sept 22/Brazil real plummets as does its credit default swapeding froms/Glencore stock plummets into the pennies and its credit default swaps rise/Gold and silver ble the comex/gold and silver raided tonight/Volkswagen tumbles 25% and they may end up defaulting/2,000 Russian troops enter Syria to defend the Latakia airport/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1125.00 down $8.10   (comex closing time)

Silver $14.75 down 47 cents.


In the access market 5:15 pm

Gold $1124.50

Silver:  $14.75

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 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 213.44 tonnes for a loss of 90 tonnes over that period.

In silver, the open interest fell by 97 contracts despite the fact that silver was up in price by 7 cents yesterday.   The total silver OI now rests at 154,067 contracts In ounces, the OI is still represented by .770 billion oz or 110% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI fell to 417,583 for a loss of 3624 contracts. We had 0 notices filed for nil oz today.

We had a huge withdrawal in tonnage at the GLD to the tune of 3.57 tonnes,  thus the inventory rests tonight at 674.61 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 97 contracts down to 154,067 as silver was up by 7 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 3,624 contracts to 417,593 contracts, as gold was down $5.00 yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore


(/Mark OByrne)

3. a) China opens for trading 9:30 pm est Monday night/Tuesday morning 9:30 Shanghai time

b) Black Swan events?  Chinese military opposes a huge 300,000 cut in China’s military

(zero hedge)

4. Demographics for Japan turning awful as population continues to decline

(zero hedge)

5. In Europe today Volkswagen tumbles 25 % as they set aside 6.5 billion euros for damages due to their cheating on emissions. Their CEO has been replaced

(zero hedge)

6. a) Russia sends in 2,000 troops guarding their airstrip at Latakia. Russia is forming a NEXUS with Iran, faster than the ink is dry with the nuclear agreement with the USA.  Israel and Saudi Arabia may have to act sooner than originally thought

(two stories/zero hedge)

6b/ the Resultant refugees are flooding into Europe.  Nigel Farage claims that this is going to be one huge disaster for Europe

(Nigel Farage/zero hedge)

6c War drums between Russia and the USA beating louder

(Dave Kranzler iRD)



7,a)A huge story where a hedge fund operator is calling for the liquidation of all emerging nations commodity plays sending in motion the entire collapse of the globe’s finances



b) Brazil today had its currency plummet with the real crossing over the 4 handle to 4:1.  Credit default swaps also climbed to the highest level in years.  Brazil has its twin deficits, (fiscal and current account) climb to extremes as massive amounts of dollars leave the country to pay for goods.  Due to lower commodity sales, dollars are not entering the country as before and the country is spending whatever dollars come in faster than a speeding bullet


8. Another huge story has Glencore’s stock falling into the pennies, its credit default swaps rising to 474  points.  These guys are far move dangerous that a collapse at Volkswagen due to the huge derivatives in play and the many faulty collateral that has been used e.g. non existent hypothecated/rehypothecated collateral/a must read..

(zero hedge)


9 One oil related story for today

(zero hedge)


10 USA stories/Trading of equities NY

a) Richmond Fed Manufacturing Index sinks to negative 5.  This follows in the footsteps of bad mfg. numbers from NY Empire and Philly Mfg. numbers

(zero hedge)

b) Dave Kranzler talks about yesterday’s poor existing home sales

(Dave Kranzler/IRD)

c)  The Arms Index is now extremely positive and signalling the market is about to crap out

(ARMS/zero hedge)

11 Physical stories

i)Russian Nordgold sees the lower gold price as an opportunity. He owner is scouring the planet looking for good ventures


ii). Bron Suchecki ‘s commentary tonight is  gold fractional banking

(Bron Suchecki/Perth Mint)

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

The total gold comex open interest fell from 421,207 down to 417,583 for a loss of 3624 contracts as gold was down $5.00 with respect to Monday’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 6 contracts down to 82 . We had 0 notices filed yesterday so we  lost 6 gold contracts or an additional 600 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 561 contracts down to 20,272. The big December contract saw it’s OI fall by 5,725 contracts from 289,397 down to 283,672. 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 142,928 which is poor. The confirmed volume on Monday (which includes the volume during regular business hours + access market sales the previous day was poor at 98,822 contracts.
Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI fell by 97 contracts from 154,164 down to 154,067 despite the fact that  silver was up by 7 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 24 contracts to 232. We had 2 notices filed yesterday, so we lost 22 silver contract or an additional 110,000 oz  will not stand for delivery in this active delivery month of September.
The big December contract saw its OI fall by 504 contracts down to 118,594.  The estimated volume today was estimated at 53,215 contracts (just comex sales during regular business hours) which is excellent as the banksters used the HFT players to great use.  The confirmed volume on Monday (regular plus access market) came in at 23,922 contracts which is poor in volume.
We had 0 notices filed for nil oz.

September contract month:

Initial standings

September 22.2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz 9,070.043   oz  Manfra, JPM<
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) 82 contracts (8,200 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 396,377.4  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 withdrawal:
 i) out of  Manfra:  128.60 oz  4 kilobars
 ii) out of JPM:  8,941.443 oz
total customer withdrawal: 9,070.043 oz
We had 0 customer deposits:

Total customer deposit: nil  oz

We had 0  adjustments:
 JPMorgan has a total of 10,777.279 oz or.3352 tonnes in its dealer or registered account.
JPMorgan now has 741,559.509 oz or 23.06 tonnes in its customer account.
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 (82 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 (82)– the number of  notices served upon today (0) x 100 oz which equals 10,600 oz  standing  in this month of Sept (0.3297 tonnes of gold).
we  lost 600 gold ounces standing in this non active delivery month of September.
Total dealer inventory 162,034.084 or 5.0399 tonnes
Total gold inventory (dealer and customer) =6,862,280.335 or 213.44  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 213.44 tonnes for a loss of 90 tonnes over that period.
 the comex continues to bleed gold
And now for silver

September silver initial standings

September 22/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  1,196,990.62 oz

(HSBC, CNT,Brinks) 

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 300,487.37  oz CNT
No of oz served (contracts) 0 contracts  (nil oz)
No of oz to be served (notices) 232 contracts (1,160,000 oz)
Total monthly oz silver served (contracts) 1208 contracts (6,040,000 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 18,832,491.6 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:
i) Into CNT:  300,487.37 oz

total customer deposits: 300,487.37  oz

We had 3 customer withdrawals:
i)Out of Brinks:  5,932.80  oz
ii) Out of CNT:  1,029,609.39 oz
iii) Out of HSBC:  161,448.43 oz

total withdrawals from customer: 1,196,990.620   oz

we had 1  adjustment
i) Out of CNT:
we had 571,178.500 oz adjusted out of the dealer and this landed into the customer account of CNT
Total dealer inventory: 46.316 million oz
Total of all silver inventory (dealer and customer) 166.872 million oz
 * the comex resumes liquidation of silver both in its dealer account and customer account…. 
The total number of notices filed today for the September contract month is represented by 0 contracts for nil 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 (1208) x 5,000 oz  = 6,040,000 oz to which we add the difference between the open interest for the front month of September (232) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
1208 (notices served so far)x 5000 oz +( 232) { OI for front month of September ) -number of notices served upon today (0} x 5000 oz ,=7,200,000 oz of silver standing for the September contract month.
we lost 22 contracts or an additional 110,000 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 22/ we had a huge withdrawal of 3.57 tonnes of gold from the GLD/Inventory rests at 674.61 tonnes
Sept 21.2015: no changes in gold tonnage at the GLD/Inventory rests at 678.18 tonnes
Sept 18.2015: NO CHANGES  in gold tonnage at the GLD/Inventory rests at 678.18 tonnes
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
Sept 22/2015 GLD : 674.61 tonnes

And now SLV:

Sept 22/no change in inventory at the SLV/Inventory rests at 320.915 million oz

sept 21.2015: no changes in inventory at the SLV/Inventory rests at 320.915 million oz

Sept 18.2015; no changes in inventory at the SLV/inventory rests at 320.915 million oz

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 22/2015:  tonight inventory rests at 320.915 million oz
Data for Central Fund and Sprott will not be provided by myself.
If you wish to obtain, just google Central fund and Sprott after 6 pm and they will provide….
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 8.9 percent to NAV usa funds and Negative 8.9% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.0%
Percentage of fund in silver:37.7%
cash .3%( Sept 22/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+1.82%!!!! NAV (Sept 22/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV falls to – .56% to NAV September 22/2015)
Note: Sprott silver trust back  into positive territory at +1.82% Sprott physical gold trust is back into negative territory at -.56%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:
First:  Goldcore with overnight news on gold and silver

Keynes Would Be “Buying Gold Hand Over Fist” Today

– What Keynes would think of today’s “Neo-Keynesians”

– Unlike his acolytes, he understood the value of gold and the dangers of currency debasement

– Keynes did not desire “a world where currencies are backed by nothing more than a governmental promise to pay while the printing presses whirled unchecked”

GoldCore: John Maynard Keynes

– Keynes would have been puzzled that his theories are associated with aggressive currency debasement and a rabid hostility to gold”

– With “today’s economic vista of near-zero interest rates and quantitative easing, it is clear that he would be buying gold hand over fist …”

GoldCore: John Maynard Keynes
Richard Hurowitz, an investor and the publisher of the Octavian Report, has written an excellent article in the Wall Street Journal in which he takes to task the “neo-Keynesians” who have used Keynes and his work as a cover for financial and monetary profligacy that Keynes himself would be shocked by.

This must read article is available here (paid subscription required).



Today’s Gold Prices: USD 1129.30, EUR 1009.11 and GBP 729.66 per ounce.
Yesterday’s Gold Prices: USD 1136.85, EUR 1007.27 and GBP 732.86 per ounce.

Gold in EUR - 1 Week

Gold in EUR – 5 Days

Gold ended with a loss of 0.5% and fell to $1.133.20 per ounce yesterday while silver rose 4 cents to $15.19 per ounce. Gold in euros is testing recent resistance at the €1,115 per ounce level and has reached its highest in nearly three weeks today.

