Sept 24/Nikkei drops 498 points/Black swan in German auto industry spreads to BMW/Back to the drawing board in Portugal as the bad bank purchase fails to materialize/Brazil, and state owned Petrobras close to bankruptcy/Brazil’s real drops hugely to 4.21 to the dollar/Glencore also in trouble as its credit default swaps rise/Caterpillar layoffs off another 10,000 poor souls as another bellwether of a global collapse in trade/Another commodity giant Nadera in trouble as it reports huge losses due to a “rogue” trader Finally with all of that news gold rises 2% and silver also advances/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1153.80 up $22.20   (comex closing time)

Silver $15.13 up 35 cents.

In the access market 5:15 pm

Gold $1154.00

Silver:  $15.13

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 9 notices for 45000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 213.27 tonnes for a loss of 90 tonnes over that period.

In silver, the open interest fell by 298 contracts despite the fact that silver was up in price by 3 cents yesterday.   The total silver OI now rests at 151,842 contracts In ounces, the OI is still represented by .759 billion oz or 108% of annual global silver production (ex Russia ex China).

In silver we had 9 notices served upon for 45,000 oz.

In gold, the total comex gold OI fell to 417,564 for a loss of 1740 contracts. We had 0 notices filed for nil oz today.

We had no change in tonnage at the GLD;  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 319.197 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 298 contracts down to 151,842 as silver was up by 3 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 1740 contracts to 417,564 contracts, as gold was up $6.60 yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

Asian affairs:

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

The Nikkei ends up down 498 points. Europe implodes.

European affairs:

4) Black Swan events?  German auto industry spreads to BMW and is this the next deflationary wave to whack us

(zero hedge)

5,  The Chart has has everybody in Europe worried:  the markets react positively to no QE and negative when

QE is possible!

(zero hedge)

6. Portugal fiscal budget skyrockets as its bad bank purchase falls apart.

Portugal has to go back to the drawing board

(zero hedge)

7. France:  joblessness rising to record heights

(zero hedge)

Scandinavia and Taiwan

8 Both Norway and Taiwan cut their interest rates as we have a race to the bottom

(zero hedge)


Russian affairs

9. a)Putin tells the uSA to either join us as they engage to knock out ISIS

b) Ukraine is now deciding to enter NATO totally against the wishes of Russia. Putin will react.


Middle East:

Saudi Arabia

10. 717 people killed in a stampede to enter Mecca

(zero hedge)




11.  Currency carnage continues unabated

(zero hedge)

12. a) Petrobras credit default swaps rise signifying risk of collapse.  It has a total of 134 billion dollars worth of debt and

billion of USA denominated debt.  As China’s currency the yuan devalues, this causes massive liquidation of dollars leaving the sovereign.  We are close to a default in Brazil and its main jewel: Petrobras

(zero hedge)

b) Brazilian real collapses to 4;21 to the dollar  (3 commentaries)


13.  Oil related stories


Shale boys are having difficulty tapping the bond market

(zero hedge)

14 USA stories/Trading of equities NY

a) Trading today on the NY bourses 3 commentaries

b) Caterpillar reports that they are going to layoff another 10,000 staff as global sales plummet


c) The Chicago Activity Index (the National Mfg index) goes negative and crashes

(Chicago Activity Index/zero hedg)

d) The 6th Regional Fed survey shows another collapse in the region of Kansas City

(Kansas City Fed survey/zero hedge)

e)Durable goods orders collapse signalling a massive recession is upon us and maybe depression like conditions


f) New home sales rise against existing home sales plummeting.  Wealthy Chinese are taking their unwanted yuan and buying USA homes

g) WalMart demanding savings from suppliers of Chinese origin because of their devaluation!

(zero hedge)


15 Physical stories

i) Is the Bank  of Spain pulling gold out of Catalonia, afraid of Sunday’s independence vote?


and the Bank of Spain responds to zero hedge!!


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

(Bron Suchecki/Perth Mint Part iii)

iii) Ronan Manly and Jessie of Americain cafe tackle how much gold is really behind London’s LBMA and the Bankof England

(Ronan Manly,Jessie/American cafe/two commentaries)

iv) The price suppression of gold and silver will end once everybody takes delivery/a new brainer


v)Mike Kosares on gold today vs 15 years ago vs stocks

(Mike Kosares)

vi) The huge Nadera  (Dutch) commodity firm reports huge losses in biofuels as a rogue trader went wild.  This has been going on for several years.  What is interesting is the firm was 51% bought out by Chinese interests last year.

(zero hedge)

vi) Bill Holter’s commentary tonight is titled:  “Look no further than international trade!”

(Bill Holter/Holter-Sinclair collaboration)






Let us head over to the comex:

The total gold comex open interest fell from 419,304 down to 417,564  for a loss of 1740 contracts despite the fact that gold was up $6.60 with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter continued with its decline as gold ounces standing rose. We now enter the delivery month of September and here the OI rose by 1 contracts up to 71 . We had 0 notices filed yesterday so we gained 1 gold contracts or an additional 100 oz will stand for delivery in this non active month of September. The next active delivery month is October and here the OI fell by 1148 contracts down to 18,950. The big December contract saw it’s OI fall by 1066 contracts from  284,860 down to 283,794. 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 150,804 which is poor. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 105,998 contracts.
Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI fell by 298 contracts from 152,140 down to 151,842 as silver was up by 3 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 We are now in the active delivery month of September. Here the OI fell by 6 contracts to 213. We had 0 notices filed yesterday, so we lost 6 silver contract or an additional 30,000 oz  will not stand for delivery in this active delivery month of September.
The big December contract saw its OI fall by 787 contracts down to 115,171.  The estimated volume today was estimated at 22,990 contracts (just comex sales during regular business hours) which is poor.  The confirmed volume yesterday (regular plus access market) came in at 28,760 contracts which is poor in volume.
We had 9 notices filed for 45,000 oz.

September contract month:

Initial standings

September 24.2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz 5,608.20 oz


Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  (nil)
No of oz served (contracts) today 0 contracts (nil oz)
No of oz to be served (notices) 71 contracts (7100 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 401,985.6  oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 1 customer withdrawal:
 i) Out of Scotia:  5,608.320  oz
total customer withdrawal: 5,608.320 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 (71 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 (71)– the number of  notices served upon today (0) x 100 oz which equals 9,500 oz  standing  in this month of Sept (0.2954 tonnes of gold).
we gained 100 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) =6,856,672.015 or 213.27  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 213.27 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 24/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  343,849.93, oz


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 622,338.600 oz


No of oz served (contracts) 9 contracts  (45,000 oz)
No of oz to be served (notices) 213 contracts (1,065,000 oz)
Total monthly oz silver served (contracts) 1223 contracts (6,115,000 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 19,705,280.0 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 2 customer deposits:
 i) Into CNT:  9091.200 oz
ii) Into JPMorgan:  613,247.400 oz

total customer deposits: 622,338.600  oz

We had 1 customer withdrawal:
ii) Out of Brinks:
343,849.93 oz

total withdrawals from customer: 343,849.93   oz

we had 0  adjustments
Total dealer inventory: 45.715 million oz
Total of all silver inventory (dealer and customer) 166.622 million oz
The total number of notices filed today for the September contract month is represented by 9 contracts for 45,000 oz. To calculate the number of silver ounces that will stand for delivery in September, we take the total number of notices filed for the month so far at (1223) x 5,000 oz  = 6,115,000 oz to which we add the difference between the open interest for the front month of September (213) and the number of notices served upon today (9) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
1223 (notices served so far)x 5000 oz +( 213) { OI for front month of September ) -number of notices served upon today (9} x 5000 oz ,=7,135,000 oz of silver standing for the September contract month.
we lost 6 contracts or an additional 30,000 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 24.2015; no change in gold inventory/inventory rests at 676.40 tonnes
Sept 23.2015: we gained a rather large 1.79 tonnes of gold into the GLD/Inventory rests tonight at 676.40
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 24/2015 GLD : 676.40 tonnes

And now SLV:

Sept 24.2015: no change in silver inventory tonight/inventory rests at 319.197 million oz

Sept 23.2015: we had a huge withdrawal of 1.718 million oz at the SLV/Inventory rests at 319.197 million oz

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



September 24/2015:  tonight inventory rests at 319.197 million oz
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 8.2 percent to NAV usa funds and Negative 8.7% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 63.1%
Percentage of fund in silver:36.7%
cash .2%( Sept 24/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+1.67%!!!! NAV (Sept 24/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV falls to – .65% to NAV September 24/2015)
Note: Sprott silver trust back  into positive territory at +1.67% Sprott physical gold trust is back into negative territory at -.65%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

Bank of England and LBMA Gold Vaults – The “London Float”

A case study of physical gold stored in London Vaults in LBMA 400 troy ounce gold bars has been undertaken by Ronan Manly, Koos Jansen, Bron Suchecki and Nick Laird.

