up 1% and snapping a three-day losing streak.

The USD had initially traded with some early optimism, although that was quickly pared following the release of yesterday’s CPI data with the Dollar index eventually finishing -0.20%. While the data was pretty much as expected, importantly the release did little to advance the case for a hike today. Headline CPI printed at -0.1% mom as expected in August, leaving the annualized rate on hold at +0.2% yoy. The core reading was soft at +0.1% mom, or just 0.074% unrounded, which saw the annualized rate hold steady at +1.8% yoy (vs. +1.9% expected). The three-month annualized rate however did nudge down to 1.6%, a decline of two-tenths from last month. DB’s Joe Lavorgna also noted that along with the currently low inflation, 5-year forward inflation expectations are comfortably below 2% with the latest reading at 1.44% (down substantially from 1.99% when policymakers last met in July). Elsewhere yesterday, there was some better news on the housing front where the September NAHB housing market index rose 1pt to 62 (vs. 61 expected). Meanwhile, the latest TIC data confirmed a decent decline in Treasury holdings in Mainland China, down $30.4bn in July. 10y Treasury yields eventually nudged up 0.7bps to close at 2.295% while 2y yields (+0.8bps) extended their recent high after closing at 0.813% yesterday.

Data wise in Europe, much of the focus was again on the UK where there were some positive signs in the latest employment and wage growth reports. The July unemployment rate dropped one-tenth to 5.5% (vs. 5.6% expected), while the quarterly employment change of +42k was well above the +18k expected. Average weekly earnings rose +2.9% (vs. +2.5% expected) in the three months to July which was up three-tenths from June. That helped spark a strong day for Sterling which closed +0.97% stronger against the Dollar and +0.79% against the Euro. Comments from BoE Governor Carney also helped support some of that strength after he reiterated that should economic expansion be above trend, labour costs and wage growth continue to rise and core inflation accelerate, then the decision comes into much sharper relief around the turn of the year and as a result ‘it may be appropriate to begin to withdraw stimulus at that point’.

Wrapping up the rest of the data yesterday, Euro area CPI saw a slight downward revision to the final August print at both the headline (down 0.1pp to +0.1% yoy) and core (down 0.1pp to +0.9% yoy). European sovereign bond yields edged slightly higher during the session with DM markets up 2-3bps generally.

Onto the day ahead now. This morning’s focus will again be on the UK where we get August retail sales data. Prior to the main event tonight with the conclusion of the FOMC meeting, datawise in the US we’re due to get more housing data in housing starts and building permits while initial jobless claims and the Philly Fed business outlook are also expected. The focus will however be on the Fed and subsequent Yellen press conference.



Let us begin with China’s stock market,9:30 pm est Wednesday evening/Thursday morning Shanghai time/ where the POBCinjected more liquidity into the markets/the Yuan strengthened.


Over in Japan record amounts of foreign stocks owners liquidated their portfolios of Japanese stocks.


At the end of the day, the Shanghai exchange succumbed to a 2.10% loss!

China Injects More Liquidity, Strengthens Yuan As Foreigners Dump Record Amount Of Japanese Stocks


The evening started with disappointing Japanese trade data cross the board – weakest imports, exports, and trade balance in 6 months – which follows the largest selling of Japanese stocks by foreigners ever. China opened with the first rise in margin debt in 6 days, stocks were mixed in the pre-open after last night’s epic farce ramp. PBOC strengthened the Yuan fix modestly and also injected another CNY 40 billion.


Japanese trade data was disappointing…

  • *JAPAN AUG. EXPORTS RISE 3.1% Y/Y, EST.. +4.3%
  • *JAPAN AUG. IMPORTS FALL 3.1% Y/Y, EST -2.5%

All at 6-month lows and missed expectations.

Foreigners have never sold more Japanese stocks ever…


Which explains why The BoJ was buying so heavily!! And for now, a rampacious bid open is being sold…


*  *  *

Then China opens..

And Margins are on the rise again…


Stocks are mixed after last night’s epic ramp idiocy..

  • *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 0.7% TO 3,287.66


Regulator’s pressure appears to be paying off…

PBOC added more liquidity…


And then strengthgened the Yuan fix…




Charts: Bloomberg





Extremely important:



it is now quite evident that the entire Belgium reserves belonging to China has now been liquidated leaving only the 1.24 billion of Mainland reserves. From July and August it looks like 184 billion has been liquidated and we have not come to Sept yet. If this liquidation continues and no doubt that it will, the Fed must engage in QE4


(courtesy zero hedge/TIC)


China Liquidated A Record $83 Billion In Treasurys In July

Back in May, when we first reported the “The Identity Of The Mystery “Belgian” Buyer Of US Treasurys” we made it clear that i) China was using Belgium as an offshore proxy for Treasury buying and – as of this year – selling and ii) that more selling was imminent.

Then, when we last updated this analysis on July 17, 3 weeks before the market was shocked by China’s announcement, we explicitly said that “putting all of this together, it reveals that China has already dumped a record total $107 billion in US Treasurys in 2015 to offset what is now quite clear capital flight from the mainland, and the most aggressive attempt to keep the Renminbi stable.

All of this was confirmed on August 11, and over the past month when not only China devalued its currency but proceeded to dump a record amount of Foreign Reserves,some $94 billion in the month of August.

There was some question how much of these reserves was US Treasurys, and whether the liquidation via “Belgium” that we first reported in May, had continued. Moments ago, thanks to the latest TIC update, we got the answer. And boy was it a doozy.