In Singapore, gold bullion ticked a little higher and maintained those gains in London, hovering just below the $1,135 per ounce level. Silver prices are 1% lower to $15.10 today, while platinum and palladium are lower too.

Download Essential Guide To Storing Gold Offshore

(courtesy Bloomberg)

Russian billionaire’s miner sees gold pain as buying opportunity


By Danielle Bochove
Bloomberg News
Monday, September 21, 2015

Russian billionaire Alexey Mordashov’s gold mining company is positioning for a price recovery by buying more assets, defying an industry trend of cutbacks and closures.

Besides expanding existing mines in Russia, Nordgold NV is looking for early-stage projects that improve its reserve base, Chief Executive Officer Nikolai Zelenski said in an interview Monday from the Denver Gold Forum.

While the world’s biggest producers, including Barrick Gold Corp. and Newmont Mining Corp., shed assets and cut spending in a bid to contain debt levels exposed by gold’s 40 percent plunge from a 2011 peak, Moscow-based Nordgold sees the downturn and the ensuing drop in valuations as a good time to buy.

“That’s why we’ve been making deals in the recent past and we plan to continue to do so in the future,” Zelenski said. …

. Dispatch continues below …


 (courtesy Bron Suchecki/Director Perth Mint)

Bron Suchecki: Fractional reserve bullion banking, Part 2


8:30a ET Tuesday, September 22, 2015

Dear Friend of GATA and Gold:

Perth Mint research director Bron Suchecki today offers the second installment of his series about fractional-reserve bullion banking. He notes that leverage in a bullion bank’s business may not be as great as suspected, since some of the bank’s gold obligations may not be immediately callable but instead limited by longer maturities. But, Suchecki adds, if a bank’s gold obligation maturities don’t match well or there is unexpected demand for metal, the bank may be forced to try to buy gold in the market or borrow it from another bullion bank or a central bank.

Of course, as GATA has noted, that is where the fun may start, including surreptitious central bank intervention in the gold and currency markets for price suppression.

Suchecki’s analysis is headlined “Fractional Reserve Bullion Banking, Part 2” and it’s posted at the Perth Mint’s Internet site here:…

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

And now your overnight Tuesday 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   6.3705/Shanghai bourse:  in the green and Hang Sang: green

2 Nikkei closed 

3. Europe stocks deeply in the red     /USA dollar index up to 96.05/Euro down to 1.1161

3b Japan 10 year bond yield: remains at .314% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.97

3c Nikkei now just above 18,000

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

(providing the necessary ramp for all bourses)

3e WTI:  45.77 and Brent:  48.15

3f Gold down  /Yen up

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .678 per cent. German bunds in negative yields from 4 years out

 Greece  sees its 2 year rate falls to 10.40%/Greek stocks this morning down by 2.75%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 8.21%  

3k Gold at $1128.50 /silver $14.96  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 31/100 in  roubles/dollar) 66.33,

3m oil into the 45 dollar handle for WTI and 48 handle for Brent/Saudi Arabia increases production to drive out competition.

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9744 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0877 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 +.678%

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 2.17% early this morning. Thirty year rate below 3% at 2.99% / yield curve flatten/foreshadowing recession.

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

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

Futures Plunge On Renewed Growth, Central Bank Fears; Volkswagen Shares Crash As Default Risk Surges

While Asian trading overnight started off on the right foot, chasing US momentum higher, things rapidly shifted once Europe opened as attention moved back to global growth fears, contradicting central banks losing credibility, as well as the miners with copper sliding back to a 2 week low, and the ongoing Volkswagen fiasco.

The first sign that not all is well was the latest plunge in Glencore shares tracking the recent selling in copper which two weeks after a “doomsday” capital raise, has once again crashed to fresh all time lows, down 10% on the session, and down 80% since the 2011 IPO. GLEN CDS, as we predicted 2 weeks ago, is back over 400 bps.


The general risk off tone was exacerbated by a steep selloff in the all important carry pair, the USDJPY, which plunged just as Europe opened, and has been trading below 120 for the past several hours, in turn pushing both the EuroStoxx and E-minis well lower.

But the knockout punch came just under an hour ago, when Volkwsagen – already the focus of everyone’s attention – announced it plans to set aside 6.5 billion euros ($7.3 billion) in the third quarter to cover the costs of addressing irregularities in diesel engines installed in 11 million vehicles worldwide, as the scandal that started in the U.S. widens. “Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines,” the Wolfsburg, Germany-based company said in statement. The manufacturer said it will adjust its earnings forecasts for 2015 accordingly. VW shares plunged for a second day after the announcement.

Bloomberg adds that Germany, France, South Korea and Italy were among countries on Tuesday that said they would look further into revelations that VW rigged diesel vehicles to pass emissions tests in the U.S. That comes as the U.S. Justice Department begins its own probe into the matter, according to two U.S. officials familiar with the inquiry. “The scandal has grown since the U.S. Environmental Protection Agency revealed on Friday that VW had cheated on the lab tests, exposing the company to as much as $18 billion in fines. The unfolding scandal brought an apology Monday from VW’s top U.S. executive, who vowed to win back the trust of consumers.”


German Transportation Minister Alexander Dobrindt told the Bild newspaper in an interview published Tuesday that he has ordered emissions checks of VW diesel models in Germany. Italy’s Environment Ministry asked VW for assurances it has respected emission rules for its cars sold in Italy. South Korea said it will check whether the German automaker complied with its pollution standards.


French Finance Minister Michel Sapin called for a Europe-wide probe into carmarkers, including French ones, in the wake of the revelations. “It’s seems necessary,” Sapin told Europe 1 radio. “We have to do it at a European level because the market is European with European rules.”

As a result of the profit warning and concerns this will get much worse before it gets better, Volkswagen shares dropped as much as another 20% on Tuesday following Monday’s 19% plunge, losing well over 30% of its market cap in the past 2 days, or over €30 billion – more than the market cap of French carmakers Peugeot and Renault combined.


It was not just Volkswagen’s stock: the A2/A-rated company’s one-year probability of default increased significantly to 0.52% from 0.13% at the start of the year, according to Bloomberg. This default probability puts Volkswagen in highest-rating bracket of sub-investment grade (HY1) for first time since 2010. The chart below shows the surge in VOW CDS in the last two days:

And to think – if only Volkswagen’s willing carelessness had just led to the deaths of just under 200 people like in GM’s case, none of this would matter.

As a result of the above, both European stocks and US equity futures were trading at their lows of the session, with Dow futs down 250, and the S&P down 31 to 1932, a drop of 1.6% so far in thin trade.

A closer look at Asian markets reveals that these traded higher initially, following the positive close on Wall Street, after energy prices rebounded. ASX 200 (+0.7%) led the gains amid outperformance in the energy sector, while the Shanghai Comp. (+0.9%) is set for its longest winning streak in a month, as margin debt rose for the third time in 4 days and reports that London and Shanghai are to conduct a feasibility study in regards to a link between their respective exchanges. Japanese markets remained closed due to a national holiday.

European equity markets reside firmly in negative territory paring much of the gains seen yesterday. On a sector specific breakdown, materials names have weighed on major indices as EU coal for 2016 falls below USD 50 as well as continued weakness today in copper. Whilst Volkswagen has seen a continuation of yesterday’s weakness, dragging Porsche lower as well amid news that the DoJ are to extend the probe to Audi and Porsche vehicles, with both companies among the worst performers in Europe. Also of note, the IBEX continues to underperform its counterparts ahead of the key risk event of the Catalan elections scheduled to take place on Sunday.

Elsewhere, fixed income markets have seen a bid this morning, bolstered by a flight to safety amid weakness in equities, with participants also concerned that Fed speakers since Thursday’s rate decision have reiterated expectations for a rate lift off this year, despite concerns that the economy is not ready. This has seen Bund Dec’15 futures trade higher by around 50 ticks, with T-Notes and Gilts moving in tandem with the German benchmark. While in terms of corporate bonds, Volkswagen’s hybrid bond has fallen by over 4 points this morning to their lowest intraday levels on record.

In FX markets there has been rangebound trade, with JPY among the outperformers, benefitting from the aforementioned safe-haven bid, while EUR initially edged lower as European participants came to their desks to see EUR/USD take out yesterday’s low at 1.1182 with 100DMA eyed on the downside at 1.1149. The USD has traded relatively flat overnight (USD-index +0.1 %) with the EUR weakness and JPY strength balancing out against the USD.

In commodities, gold traded flat overnight as the precious metal held near yesterday’s lows, after the continued rebound in the greenback post-FOMC weighed on prices. Elsewhere, copper prices were mildly pressured and traded at 2 week lows, while the energy complex has come under selling pressure after yesterday’s rally and ahead of today’s API crude oil inventories (Prey. -3100k).

Looking ahead, today’s data slate is relatively light, with more housing market data due later with the FHFA house price index, as well as the Richmond Fed manufacturing activity index. Fedspeak wise Lockhart is due to speak again, addressing an audience on the US economy.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equity markets reside firmly in negative territory, weighed on by miners and carmakers
  • FX markets today have seen relatively rangebound trade with JPY among the outperformers, benefitting from a safe-haven bid
  • Looking ahead, today’s most notable highlights include US API crude oil inventories and comments from BoE’s Shafik and Fed’s Lockhart.
  • Treasuries gain as plunging commodities spur losses in stocks amid concern global economy is slowing; week’s auctions begin today with $26b 2Y notes, WI 0.725% vs. 0.663% in August.
  • Asian Development Bank lowered its overall forecast for developing Asia to 5.8% from 6.3% as waning Chinese demand for commodities hurt exporters around the region. China’s forecast was lowered to 6.8% from 7%
  • Plunging turnover and the world’s wildest price swings mean that China’s stock market just keeps getting uglier for investors
  • France’s economic recovery has shown signs of fading and data this week will provide the latest clues as to whether a summer soft patch risks becoming more ominous
  • Volkswagen AG plans to set aside EU6.5b in the 3Q to cover the costs of addressing irregularities in diesel engines installed in 11 million vehicles worldwide, as the scandal that started in the U.S. widens
  • Swiss watch exports fell in August, heading for the first annual decline in six years amid signs that competition from Apple Inc.’s smartwatch may be denting demand for low-end timepieces
  • Sovereign 10Y bond yields lower. Asian and European stocks decline, U.S.equity-index futures plunge. Crude oil slides, WTI -2.5%, Brent down 1.6%; copper -2.5%, gold down 3%

US Event Calendar

  • 9:00am: FHFA House Price Index, July, est. 0.4% (prior 0.2%)
  • 10:00am: Richmond Fed Mfg Index, Sept. 2, est. 2 (prior 0)
  • 1:00pm: U.S. to sell $26b 2Y notes
  • 6:30pm: Fed’s Lockhart speaks in Montgomery, Ala.