GoldCore: LBMA Vaulted Gold in London

Nick Laird has just completed a great article replete with many interesting and important charts which further illuminate the size of the “London Float” which is the working supply of gold available to meet the gold markets daily needs and huge international demand for gold today – especially from Germany, India and China.

The size of the “London Float” is examined and brought “out of the shadows and into the light of day”.

[Please click chart to expand]

GoldCore: Vaulted Gold in London


Jesse’s Cafe Americain via Sharelynx – please click image to expand

Laird concludes that there is an increasing shortage of physical gold bullion in LBMA vaults and on the COMEX due to the continuing flows of gold east to “satisfy the current rampant Asian demand”.

The full article and excellent charts can be accessed here.



Today’s Gold Prices: USD 1134.45, EUR 1012.31 and GBP 742.73 per ounce.
Yesterday’s Gold Prices: USD 1124.60, EUR 1010.97 and GBP 734.77 per ounce.

Gold in AUS dollars - 3 months

Gold in Australian Dollars – 3 Months (Reuters Eikon)

Gold rose 0.4% or $4.70 to $1,130.10 per ounce yesterday while silver fell 2 cents to $14.79 per ounce. Gold also eked out further gains in euros, pounds and most major currencies. Gold in Australian dollars has been particularly strong.

In Singapore, gold bullion ticked a little higher and maintained those gains in London, hovering just above the $1,135 per ounce level. Silver prices are another 0.3% higher to $14.94 today, while platinum is 1% higher

Palladium surged another 6% yesterday and is 0.3% down today. The move appeared to be a short squeeze and may be the precursor for the long awaited short squeeze higher in gold and silver.


Is The Bank Of Spain Quietly Pulling Its Gold From Catalonia Ahead Of This Weekend’s Vote?

 (courtesy GATA)

This weekend, Catalonia’s long-running push for independence from Spain could get a boost if separatists manage to secure an absolute parliamentary majority in regional elections. Here’s a brief summary via FT for those unfamiliar:

If the independence movement has its way, the Catalan regional election on Sunday will bring [the independence process] to a dramatic climax. Should the pro-secession parties gain an absolute majority in parliament, they will press ahead with a plan to separate the prosperous region from the rest of Spain within 18 months.


Both the pro- and anti-independence sides look to Barcelona as the crucial battleground. Global tourist magnet, former Olympic host city and all-round architectural jewel, the city has traditionally been seen as an uphill climb for the independence campaign. Supporters of the union with Spain expect Barcelona and its densely populated suburbs to act as their main line of defence against the secessionist onslaught.


“What happens to Catalonia on September 27 will not depend on the independentistas. It will depend on the men and women in the metropolitan area of Barcelona who are not independentistas, and who traditionally don’t vote in the regional elections. If they vote this time, no one will be able to break Catalonia away from the rest of Spain,” Xavier García Albiol, the leader of the conservative Popular party in Catalonia, said this week.

As for how likely it is that CDC and ERC will be able to secure the 68 seats they need to move forward with independence, Citi thinks they’ll ultimately come up short, but as the following graphs show, it’s a close call:

Against that backdrop, we present the following with no further comment other than to ask if perhaps the Bank of Spain knows something everyone else doesn’t and is preparing for every contingency.

Via VilaWeb (Google translated):

This afternoon held an unusual movement in the branch of the Bank of Spain, Barcelona, ??Catalonia Square. Over thirty armored vans were entering and leaving the building shortly after an unknown direction. Many people have the photographed. The Bank of Spain has refused to comment on the operation or indicate that it was but people working in the area have said that is not a normal deployment.


Several readers VilaWeb explained that Monday early morning was a similar deployment.




And the Bank of Spain responds to zero hedge:

Bank of Spain Responds, Promises It Is Not Confiscating Catalonia’s Gold

On Wednesday, some were curious to know why a line of armored vans was stationed outside the Bank of Spain’s Barcelona branch.

Our interest was piqued when we remembered that on Sunday, Catalans will vote in what might as well be an independence referendum.

We’ll spare readers a lengthy discussion of the history behind the independence movement and just note that CDC and ERC need 68 seats for an absolute parliamentary majority. If they hit that threshold, they’ll push quickly for an independent Catalonia. Based on the latest polls, it looks like it’s going to be close:

It doesn’t require a leap of logic to draw a connection between what looked like unusual activity at a central bank branch in the Catalan capital and this Sunday’s vote and so, we took the opportunity to ask the following: “Is the Bank Of Spain quietly pulling its gold from Catalonia ahead of this weekend’s vote?”

The answer, according to The Bank Of Spain itself who was kind enough to send us a letter this morning, is “no.” We present their response below without further comment:

Good morning,


Regarding the story posted by Tyler Darden on 09/23/2015 under the headline Is The Bank Of Spain Quietly Pulling Its Gold From Catalonia Ahead Of This Weekend’s Vote?, we want to point out the following:


Nothing extraordinary happened yesterday in the building of Banco de España in Barcelona. A number of armoured vans were stationed for a while in the street because of the increased movement of cash being distributed to the commercial banks prior to the banking holiday in Barcelona today (followed in many cases by another non-working day tomorrow or “Puente” as it is called in Spanish).


We gladly provided this explanation yesterday to the media which happened to ask us about the matter (which was not the case of VilaWeb, that did not contact the Banco de España regarding this –or any other- matter).


And, by the way, there is no gold in this site of Banco de España in Barcelona.

Ronan Manly: Central bank gold at the Bank of England

Submitted by cpowell on 08:21PM ET Tuesday, September 22, 2015. Section: Daily Dispatches

11:29p ET Tuesday, September 22, 2015
Dear Friend of GATA and Gold:

Gold researcher and GATA consultant Ronan Manly tonight publishes a huge research project — an attempt not only to quantify the gold vaulted in the London bullion market and at the Bank of England but also to calculate the gold reserves held at the bank by individual countries.

Manly concludes that gold vaulting in London has been in steady decline for years and that some nations, though far from all, are candid about their gold leasing.

Your secretary/treasurer infers from Manly’s report that gold leasing in London by central banks is a pretty big business even though it pays them very little. This in turn suggests that the purpose of gold leasing is not to earn a return on a supposedly dead asset but rather to protect central banking itself by controlling or regulating the value of the sole potentially independent international currency, a currency emitted not by any central bank but by Mother Earth herself, the only currency without counterparty risk. This control or regulation is undertaken through largely surreptitious market rigging and is facilitated by gold leasing’s creation of a vast imaginary supply of gold, gold that can seem to be in a dozen places at once, or maybe even a hundred.

Let anyone try to deny this when the International Monetary Fund has confirmed as much here:

Manly’s report is titled “Central Bank Gold at the Bank of England” and it’s posted at Bullion Star here:…

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




Extremely important stuff from Jessie last night.  His data suggests correctly that physical gold in London is depleting fast. he author also suggests that gold in London is being hypothecated and rehypothecated many times over as there is probably north of 90 oz claims per one physical oz.




(Courtesy/Jessie/Americain cafe)


Shrinking Supply of Available Gold In London For World Demand – Timely Caution

It is reasonable to estimate that London, in all the vaults, has only about 900 to 250 tonnes of gold available for physical delivery, which is a shockingly low figure given the current demand from ‘The Silk Road’ nations alone that is running about 1,700 tonnes per year.  And even that 250 number is questionably high, depending on the status of the gold in the Bank of England.The objective is to attempt to determine how much available physical gold for delivery can be wrung out of London and New York, in excess of what can be had from scrap, minining and leasing. We are calling that ‘the gold float,’ and it is feeding the demand for bullion in Asia.  At that point we might estimate when the pressure on price becomes irresistible.

We are thinking months, not years, at least with things as they are.