First, we look at “Belgian” holdings which, as a reminder are not Belgian at all, but mostly Chinese, as a result of Euroclear allowing China to transact out of the European country anonymously. It is here that the massive build up started in late 2013 is now officially over, and after a another massive sale of $53 billion in US paper via Euroclear, Belgian holdings are back to just $155 billion, the lowest in over two years.

What does this mean for total Chinese holdings? Well, as disclosed mainland Chinese holdings decline by “only” $30 billion, the biggest monthly sale since December 2013.

But as we first pointed out, one has to combine Belgium and China to get the true picture.

Here is how said picture looks, when also superimposing China’s total disclosed foreign reserve on the chart.

The answer: according to TIC, China, between its mainland and Euroclear holdings, sold a record $83 billion in Treasurys in the month of July. It also means that China has liquidated a whopping $184 billion notional in US Treasurys in 2015.

And since the current Belgian liquidation has brought Belgium’s holdings to levels pre the Chinese buying spree, it likely means that China is all out of “Euroclear” holdings, and the residual Chinese holdings are only those held by China as of this moment, which according to TIC amounted to about $1240 billion.

Finally, and here it the punchline: the sale of ~$83 billion took place in July. This is before China announced its devaluation on August 11 and before,as we also first reported, it sold another $100 billion in Treasurys in August.

One can see why suddenly even PBOC official Jiao Jinpu said, earlier today, that the Chinese central bank sees “callenge from FX reserves drop.”

Should this unprecedented pace of reserve liquidation – read Treasury dumping – continue, the Fed will have no choice but to engage QE4 in very short notice just to absorb the now confirmed record selling of US paper by China.

Source: TIC




Today we get a look at SAFE where we find that  banks sold 128 billion USA in support of the yuan for July and August.  This figure was largely expected.

However, one must also account for banks future books where it looks like 178 billion USA is the closer figure of dollars leaving China.

In July, the POBC liquidated 83 billion USA, thus the total for two months:  261 billion USA.


Today, Nomura calculates that China spent 48 billion shoring up its accounts.  Thus in 2 1/2 months: a staggering 300 billion left China. How on earth can Janet Yellen raise rates:  (Harvey:  written at 11 am)


(courtesy zero hedge)

China Outflows Said To Surpass A Staggering $300 Billion In Under Three Months

Whether Janet Yellen admits it or not, you can bet that going into today’s most important Fed meeting ever (until the next one) the supposedly “data dependent” FOMC has taken a good hard look at what’s happening in China in the wake of Beijing’s not-so-smooth transition to a new currency regime.

We’ve detailed the story exhaustively, so we won’t endeavor to recap it all here, but the short version is that what was billed as a move to give the market a greater role in setting the yuan’s exchange rate actually had the opposite effect – at least in the short run. That is, the PBoC used to manipulate the fix to control the spot and now they simply manipulate the spot to control the fix, but unabated devaluation pressure has forced China to intervene on a massive scale and that intervention recently moved into the offshore market as well, as Beijing scrambled to close the onshore/offshore spread. This is costing China dearly in terms of FX reserves, the liquidation of which was so massive in August as to prompt Deutsche Bank to brand it “Quantitative Tightening”, as the reserve drawdowns are effectively QE in reverse. This is of course the same dynamic that’s been taking place in Saudi Arabia in the wake of the petrodollar’s demise and mirrors the response across EMs which are struggling to support commodity currencies as prices collapse.

Attempts to quantify the scope of China’s reserve burn have become ubiquitous, as the cost of offsetting the outflows from China effectively serves as a proxy for the extent to which the Fed would, were they to hike, be “tightening into a tightening”, as we’ve put it.

On Wednesday we showedthat Beijing liquidated $83 billion in Treasurys in July. That, as we also noted, “is before China announced its devaluation on August 11 and before, as we also first reported, it sold another $100 billion in Treasurys in August.”

Today, we get a fresh look at the numbers courtesy of SAFE which shows that on net, banks sold $128 billion in FX to Chinese non-banks in August. Nothing too surprising there, given that we already knew positioning for FX purchases for the banking sector as a whole dropped by $115 billion for the month.

As Goldman notes however, when you include banks’ forward books the picture worsens materially:

An alternative gauge that we believe is a closer reflection of the underlying trend of currency demand shows a significantly larger outflow of $178bn.


Today’s data at US$178bn on our preferred gauge of underlying currency demand (i.e., outright spot plus freshly-entered forward contracts) is significantly higher than any of [the previous] releases. 

This means, as Goldman goes on to point out, that outflows are actually far worse than what’s indicated by simply looking at China’s reserve drawdown, as banks look to be shouldering some of the burden themselves:

We think this suggests that banks used their own FX position (i.e., without resorting to PBOC’s FX reserves) to absorb part of the outflow pressure.

So between July and August (inclusive of freshly entered forwards), outflows total around $261 billion.

But that’s not all.

Nomura is out with an estimate of what’s taken place since the start of September.

Between onshore spot intervention and offshore spot and forward intervention, the bank estimates China has spent some $47 billion month-to-date stabilizing the yuan, $25 billion of which in the offshore market, reinforcing what we said a week ago after CNH soared the most on record: 

Note the rationale here: this is China intervening in the hopes that said intervention will make further intervention unnecessary. That is, rampant speculation that the yuan will continue to depreciate is forcing the PBoC to intervene in the onshore market and at an extremely high cost both in terms of the country’s FX reserves and in terms of the deleterious effect the reserve liquidation has on liquidity. Devaluation expectations are at least partly manifesting themselves in the offshore spot market so ultimately, the PBoC figures it will try intervening there in the hopes that narrowing the spread will mean it has to intervene less in the onshore market. Summarizing the above in four words: one more spinning plate.