DB concludes the overnight event wrap

Markets are trading to the beat of the Fed at the moment and following the more hawkish weekend Fedspeak, along with comments from Atlanta Fed President Lockhart yesterday, Treasury yields and the Dollar leapt higher while equity markets staged a modest rebound from the late Thursday and Friday sell-off. Markets still feel some way from a sense of post-FOMC calm though with intraday volatility still a feature throughout equities in particular at the moment. Yesterday was another example with a +1% gain in the S&P 500 wiped out shortly after the European close, before the index then recovered into the close to finish up +0.46%.

Onto yesterday’s Fedspeak firstly. Lockhart added to some of more hawkish rhetoric, reiterating comments from his committee members in stating that the decision to hold was a ‘close call’ and that his vote to hold was based on ‘prudent risk management around recent and current market volatility’. He went on to say that ‘as things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment’. Pining down his timing expectations, the Fed official said that he was confident that the much-used phrase ‘later this year’ is still operative. Lockhart did go on to say that the sources of uncertainty that fueled financial market volatility represent a risk factor to the US economy, but much like the views of his colleagues at the weekend, countered this with his belief that the domestic economy appears to be ready for the beginning of normalization. Treasury yields nudged higher on the comments, the 10y benchmark finishing up 6.8bps at 2.202% while the greenback extended its gains with the Dollar index up over a percent yesterday. The various Fedspeak has done little to sway October liftoff expectations however with the market still pricing in just a 20% probability this morning, unchanged from Friday’s closing level.

Markets in Asia have largely followed the US lead from yesterday with modest gains across the board. In China the Shanghai Comp (+0.65%) and CSI 300 (+0.70%) are both up at the midday break ahead of President Xi Jinping’s visit to the US. Brokerages are also leading the gains on the back of reports that feasibility studies are set to commence on a possible Shanghai-London stock connect. Turnover on mainland bourses continues to plummet however with the value of shares traded falling to $90bn a day from a high of $380bn a day back on May 28th and over $200bn just prior to the Yuan devaluation. Elsewhere this morning, it’s been a better start for the Hang Seng (+0.72%), Kospi (+0.45%) and ASX (+0.44%). Asia credit indices are largely unchanged, while S&P 500 futures are currently down 0.2%.

Moving on, with equity markets choppy again yesterday, the relatively more stable session in rates was enough of a green light for primary market activity to get underway again for US credit. Twelve deals priced yesterday across the corporate and financials space, raising nearly $16bn with estimates of a fairly chunky calendar for the rest of the week ahead. The activity in credit markets was in stark contrast to what was a quiet day for economic data. US existing home sales for August was the highlight of a sparsely populated calendar, although the data disappointed with sales falling 4.8% mom in the month (vs. -1.6% expected) to an annualized rate of 5.31m (from 5.58m). That saw the level of home sales drop off their 8-year high that we reached back in July.
Instead, it was the various comments from Central Bankers that’s dominating the newsflow at present. As well as Lockhart, we also heard from St Louis Fed President Bullard once again, speaking on CNBC. The Fed official largely repeated his weekend comments, pushing that there is a ‘powerful case to be made’ to normalize interest rates and that the case ‘is not complicated’. Bullard also appeared to be less concerned around events in China, saying that the chance of a hard landing was a ‘long shot’, while downplaying concerns about the impact of slowing Chinese growth on the US economy.
There were also some comments out of the ECB yesterday. Board member Praet said that the economic recovery in the Eurozone remains fragile but that the ECB would ‘do what’s necessary’ should the inflation objectives be at risk. Governing Council member Nowotny, commenting on the Fed decision last week said that the decision was not an easy one and instead stressed the importance of the point raised by the Fed of the path of interest rate hikes, rather than timing of the first move. Meanwhile, the Bank of Italy’s Chief Economist Gaiotti fired a warning shot at the ECB, noting that the downside risks for medium term growth and inflation have increased before warning that the ECB should strive not to ‘fall behind the curve’ and that the weakening global economy calls for a ‘decisively supportive monetary stance’.

Wrapping up the rest of the price action yesterday. A late rally in Chinese equities post the midday break yesterday helped contribute to a better day for European equity markets also. The Stoxx 600 closed up +0.86%, while the Dax finished +0.33%. Sovereign bond markets largely mirrored the moves in the Treasury market. 10y Bunds finishing up a couple of basis points at 0.682%. It was a better day for commodities on the whole yesterday too. Having declined in five of the previous six sessions, the Bloomberg commodity index (+0.95%) bounced back in yesterday’s session. Much of this was due to a rebound for Oil markets as WTI rose 4.48% and wiped out much of Friday’s steep leg lower on the back of the latest Baker Hughes rig count which showed a drop in the number of operating rigs.

It’s another quiet day ahead of us for economic data. In Europe we’ve got Euro area consumer confidence and the UK CBI industrial trends survey and public sector net borrowing print due up. Over in the US this afternoon there’s more housing market data with the FHFA house price index, while shortly after we’ll get the Richmond Fed manufacturing activity index. Fedspeak wise Lockhart is due to speak again, addressing an audience on the US economy.


Let us begin with China’s opening of their stock market at 9:30 pm Monday night/Tuesday morning 9:30 am Shanghai time:

Remember Kyle Bass who states that the total Chinese loans are 31 trillion dollars and it is reasonable to assume that at least 10% is bad.

The 3 trillion in losses will wipe out the entire Chinese reserves in dollars.

The commodity zinc is down the limit; Shanghai finished with their usual late rally up .92%

(courtesy zero hedge)


PBOC Devalues Yuan, Injects More Liquidity As China’s Banking Regulator Admits “Bad Loan Situation Is More Severe Than 2008”

AsiaPac stocks are opening mixed after the US session gains.Perhaps the biggest news of the evening is, as China’s bankiong regulator has been meeting with foreign banks to express concerns over lack of risk control around non-performing loans. As CBRC said, rather stunningly honest for a government entity, “the current situation is more severe than the time in 2008 during the financial crisis.” With stocks up while commodities (Zinc) limit-down, PBOC injects another CNY50 bn and devalued the Yuan fix for the 2nd day in a row.

Yesterday was a good day in Chinese stock land… with dozens of ChiNext stocks limit up…


While Shanghai Zinc was limit-down, collapsing to 5 year lows…

And Zinc is falling further…


We wonder what today will bring given that, as Bloomberg reports, China Banking Regulatory Commission has been meeting senior executives at foreign banks since mid-Aug. to express concerns over deteriorating asset quality in China, Hong Kong’s Apple Daily reports, citing unidentified people.

  • CBRC said the current situation is more severe than the time in 2008 during the financial crisis: report
  • CBRC urged foreign banks that aren’t managing risk well enough to increase checks: report
  • CBRC officials mentioned in meetings that those banks should control NPL ratio to not more than 2%: report

Margin debt in China rose for the 3rd time in 4 days…


With short-selling levels on the rise.

China stocks are opening flat…


PBOC injected more liquidity…


And weakened the Yuan for the 2nd day in a row…



*  *  *

Of course, the big news will be Xi Jinping coming to America.

The Chinese leader will land in Seattle, visit the White House and address the United Nations for the first time. His words will be parsed by economists, activists and politicians seeking answers from the world’s second-biggest economy on where it stands on climate change, monetary policy and cyber espionage to name but a few hot-button issues.

Here is a quick ranking of what Americans are most worried about when it comes to China:

Charts: Bloomberg





the following does not look good:  China’s military strongly opposes large scale cuts proposed by Xi



(courtesy zero hedge)

The Red Swan? China’s Military “Strongly Opposed” To Large Scale Troops Cuts


Hot on the heels of British military threats of a coup, the potential for a truly ‘red’ black swan of an event has reared its ugly head in China, just as Xi tours America. As Reuters reports, bitterness is growing within China’s armed forces to President Xi Jinping’s decision to cut troop numbers by 300,000, and, according to a source and commentaries in the military’s newspaper, considerable effort will be needed to overcome opposition to the order with PLA official sources warning “people are worried, it’s been too sudden.”

Xi made the unexpected announcement on Sept. 3 at a military parade in Beijing marking 70 years since the end of World War Two in Asia. The move would reduce by 13 percent one of the world’s biggest militaries, currently 2.3-million strong.

China’s Defence Ministry said the “broad mass” of officers and soldiers “resolutely endorsed the important decision of the (Communist) Party center and Central Military Commission and obey orders”. But as Reuters reports,

Bitterness is growing within China’s armed forces to President Xi Jinping’s decision to cut troop numbers by 300,000 and considerable effort will be needed to overcome opposition to the order, according to a source and commentaries in the military’s newspaper.



One government official, who meets regularly with senior officers, said some inside the People’s Liberation Army (PLA) felt the announcement had been rushed and taken by Xi with little consultation outside the Central Military Commission.Xi heads the commission, which has overall command of the military.


“It’s been too sudden,” the source told Reuters, speaking on condition of anonymity.


“People are very worried. A lot of good officers will lose their jobs and livelihoods. It’s going to be tough for soldiers.”

China has previously faced protests from demobilized soldiers, who have complained about a lack of support finding new jobs or help with financial problems.

A protest by thousands of former soldiers over pensions was reported in June, although the Defence Ministry denied any knowledge of the incident.


The PLA is already reeling from Xi’s crackdown on deep-seated corruption in China, which has seen dozens of officers investigated, including two former vice chairmen of the Central Military Commission.