I wish to acknowledge up front the debt that is owed to Ronan Manly and Nick Laird especially for the data contained herein, as well as Koos Jansen for his ground breaking work in estimating Asian gold demand, and Bron Sucheki for his participation..  I have listed some of the pertinent published articles below.

It is regretful that one can only provide estimates.  But that is the nature of this beast that operates with secrecy of supply and distortion of actual demand.

What manner of business is this to enable price discovery in a public market, by covering so many fundamentals with secrecy?  Where is the mining community in all this?

The LBMA is said by those who are in a position to know these things to be running 90:1 or more leverage to each of its unallocated ounces of gold, which according to Jim Rickards is all of them.

The potential claims per deliverable ounce at the Comex right now is at an historic nosebleed high by of about 255:1, supposedly because the owners which to avoid a ‘short squeeze’ in bullion, although the party who said this did not say ‘where.’  London probably, maybe Switzerland.

Peter Hambro says that “there is not enough physical about. There are endless promises.”

In a nutshell, we now know that physical gold for global delivery, of which the London vaults are a major supplier, are rather tight, especially given the increasing demand for physical bullion in the East.

There is plenty of room for questioning the numbers and casting doubt on them, while hiding behind a curtain of exchange secrecy.  One might suppose that the gold bullion bank apologists will be hard at it soon enough again.

They too often do not help to advance the understanding of the public,  preferring to selectively twist the data to say ‘all is well.’   They deride the supply problems that people in the industry are encountering, always saying they are not real.  And they like to include all the gold that exists in the warehouses for their calculations, whether someone else already owns it and is clearly not interested in selling at these prices.

More details would be useful, because if we could obtain a better idea on the extent of central bank leasing, we would be better able to estimate the risks and the relative fragility in the highly leveraged and hypothecated supply of gold in New York and London.

One would think from the known data that the unallocated gold in London is counter-claimed many times, and even the allocated and custodial gold is likely to have multiple claims upon it.   So the actual ‘gold float’ is probably quite a bit less than 1,361 tonnes.  Each of us has our own favorite ballpark number ranging from 900 to 250 tonnes and less, not fully accounting for leases and leverage on the remaining stock.

Nick Laird had a secondary outlier estimate which he expressed in colloquial Australian, which I dare not repeat here.  But it was quite low.  lol. Maybe four months worth of float left.

And it would certainly be nice to have more information about silver, especially since to my knowledge the central banks have dealt their own supply away some years ago and there are quite a few indications of tightness of supply, although not in the Comex yet.

I do consider this analysis to be a work in progress,    Nick Laird and Ronan Manly are the key data organizers I believe, with help from Koos Jansen and Bron Suchecki, and the odd bit from Jesse the consulting detective.    So I would look to their sites for explication of their methods and sources. Ronan Manly in particular is a public source and he goes into quite a bit of detail.

Given the struggle it has been to obtain the data, and the refusal of central bank personnel to discuss their own supplies on orders from above, there may surely be gaps and errors in this, but not for lack of effort.

If I have any major concern it is that the management, the exchanges and the regulators, will allow the traders to sleep walk themselves into a rather serious situation.  And don’t we know how little self-restraint these traders have been showing.

The remedy for this situation is not even more leverage, or more hypothecation of the unallocated stock, or even more leasing by the central banks, or more programs in India to dampen demand.

The longer they allow this price rigging and leveraging up, the slower productive mines will come on line, and the worse the tightness on the remaining physical supply will become.  But as they say in New York and London, ‘nothing is broken yet.’

The market solution for this tightness of supply is HIGHER PRICES and not increasingly ludicrous jawboning, spin, and bear raids.

And if higher prices might inconvenience the policy and perception management aspirations of the Wall Street financiers, their enablers and associated hirelings, well then too bad. Try to behave more responsibly, and stop attempting to make the rest of the world pay for your excessive gambling losses and poor judgement.

On the LBMA and Their Unallocated Holdings
Lions and Tigers and Deriding the Tightness of Gold Supply
How Many Good Delivery Bars Are In the London Vaults – Ronan Manly
Central Bank Gold at the Bank of England – Ronan Manly* (detailed sourcing of this data)
The London Bullion Market and International Gold Trade – Koos Jansen
Detailed London Charts and much data gathering – Nick Laird (available to the public)

Here are a few additional charts from Nick Laird’s site at to break out a bit more detail and to provide some context for the estimated physical supply compared to physical demand.



(courtesy GATA)

Price suppression ends if buyers take delivery, Swiss refiner tells Physical Gold Fund


9:19p ET Wednesday, September 23, 2015

Dear Friend of GATA and Gold:

Physical Gold Fund’s John Ward today interviews an unidentified director of a large Swiss gold refinery who asserts, among other things, that gold is heading from West to East in huge volumes; that the gold price at the moment has no correlation to the physical market, which is tight; that if gold buyers ever start taking delivery of metal instead of leaving their metal on deposit with bullion banks, the situation could become dangerous; but that as long as buyers don’t take delivery, the current price mechanism — that is, price suppression by central banks and their bullion bank agents — can continue forever.

Of course this is pretty much the account that GATA and others, like JSMineset’s Jim Sinclair, have been providing for a long time.

The interview is 23 minutes long and can be heard at the Physical Gold Fund’s Internet site here:…

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


(courtesy Mike Kosares/GATA)

Mike Kosares: A note from an old friend and client


8:15p ET Wednesday, September 23, 2015

Dear Friend of GATA and Gold:

USAGold’s Mike Kosares today writes about “A Note from an Old Friend and Client” who is worried about “the social, political, and economic framework of our society.” Kosares likens the present time to 15 years ago “when gold was taking a beating in the mainstream financial media, stocks were being glorified, and everyone was talking about the Goldilocks economy (not too hot, not too cold, just right). That was just before the roof caved in … and gold began its long ascent.”

The exchange is headlined “A Note from an Old Friend and Client” and it’s posted at USAGold’s Internet site here:…

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



(courtesy Bron Suchecki/Part III Fractional Reserve Bullion banking)

Bron Suchecki: Fractional-reserve bullion banking, Part 3


11:53a ET Wednesday, September 23, 2015

Dear Friend of GATA and Gold:

In the third installment of his series on fractional-reserve gold banking, Perth Mint research director Bron Suchecki describes how the association formed by London-based bullion banks, London Precious Metals Clearing Ltd., reduces risk among bullion banks and regulates their credit with each other.

Suchecki writes that in some ways the London bullion banking system resembles a “free banking” system, in which financial institutions issue their own competing forms of money. But, he adds, the analogy is far from complete because of the involvement of central banks in gold lending.

The credit extended by bullion banks to each other, Suchecki writes, in effect increases what is perceived as the gold supply and thus tends to suppress gold’s price in terms of government currencies. He adds that gold lending by central banks tends to do this as well.

Suchecki writes: “So in our semi-free bullion banking system, the lending of gold to the bullion banks by a central bank increases the bullion banks’ reserves and thus increases the bullion banks’ ability to create more gold credit (unallocated). This inflation in gold supply naturally results in its fiat price falling. If so, why then would a central bank actually sell its precious physical gold if it wanted to manipulate the gold price when it can do so via reserve expansion instead? An answer to this rhetorical question tomorrow.”

Suchecki’s analysis is headlined “Fractional-Reserve Bullion Banking, Part 3,” and it’s posted at the Perth Mint’s Internet site here:…

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



Oh ! OH! this one is a dandy.  We have another massive loss with the huge Nadera commodity firm announcing a rogue trader and significant losses!!!!

What is interesting here is the fact that 51% interest in the commodity company was bought by Chinese interests last year.

The original partners still own 49% and are now doubt seeking asylum somewhere!!


(courtesy zero hedg)

Dutch Commodity Trading Firm Suffers Massive Loss, Blames It On “Rogue Trader”

Two months ago, weeks before the carnage in Glencore started in earnest, we asked a simple question:

Judging by today’s collapse in Glencore price – a company whose CDS we said in March 2014 should be aggressively bought – which is now trading at an all time low below 100p on a Goldman report which confirmed what we have been saying all along (more on that shortly), it does appear that the Swiss commodity giant and copper miner will be the first mega-commodity trader with trillions in counterparty exposure to be “Lehmaned.”