Here’s what $25 billion in CNH intervention buys you:

What all of the above means is that all in, outflows totaled some $308 billion in the space of two and a half months.

Some speculate that between stepped up capital controls and a Fed hike, the situation may stabilize (there are those who think FOMC liftoff will serve to calm the market by removing uncertainty), but consider the following from Commerzbank’s Zhou Hao:

Increasing FX intervention could be one of few options left. Some companies and real-money funds could look to purchase dollars by selling offshore yuan, so China may extend defense offshore. Frequent intervention burns foreign reserves and squeezes onshore market liquidity, so further tightening of regulations likely if CNY still under pressure.

Along with this from Maybank’s Fiona Lim:

PBOC may intend to narrow CNY-CNH gap to ease depreciation pressure; it’s likely to buy offshore yuan and allowing onshore to move lower via daily fixing.

In other words, even if you’re optimistic that the pressure to intervene is abating (as Lim actually seems to be), the above underscores the extent to which this is a ver, very delicate balancing act, or, as we’ve characterized it over and over, an attempt to manage a collection of spinning plates.

And then there are those who take the straightforward view (i.e. the view that doesn’t include the assumption that a Fed hike would somehow stabilize things be decreasing uncertainty), like Citic Bank chief economist Liao Qun who said the following on Thursday (via Bloomberg):

U.S. rate hike should have negative effects on both the Hong Kong property and stock markets and intensify pressure on the yuan and increase the likelihood of further depreciation. 

There you have it. In the end, the takeaway is the number shown above: $308 billion in FX outflows in two and a half months.

Your move Janet.





An extremely important conversation with Kyle Bass, who without a doubt is one of the best analysts out there.


The key points:  The Chinese banking sector has about 31 trillion dollars worth of assets. Its banking assets are 300 x Chinese GDP.  If 10% go non performing, this would wipe out the entire sovereign Chinese reserves which are at 3 trillion USA.  He notes that loans outstanding greater than 90 days have risen by 167% over the past 6 months.


He cites Malaysia as another country that will fail as they have bank assets 700 x its GDP and their Prime Minister is in trouble as investigators found 700 million dollars of sovereign money in his personal bank account.  This country is a disaster.


Also South Africa has twin deficits of 4.5% of GDP i.e.  a current account deficit of 4.5% and a fiscal deficit of 4.5% of GDP.  The country only has 32 billion dollars left as official reserves.  These guys too will no doubt go bust.


a must view…



(courtesy Kyle Bass/Octafinance)


Kyle Bass Bearish on Emerging Markets for at least 2 More Years. Looking to Short Currencies

octafinance's picture

Kyle Bass, the founder and manager of Hayman Capital and the man who spotted and shorted successfully the subprime bubble was interviewed today at CNBC. He shared his macro views during the “Squawk on the Street” and revealed that he is bearish emerging markets and believes that the Chinese economical issues are just starting and that’s because the banking sector still has more bad debts to reveal and write-off. According to Kyle the loans pass due in 90 days grew by the whooping 167% just for half an year. He thinks that it will take at least 2-3 quarters until the banking sector reaches its NPL peak and thinks that this will force the government to recap its banks. But Kyle shares that it will be at least 2 more years until the emerging market slowdown is over and banking problems are fixed.

Another country he is bearish on is Malaysia. He sees the same problems in their banking system. It just grew too quick and too much. Michael Arnold quoted a paper from the San Francisco FED according to which emerging markets of countries with twin-deficits suffered the most in the taper-related selloff. One of the governments in panic last summer was that of Malaysia. The country had high fiscal deficit which it used to finance infrastructure projects and it made a lot of steps not to also get its current account into deficit. Other vulnerable countries are: India and Indonesia, which were punished  by the markets. A tool developed by Deutsche Bank Asia and which combines 16 factors of country analysis such as: debt, current account, household debt, reserves cover, interest rates, currency valuation and credit growth showed that the countries most at risk in Asia are: Malaysia, Indonesia and Singapore.


Another country Kyle mentions he is bearish about is South Africa. He shared that it runs 4.5% twin-deficit and has only $34 billion reserves which are enough to cover just 2 months of imports. This is probably the reason their currency went down so much so far.


About trading, Kyle is currently looking to short the currencies of countries that runtwin-deficits as these are usually the countries to enter a currency war. He thinks that some of these countries could devalue their papers a lot. Its true that China doesn’t run twin deficit but all of its trade partners devalued their currencies a lot: Europe, Japan, Russia, Australia. Its hard to be competitive during such cycle. May be Kile is also bearish the yuan?

Kyle said: “We talk about this race to the bottom and this currency war. Well it’s happening as we speak,” he said. “China literally just started with its devaluation process—wait until you see where that goes.”

He believes that the Asian problems could affect the world and this could be serious. He shared that China’s reserves which are about $3 trillion are enough to cover just 10% bank asset losses. This is because since 2007, the Chinese banking assets rose more than four times and reached $31 trillion. This is too much for an economy of $10 trillion. Its 300%+ banking assets to GDP. We at Octafinance think that the Chinese stock market is just forecasting the future and these issues and the question of whether the stock market will go up or down depends on the real issue, which according to Kyle is the banking sector NPL. Kyle thinks that same as the US and the UK did, its now time for China to recapitalize its banking system.


When asked about his legal fight against drug patents that are unfair to the people and the market, he stated that he will not stop here and will continue filling legal challenges.