Barely a week after the Beijing parade, the PLA newspaper said the troop cuts and other military reforms Xi wished to undertake would require “an assault on fortified positions” to change mindsets and root out vested interests, and that the difficulties expected would be “unprecedented”.


“Some units suffer from inertia and think everything’s already great. Some are scared of hardships, blame everyone and everything but themselves … They shirk work and find ways of avoiding difficulty,” the commentary said.

*  *  *

The cuts come at a time of heightened economic uncertainty in China as growth slows, its stock markets tumble and the leadership grapples with painful but needed economic reforms, deepening any schism from the fiercely loyal PLA soldiers to any potential leaders of a coup.

Now that is a “Red Swan” that the market is not pricing in…

Hot on the heels of British military threats of a coup, the potential for a truly ‘red’ black swan of an event has reared its ugly head in China, just as Xi tours America. As Reuters reports, bitterness is growing within China’s armed forces to President Xi Jinping’s decision to cut troop numbers by 300,000, and, according to a source and commentaries in the military’s newspaper, considerable effort will be needed to overcome opposition to the order with PLA official sources warning “people are worried, it’s been too sudden.”

Xi made the unexpected announcement on Sept. 3 at a military parade in Beijing marking 70 years since the end of World War Two in Asia. The move would reduce by 13 percent one of the world’s biggest militaries, currently 2.3-million strong.

China’s Defence Ministry said the “broad mass” of officers and soldiers “resolutely endorsed the important decision of the (Communist) Party center and Central Military Commission and obey orders”. But as Reuters reports,

Bitterness is growing within China’s armed forces to President Xi Jinping’s decision to cut troop numbers by 300,000and considerable effort will be needed to overcome opposition to the order, according to a source and commentaries in the military’s newspaper.



One government official, who meets regularly with senior officers, said some inside the People’s Liberation Army (PLA) felt the announcement had been rushed and taken by Xi with little consultation outside the Central Military Commission.Xi heads the commission, which has overall command of the military.


“It’s been too sudden,” the source told Reuters, speaking on condition of anonymity.


“People are very worried. A lot of good officers will lose their jobs and livelihoods. It’s going to be tough for soldiers.”

China has previously faced protests from demobilized soldiers, who have complained about a lack of support finding new jobs or help with financial problems.

A protest by thousands of former soldiers over pensions was reported in June, although the Defence Ministry denied any knowledge of the incident.


The PLA is already reeling from Xi’s crackdown on deep-seated corruption in China, which has seen dozens of officers investigated, including two former vice chairmen of the Central Military Commission.


Barely a week after the Beijing parade, the PLA newspaper said the troop cuts and other military reforms Xi wished to undertake would require “an assault on fortified positions” to change mindsets and root out vested interests, and that the difficulties expected would be “unprecedented”.


“Some units suffer from inertia and think everything’s already great. Some are scared of hardships, blame everyone and everything but themselves … They shirk work and find ways of avoiding difficulty,” the commentary said.

*  *  *

The cuts come at a time of heightened economic uncertainty in China as growth slows, its stock markets tumble and the leadership grapples with painful but needed economic reforms, deepening any schism from the fiercely loyal PLA soldiers to any potential leaders of a coup.

Now that is a “Red Swan” that the market is not pricing in…








Just look at the demographics for Japan.  Their country is rapidly aging as the population continues to contract.

By 2050 they will have only 89 million people down from 129 million.  Yet their debt continues to rise with their GDP falling.  In other words the debt is hoisted upon fewer and fewer citizens.


The death knell for Japan;


(courtesy zero hedge)


Elderly Japanese Population Hits New Record – Demographic Death-Rattle Continues


With Abenomics seemingly a total failure (aside from managing to collapse the currency and living standards of the population – worst Misery Index in 33 years) the demographic crisis that Japan faces just got more crisis-er. As Japan’s population continues to fall (4th year in a row), what makes the situation worse, as NHKWorld reports, is that there are now a record 33.8 million people over the age of 65 (a record 26.7%), more than double the number under the age of 14 (16.2 million). The ministry says the population will likely continue declining for some time as fewer babies are born and society ages… and as America is beginning to see as retirement dream remain elusive, the number of working elderly increased for 11 years in a row to reach a new record figure of 6.81 million in 2014.

Population is forecast to keep falling…


And, as NHKWorld reports, will continue to get greyer and greyer…

The number of Japanese aged 65 or older has risen to a new record of about 33.8 million people, or 26.7 percent of the population.


The Internal Affairs Ministry released the estimate ahead of Monday’s national holiday, Respect for the Aged Day.


The ministry says about 33.84 million people aged 65 or over were living in Japan as of last Tuesday. That is an increase of 890,000 from the same period last year. Men account for about 14.62 million of the total, and women, 19.21 million.


People in the elderly age bracket now account for a record 26.7 percent of Japan’s population — an increase of 0.8 percentage points from last year.


The number of Japanese aged 80 or older has risen by 380,000 from last year to10.02 million, topping 10 million for the first time.

And finally, as we are beginning to see in America…

The ministry says the number of working elderly increased for 11 years in a row to reach a new record figure of 6.81 million in 2014.


10.7 percent of Japan’s working population aged 15 and over are in the elderly bracket.

*  *  *

As we discussed before, there are now more than one in four Japanese citizens will be over the age of 65, up from one in five in 2006 and one in 10 in 1985.The proportion of the population over 65 is expected to swell to 30 percent by 2022 and to 40 percent by 2050, according to government estimates. This will put the country as a whole in the demographic range of the prefectures that experienced the sharpest declines in growth in the decade ended 2009.

Fewer workers and less labor will reduce the potential output of the Japanese economy, which will increase the country’s reliance on imports as retirees continue to spend, inhibiting GDP growth.The rising number of retirees will strain the government’s welfare programs and the country’s pension funds, which have been major buyers of government bonds. Japan already maintains the world’s second-largest debt load in nominal terms and it’s growing.

The government sees this problem and has passed a bill giving private-sector workers the right to remain at their jobs until the age of 65, rather than the current 60.

Japan’s demographics will also likely have an impact on consumer behavior. Japanese consumers older than 65 are less likely to shop for alcohol, clothing, books and electronics compared with younger consumers, according to a McKinsey survey from 2011. The average senior shops for books and clothing 38 and 35 times per year, respectively, compared with 73 and 58 times for people between the ages of 18 and 34. The only item seniors shop for more frequently than younger consumers is food, McKinsey found.

How Japan faces its demographic challenges over the next several decades may provide important lessons for countries such as China, which has a rapidly increasing senior population due largely to the one-child policy. People over 65 account for nearly 10 percent of the population in China — similar to Japan in 1985 — up from 6 percent 20 years ago.

China now faces a similar trajectory, as seen in the chart above. Its working-age population—defined as those between ages 15 and 64—is peaking and is set to decline in the years ahead.


And now the big news from Europe:
(courtesy zero hedge)

Volkswagen’s CEO Is Out German Media Reports: What’s Next For The Troubled Carmaker

Earlier today, as widely reported, Volkswagen released the following official meal culpa which also quantified for the first time the company’s preliminary expected exposure to the scandal fallout: €6.5 billion.

Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines. New vehicles from the Volkswagen Group with EU 6 diesel engines currently available in the European Union comply with legal requirements and environmental standards. The software in question does not affect handling, consumption or emissions. This gives clarity to customers and dealers.


Further internal investigations conducted to date have established that the relevant engine management software is also installed in other Volkswagen Group vehicles with diesel engines. For the majority of these engines the software does not have any effect.


Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide. A noticeable deviation between bench test results and actual road use was established solely for this type of engine. Volkswagen is working intensely to eliminate these deviations through technical measures. The company is therefore in contact with the relevant authorities and the German Federal Motor Transport Authority (KBA – Kraftfahrtbundesamt).


To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some 6.5 billion EUR recognized in the profit and loss statement in the third quarter of the current fiscal year. Due to the ongoing investigations the amounts estimated may be subject to revaluation.


Earnings targets for the Group for 2015 will be adjusted accordingly.


Volkswagen does not tolerate any kind of violation of laws whatsoever. It is and remains the top priority of the Board of Management to win back lost trust and to avert damage to our customers. The Group will inform the public on the further progress of the investigations constantly and transparently.

Or, visually:

This follows a few hours after the CEO of Volkswagen US did what few other companies have ever done: apologized, when he said “we have totally screwed up” in using software to rig emissions tests.


Then in a report released moments ago, Credit Suisse was non-plussed with Volkswagen’s charge, stating the final figure could be far greater but in the meantime both the company’s balance sheet and its dividend are at risk:

… The US emissions scandal is becoming a wider problem for VW. VW confirmed the violating software is present in 11m global vehicles. The company is taking a €6.5bn provision to cover the cost of service measures, although this is unlikely to be the final figure in our view. With further charges from potential regulatory penalties, civil litigation, and market share losses, this figure could be exceeded by far. This in turn will likely put pressure on VW’s balance sheet and dividend payments.

And with typical, if tainted, German efficiency, moments ago Bloomberg blasted the latest news out of Germany’s Tagespiegel, which reported that Volkswagen CEO Winterkorn...

will be replaced by Matthias Mueller, the CEO of Porsche, as soon as this Friday.


At this point GM CEO, whose company was recently found guilty in the deaths of over 170 people, Mary Barra is forgiven if she decides to leave the room.

So what happens next? Here is Saxo Bank’s Peter Garnry with his take on next steps for the embattled iconic carmaker:

What’s next for scandal-ridden Volkswagen?

  • Volkswagen shares lose 22% on US diesel imbroglio
  • Global scale of VW’s legal liability not yet known
  • Scandal-driven stock collapses usually mean-revert higher

It has been a volatile year for Volkswagen. The German carmaker started the year like a rocket fueled by the European Central Bank’s new quantitative easing programme to lower the EUR exchange rate and assure continued credit growth.

Following the peak in March, continuous bad news from China and slowing economies set in motion a massive decline in the share price ending with a big splash yesterday with shares down as much as 22% following the revelation that Volkswagen’s US business had cheated US regulators on how much emission its diesel vehicles produce.

Including today’s declines, around $19 billion in market value has been erased and it certainly begs the question of what is likely to happen.