But going back to July 22, what our tweet hinted at was not so much that one of the three commodity traders would be the first to blow up, as that the entire commodity-trading space is in jeopardy as a result of the collapse in commodity prices and carried inventory which has not been market to market in months (see the recent implosion in Jefferies fixed income results).

Indeed, one of the most surprising developments in recent months has been the relative scarcity of any high-profile commodity blow-ups or trader snafus, despite the tumbling commodity prices.

That changed today when Dutch grain-trading firm, Nidera BV (whose name is an acronym consisting of the countries in which it operates: Netherlands, India, Deutschland, England, Russia, Argentina) has suffered a crushing blow as a result of a “rogue trader” whose actions led to “significant losses” in the company’s biofuels business.

According to a Bloomberg report, that Nidera CEO Ton van der Laan said the grain-trading house has since exited the biofuels business and closed all the deals linked to the losses. “There is a significant loss,” he said on Thursday in a phone interview from Singapore, declining to provide a figure. He said Nidera will still post a profit for the company’s fiscal year, ending this month.

The actions of the trader “probably lasted for a prolonged time,” and the company only “found out earlier this year,” he said. Nidera notified the Dutch police because the trader “was involved in fraudulent action,” he said, declining to elaborate.

What makes this case even more interesting is that Nidera is controlled by Cofco Corp., China’s largest food company, which took control of Nidera last year after buying 51% of the company to create a global agricultural commodities trading house. The deal valued Nidera at $4 billion, including debt, a person with knowledge of the matter said at the time. The rest of the Rotterdam-based company, established in 1920, is controlled by the founding families.

While the firm did not quantify the size of the loss (the number will surely leak over the next few days) but it is virtually assured that the company’s profitability was massively impaired if not entirely wiped out: Nidera reported 2014 net income of $116.2 million, up from $72.7 million the year before.

The biofuel losses emerged after global prices plunged earlier this year, said van der Laan. Biofuels, made from crops including soybeans and corn, are closely linked to the price of crude oil.

Strange how “rogue traders” only emerge when trades go against them: we have yet to encounter a “rogue trader” case who was caught doing something illegal after generating a profit.

Those curious to learn more about Nidera’s now defunct biofuels business are out of luck. As Bloomberg’s Javier Blas shows, the webpage placeholder for the division is now 404-ing.

Finally, as Bloomberg reminds us while scarce in the past year, commodity trading houses have been hit by rogue traders in the past, causing big losses. In one of the most notorious cases, Yasuo Hamanaka, a top copper trader for Sumitomo Corp., hid $2.6 billion in losses trading the metal from its Japanese employer in 1996. In another case, a trader in the soybean market caused significant losses in 1999 to Andre & Cie SA that ultimately pushed the company, at the time one of the world’s largest grain traders, to its collapse in 2001.

Expect many more commodity blow ups in the coming months, all of which will be blamed on, you guessed it, rogue traders.





And now for our other problem child:  Glencore

A default at Glencore will set off derivatives and according to zero hedge, may necessitate huge QE from the Fed to rescue the globe:



Glencore closed today at 98 pence:


(courtesy zero hedge)


Is Goldman Preparing To Sacrifice The Next “Lehman”

 One of the more “unmentionable” conspiracy theories surrounding the demise of Lehman Brothers in 2008 is that this “shocking” event was in fact a well-choreographed and carefully scripted “controlled demolition”, with the Lehman Bankruptcy – the event that officially unleashed the Great Financial Crisis – getting the express prior permission of both Ben Bernanke and Hank Paulson, a former Goldman employee, whose motive was the elimination of the one firm that was then Goldman’s biggest competitor in the FICC space, and whose subsequent bailout of his former employer (Goldman Sachs and all other insolvent banks) would lead to the preservation of trillions in worthless equity courtesy of the biggest taxpayer funded bailout in history, and with billions in excess reserves parked on Goldman’s balance sheet smoothing the bank’s transition through a historic recession.Fast forward to this week when as we reported previously, following a surge in its Credit Default Swaps, the “doomsday” scenario for Glencore was suddenly on the table, because the market was suddenly warning Glencore that its most valuable asset, not its mines, or its trading operations, but its investment grade rating could be stripped away.

This is what we said, after we noted that GLEN CDS had just hit a multi-year wide of 464bps (precisely as we said it would over a year ago):

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 circle 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!

Long story short: if and when Glencore loses its Investment Grade rating, it’s more or less game over, if not for the company’s already mothballed mining operation then certainly for its trading group, where “junking” would lead to numerous collateral shortfalls and margin call waterfalls, reminiscent of the ratings agency downgrade of AIG that culminated with the US bailout of the insurer.

Therefore we were not surprised earlier today to see Glencore stock crash to a new record low below 100p even as the CDS blow out continued.


We were, however, very surprised by the catalyst, because the company that managed to successfully hammer Glencore, which in our view is nothing short of the commodity “Lehman” (or perhaps AIG) was none other than Goldman, which earlier today released a report which is essentially blueprint for not only how to take away Glencore’s precious investment grade rating, but taken a few steps further, how to unleash this cycle’s commodity “Lehman event” (once again, Glencore is first and foremost a trading desk which serves as a counterparty with trillions in derivatives notional exposure to virtually every other commodity using and trading entity in the world) and taken to the extreme, how to “force” the Fed to finally unleash the helicopter money should Glencore’s failure be the catalyst the pushes the entire world into a deflationary recession, if not outright depression.

This is what Goldman said earlier in a note titled “Much progress made but the song remains the same”

We update our estimates for Glencore following the completion of its equity placement on September 16, in which it raised its target of $2.5bn. We also update our estimates to incorporate our commodity analysts’ lower thermal coal forecasts ($58/54/52/t for 2015/16/17E) and lower met coal forecasts ($91/85/90/t), which impacts Glencore’s 2016/17/18E EBITDA by c.15-18%… On lower estimates we reduce our 12-month price target to 130p (was 170p).




Since announcing c.$10bn of debt reduction measures on September 7 and completing a 9.9% equity placing, shares have retreated a further 14%. In our view investors are not yet convinced that Glencore has gone far enough to totally allay fears that the industrial assets can service the new lower debt level. Our scenario analysis suggests that using GS estimates for commodities prices and FX rates, Glencore’s IG rating would be secure in the medium term, but our estimates for zinc, nickel and coal prices are higher than spot prices.When we run the same analysis using spot commodity prices and spot FX rates, most of Glencore’s credit metrics would be at the border of required ranges to maintain its IG rating. Finally, a 5% drop in spot commodity and flat FX would see most of Glencore’s credit rating metrics fall well outside the required range to maintain its IG rating, suggesting concerns would quickly resurface.Glencore has a few levers left – further lowering capex, signing streaming deals and releasing more working capital. Recent underperformance suggests that the measures exercised are insufficient and more is needed. We remain Neutral rated but expect continued volatility in the near term.

Why is Glencore’s IG rating so critical? As explained above, Glencore is really not so much the Lehman as the AIG of the commodity world: without an investment grade rating, a self-reinforcing collapse will begin that could ultimately terminate Glencore’s trading desk, in the process liquidating one of the world’s biggest commodity trading counterparties.

From Goldman:

Glencore’s trading business relies heavily on short-term credit to finance commodity deals and its financing costs would increase if it were to lose its Investment Grade credit rating. In addition, it could even lose some counterparties due to increased counterparty risk.

That’s putting it mildly: what a junking of Glencore would do, is start a collateral demand waterfall cascade that the cash-strapped company simply would not be able to sustain.

So having laid out the strawman, Goldman next, very conveniently, explains just what would take for the Investment Grade trap to slam shut:

it would only take a c.5% fall in spot commodities prices for concerns about its credit rating to resurface


While Glencore’s announced measures have allayed near-term concerns about the potential for its credit rating to be downgraded, its high leverage to commodity prices is demonstrated in our scenario analysis, where we estimate just a c.5% drop in spot commodity prices would see concerns resurface about the potential for its credit rating to be downgraded. In addition, given the latest guidance on capex of c.$4bn in FY17, we believe there is limited flexibility for the company to make any further cuts while maintaining its production targets.

Wait, high leverage to commodity prices as the biggest risk factor? Where have we seen this before? Oh yes, in our March 2014 post (saying to buy GLEN CDS) which showed the one thing nobody was looking at at the time; Glencore’s, wait for it, high leverage to commodity prices!