The refugee crisis arrives in Croatia:


(courtesy zero hedge)

“I’m Not Sure We Can Register Them All”: 5,600 Refugees Pour Into Croatia After Migrant Route Change

On Wednesday, Hungary served notice that it’s willing to go to great lengths to preserve the integrity of its border with Serbia in the face of a massive influx of migrants fleeing war-torn Syria. Earlier in the week, Prime Minister Viktor Orban completed a 100-mile, razor wire fence along the border and announced that anyone caught tampering with the fence in an effort to gain entry into the country would be arrested and prosecuted.

This left thousands stranded in Serbia and after a night staring up at the razor wire, many migrants decided to test Hungary’s resolve. This is what happened next:

As Gyorgy Bakondi, an aide to Orban recently put it: “We hope that the messages we have been sending migrants for a long time have reached them. Don’t come. 

Roger that. Aye, Captain.

Of course Serbia is in no position to accommodate the asylum seekers and in any event, pictures of parties and Merkel selfie photo ops have hardened many refugees’ already ironclad resolve to make it to Germany. The next best option, now that Hungary’s border is for all intents and purposes closed, is through Croatia. 

As noted on Wednesday, the country was already making preparations for the influx and as Reuters reports, the flow of refugees into the country on Thursday was staggering. Here’s more:

More than 5,000 migrants have entered Croatia since Hungary sealed its southern border with Serbia, police said on Thursday, seeking new routes through the Balkans to western Europe.


With their path north from Serbia into Hungary – and the European Union – blocked since Tuesday, migrants have simply turned west to the Croatian frontier.


The influx, which Croatia says it will not halt, puts tiny Slovenia next in line to receive the thousands of migrants, many of them refugees from the Middle East, trying to reach Austria then Germany and other more prosperous countries of northern and western Europe.


“We are tired. We are exhausted. We have been traveling for ten days. We just want to pass to through Croatia and go to Germany,” said 19-year-old Salim from Syria who crossed at the Serbian border town of Sid.

Hungary’s crackdown has been decried by the United Nations and human right groups.


Hundreds of migrants, mainly young men, clashed with Hungarian riot police on Wednesday over a fence that Hungary has built the length of the frontier, the latest violence in a migration crisis that has seen hundreds of thousands of people from the Middle East, Africa and Asia reach Europe’s shores.


“The migrants can be seen entering Croatia around several crossing points,” police said, putting the figure since early Wednesday at 5,650.

But while passing through Croatia may be relatively straightforward (assuming no one steps on a Balkan war-era landmine), the next step is getting through Slovenia, which says it will not serve as a migrant superhighway north to Germany:

Slovenia, which unlike Croatia a member of Europe’s Schengen zone of border-free travel, has ruled out creating a “corridor” for migrants. It says any asylum seekers will be accommodated in Slovenia and others turned back. 


(a map FT says is circulating in Turkey showing the Croatia-Slovenia route)

And more from FT:

Many migrants plan to travel onward from Croatia to Slovenia, part of the EU’s Schengen free movement area, and from there to Austria and Germany.


But on Wednesday, Slovenia signalled it would reinforce its frontier with Croatia, posing a new obstacle to the migrants, and announced temporary border controls with Hungary, a fellow Schengen member.


Many analysts and activists said the disruptions were sure to push the migrants on to other routes.

These include alternative paths through the Balkans or the dangerous Mediterranean crossing from Libya to Italy which, until this year, was the most travelled route.


“Normally when one route gets blocked or more difficult, migrants’ first choice is to return to an old established route,” said an official at Frontex, the EU’s border control agency.



“It is likely that some people will look again at the central Mediterranean route from Libya — we can predict a spike there — and people will be working on rival Balkan routes as we speak.”


In other words, regardless of what Slovenia does, no one is going back to Syria.

As we’ve said on a number of occasions over the past two weeks, the promise of a German paradise indeed serves as strong motivation for asylum seekers traveling through the Balkans, but as great as German beer and “Mama Merkel” would be, the overarching goal here is to escape Syria’s horrific civil war which, thanks ironically to the worsening migrant crisis, is about to get even more horrific as French jets prepare for bombing runs and the Russians dig in. What that means is that if the preferred path to Germany through Serbia, then Croatia, then Slovenia becomes too cumbersome (i.e. somehow turns out like Hungary), then the flood of asylum seekers won’t hesitate to take even more dangerous routes, one of which takes them through Libya, another US foreign policy success story and another through Russia, which raises questions about what effect an influx of refugees seeking asylum in the Nordic countries would have on Moscow’s military response in Syria. 

What seems clear from the above is that this is going to get far worse before it gets better, as diverting the people flow seeking asylum in Germany will only serve to make the journey that much more dangerous which means many more refugees will die, ensuring that not only will history blame the West for creating the crisis in the first place, but will also condemn it for failing to craft a response adequate to minimize asylum seekers’ suffering.



Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/Thursday morning

Euro/USA 1.1316 down .0026

USA/JAPAN YEN 120.96 up .420

GBP/USA 1.5534 up .0022

USA/CAN 1.3193 up .0023

Early this Thursday morning in Europe, the Euro rose by 26 basis points, trading now well above the 1.13 level rising to 1.1316; 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 raised in value . The USA/CNY rate at closing last night:  6.3651, 

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 up again in Japan down by 42 basis points and trading now just above the 120 level to 120.96 yen to the dollar. 

The pound was up this morning by 22 basis points as it now trades just above the 1.55 level at 1.5534.