Volkswagen share price in 2015

Source: Saxo Bank

Massive uncertainty

Normally when a scandal hits, the stock price recovers quickly as traders overreact to news. A good example is Standard Chartered on August 7, 2012 when the share price fell as much as 26% intraday on news that the bank had helped the Iranian government to cover up $250 billlion in illegal transactions.

A few weeks later, the bank settled with US regulators and was fined $340 million. As the chart below shows, the share price jumped back to new highs by year-end.

Standard Chartered share price (second half 2012):

Source: Saxo Bank

So why are buyers not coming to the table in droves when it comes to Volkswagen? The uncertainty is simply much greater and there is no precedent in this case. With Standard Chartered, analysts had a reasonable idea within a few weeks how big the fine could be.

If an automaker violates the Clean Air Act it costs $37,500 per vehicle. Given the number of sold diesel cars, this brings the potential fine to $20 billion. However news out this morning states that other governments such as Australia will now look into the matter and see if their emission standards have been violated by Volkswagen.

In plain language, this may not be an isolated case so the tail risk is just much bigger.

In the worst-case scenario, Volkswagen will be banned from selling diesel vehicles in the US for a certain period such as BNP Paribas was banned from conducting certain USD transactions for a year, on top of a $9 billion fine due to the French bank’s involvement in helping Sudan, Cuba and Iran perform said transactions.

The point here is that US regulators are not shy to send a strong signal to companies when they violate the rules. It is in this light that the large declines should be viewed.

What should traders do?

It seems unlikely that US regulators would fine Volkswagen to the tune of $20 billion. The German automaker gets 13.6% of its revenue from North America which means probably around 10-12% from the US. Assuming a pro rata share on profits, Volkswagen makes around €1.1-1.3 billion in profits from its US business.

It would be unheard of to fine a company so disproportionately to its annual profits. As such, it looks like an overreaction in the share price.

What normally happens in these events (short-term) is that mean-reversion strategies kick in and begin buying shares. However, if the selling pressure is too big from long-term investors and short sellers then stops are hit and mean reversion strategies withdraw again quickly.

It is simply not worth it in the short term to supply liquidity.

In little more than a week we are rolling into October and then thousands of longer term quant-driven equity funds will be crunching the numbers. A company like Volkswagen will likely shift into being a very attractive value stock given that no databases will have updated earnings forecasts for FY’16.

As these quant-driven equity funds often have hundreds of positions they do not care about the firm-specific risk tied to this event. As a result, their computer programs will kick in and begin buying Volkswagen shares.

For the next couple of days the share price will wobble as the flow of sellers and buyers arrive at the table. Short-term, it looks like the mean reversion strategies are pulling away and thus only market-makers stand as last defense but they are only providing brief liquidity before flipping the shares. It could take a week for the stock price to settle as the longer term quant-driven equity funds get into action.

But opportunities on the upside will occur, but it requires good timing. We stay on the sideline for now as we already have German carmaker exposure through BMW.

In the Middle East:  Russia to send in 2000 Russian troops in support of Assad and guarding their new airbase:
(courtesy zero hedge)

2,000 Russian Troops Head To Syria For “First Phase” Of Mission To Support Assad

With each passing day, The Kremlin seems less and less interested in observing any niceties with regard to how it describes Russia’s military involvement in Syria.

Initially, it seemed likely that Moscow would go the Ukraine route by providing logistical support and lurking behind the scenes while officially denying – or at least downplaying – its role in the conflict. Over the course of the last two weeks, it’s become increasingly clear that Russia now intends to make no secret of its intention not only to stabilize the Assad regime but in fact to turn the tide completely with the provision of advanced weapons and equipment including combat aircraft, tanks, and drones.

The only remaining question was how long it would be before Syrian Foreign Minister Walid al-Moualem made an official request for ground troops, allowing Moscow to abandon all pretense that Russia isn’t officially at war and while we may not have reached that point yet, you can’t very well build a forward operating base and not staff it which is why now, according to FT, Moscow is set to send 2,000 troops to Latakia as part of the mission’s “first phase”. Here’s more:

Russia is to deploy 2,000 military personnel to its new air base near the Syrian port city of Latakia, signalling the scale of Moscow’s involvement in the war-torn country.


The deployment “forms the first phase of the mission there”, according to an adviser on Syria policy in Moscow.


The force will include fighter aircraft crews, engineers and troops to secure the facility, said another person briefed on the matter.


Three western defence officials agreed that the Russian deployment tallied with the numbers needed to establish a forward air base similar to those built by western militaries in Afghanistan.

Here’s more, from The New York Times, on the buildup at Latakia:

The deployment of some of Russia’s most advanced ground attack planes and fighter jets as well as multiple air defense systems at the base near the ancestral home of President Bashar al-Assad appears to leave little doubt about Moscow’s goal to establish a military outpost in the Middle East. The planes are protected by at least two or possibly three SA-22 surface-to-air, antiaircraft systems, and unarmed Predator-like surveillance drones are being used to fly reconnaissance missions.


Russia has military presences near Latakia and in Tartus.Russian Moves in Syria Widen Role in MideastSEPT. 14, 2015


“With competent pilots and with an effective command and control process, the addition of these aircraft could prove very effective depending on the desired objectives for their use,” said David A. Deptula, a retired three-star Air Force general who planned the American air campaigns in 2001 in Afghanistan and in the 1991 Persian Gulf war.


In addition, a total of 15 Russian Hip transport and Hind attack helicopters are also now stationed at the base, doubling the number of those aircraft from last week, the American official said. For use in possible ground attacks, the Russians now also have nine T-90 tanks and more than 500 marines, up from more than 200 last week.


“The equipment and personnel just keep flowing in,” said the American official, who spoke on condition of anonymity to discuss confidential intelligence reports. “They were very busy over the weekend.”

On Monday, the Russian embassy in Damascus came under mortar fire. That attack, Moscow says, did not emanate from ISIS but rather from other anti-Assad forces backed by “external sponsors”:

The Russian foreign ministry said a shell, which landed near its embassy on Sunday but caused no casualties, came from Jobar, which is held by anti-Assad fighters who were not allied with Isis and had “external sponsors”.


“We expect a clear position with regard to this terrorist act from all members of the international community, including regional players,” the ministry said. “This requires not just words but concrete action.”


It added that the fighters’ “foreign sponsors” were responsible for using their influence on “illegal armed formations”.

Clearly, “foreign sponsors” is a reference to Assad’s US-backed regional enemies including the Saudis, Qatar, and Turkey among others and this certainly seems to indicate that the Russians will not be prepared to tolerate attacks on their assets by groups who enjoy the support of the US-backed coalition. Of course quite a few of the groups battling for control of Syria are supported either directly or indirectly by the US and its regional allies which means that even if Russia manages to avoid direct confrontation with the handful of troops the US overtly backs, avoiding confrontations with the troops covertly supported by the US and other state actors will be impossible by definition, as they, just as much as ISIS, are angling for the ouster of Assad.

Meanwhile, the French took the absurdity to a whole new level on Monday when Foreign Minister Laurent Fabius claimed that the country’s plans to begin bombing Syria were born out of concerns for “self defense”. Here’s the quote:

“We received specific intelligence indicating that the resent terrorist attacks against France and other European nations were organized by Daesh [Arabic derogatory term for IS] in Syria. Due to this threat we decided to start reconnaissance flights to have the option for airstrikes, if that would be necessary. This is self-defense.

And so, as the violence escalates and Syria looks set to become the stage for a not-so-cold war pitting Russia and its regional proxies against the US and its regional proxies, we close with the following graphic which (partially) quantifies the human cost of geopolitical wrangling gone horribly awry:

Today, the Pentagon warns of a Russia and Iran nexus in Syria.  Who would have thought such a thing? This escalates tensions especially as Iran, as soon as their written agreement with Obama was dry, the Iranians turned their back on the new found friend, the USA and joined forces with Russia, USA’s mortal enemy.  This may cause Israel and Saudi Arabia to enter into the arena faster than expected:
(courtesy zero hedge)

Pentagon Warns Of Russia-Iran “Nexus” In Syria: “We Assume Russia Is Coordinating With The Iranians”

To be sure, some manner of Russian intervention in Syria was probably inevitable.

As we explained on Monday, Syria is pivotal for the existing balance of power both regionally and globally speaking. The alliance between Bashar al-Assad’s Syria and Moscow, Tehran, and Hezbollah serves as a kind of counterbalance to cooperation among the US, Saudi Arabia, Qatar, and Turkey (among others). Should the Assad regime be allowed to fall and the West allowed to influence the post-regime political outcome, the scales would tip, Russia would lose its naval base at Tartus, and Iran’s access to Hezbollah, not to mention the scope of its regional influence, would be severely constrained. Assad’s move to support the Islamic Pipeline while rejecting the Qatar-Turkey pipeline was a manifestation of this situation and speaks volumes about how critical Damascus is in Russia’s struggle to keep a tight grip on the supply of natural gas to Europe.

That said, the fight for Damascus comes at an interesting time for Russia. The annexation of Crimea and Moscow’s subsequent involvement in eastern Ukraine (which is of course the worst kept secret in the geopolitical universe), combined with economic sanctions and the antitrust suit filed by the EU against Gazprom have served to create the most contentious relationship between The Kremlin and the West since the Cold War. One can look at that two ways. On the one hand, the prevailing dynamics in Europe might fairly be expected to make Moscow think twice before charging headlong into Syria, where the US and its allies have been operating both overtly and covertly for years, knowing that any involvement will only serve to inflame what is already a rather delicate situation. On the other hand, Vladimir Putin isn’t exactly known for being timid and indeed, it certainly seems as though Moscow (and Beijing for that matter) is intent on returning the world to some semblance of bipolarity after three decades of unobstructed US hegemony. When considered in that light, it wasn’t too difficult to predict Russia’s entry into Syria’s civil war in support of its ally in Damascus.