For those who enjoy playing with numbers, here is Goldman’s real “Doomsday” scenario: the one which sees Glencore’s IG rating stripped. As Goldman admits,all it would take is a small 5% drop in commodity prices from here:

If commodity prices were to fall 5% from current levels – which we do not consider to be a far-fetched assumption given the downside risk to commodity consumption in China – we believe that concerns about its IG credit rating would quickly resurface. Under this scenario, we estimate that most of Glencore’s credit rating metrics would fall well outside the required ranges to maintain its IG rating, and as early as the next reporting period (FY15).


Although Glencore has a few levers left in the event commodity prices continue their leg down (such as deferring capex and executing streaming deals), the key point to highlight is that executing these options would take time. That said the recent announcement by Silver Wheaton that it is working with Glencore on the streaming deal highlights that management is focused on bolstering its balance sheet.


It goes without saying that courtesy of HFTs and China’s hard landing, a 5% drop in commodities could happen overnight.

So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:

  1. Commodity prices drop another 5%
  2. The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
  3. Waterfall cascade of margin and collateral calls promptly liquidates Glencore’s trading desk and depletes the company’s cash, leaving trillions of derivative contracts in limbo. Always remember:the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those “physical” commodities are.
  4. Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
  5. Fed and global central banks are called in to come up with a “more powerful” form of stimulus
  6. The money paradrop scenario proposed by Citigroup yesterday, becomes reality

Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.


A good one tonight from Bill Holter


(courtesy Bill Holter/Sinclair-Holter collaboration)



Look no further than international trade!

Look no further than international trade!

Last week the clock ran out on the Fed’s latest bluff. They have gone 55 meetings over 80 months without a single tightening or rise in interest rates. Last week was supposed to be “different” and a tightening of credit was predicted by something like 82% of economists polled. We of course now know that no tightening occurred and a trial balloon was even floated about instituting a new round of QE …
This of course was an easy one to call. Look at what the markets have done since that meeting, how much worse would it be had the Fed actually raised rates? Look all around the world and especially at China beginning to unwind, do they need a tightening of credit? They just devalued the yuan again yesterday (without any mysterious plant explosions …yet), had the Fed tightened you must ask yourself how much bigger the devaluation would have been by market forces?

Leading into last week, I think the easiest way to know that credit did not need to be tightened was by looking at international trade. This is one area where the “numbers are the numbers” and are not massaged (annihilated) by government reporters (not to mention mainstream reporters!). You see, the trade numbers pretty much need to match up and the freight rates are extremely hard to hide. Pretty much, they are what they are and if lied about are too easy to debunk. Last week, Zerohedge wrote on this topic when they penned WTO’s Stark Warning On Global Trade: “The Timing Belt On The Global Growth Engine Is Off” .
Further, if you look below at the Baltic Dry index, do you see a “recovery” from 2008 or a dead cat bounce which is now waning? THIS is indicative of global GDP, anything different from individual countries is an outlier and must be seriously questioned (including China).

But why is this even important? First, because it is the REAL PICTURE but more importantly it is a very strong clue to actual rather than “made up” GDP. Spelled out for you, GDP is not growing enough (or at all) to create and bring new capital into the system. “The system” being one which has far more debt than it did during the 2007-09 event. Do you see where I am going with this? Clearly not enough growth exists globally to create the new capital necessary …yes that’s right…to carry a much larger debt load than we had back then!
Maybe it would be a good thing to remind you, one of the big problems back in 2008 was “too much debt”. Not only did the world not “liquidate” debt, it has taken on much more with an underlying economy that has been weakening for several years.
Going back to the top and full turn, how could the Fed have tightened last week? Or better, how can they ever tighten? The next move will be further additions of liquidity …at least as long as markets are open to do the “add”. Of course, just pulling the plug on the computers is another option!

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome!

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

1 Chinese yuan vs USA dollar/yuan falls a bit in value, this  time at   6.3825/Shanghai bourse:  in the green and Hang Sang: deeply in the red

2 Nikkei closed  down 498.38 or 2.76%

3. Europe stocks all deeply in the red     /USA dollar index down to 95.85/Euro up to 1.1242

3b Japan 10 year bond yield: rises to .333% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.62

3c Nikkei now well below 18,000

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

(providing the necessary ramp for all bourses)

3e WTI:  44.55 and Brent:  47.85

3f Gold up  /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 falls badly to .599 per cent. German bunds in negative yields from 4 years out

 Greece  sees its 2 year rate rises to 11.12%/Greek stocks this morning down by 0.51%:  still expect continual bank runs on Greek banks /Greek bank stocks plummet Wednesday and again on Thursday

3j Greek 10 year bond yield rises to  : 8.23%  

3k Gold at $1135.90 /silver $14.80  (8 am est)

3l USA vs Russian rouble; (Russian rouble up 19/100 in  roubles/dollar) 66.54,

3m oil into the 44 dollar handle for WTI and 47 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 .9730 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0935 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 deeper in negative territory with the 10 year moving closer to negativity to +.599%/5 year rate at 0.00%!!!

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 2.11% early this morning. Thirty year rate below 3% at 2.91% / yield curve flatten/foreshadowing recession.

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


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


Stocks Tumble As Emissions Scandal Spreads To BMW; NOK Plunges On Unexpected Norway Rate Cut

Two days ago, when observing how the Volkswagen scandal could become a systemic threat to both the German and the European economies we quoted Theo Vermaelen, a finance professor at INSEAD who said “if nobody else has done it, the damage would be limited. If it looks like it’s more companies, not just Volkswagen, it would be a major problem for the German car industry, and the German economy overall. We added “that’s the question German investors are wrestling with: was it just one cockroach. If it was more, the ultimate outcome WILL (not may) be more QE from the ECB because with Europe tentative recovery also sputtering after 6 months of ECB QE, a stake through the heart of Germany’s most important industry, will be just the black swan that sends Europe into a recession.”

Earlier this morning it seems the case for more ECB easing is pretty much set following a report by German Autobild that BMW’s X3 xDrive 20d sport utility vehicle “emitted as much as 11 times the European limit for air pollution in a road test, adding to concern that the investigation weighing on Volkswagen AG may spread to other manufacturers.”

According to Bloomberg the SUV was road-tested by the International Council on Clean Transportation, the same group whose tipoff led U.S. regulators to investigate a gap between Volkswagen AG diesels’ emissions in tests and on the road.

The company denied: “There is no function to recognize emissions testing cycles at BMW,” the Munich-based company said in a statement in response to the report. “All emissions systems remain active outside the testing cycles” adding that BMW said that there’s no system in its cars that responds to tests differently than it would operate on the road, but by then the damage was done and
BMW shares traded down 6.2 percent to 74.9 euros at 11:59 a.m. in Frankfurt after dropping as much as 9.3% earlier.

“There’s no suggestion BMW has done anything illegal,” said Juergen Pieper, an Frankfurt-based analyst with Bankhaus Metzler. “However, there are concerns for the long-term damage on the business with diesel cars for every manufacturer that builds cars with these engines.”

Perhaps now we know the reason why BMW’s new CEO Harald Krueger fainted last week during the Frankfurt motor show.

Shares of other German carmakers also declined. Daimler AG tumbled below €63 for the first time since November 2014. Volkswagen, which is at the heart of the probe and has lost about 20 billion euros in market value since Monday, recovered some of its losses, rising as much as 7.8 percent.

The news promptly ended the brief kneejerk rebound higher in European equities, which had rebounded earlier on positive German IFO data with expectations and business climate beating surveyed expectations, while current assessment missed expectation, however this failed to have a sustained reaction in the EUR, while elsewhere the USD-index heads into the North American crossover lower by around 0.1 % after seeing relatively muted price action overnight. Finally of note, NZD/USD saw strength after Fonterra revised its 2015/16 milk forecast upward, however mixed trade figures capped further advances in the pair.

In global central bank news – because lately that’s all that matters – ahead of Janet Yellen’s first post-FOMC speech in Amherst, MA on Inflation Dynamics and Monetary Policy in which the Fed chair will be expected to elaborate on last week’s disappointing FOMC announcement, overnight two central banks lowered their interest rates with the Norges Bank unexpectedly lowering their deposit rate by 25bps to a record low 0.75%. 7 of the 17 surveyed analysts forecast a rate cut, citing weaker consumer and business surveys as well as a weaker oil outlook, however the majority of analysts believed that the central bank would hold off until later in the year.