The Canadian dollar reversed course by falling 23 basis points to 1.3193 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  260.67 or  1.43%

Trading from Europe and Asia:
1. Europe stocks mostly in the green,except London

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

Gold very early morning trading: $1117.25


Early Thursday morning USA 10 year bond yield: 2.28% !!! par  in basis points from Tuesday night and it is trading just above resistance at 2.27-2.32%.  The 30 yr bond yield rises to  3.07 par in basis point.

USA dollar index early Thursday morning: 95.23 down 11 cents from Wednesday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Thursday morning
And now for your closing numbers for Thursday night:
Closing Portuguese 10 year bond yield: 2.67% down 4 in basis points from Wednesday
Japanese 10 year bond yield: .365% !!  a fall of 1/2  basis points from Wednesday
Your closing Spanish 10 year government bond, Thursday, down 4 in basis points Spanish 10 year bond yield: 2.09% !!!!!!
Your Thursday closing Italian 10 year bond yield: 1.90% down 2  in basis points from Wednesday: trading 19 basis point lower than Spain.
Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 Euro/USA: 1.1431 up .0142 (Euro up 142 basis points)
USA/Japan: 119.96 down 0.520 (Yen up 52 basis points)
Great Britain/USA: 1.5587 up .0075 (Pound up 75 basis points USA/Canada: 1.3154 down .0016 (Canadian dollar up 16 basis points)

USA/Chinese Yuan:  6.3645  up .0009  (Chinese yuan down/on shore)

This afternoon, the Euro rose by 26 basis points to trade at 1.1296. The Yen fell to 120.54 for a loss of 16 basis points as this ramp succeeded to ignite the NYSE/Nasdaq. The pound was up 157 basis points, trading at 1.5499. The Canadian dollar rose 55 basis points to 1.3183. The USA/Yuan closed at 6.3694/down.0049
Your closing 10 yr USA bond yield: down 9 basis points from Wednesday at 2.20%// ( trading below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 3.02 down 6 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 94.41 down 91 cents on the day .
European and Dow Jones stock index closes:
England FTSE down 42.22 points or 0.68%
Paris CAC up 9.30 points or 0.20%
German Dax up 2.37 points or 0.02%
Spain’s Ibex up 129.80 points or 1.30%
Italian FTSE-MIB up 40.32 or 0.18%
The Dow down 65.21 or 0.39%
Nasdaq; up 4.71 or 0.10%
OIL: WTI:  $46.94    and  Brent:  $49.17
Closing USA/Russian rouble cross: 65.50  up 1/10 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

Fed Credibility Crushed – The Aftermath

Despite uber-dovishness, stocks did not play ball with The Fed as it appears we have reached a tipping point in central planning credibility…

“You’re just nothing but a dumb bear…”


2016 it is… Dec odds drop to 49%…


Only one thing mattered today… 1400ET and Yellen’s bullshit explanation why The Fed will never, ever, raise rates… (note the move in bonds and USD early when Hilsy seemed to leak the decision)…


Not pretty…


VXX bounced perfectly off its 50 and 100-day moving average, closing unchanged…


Investor rushed into the safety of Biotechs!!??


And dumped financials…


EM was bid briefly, then dumped…


Which left the short-end of the curve lower on the week, collapsing across the curve today… biggest drop in 5Y yields since March…


with a dramatic steepenig in 5s30s (up over 6bps today)


The US Dollar was crushed down 1% on the day.. the biggest drop in a month…


Commodities all surged post-FOMC as the dollar dumped with Gold and Silver leading the day…


Charts: Bloomberg

Early this morning, jobless claims are holding at 42 year lows:
(courtesy BLS)

(courtesy BLS/zero hedge)

Rate-Hiking Time? Initial Jobless Claims Hold At 42 Year Lows

Initial jobless claims fell 11k (on an adjusted basis) to 264k last week – hovering near its lowest level since 1973 as firms hoard labor leaving The Fed stuck between an “everything looks awesome” rock and a “well we have to admit all these indicators are bullshit” hard place…

Seasonally adjusted…


And non-seasonally adjusted… officially the lowest level since 1973…


Seems like the ZIRP Emergency Is Over!!


Charts: Bloomberg



Housing starts miss with the North east of the UDS tumbling 34%:


(courtesy Housing Starts/zero hedge)

Housing Starts Miss After Northeast Tumbles, Permits Beat On Strong Rental Demand

While today’s economic data is likely too late to influence the Fed’s decision which is now due in just over 5 hours, moments ago the latest housing starts and permits data painted another mixed picture, with Starts declining to a three month low of 1,126K, missing expectations of 1160K, and below last month’s downward revised 1161K. The miss was a result of housing starts in the Northeast tumbling by 34% to 108K, the lowest prince since March now that the tax-driven surge, which we discussed previously expired in July, is over.

In August, while single-family starts dropped, so did multi-family or rental units. Notably, while housing starts are still just barely above half the pre-crisis peak, rentals continue to rise ever higher as more and more Americans have no choice but to downgrade their American dream to renting for life.


But while starts data was slightly weaker than expected, permits came in a fraction hotter, at 1170K, up from a revised 1130K, and above the 1159K expected. Like with starts, Northeast saw a decline but far less pronounced at just -4.4%, while all other regions saw a modest pick up. And just like with starts, multi-family permits continue to rise well above single family, up 21.5% vs 8.7% respectively.