But even as Russia’s involvement was never a matter of if, it was, until recently, still a matter of when. Although Moscow likely didn’t need much in the way of convincing, the Pentagon now suggests (as we didlast week) that a July meeting between Vladimir Putin and Quds Commander Qasem Soleimani (who allegedly commands not only the various Shiite militias battling ISIS in Iraq, but also the Houthi rebels fighting the Saudis in Yemen and whose rumored removal from the sanctions list as part of the Iran nuclear deal prompted Benjamin Netanyahu to proclaim that Obama’s “absurdity crosses all lines”) may have been instrumental in deciding the official start date for Russia’s intervention. Here’s more from WSJ:

Russia and Iran have stepped up coordination inside Syria as they move to safeguard President Bashar al-Assad’s control over his coastal stronghold, according to officials in the U.S. and Middle East, creating a new complication for Washington’s diplomatic goals.


Coordinating efforts cited by the U.S. and Middle East officials included a secret visit in late July by the commander of Iran’s elite overseas military unit, the Qods Force. Maj. Gen. Qasem Soleimani directs Tehran’s military and intelligence support for the Assad regime and is one of the most powerful leaders of the Islamic Revolutionary Guard Corps, or IRGC.


Iranian Foreign Minister Javad Zarif also visited Moscow last month to discuss Syria and other issues with his Russian counterpart, Sergei Lavrov.


Such visits “all come within the framework of this coordination,” Syrian Foreign MinisterWalid al-Moallem told state media last week, referring specifically to the trip by Mr. Zarif and a deputy. “There is deep coordination on all levels between us and Moscow, and between us and Tehran, and I can say to whomever wants…they can join too.”


U.S. officials said they haven’t unraveled the full extent of the cooperation or its intention. “We assume [the Russian buildup in Syria is] being coordinated with the Iranians,” said a senior U.S. official, who said the U.S. tracked Gen. Soleimani’s trip to Moscow.


IRGC military advisers and soldiers are also deployed in Latakia, as well as soldiers from Tehran’s close political and military ally, the Lebanese militia Hezbollah, they said.


A U.S. defense official said the Pentagon believes Gen. Soleimani’s trip to Moscow was “very important” in relation to the Russian buildup in Latakia. “What we are seeing now is the manifestation of that meeting, and that there is some sort of Iran nexus,” the official said.


The coordinated Iranian and Russian support for Mr. Assad poses a formidable obstacle to the diplomatic aims of the Obama administration, which wants to remove the Syrian dictator from power.


Over the past three months, Moscow and Tehran have appeared to be preparing to bolster the region’s defenses, according to Syria analysts and Arab officials.

Syrian rebel forces have made substantial territorial gains in the northern province of Idlib during this time and have been pressing down into Latakia. Further victories by the insurgents could cut off Damascus from Mr. Assad’s home base, they said.

Gen. Soleimani visited a front line battlefield north of Latakia in June that was adjacent to the Turkish border and Idlib, according to Arab media reports.

There he said Iranian and Syrian leaders were jointly planning an operation that would “surprise the world.”


Weeks later, Gen. Soleimani visited Moscow and met with Defense Minister Sergei Shoygu and the heads of Russian military intelligence and defense industries, according to U.S. and European officials.

Why anyone in the Pentagon was surprised about the fact that there appears to be “some sort of Iran nexus” is quite frankly a mystery, given everything said above and it’s almost incomprehensible that Washington wasn’t prepared for this eventuality, but then again, perhaps the Obama administration was naive enough to think that somehow Tehran’s desire to maintain cordial relations (incesssant Ayatollah twitter trolling notwithstanding) on the heels of the nuclear negotiations would win the day.

In any event, overt coordination between Russia and Iran raises a number of vexing issues for the US. For instance, the more publicity this gets, the more challenging will be the optics around negotiating for Assad’s future. That is, making concessions to Russia over the timing of Assad’s exit in light of the hardline rheotric the US has clung to for years looks bad enough as it is without the public (and Congress) getting the idea that for the second time in the space of just a few months, the US has found itself party to a “bad” deal involving Iran. Or, in more colorful language: with the GOP unable to block the Iran nuclear deal in the Senate, should Iran’s involvment become common knowledge, then Obama will be faced with the biggest diplomatic headache in his administration’s history, namely the explanation of why he is scrambling to restore diplomatic connections with a regime that couldn’t even wait for the Iran deal to be formally passed before it turned its back on its newest “best friend” in the Oval Office, only to promptly side with the KGB agent who over the past two years has emerged as the biggest US enemy in three decades.

But perhaps the key takeaway here is that, as we said earlier this month, “with every incremental party entering the Syria conflict, the probability of a non-violent outcome becomes increasingly negligible. And now that the Russians may be coordinating directly with the Iranians, it means that both Israel and Saudi Arabia will be dragged in, whether they like it or not.”




Dr Craig Roberts is worried that the uSA and Russia will engage in a war because of Syria:

(courtesy Dave Kranzler/IRD)

The World Is In Trouble – Are You Prepped For The Road?

It appears we are moving from controlled chaos to uncontrolled chaos. Anybody think Putin will say or do nothing now that we placed nukes in Germany? This can really escalate quickly.   – quote from a friend and professional colleague

In a conversation with Dr. Paul Craig Roberts today, he suggested that unless Russia submits to the United State’s vassalage, the countries are headed for a nuclear war.  Ironically, after our discussion, two ominous news reports surfaced, via Zerohedge:

Pentagon Warns Of Russia-Iran “Nexus” In Syria: “We Assume Russia Is Coordinating With The Iranians” – LINK

Whether or not there’s any truth to the allegation, there can be no mistake that the U.S. Government is provoking Russia with a heavy dose of propaganda…and worse:

U.S. Will Station New Nuclear Weapons in Germany Against Russia – LINK

In defiance of the Treaty on Non-Proliferation of Nuclear Weapons, the U.S. moving twenty new nuclear bombs into Germany, each one four times more powerful than the bomb used in Hiroshima…If the shoe fits:

THEROADIt doesn’t take a genius to see what is developing.  There’s something bigger going on beneath the surface of the ensuing economic and financial collapse and the political chaos connected to the Presidential campaigns of both Parties.   I believe it is possible that both situations are mere “distractions” to deflect any attention away from the fact that U.S. and Russia appear to be headed for a serious military conflict.
I can’t speak to the mental condition of the Russians, but the people running the U.S. Government, especially the Dept of Defense, are insane.








Nigel Farage explains why Europe is heading for disaster as thousands of refugees are flooding into all countries:

the clip is 8 minutes and it is worth viewing!

(courtesy Nigel Farage/zero hedge)


Europe’s “Heading For Disaster”; Nigel Farage Warns Immigrant Flood “Threatens Our Civilization”

“We are heading towards disaster” exclaims UKIP’s Nigel Farage in this brief clip. Having warned for months about both the consequences of actions and the EU’s disastrous policies, the flood of immigrants, Farage warns “we face a direct threat to our civilization if we allow large numbers of people from that war-torn region into Europe.” Simply put, he fears within EU policy “there is no way to filter out extremists in favor of people fleeing in genuine fear of their lives,” and suggest following the Australian policy.



And now emerging markets;
Emerging markets are now one step away from total liquidation due to the misallocation of funds. These funds have created a massive over productive capacity levels in these emerging markets and China.  Money poured into the shale industry + commodity producers causing huge production of oil and commodities and now this over capacity is wrecking havoc across the globe.  The deflationary forces caused by this overcapacity will eventually cause the  USA to engage in QE4, which in turn will cause the dollar to collapse and with it the entire global financial world:
(courtesy zero hedge)

“Emerging Markets Are On The Verge Of Liquidation” Top Performing Hedge Fund Manager Warns; “QE4 Is Coming”





Until recently, John Burbank’s Passport Capital was one of the top 15 performing hedge funds in 2015. Recent events have only led to an even higher YTD P&L making Burbank one of the top performing managers of 2015: the $2.1bn Passport Global fund was up 14.6% at the end of August and the concentrated “special opportunities” fund was up 30.6%. The reason: in recent months Passport placed numerous commodity and emerging market shorts: trades which have generated substantial returns even as the rest of the “hedge” fund peanut gallery blamed either Bridgewater, or – in the case of Bridgewater – blamed the Fed.

Burbank did not blame anyone, and instead shorted the one company we said in March of 2014 would be the best bet on China’s collapse: Glencore. He has made a killing since, with both GLEN CDS soaring, and its stock price crashing 55% in 2015 alone to all time lows.

More apropos, having accurately foreseen the current events instead of just levering up on even more beta and praying the BTFDers return and bail out his underwater positions, Burbank’s opinion actually matters as does his outlook on what happens next.

What he foresees is not pleasant.

In an interview with the FT Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realized.

“The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets,” he said.

Thank the Fed for that: it was so obvious that 7 years of ZIRP and QE would lead to epic capital misallocation we have been warning about it year after year, most explicitly in April 2012 when we previewed the surge in buybacks and M&A at the expense of capex spending and actual organic growth. Eventually, when enough capital flooded the entire world, even Saudi Arabia had no choice but to directly engage the US shale sector which, ironically, is the main reason why the US is on the verge of a recession.

Back to Burbank who warns that “the world economy is locked on a course towards an emerging markets crisis and a renewed slowdown in the US, regardless of the Federal Reserve holding off on a rise in rates last week.” He adds “that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy.”

So with commodity prices dead-cat bouncing in mid 2015 only to tumble anew, alongside the S&P which fell after the Fed decision, are emerging markets, whose MSCI EM index is up 9% since the Black Monday lows, out of the woods?

Not at all: according to Burbank investors are “not recognising the risks… and Passport was not pulling out of its bearish bets.”

The dollar rally caused by “asynchronous QE” — the early end of money printing in the US relative to Japan and the eurozone — and the economic fallout from a slowing China guaranteed a financial crisis in emerging markets that would rebound on the US, he said.

Burbank’s conclusion:

“All of that turmoil around the world will come back and slow down capex and hiring and consumer buying in the US, and that will make the Fed realise they should be easing and not hiking,” he said. “I think we are on the precipice of a liquidation in emerging markets, and this feels the way that the fourth quarter of 1997 felt.