As a result of the rate decision, NOK saw substantial weakness on the back of the release, slumping to its weakest level in more than 13 years versus the dollar after the nation’s central bank unexpectedly cut interest rates to an all-time low and said it may ease monetary policy further to support an economy that’s been battered by the collapse in oil prices.

The krone slid 2.1 percent to 8.4471 per dollar as of 10:11 a.m. London time after reaching 8.4861, the weakest since April 2002. It fell 2.3 percent to 9.4636 per euro, having touched 9.5076, the weakest level since Aug. 26. The Norwegian currency dropped the most against the Swiss franc among its major peers, slumping 2.7 percent. “The move is logical given what they did today,” Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm, told Bloomberg. “I thought it was equally likely that they would remain on hold and send a very dovish message, because the krone is already weak. The rate path was reduced substantially. It’s a very dovish message.”

Elsewhere the Taiwan central bank also unexpectedly cut their key interest rate by 12.5 bps to 1.75%, with the news reported by sources ahead of the official release.

So much for all that under appreciated global growth. As a result of the two latest rate cuts, expect the US to import even more deflation, making any case for a US rate hike that much more improbable.

Asian equity markets traded mixed following the tepid close on Wall Street, with Japan underperforming on return from the elongated weekend . Nikkei 225 (-2.8%) played catch up to the recent weakness seen in global equities as Japanese manufacturing PMI (50.9 vs. 51.2) missed expectations, with the auto sector also pressured as it reacts to the Volkswagen emission scandal. ASX 200 (+1.5%) was underpinned by gains in banking names, while Shanghai Comp. (+0.9%) is mildly positive, albeit off its best levels after the PBoC injected CNY 80Bn at a longer term of 14 days which resulted to a net weekly injection of CNY 40Bn vs. Prev. CNY 140Bn drain. JGBs traded higher amid softness in Japanese equities, while the BoJ also entered the market to purchase JPY 780b1n in government debt.

As noted above, European equity markets (Euro Stoxx: -0.7%) have swung between gains and losses, initially moving higher after the IFO data, before moving back into negative territory, weighed on by BMW (-8.5%) after reports in German press that BMW emission tests for their X3 model could show worse results than that of the Volkswagen Passat . Elsewhere, notable US earning reports today include Accenture before the open on Wall St and Nike after the closing bell.

Fixed income markets have seen muted price action so far in today’s session, with T-notes heading into US hours in modest negative territory ahead of the US USD 29b1n 7y Note auction, with the most recent auction saw the highest B/C since Nov’14.

The commodity market has seen strength this morning, bolstered by USD weakness with gold stronger by over USD 5, while WTI trades around the USD 45.00 handle to retrace some of the losses seen after yesterday’s DoE inventories saw a smaller drawdown than yesterday’s API headline, allied to an increase in US crude output. Looking ahead, today sees the EIA NatGas storage change data, expected to come in at 99bcf.

Of note Platinum fell to a 6-1/2-year low on Wednesday, on fears about reduced demand from the auto sector, where it is used in diesel catalysts to clean up exhaust emissions, while palladium, used in gasoline vehicles, surged 7 percent. Platinum has been hurt by news of Volkswagen AG’s falsification of U.S. vehicle emission tests as investors believed it could affect demand for diesel cars. The price of palladium, the predominant metal used in gasoline catalysts, rose on speculation that the Volkswagen scandal could increase demand for gasoline vehicles.

Key events on today’s calendar include US weekly jobs data and durable goods orders as well as comments from ECB’s Praet and Fed’s Yellen. Of note US data, including jobless claims, durables and home sales will be delayed today & not released to newswires 1st due to Pope’s visit.

Bulletin Headline Summary

  • European equity have been weighed on by BMW after reports in German press that the Co.’s emission tests for their X3 model could show worse results than that of the Volkswagen Passat
  • The Norwegian and Taiwanese central banks have both cut interest rates, taking the number of central banks to cut rates this year to 40
  • Today’s highlights include US weekly jobs data and durable goods orders as well as comments from ECB’s Praet and Fed’s Yellen. Of note US data, including jobless claims, durables and home sales will be delayed today & not released to newswires 1st due to Pope’s visit
  • Treasuries steady with global markets in disarray before Yellen speech at 5pm ET; week’s auctions conclude with $29b 7Y notes, WI yield 1.859% vs 1.930% in August.
  • Global stocks have fallen every day since Fed refrained from hike last week, with emerging market stocks falling more today, ZAR approaches record low, NOK tumbles after surprise rate cut
  • Norway’s central bank cut rates to an all-time low and said it may ease policy further as it seeks to rescue an expansion in western Europe’s biggest petroleum producer amid a plunge in oil prices
  • Germany’s Ifo institute business climate index climbed to 108.5, more than forecast, from a revised 108.4 in August; almost all responses were received before the news of Volkswagen AG’s emissions scandal
  • BMW AG fell as much as 9.3% after a German magazine reported that the X3 xDrive 20d sport utility vehicle emitted as much as 11 times the European limit for air pollution in a road test, adding to concern that the investigation weighing on Volkswagen AG may spread to other manufacturers
  • Martin Winterkorn amassed a $32 million pension before stepping down as CEO of VBW Wednesday, and may reap millions more in severance depending on how the supervisory board classifies his exit.
  • China’ leaders will further cut growth objective to 6.5%-7% for 2016, according to eight of 15 economists in a Bloomberg News survey conducted Sept. 17-22. Four said they expect a 6.5 percent goal.
  • Japan’s Abe unveiled a new economic growth target, switching his policy focus to children and the elderly after the passage of unpopular defense bills last week sparked scuffles in parliament and undermined public support
  • ECB handed EU15.5b to euro-area lenders in the fifth round of its long-term loan program to funnel money into the real economy; estimates in Bloomberg survey ranged from $35b- $120b
  • Wall Street is close to cutting billions of dollars from the cost of a derivatives rule as a debate among regulators over how tough the provision should be shifts in banks’ favor
  • Up and down the West Coast, home to the nation’s first $15 minimum wage laws, business owners are grappling with higher labor costs by experimenting with no-tip policies, employee ownership and trimming part-timers’ hours by working longer themselves
  • $7.7b IG priced yesterday, no HY. BofAML Corporate Master Index widens 1bp to +168; YTD range 172/129. High Yield Master II OAS holds at +598; YTD range 614/438
  • Sovereign 10Y bond yields mostly lower. Asian stocks mostly lower led by Nikkei, European stocks and U.S. equity-index futures decline. Crude oil, gold and copper gain


DB Conludes the overnight wrap

There wasn’t a whole lot of direction in markets yesterday. The initial soft opening we got in European equities on the back of the weak China manufacturing data was quickly cancelled out as the sectors which had tumbled on Tuesday, namely autos and miners, reversed course. ECB President Draghi made mention that the asset purchase programme has sufficient flexibility to increase the scope or size of purchases if necessary, but ultimately struck a somewhat cautious tone around emerging markets in particular. The US session was characterized by a decent selloff in the energy complex, while Atlanta Fed President Lockhart – who’s been busy of late – highlighted some concern around the divergence of market pricing of Fed liftoff timing versus what committee members think and also suggested that markets are overreacting to developments in China.

The end result was one of modest gains in European equity markets with the Stoxx 600 closing +0.09%, but markets across the pond failing to recover from the energy related weakness with the S&P 500 (-0.20%) and Dow (-0.31%) declining for the fourth session in the last five post last week’s FOMC decision. It’s been fairly quiet so far in terms of data but with capital and durable goods orders and new home sales data this afternoon in the US there should be a bit more for markets to sink their teeth into. Arguably, the bigger focus however will be on Fed Chair Yellen who is set to speak this evening (10pm BST). The speech is due to be on ‘inflation dynamics and monetary policy’ and while no Q&A is scheduled, given the uncertainty in markets since the Fed last week there will be a lot of investors hoping for some calming words from the Fed Chair. Before we get there, it’s straight to the latest in Asia.