So if the Fed’s intention with 7 years of ZIRP was to force the middle class out of owning a house and into renting, it has succeeded.

yesterday, it was the New York Empire Manufacturing Index which plummeted.  Today it was the Philly Mfg index:
(courtesy zerohedge/Philly Mfg Index)

Philly Fed Crashes To 31-Month Lows, Blames Stock Market

On the heels of Empire Fed’s big plunge, Philly Fed just collapsed. Despite employment and new orders picking up, the headline Philly Fed data crashed from 8.3 to -6.0 (missing expectations of +5.9 by the most in 4 years). This is the lowest print since March 2013 and is blamed on markets “evidence suggests that the responses regarding general activity that were received earlier in the month may have been negatively affected by the volatility in the stock market and international news reports.Must. Keep. Stocks. High.



The Breakdown has some silver linings…

As The Philly Fed notes,

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 8.3 in August to -6.0 this month. This is the first negative reading in the index since February 2014 (see Chart). However, the demand for manufactured goods, as measured by the survey’s current new orders index, showed continued growth: The diffusion index increased from 5.8 to 9.4. Firms reported that shipments also continued to rise. The current shipments index remained positive but fell 2 points, to 14.8.


Firms’ responses suggest some improvement in employment conditions in September despite the reported lull in overall activity. The percentage of firms reporting an increase in employees in September (21 percent) was higher than the percentage reporting a decrease (11 percent). The current employment index increased 5 points, its highest reading in five months. Firms also reported, on balance, a modest increase in the workweek similar to August.

Charts: Bloomberg



Oh OH  this is not got.  The annual revision in the jobs growth removes 208,000 jobs or equivalent to one full month of job gains.

This would be equivalent to continual misses  each and every month:

(courtesy BLS/zero hedge)

The BLS Just “Revised” Away One Full Month Of Job Gains For Year Ending March 2015

As if there was not enough negative data for the Fed to contend with, and make the case for a rate hike delay already, moments ago the BLS released the preliminary estimate of its “annual benchmark revision to the establishment survey employment series” for the 12 month period ended March 2015.  While the final report will not be released until February 5, 2016, with the publication of the January 2016 Employment Situation news release, today’s release will give the Fed yet another reason for concern as the BLS just admitted that at least 208K total jobs (and 255K private jobs) were overestimated in the year ending March 2015.

This is equivalent to eliminating nearly one full month of job gains in the specified 12 month period, and spread across the various months, would have meant a constant series of NFP headline misses instead of consensus beats, likely leading to a far more adverse algo kneejerk reaction on the first Friday of every month.

From the BLS:

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2015 total nonfarm employment of -208,000 (-0.1 percent).


Preliminary benchmark revisions are calculated only for the month of March 2015 for the major industry sectors in table 1. The existing employment series are not updated with the release of the preliminary benchmark estimate. The data for all CES series will be updated when the final benchmark revision is issued.


Table 1 shows the March 2015 preliminary benchmark revisions by major industry sector. As is typically the case, many of the individual industry series show larger percentage revisions than the total nonfarm series, primarily because statistical sampling error is greater at more detailed levels than at an aggregated level.

And here is the latest quandary for the Fed which mercifully will be able to ignore this latest confirmation the economy has been slowing down substantially in the past year, well above what the various other economic indicators have already suggested.


A harbinger of what is coming up for our banks when they report next month.
Jefferies, due to its odd year ending, is always first to report.  They reported a NEGATIVE fixed income trading.
(courtesy zero hedge)

Fixed Income Bloodbath: Jefferies Reports Negative Revenue On Junk Bond Prop-Trading Fiasco

On several prior occasions (here and here) we have explained why Jefferies, as the last “pure-play” investment bank left standing, and thus with a one-month offset fiscal year-end calendar, is a great harbinger of Wall Street’s reporting season: “it provides an invaluable glimpse into the fortunes of its Wall Street peers with a 4 week advance notice.”

Earlier today, Jefferies which is now a part of Leucadia, provided this much anticipated glimpse into how the rest of Wall Street is doing. The answer, if Jefferies is any indication, is “quote horribly” because just like two of the past four quarters, Q3 was also a disaster and indicative of nothing short of a trading bloodbath on Wall Street in the past three months of trading and especially August.

In fact, it was so bad for Jefferies, it reported a massive 31% plunge in total revenues down to $579 million resulting in net income of a tiny $2.5 million as a result of what may be only its first negativefixed income revenue print since the financial crisis.


Wait, how can revenue be negative? Simple: when a bank passes its prop trading losses through the top line and after quarters of delaying, finally marks its energy junk bond book to market. To wit from today’s 8-K:

Fixed Income net revenues were negative $14 million for the quarter, reflecting the slow environment and the volatility that resulted in mark-to-market write-downs in our inventory. Trading results of our high yield distressed sales and trading business for the quarter particularly impacted our results negatively. As is the nature of the distressed market making business, Jefferies assumes positions in sectors where the firm’s clients and the market are most active, with mark to market gains and losses recognized on a daily basis. During the last nine months, losses totaling $90 million were recorded across more than 25 distressed energy positions. For the nine month period we recognized negative revenues in respect of the ten largest individual loss-making positions of about $4 million to $19 million each, or an average of about $8 million. These markdowns, combined with lower activity levels and more modest inventory write downs in several other areas of our global fixed income business, accounted for much of the balance of negative pressure on our fixed income results. As one of the leading investment banking platforms serving the energy sector, with meaningful recent involvement in restructurings and financings, we continue to be committed to our energy clients.”