But more QE will not only not fix anything, it will only make the EM bubble – currently in its pre-bursting phase – even bigger as it promptly crushes the dollar, which just shows how terrified everyone truly is of just biting the bullet and finally undoing years and decades of central bank-driven capital inefficiencies and the biggest global asset bubble in history. No wonder hedge funders around the globe, both the worthless and the successful ones, are desperate for more Fed generosity.

Of course, there is what the Fed “should” do, and what it will do. We completely agree that the Fed will ultimately unleash QE4 – we have said it since December 2013 when the Fed first announced the tapering of QE3.

The only question is with QE4 (and/or NIRP) inevitable, what is the right trade: if the Fed has indeed lost its credibility, more QE4 would be the final nail in the market’s coffin, and lead to a collapse in the dollar and the commencement of helicopter money. To be sure, it may result in a brief spike in stocks, but just like last Thursday, that “briefness” lasted all of 60 minutes. Alternatively, the spike may last, just like in Venezuela – the Caracas stock market has been vertical for years now; sadly the problem is that courtesy of local hyperinflation, there is no economy in which to use the proceeds from selling stocks.

So with faith in the Fed and fiat about to evaporate, we only wonder: is Burbank buying GLD… or actual gold.




As I have been telling you over the past several weeks, that Brazil is in deep trouble with its massive twin deficits:


i) a huge fiscal deficit caused by lower commodity sales

b) a huge current account deficit causes by lower amounts of uSA dollars entering Brazil with massive dollars leaving to protect the real and stem the losses.


today, the BRL crossed over 4:1 and credit default swaps blew to the highest level in years…


Brazil is in deep trouble…



(courtesy zero hedge)


Meanwhile, Brazil’s Currency Just Plunged To An All-Time Low…

On Monday, we updated the rapidly deteriorating situation in Brazil which for the uninitiated, faces a laundry list of seemingly intractable problems which Goldman recently summarized as follows:

We expect the economy to continue to face headwinds from:

  • the ongoing fiscal and quasi-fiscal adjustment
  • higher interest rates
  • increasingly exigent credit conditions
  • rapidly weakening labor market
  • higher levels of inventory in key industrial sectors
  • higher public tariffs and taxes
  • high levels of household indebtedness
  • weak external demand
  • soft commodity prices
  • political uncertainty
  • extremely depressed consumer and business confidence

And believe it or not, that’s actually putting it nicely. The outlook for Brazil’s fiscal adjustment is clouded by the country’s political crisis which threatens Dilma Rousseff’s presidency and makes passing badly needed spending cuts virtually impossible. Meanwhile, the current account continues to face pressure from a commodities slump that’s exacerbated by depressed Chinese demand. 

Of course as Pedro Paulo Silveira, an economist at TOV currency brokerage in São Paulo told WSJ this week,“there’s a negative feedback between the economic and the political crises,” which helps to explain why the economy officially slid into recession in Q2 (a quarter during which Brazilians suffered through the worst stagflation in over a decade) and also suggests that before it’s all said and done, Moody’s and Fitch are likely to follow in S&P’s footsteps by cutting the “B” in BRICS to junk. 

All of the above translates to near daily doses of bad economic news, downbeat analyst pronouncements, and currency turmoil and indeed, Tuesday was no different as the real slid to a record low and Brazil CDS blew out to near six year wides:

Of course the plunging BRL puts the central bank in a tough spot. That is, the risk of FX pass-through means adopting countercyclical policies in order to boost the economy is pretty much a no-go lest inflation expectations should become completely unanchored. Here’s Goldman, commenting after the release of September IPCA-15 inflation data:


We expect annual headline inflation to end 2015 above 9%. The lagged pass-through from BRL depreciation, pass-through (second-round effects) from the large shock to administered prices to freely determined prices, inertia, and formal and informal indexation mechanisms are also likely to keep inflation under significant pressure in 2016 despite the projected severe contraction of real GDP in 2015 and likely extension of the recessionary cycle into 2016.


And here’s further commentary from Goldman on the current account (where the deficit actually managed to print better than expectations last month):

The deterioration of the current account in recent years reflects to a very large extent the very significant decline of the public sector savings rate driven by the significant increase in non-investment spending. Therefore, as we have argued before we believe a weaker BRL and a significant, permanent, and structural fiscal adjustment are key to restore domestic (i.e., lower inflation) and external balance (i.e., to promote an orderly adjustment of the large current account deficit).

“Brazil needs growth, a development agenda, sufficiently low inflation [and] to find fiscal balance,” Finance Minister Joaquim Levy (who very nearly quit out of frustration earlier this month) said today in Brasilia, even as lawmakers near a vote to override a Presidential veto on spending measures that threaten to undermine fiscal rectitude.

“[Although] Brazil’s government may ask Congress to postpone voting on President Rousseff vetoes of measures that threaten fiscal adjustment, the delay wouldn’t be positive, [as it] would be seen as further sign that the government doesn’t have enough political power to impede a loss, and the risk of vetoes being overridden would only be postponed,” Lucas Aragao, partner at Arko Advice, told Bloomberg on Tuesday.

As Goldman suggested last month – and as tipped by the fact that the central bank’s recent actions are indicative of a shift to crisis mode – expect the BRL to bear the brunt of the pain going forward. Here’s Credit Agricole’s Mark McCormick: “[I] don’t see much relief for the real in the cards in the short term. Idiosyncratic factors are driving the BRL now and we have a big week ahead with Congress slated to vote on Rousseff’s veto. Move to 4.5 in the next 6 to 9 months is not ruled out if growth continues to falter, fiscal outlook deteriorates and Brazil gets downgraded by another rating agency.” 

As for what happens if the dollar swap firewall eventually proves insufficient, we leave you with the following assessment from Sidnei Nehme, director of the NGO brokerage in São Paulo who spoke to WSJ:

“If there’s another rating downgrade, the bank will probably have to sell reserves. But that could be bad too, because the moment they mess with the reserves, that sends a sign of fragility and the real could be subject to speculative movements.”








Glencore’s stock is now trading in the pennies (pence) falling belong 100 pence this morning.  Not only that but its credit default swaps  ( a bet that it will survive) rose from 300 basis pts to over 474 points.  A default at Glencore will be akin to a default at Lehman brothers because these guys are huge traders in commodities.  This is when we get to see who has the real collateral as a scramble will occur to obtain only good paper



(courtesy zero hedge)

“Doomsday” Cometh For Glencore: Mining Giant’s Default Risk Just Exploded Higher

Two weeks ago, in a stunning development, Glencore officially folded the towel on not only its global expansion ambitions and its bullish commodity case, but admitted it was far too levered for the current recession in commodity prices. As a result, Glencore CEO Ivan Glasenberg unveiled a $10 billion deleveraging plan in order to prepare for a “doomsday scenario” for commodity prices.

Sure enough, the company’s CDS which Zero Hedge had said back in early 2014 with “Is This The Cheapest (And Most Levered) Way To Play The Chinese Credit-Commodity Crunch?” was the best way to bet against the Chinese blow up currently in progress, tumbled from a level in the mid-400s to 300 bps on hopes Glencore would be able to successfully delever to a 2x net debt level.

The first crack in these hopes emerged just a few days after the company’s deleveraging announcement when Moody’s downgraded Glencore Baa2 outlook to negative, despite the proposed equity raise, asset sales and capex mothballing.

In doing so Moody’s merely confirmed our skepticism from September 7 when we said this Glencore’s action “merely reinforces our thesis and allows all those who missed the initial blow out in GLEN credit default swaps to put the trade on… at levels not seen since about a month ago. Because as a result of today’s asset-stripping and equity-raising activity, Glencore is now a that much better levered bet on China’s economy in a broad sense, and copper pricing in a narrow one.

Our conclusion from the Monday two weeks ago, when GLEN CDS was trading back down at 300 bps:

with every passing week that neither China’s economy rebound nor copper reverses recent losses, expect GLEN CDS to accelerate its widening once again, and overtake its recent multi-year high level of 445 bps in very short notice.

Fast forward to this morning when not only did Glencore stock drop below 100p for the first time ever as we noted in our overnight wrap, but according to CMA, the shock that the company’s deleveraging will not be enough is now shaking the entire capital structure, and, lo and behold, as of moments ago, GLEN CDS just soared by 74 bps to a whopping 464 bps – the widest since January 2012, and hitting our target in just two weeks.

We expect this CDS blowout to continue.

What’s worse, if the company is downgraded from investment grade to junk, watch as the “commodity Lehman” scenario for Glencore, which much more than a simple copper miner just happens to be one of the world’s biggest commodity trading desks, comes full cricle leading to waterfall collateral liquidations and counterparty freeze-outs as suddenly the world is reminded that there is a vast difference between a real and a rehypothecated commodity, and that all collateral rehypothecation chains are only as strong as the weakest counterparty!

Incidentally, today’s Glencore implosion is a far greater risk to the capital markets and the global economy than Volkswagen: a few executive resignations, a few bribes to US Congress, and the scandal will be promptly snuffed.

For Glencore, however, which suddenly the entire world realizes is – as we said in March 2014 – the way to trade China, it may now be too late.






Oil related stories:
Oil rises at the end of the day on larger than expected drawdowns:

WTI crude prices jerked to the highs of the day…

after API reported another larger than expected inventory draw of 3.68 million barrels (and Cushing fell 490k).

Charts: Bloomberg

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

Euro/USA 1.1161 down .0026

USA/JAPAN YEN 119.97 down .535

GBP/USA 1.5437 down .0068

USA/CAN 1.3263 up .0025

Early this Tuesday morning in Europe, the Euro fell by 26 basis points, trading now well below the 1.12 level rising to 1.1161; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes and crumbling European bourses (Asian bourses barely in the green).  Last night the Chinese yuan lowered in value . The USA/CNY rate at closing last night:  6.3705, (weakened)

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a northbound trajectory  as settled up again in Japan up by 54 basis points and trading now well below the all important  120 level to 119.97 yen to the dollar and thus  the necessary ramp for European bourses was not provided and they were hit hard.

The pound was down this morning by 68 basis points as it now trades just below the 1.55 level at 1.5437.