Refreshing our screens, it’s been a fairly mixed start across bourses in Asia this morning. Mainland China bourses have seen modest gains, with the Shanghai Comp and CSI 300 up +0.27% and +0.20% respectively at the midday break. The Kospi (+0.07%) is also up a tad while the ASX (+1.15%) is leading gains this morning. Elsewhere, it’s been a weaker start for the Hang Seng (-0.93%), while Japanese equities appear to be playing catch up with the rest of the region after markets opened for the first trading session this week following a public holiday. The Nikkei and Topix have tumbled -2.11% and -1.66% respectively as we go to print. Not helping sentiment in Japan this morning was a softer than expected flash manufacturing PMI (50.9 vs. 51.2 expected), down 0.8pts from August.

Back to yesterday and starting with ECB President Draghi first of all. In his quarterly testimony to European Parliament lawmakers, Draghi’s comments came across as one which highlighted a sense of patience and caution most of all. Specifically he said that ‘more time is needed to determine in particular whether the loss of growth momentum in emerging markets is of a temporary or permanent nature’. He then went on to say that the ECB needs to look closer at assessing the driving forces behind the recent slump in commodities and market turbulence. There were however some more reassuring words with regards to the ECB’s reaction function. Draghi told the audience that the ‘asset purchase programme has sufficient in-built flexibility’ and that ‘we will adjust its size, composition and duration as appropriate, if more monetary policy impulse should become necessary’.

Meanwhile and speaking for the third time this week, the Fed’s Lockhart largely reiterated much of what we had already heard this week, although the policymaker highlighted that with regards to market pricing of Fed liftoff, ‘if the probabilities put on various dates are way out of whack with what the committee members seem to be thinking, I would be concerned about that’. On the subject of China, Lockhart was of the view that ‘China is slowing to a still respectable pace of growth’ and that ‘there is a decent chance that the world is overreacting’.

Price action in the rates space was fairly muted yesterday. 10y Treasury yields closed the session 1.6bps higher at 2.151%, while 2y yields finished up 2.5bps at 0.701%. It was a similar story in Europe with 10y Bunds up just shy up a basis point to 0.594%. Draghi’s comments supported a stronger day for the Euro which finished firmed 0.59%. Much of the price action was in the Oil complex however where WTI (-4.06%) tumbled back below $45/bbl. Brent (-2.71%) also fell and the latest leg lower came despite a decent drop in US crude stockpiles, although a buildup in Gasoline stockpiles seems to be largely attributed to yesterday’s weakness. That helped lead energy stocks lower in the US while closer to home there was a decent rebound for the bulk of European carmakers, led by Volkswagen which closed up over 5%.

Yesterday was also flash PMI day with the September composite reading for the Euro area coming in a tad softer than expected (-0.4pts to 53.9; 54.0 expected) but as our European Economics colleagues note, still broadly consistent with a quarterly growth projection in Q3 of +0.5% qoq. There were almost identical falls for both the manufacturing (-0.3pts to 52.0; 52.0 expected) and services (-0.4pts to 54.0; 54.2 expected) prints while regionally a fall in the German composite (-0.7pts to 54.3; 54.6 expected) was offset by a larger than expected rise in France (+1.2pts to 51.4; 50.4 expected). Our colleagues note that the monthly fall in the Euro area PMI was driven by the non-core countries and they calculate that the flash reading implies a one point decline in the composite PMI’s of Italy, Spain and Ireland on average. Over in the US, the flash manufacturing PMI showed no change relative to last month’s print at 53.0, although the data was a touch ahead of expectations of a fall to 52.8.

Looking ahead to today’s calendar now. Much of the focus this morning in the European timezone will be on Germany’s IFO survey for September. Elsewhere we’ll also get French confidence indicators out this morning as well as German consumer confidence. It’s a busy day for US data this afternoon. As mentioned the highlights are durable and capital goods orders and new home sales. On top of this, initial jobless claims, the Chicago Fed national activity index and the Kansas City Fed manufacturing activity index are also due. The aforementioned speech from Fed Chair Yellen this evening will also be a closely watched affair.





Let us begin:  Japanese stocks tumble right at the get go.  Chinese default risks rise and for the 4th day in a row, China lowers the value of the Yuan. By the end of the day, Japan closes down 498 points.


Wednesday night at 9:30/Thursday morning 9:30 am Shanghai time


(courtesy zero hedge)

Japanese Stocks Tumble After Holiday, China Default Risk Hits 2 Year Highs As Yuan Weakens For 4th Day

AsiaPac stocks are broadly lower at the open, following US’ lead as after being closed for 3 days, Japanese stocks open and catch down to global weakness with Nikkei 225 at 2-week lows. It appears it is time to “get back to work Mr.Kuroda,” as stocks are below Black Monday’s lows. Following last night’s dismal data, China credit risk rose once again to new 2 year highs. Once again, industrial metals are under pressure with iron ore, copper, and aluminum all lower (following “peak steel” comments). After 3 days of weakening (and Xi’s comments that China won’t weaken), PBOC weakend the Yuan fix again, pushing the offshore-onshore spread to 2-week wides (over 500 pips apart).


After 3 days of holidaying, selling resumes in Japanese stocks… ahead of tonight’s Japan PMI.



The good news to start the day in China, delveraging begins again…


As it appears the excitement of high beta fraud is back with ChiNext and Shenzhen outperforming this week…


But the path remains similar (albeit a little faster)…


Once again China injects more liquidity…


And industrial metals are all lower after…


But China default risk continues to leak higher…


Following Xi’s comments that China will not devalue the Yuan (and 3 days of devaluing the Yuan), PBOC weakened the Yuan fix again tonight…




Notably the spread between Onshore and Offshore Yuan has pushed to a 2-week high...


Charts: Bloomberg

The chart that has the 3 major central banks worried.  Why are they worried?  Simply because in Europe markets reacted positively to no stimulus. So if the ECB contemplates more QE, the market will take that as a negative.  If this travels to Japan and the USA, the game is over!
 (courtesy zero hedge)


“Why Has It Suddenly Stopped Working”: The Chart Every Trader Is Losing Sleep Over

In a must-read report which we will deconstruct shortly, Citi’s Matt King (who, as a reminder, is the person whose “Are the Brokers Broken” report issued in the first week of September 2008 was, according to many, one of the catalysts for Lehman’s failure simply by explaining to a largely clueless Wall Street just how broken the US financial system had become in late 2008) hits it out of the park with just one chart from his latest presentation, the chart which every market bull – whether they know it or not – is losing sleep over:  has the only thing that has worked in the past 7 years, namely the central bank QE transmission channel, broken down.

Or, as Citi’s Matt King notes in what may be the only chart which traders should be obsessing over, “why has it suddenly stopped working“, by which he means the market’s favorable reaction to central bank liquidity injections.

His question: “have central banks lost their touch” and points out that while in the past QE injections have always resulted in improving risk asset prices (in this case represented by junk bond returns), this time is different.

The answer will determine whether the next move in the market is 20% higher or lower.




European affairs:


First Portugal


It seems that our good bank/bad bank scenario in Portugal just went south.  The government could not sell the bad stuff.

This caused their budgets to skyrocket northbound and now Portugal is in trouble.


(courtesy zero hedge)

Budget Deficit Explodes Higher In Portugal After Government Throws In Towel On Bad Bank Sale


Just over a year ago, Portugal (which, you’re reminded,was just upgraded by S&P last week to BB+ stable) was forced to bailout the country’s second largest bank by assets Banco Espirito Santo. Here were the details, as dileneated by Bloomberg at the time:

  • Portugal may use the Resolution Fund to recapitalize Banco Espirito Santo, Diario Economico reports, citing unidentified people linked to the process.
  • Resolution Fund may inject more than €3 billion
  • A “bad bank” may be created for the toxic assets of the credit portfolio
  • Solution aims to rescue Banco Espirito Santo without spending taxpayers’ money, and is being prepared by the government and the Bank of Portugal
  • From Aug. 4, Banco Espirito Santo will leave the stock market and will be 100% owned by the Resolution Fund, an entity created in 2012 and financed by Portuguese banks and by revenue from the special contribution that the banking sector pays the Portuguese state
  • Resolution Fund will have to be given enough resources to capitalize Banco Espirito Santo, and according to legislation this can be done through a state loan or through a new special contribution imposed on the 84 institutions that contribute to the fund
  • Part of the €6.4b that the Portuguese state still has available in the bank recapitalization facility that was included in Portugal’s bailout program may also be used to give the Resolution Fund the necessary resources to capitalize Banco Espirito Santo
  • Portuguese authorities’ plans predict that the bank will be sold in the stock market within six months, with the proceeds from the sale being used to repay the Resolution Fund

The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) and use the proceeds to pay back the nearly €5 billion injected by the Resolution Fund.