“We believe most of the issues we faced this past quarter in Fixed Income were due to distinct factors that began about a year ago and the largest portion of which relates to the turmoil in the oil and gas industry. For the first nine months of 2015, we have provided liquidity and traded approximately $5 billion in distressed energy securities for our clients. Our exposures in our distressed energy trading business decreased approximately 50% during the quarter and are currently down to $70 million in total net market value. We believe that, with our exposures in distressed securities reduced to current levels, there should be no similar impact on our future results.”

Oh, so that’s why Volcker warned against prop trading. Well, Jefferies not having its ATMs, was exempt from the prop trading prohibition resulting in the above charts. Although the question remains: why did Jefferies wait so many quarters before finally writing down its massively money-losing positions?

The question then emerges: how many of the FDIC-insured banks reporting in 1 month will admit they too were quietly harboring their own secret prop trading desks in violation of the Volcker Rule, and just how bad will revenues end up being. We already know Citi and Bank of America: both admitted Q3 trading revenue will drop at least 5%. The question, since the long-end has barely budged, is how will banks offset this drop in trading revenue with the traditional bank revenue stream, rising Net Interest Margin, failing to kick in for the 7th year in a row.

The answer will be revealed in just a few more weeks when what is set to be the worst earnings season for the S&P 500 in years begins in earnest.

And now the FOMC results:
First the official story courtesy of Hilsenrath:

Fed Mouthpiece Confirms FOMC Concerns On Global Market Turmoil

Just hours ago, we asked if the Fed’s unofficial media mouthpiece had leaked the Fed decision when a WSJ colleague took to Twitter and, quoting Jon Hilsenrath, said the following: “For Yellen, who likes to arrive three hours early for a flight, raising rates without preparing markets would be out of character.” To wit:

So did Hilsenrath just “prepare” markets with a two hour advance notice of what to expect? Or did he simply add to the Fed’s communication failure by “hinting” the market to expect one thing, while Yellen will unveil the opposite? Not even Gartman has the answer to that.

 Well as it turns out, the FOMC has elected to stand pat in the face of mounting global risks and rising volatility. Employing his hallmark lightspeed, embargo-assisted copy editing skills, the Fed whisperer churned out the following bit of crisply-worded analysis for anyone having trouble interpreting the FOMC statement.

Via WSJ:


The Federal Reserve left short-term interest rates unchanged after weeks of market-churning debate at the central bank about whether it was time to end an era of near-zero rates in acknowledgment of the stronger domestic U.S. economy and job market.


A large majority of Fed officials still believe the central bank will raise rates before year-end, but the central bank showed a bit less conviction on that point. In June, 15 of 17 officials said they expected to raise rates this year, according to official projections released with the Fed’s policy statement; on Thursday the number of people who expected to raise rates this year slipped to 13.


The Fed also indicated in its policy statement trepidations about recent turbulence in financial markets and in economies abroad. “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near-term,” the Fed said. It added that it was “monitoring developments abroad,” a signal of the Fed’s heightened state of worry that slow growth outside the U.S. could hurt the American economy.


The fact most officials still believe they will move rates up this year suggests many believe these concerns will subside in the weeks ahead.


Fed officials have been signaling for months they plan to raise rates this year, seven years after pushing them to exceptionally low levels in December 2008 in response to financial crisis. Central to their optimism is a view labor markets are improving rapidly and reducing slack in the economy, a precursor to some lift in inflation. Unemployment was 5.1% in August, in the range officials expect to see over the long term. Inflation has been running below 2% for more than three years.


“On balance, labor market indicators show that underutilization of labor resources has diminished since early this year,” the Fed said.


As recently as July, Fed officials appeared to be on track to move at this week’s policy meeting, but a variety of factors gave them pause, including a stronger dollar, stock- and bond-market volatility and signs of a slowdown in China, the world’s second-largest economy.


They are now on watch to make sure these threats don’t turn into a bigger problem for the U.S. economy. A strong dollar, for instance, could put downward pressure on exports and imported inflation, movements at odds with the Fed efforts to spur economic growth and raise currently-low inflation.


They appear to expect—somewhat more tentatively than before—that they will proceed with rate increases once they get evidence these developments won’t fundamentally shift the economic outlook.


The Fed said, as it has before, it would raise rates when it saw “some further improvement” in labor markets and when officials become “reasonably confident” that inflation will rise toward 2% in the medium term.


Before the meeting, investors had come to believe the Fed wouldn’t move. In futures markets before the meeting, traders attached a 27% probability to a rate increase Thursday, but a 64% probability to an increase by December.


Though Fed officials still expect to move rates up this year, their projected path of rates has become shallower in recent months. The median projection for rates at the end of 2015 dropped to 0.375% from 0.625% in June. It also dropped to 1.375% at the end of 2016 from 1.625% projected in June. It fell to 2.625% at the end of 2017 from 2.875% projected in June. In the long-run the Fed projected the fed funds rate will reach 3.5%, down from an earlier estimate of 3.75%.


One official called for a negative interest rate in 2015 and 2016, something that has been tried in several European countries to boost growth and inflation. The Fed doesn’t identify which officials make specific projections.


One reason for the shifting outlook: Officials have become a bit less optimistic about the economy’s long-run growth potential. They projected the economy will grow at a rate between 1.8% and 2.2% in the long-run, down from their June estimate of growth of 2.0% to 2.3% in the long-run. A more lumbering economy has less capacity to bear much higher rates.


The Fed’s economic projections underscored the challenge officials face in reading the current economic backdrop. Fed officials reduced their estimates for the path of the unemployment rate. They see it reaching 5.0% by year end and 4.8% by the end of next year, a lower rate than previous estimates of 5.3% and 5.1% respectively.