The Canadian dollar reversed course by falling 25 basis points to 1.3263 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 Monday morning: closed

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

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

Gold very early morning trading: $1127.15


Early Tuesday morning USA 10 year bond yield: 2.17% !!! down 3 in basis points from Monday night and it is trading just above resistance at 2.27-2.32%.  The 30 yr bond yield rises to  2.99 down 3 in basis points.

USA dollar index early Tuesday morning: 96.05 up 13 cents from Monday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Tuesday morning
And now for your closing numbers for Tuesday night:
Closing Portuguese 10 year bond yield: 2.60% up 2 in basis points from Monday
Japanese 10 year bond yield: .314% !! 0  basis points from Monday but extremely low
Your closing Spanish 10 year government bond, Monday, down 4 in basis points.
Spanish 10 year bond yield: 1.96% !!!!!!
Your Tuesday closing Italian 10 year bond yield: 1.75% down 6  in basis points from Monday: trading 19 basis point lower than Spain.
Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  3:00 pm
 Euro/USA: 1.1125 down .0063 (Euro down 63 basis points)
USA/Japan: 120.05 down 0.452 (Yen up 45 basis points)
Great Britain/USA: 1.5367 down .0139 (Pound down 139 basis points
USA/Canada: 1.3261 up .0011 (Canadian dollar down 11 basis points)

USA/Chinese Yuan:  6.375  up .00750  (Chinese yuan down/on shore)

This afternoon, the Euro fell by 63 basis points to trade at 1.1125. The Yen rose to 120.05 for a gain of 45 basis points. The pound was down 139 basis points, trading at 1.5367. The Canadian dollar fell 11 basis points to 1.3261. The USA/Yuan closed at 6.375/up.00750 (yuan down)
Your closing 10 yr USA bond yield: down 8 basis points from Monday at 2.120%// ( trading below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.93 down 9 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 96.30 up 36 cents on the day .
European and Dow Jones stock index closes:
England FTSE down 172.87 points or 2.83%
Paris CAC down 156.99 points or 3.42%
German Dax down 377.85 points or 3.80%
Spain’s Ibex down 306.60 points or 3.11%
Italian FTSE-MIB down 723.62 or 3.33%
The Dow down 179.72 or 1.09%
Nasdaq; down 68.96 or 0.02%
OIL: WTI:  $46.23    and  Brent:  $48.96
Closing USA/Russian rouble cross: 66.14  down 1/8 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

VIX Spikes As Stocks Suffer Biggest Annual Loss Since 2009 On Passat Purge

The message from the markets…


Year-over-year, The Dow is down almost 5%, its biggest such decline since 2009… not that once the YoY trend turns negative, it tends to persist… (Dow is unchanged since Dec 2013)


Futures show the pain really began when VW hit the tape early in the European session…


On a side note, DAX is now down 17% since Draghi began Q€…


But then again… maybe it’s just EURJPY carry once again running the entire risk-on/risk-off show…


Stocks tanked on the day… with some Papal Panic Buying the close…


Dragged into the red for the week…


Since Yellen lost all The Fed’s credibility…


And the year… It appeasrs everyone was desperate to keep the Nasdaq green in 2015 dream alive…


VIX jumped over 17% today – its biggest move since Black Monday


With an epic fat finger at the close…


High Yield credit cointinues to flash red.. and stocks are slowly figuring it out…


Tressury yields collapsed even more than they spiked yesterday…


The Dollar gained ground amid EUR and AUD weakness…biggst 3-day USD Index rise in a monthOnce again the pattern is clear – USD selling pressure during Asia, USD buying (EUR selling) during Europe…


Commodities slipped on dollar strength and china growth fears (after ADB)…


But crude’s utterly insane melt-up intop NYMEX Close (not unusual) is just becoming farcical…


Charts: Bloomberg

Bonus Chart: Beware The Papal Visit Omen…


Bonus Bonus Chart: Thinking out loud – but something broke in “currencies” when China devalued…


Bonus Bonus Bonus Chart: Still climbing?


This is big;  the Richmond Fed which is manufacturing within the Washington Dc/Virginia belt collapsed to minus 5 from 15.
This does not look good at all:
(courtesy Richmond Fed Mfg Index/zero hedge)

Richmond Fed Manufacturing Survey Collapses, Workweek Crashes To 6 Year Lows

Following August’s collapse (from 13 to 0), September’s Richmond Fed followed on the heels of Philly, Empire, and Dallas Fed surveys and collapsed to -5 – its lowest since January 2013. Under the covers it is a total disaster, the average workweek crashed from 3 to -12 – the lowest level since April 2009 (as did the order backlog). New Orders and Capacity Utilization also plunged to its lowest since Jan 2013 as clearly the inventory accumulation is starting to feedback into prodiction cuts. Combined, the regional surveys suggest a notable plunge in overall ISM in September… flashing bright red recession warnings.

Headline collapse…


Complete carnage under the covers…

And this…

  • Order Backlogs at lowest since April 2009
  • New Orders weakest since Jan 2013
  • Capacity Utliization lowest since Jan 2013


Following weakness in Empire, and Philly Fed surveys, this suggests September ISM will be notably below the crucial ’50’ level. 

h/t @Not_Jim_Cramer


Charts: Bloomberg



Yesterday the uSA released its existing home sales.  As Dave Kranzler comments, the drop is 3 x faster than expected:

(courtesy Dave Kranzler/IRD)

Existing Homes Sales Drop 3x Faster Than Expected

Existing home sales for August were released Monday.  They declined nearly 5% from July, with July revised down from the original report.  The brain trust on Wall Street was expecting a 1.3% decline.

It was only a matter of time before home sales started dropping again.  But a drop of this magnitude in August took me by a bit of surprise.  Of course, the National Association of Realtor’s chief “economist” offered pathetic excuses for the hammer applied to home sales in August with half-truths, distorted truths and omission of facts.   I was actually a bit shocked at how transparent the excuses were he used.

For instance, every month he blames disappointing sales on low inventory.  The NAR is showing 5.2 months of supply as of the end of August.  However the inventory jumped to 5.2 months of supply from 4.9 months in July.  And the NAR inventory numbers are lagged by a couple months and do not include “coming soon” listings, which are listings exclusive to the listing broker for typically 30 days before they hit the MLS database.

Furthermore, based on what I’m seeing all over the metro-Denver area, the number of new listings accelerated toward the latter half of August and continued to increase on a daily basis throughout September.  This is interesting because typically listings tail off toward the end of the summer as families focus on back-to-school and then the holiday season. Even worse for the market, price reductions are hitting the market at an alarming rate.  It reminds of 2007-2008 in Denver.

I get emails from readers describing similar observations in several other cities.  If you are not seeing what is going on in Denver, stay tuned because its “coming soon.”  If the demographic pattern is similar to pattern that developed when the housing bubble popped, Denver’s market was hit earlier than most of the other top-20 MSAs.

The headline numbers and the data referenced by the NAR’s chief “economist” are “seasonally adjusted” and converted into an annualized rate of sales.  Any distortions in the data are exacerbated by when monthly data is converted into an annualized rate.  But let’s take a peak at the “unadjusted” data as reported by the NAR.

On an unadjusted basis, existing homes sales dropped 8.3% from July.  YTD there were 3.55 million homes sold. Compare this to the 5.3 million “adjusted, annualized rate.”  In order to cleanse “seasonality” out of the unadjusted monthly comparison, I looked at what happened from July to August in 2014.  Last year for the two month period home sales fell 3% on an unadjusted basis month to month.  In other words, the month to month drop this year is quite bit worse than it appears in the headlines.  The months’ supply at the end of August 2014 was 5.6.  Just for the record, in 2013 unadjusted sales from July to August were flat, declining by 1,000 homes.

Perhaps most interesting is the fact that the annualized, adjusted  sales rate in August 2015 was 5.2% below the same number that was reported in 2013.   Interesting that Larry Yun leaves that comparison out of his pathetic apology for a housing market report that was likely even much worse than was featured by the headline-regurgitating mainstream media.

Unlike Larry Yun, who seemed to make shameless love to the numbers, the stock market apparently hated the existing home sales report.  On a day when the S&P 500 closed up almost 9 points, the homebuilder index fell 1.3%:


The homebuilders popped at the open on the heels of Lennar’s Q3 earnings report, which was mostly hype backed by little substance.  The homebuilder index dropped a bit on the horrific existing home sales reports but remained in positive territory.  It would appear that it took the smart money about 90 minutes to analyze and absorb the sales report, because around 11:30 EST, the homebuilders fell of cliff.

I’m expecting home sales to drop at a faster rate going forward for several fundamental economic reasons.  I’ll have a lot more analysis and commentary on this later this week.




I have brought this to your attention before.  The Arms index is now showing positive 4.50.  Generally anything above one is bearish and anything below one bullish.  Investors looks for rapid movements to give them a clue as to how the market will perform.  A rapid rise in the ARMS means trouble for stocks:


zero hedge explains…


The Market’s Other “Panic Indicator” Just Went Vertical (Again)

The Nasdaq was the last great hope holding on to positive returns in 2015… until this morning…


And as it hit unch year-to-date, TRIN surged (implying notably bearish contrarian sentiment)…


An Arms Index value above one is bearish, a value below one is bullish and a value of one indicates a balanced market. Traders look not only at the value of the index, but also at how it changes throughout the day. Traders look for extremes in the index value for signs that the market may soon change directions. The Arm’s Index was invented by Richard W. Arms, Jr. in 1967. In essence, a sudden surge in the TRIN indicates a jump in trader lack of confidence, as everyone scrambles to either go long the 2-3 rising stocks, or to sell or short the biggest decliners, ignoring the bulk of the market..


Today’s move was larger than Black Monday’s panic andalmost as high as the panic on 9/1


As we noted previously, the Arms index is an indicator of market breadth essentially tracks lemming like momentum-chasing behavior with respect to volume… meaning today saw panic-buying volumes which given that it was dip-buyers at the close, we suspect won’t end well…


Charts: Bloomberg


Well that about does it for today.

I will not provide a commentary tomorrow

However, late in the night, I will probably provide the details

of the comex inventory movements/and amounts standing

I wish to all our Jewish friends out there a safe and easy fast

tonight on this Yom Kippur holiday evening and a very happy and healthy new year.



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