Textbooks suggest that as estimates for the jobless rate fall, estimates for inflation should rise. But officials reduced their inflation estimates, thanks in part to downward pressures from lower oil prices and a stronger dollar. They don’t see the inflation rate, as measured by the Commerce Department’s personal consumption expenditure price index, reaching their goal of 2% until 2018, near the end of Janet Yellen’s first term as chairwoman of the central bank.


Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented. He wanted to raise the Fed’s target interest rate by a quarter percentage point.


With market expectations for a rate move Thursday so low, raising rates now would have been a gamble for Ms. Yellen, who is known around the central bank for being risk-averse. An unexpected increase might have shaken or confused investors. In holding off, Ms. Yellen is sticking to a course of setting the stage for a move carefully.


Investors now await Ms. Yellen’s press conference, at which she’ll elaborate on the central bank’s views on the outlook for the economy and policy. She is scheduled to deliver a major speech next week at the University of Massachusetts in Amherst.

and in short form:


14:00 FOMC maintains fed funds rate target of 0 to 1/4%; current target remains ‘appropriate’
Statement notes global economy and financial events may restrain economic activity
Vote was 9-1; Lacker dissents
The statement can be viewed at the attached link.* * *

* * * *


Now the real story:  the Dot plot shows the economy in a tailspin;
(courtesy zero hedge)

Revised Fed “Dot Plot” And Downward Projections Confirm Economic Growth Capitulation

Here is the Fed’s official admission not only the global, but the US economy is fast turning over.

First, the dot plot which dropped across the board…


… and the official forecast, the Fed cut unemployment forecasts once again, now seeing 5.0% unemployment at the end of 2015, and 4.8% unemployment from 2016 until 2018, even as it cuts its GDP and inflation forecasts across the board.


But the biggest joke: while 15 “forecasters” expected a first rate hike in 2015 back in June, now this number is down to 13. In other words, 13 expect a rate hike in either October or December despite the lousy economic data revisions.

Good luck.





Bank of America asks:


Now What?

As BofA notes, the lack of hike is an admission that Wall Street threatens to reverse the recovery on Main Street

  • It will lead to a short-term relief rally on Wall Street
  • It will be relatively positive for EM/commodities/resources, as it unwinds the higher US growth/rates/dollar narrative
  • It will be positive for higher-yielding assets
  • It will be positive for growth > value, as the Fed is confirming the deflationary recovery

In short, if the Fed’s failure to hike does not lead investors to completely abandon hope on growth and scurry into gold, cash & volatility

Which they are.. (note that bonds started moving much earlier)


Then look for the “barbell of 1999” to reemerge: Über-growth & Über-value were massive outperformers after the Asia crisis

the market begins to soar on the belief that QE4 is coming!!
(courtesy zero hedge)

QE Trade “On” – Stocks & Bonds Soar After Yellen Admits “Quite Uncertain” On Economy



this one is a dandy!!  Maybe QE4 along with negative interest rates?
(courtesy zero hedge)

FOMC Stunner: One FOMC Member Forecasts Negative Interest Rates Are Coming To The US

The biggest shocker in today’s Fed announcement is not that the Fed did not hike: that was telegraphed far away. It is highlighted on  the chart below in red: for the first time ever, one FOMC predicts negative rates in 2015 and 2016. Was it permadove Kocherlakota: probably not, he is out next year…


In retrospect, this too should come as no surprise: over the weekend we asked if “Yellen About To Shock Everyone: Goldman Says The “Fed Should Think About Easing.” The lack of a hike was not a shock, but the negative dot, oh yes.

And earlier today we hinted at just this: NIRP:

So: instead of QE4 – forget hikes – is the Fed going to shock us with NIRP in the coming months?

And more on the above story on the threat of negative interest rates

This Is What Yellen Said About Negative Rates Coming To The US

As reported earlier, the biggest stunner bar none in today’s FOMC announcement, was the emergence of a negative interest rate dot in the Fed’s projections. It was unclear who drew that (perhaps Kocherlakota, perhaps not)…

… but the author is ultimately irrelevant: what is very relevant is the “inception” of NIRP in the heads of the FOMC members, which came at a time just when everyone was supposedly gearing up to boost rates by a meager 25 bps, further raising questions if the US economy is already in recession (spoiler alert: yes).

Of course, this should come as no surprise to our readers: just in January we wrote “Get Ready For Negative Interest Rates In The US“, but for the Fed to admit this possibility just when it was widely expected to at least signal a rebound in the economy with the tiniest of rate hikes, or at worst a hawkish statement, was truly a shock.

So besides a red dot on the dot plot, what else do we have to go on? Not much, though luckily one reporter did ask Yellen what the NIRP dot signaled.  This is what she said:

Let me be clear that negative interest rates was not something that we considered very seriously at all today. It was not one of our main policy options

The proverbial “we did not seriously consider it today” fluff. Remember when the SNB promised the Euro-Franc peg was safe and sound “today”, and the very next day it crushed countless FX traders who were long the EURCHF? Kinda like that.

And yet…

I don’t expect that we’re going to be in a path of providing additional accommodation.But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools. And that would be something that we would evaluate in that kind of context.

And there you have it: not if but when the inevitable inventory accumulation spills over and results in the next recession, we now know the simple choice that is facing the Fed: QE 4 (or 10 if the Fed goes “Windows”) or NIRP.

As for hiking rates, well we leave it to Ben Bernanke who said it best earlier this year: “No Rate Normalization During My Lifetime


Well that about does it for tonight
I will see you tomorrow night

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