Unsurprisingly, the auction process hasn’t gone so well for any number of reasons, not the least of which is that two potential bidders (China’s Anbang Insurance Group and Fosun International) suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs.

As WSJ reported a week ago, Portugal finally threw in the towel and with the future now entirely uncertain, the government’s contention that the bailout won’t end up costing taxpayers looks increasingly dubious. Indeed, today we learn that Portugal has revised its 2014 budget deficit higher by a whopping 60% thanks to the failure to liquidate Novo. Here’s Reuters:

Portugal on Wednesday reported a budget deficit of 7.2 percent of gross domestic product for 2014 after including the cost of a state rescue of Banco Espirito Santo, which raised the gap from 4.5 percent reported previously.


The Bank of Portugal has so far failed to sell Novo Banco – the “good bank” successor of Banco Espirito Santo – and recover the rescue funds after bids came in too low earlier this month.


INE said the Novo Banco cost was included as the bank was not sold within a year from the rescue in August 2014.


The government had previously insisted that the rescue loans should not be counted towards the deficit, but it was up to Eurostat to make the final decision.


The government argues that there will be no impact on public finances or a cost to tax payers because the bank had not been nationalised but received the money via the Bank Resolution Fund, which is the joint responsibility of all Portuguese banks.

As Reuters also notes, the country “faces a general election on Oct. 4, completed an international bailout in May last year and the government has pledged to keep its budget tight and cut the deficit below 3 percent in 2015.” Indeed, the opposition is set to use the deficit issue to show that the policies Portugal has adopted in an effort to appease the troika have been for nothing. Here’s Reuters again:

Campaigning for an Oct. 4 national election, Prime Minister Pedro Passos Coelho dismissed the revision from a previously reported 4.5 percent as a “statistical correction, without any influence on this year’s deficit prospects or impact on debt”.


But a spokesman for the main opposition Socialist party, which is neck and neck with the ruling coalition in opinion polls, said the new figure showed Passos Coelho had failed both to meet budget targets and to sell the rescued bank quickly.



The Socialists say the data showing the budget gap back at levels last seen in 2011, the peak of Portugal’s debt crisis, shows sacrifices made by its people under a bailout that imposed sharp austerity and exacerbated recession were in vain.

And although one certainly imagines that Brussels would consider the extraordinary circumstances before seeking to tighten the proverbial screws on Lisbon much as it did on Athens, an “undesirable” political outcome may mean the troika is less forgiving than they otherwise would be.

Finally, it’s worth noting that the relationship between Novo’s predecessor and a certain nefarious cephalopod (detailed exhaustively here) has predictably come back to haunt the bank as one reason for the fraught nature of the auction process this year was the uncertain fate of the infamous Oak Finance Luxembourg SPV which, as Portugal’s central bank so eloquently put it in April, was disrupting the liquidation effort “at a crucial stage of collecting definitive offers from potential buyers, [creating] uncertainty as to the configuration of the balance sheet” and creating a situation wherein bidders might be “subject to significant future risks of litigation.”

So in the end, taxpayers will likely be on the hook for the BES debacle despite all assurances to the contrary delivered by the government last year, and because we would hate for anyone to let this go without appreciating how truly absurd the backstory is, we’ve included the background below for those interested to know more.

*  *  *(for the background of the story/see zero hedge)






And now Germany:

Is Volkswagen about to unless the next huge deflationary wave throughout the globe as inventory levels at the peak maximum and then trouble throughout this mega exporting country due to the cheating at WV


(courtesy zero hedge)



Is Volkswagen About To Unleash The Next Deflationary Wave?

With the new car bubble peaking, and the world’s automakers having ramped up production across the globe after seeing Fed-driven signals that all is well and all is going to get better…


…the slowdown in China already has many hitting the panic button (with production plunging, capacity utilization tumbling, and workweeks tumbling).


With this week’s ‘exogenous’ diesel-defect ‘event’, the inventory-problem that US automakers are facing…


…is nothing compared to the potentially catacylysmic wave of deflationary pricing (and deflationary lack of demand for raw materials) that VW faces with its record inventory.


Inventories of Finished Goods…

Charts: Bloomberg

The last time inventories spiked on this scale… right into an ‘exogenous’ event… it ended very very badly!

Think we are exaggerating, think again… (via Reuters)

The Volkswagen emissions scandal has rocked Germany’s business and political establishment and analysts warn the crisis at the car maker could develop into the biggest threat to Europe’s largest economy.


Volkswagen is the biggest of Germany’s car makers and one of the country’s largest employers, with more than 270,000 jobs in its home country and even more working for suppliers.


Volkswagen Chief Executive Martin Winterkorn paid the price for the scandal over rigged emissions tests when he resigned on Wednesday and economists are now assessing its impact on a previously healthy economy.


“All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis,” ING chief economist Carsten Brzeski told Reuters.


“If Volkswagen’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole,” he added.


Volkswagen sold nearly 600,000 cars in the United States last year, around 6 percent of its 9.5 million global sales.



In 2014, roughly 775,000 people worked in the German automobile sector. This is nearly two percent of the whole workforce.


In addition, automobiles and car parts are Germany’s most successful export — the sector sold goods worth more than 200 billion euros ($225 billion) to customers abroad in 2014, accounting for nearly a fifth of total German exports.


“That’s why this scandal is not a trifle. The German economy has been hit at its core,” said Michael Huether, head of Germany’s IW economic institute.

Some observers also see some irony in the scandal.

While the German economy defied the euro zone debt crisis and, so far, the economic slowdown in China, it could now be facing the biggest downside risk in a long while from one of its companies.


“The irony of all of this is that the threat could now come from the inside, rather than from the outside,” Brzeski said.

When the largest carmaker in the world faces a sudden (and extremely likely) implosion in sales at the same time as holding a record inventory having ramped at a record pace in the last two quarters, the ripple through into the German economy, European economy, and world economy is extremely deflationary… which leaves only one thing – Moar QE, or QQE, or Q€.

*  *  *

And, as we explained before, if you are relying on more easing from The PBOC… it has made absolutely no difference whatsoever in the past 10 years…

Charts: Bloomberg

And all of this on top of the fact that the subprime auto loan market is set to collapse…

To sum up…

  • The only way automakers are making sales is by lowering credit standards to truly mind-numbing levels and increasing residuals to make the monthly nut affordable…. that cannot last.
  • China’s economic collapse has crushed forecasts for the automakers.
  • Inventories of new cars are already at record highs.
  • Inventories of luxury high-quality used cars are at record highs and prices are tumbling.
  • And July saw a massive surge in production.
  • What comes next is simple… a production slump

We’re gonna need a German bailout… or more chemical plant explosions…

And the DAX collapses!!!
(courtesy zero hedge)

DAX Crash Continues – Closes Below Black Monday At 10-Month Lows

For USD investors, the collapse in German stocks has crushed returns to the lowest in 2 years. DAX’s collapse this week leaves it closing at Black Monday lows, the lowest since Dec 2014. Perhaps most stunning is German stocks down over 20% since Q€ began



Absent Black Monday, this is the worst 5-day run for German stocks since the middle of the EU crisis in August 2011.


Charts: Bloomberg

And now France:

French Joblessness Surges To Record High

Since Francois Hollande was elected (in May 2012), France has seen its joblessness ranks rise 36 of 39 months by a stunning 648,000. The lastest month added another 20,000 as it appears the brief respite in June and July is well and truly over. At 3.571 million, this is the highest number of jobseekers France has ever had

Record high joblessness, well played Hollande!


Is it time for a convergence?


Charts: Bloomberg

 Martin Armstrong….


(courtesy Martin Armstrong)

The New European Normal – “If You Cannot Tell The Truth, Hide The Truth”

Perhaps Volkswagen is the best most recent example of “lying when it’s important” but as Martin Armstrong, the European Union’s leadership (elected and unelected) are the kings of hiding the truth when it matters. As he warns, “if you do not know whom to trust, distrust everyone.”

The motto of the ECB is plain and simple: why reform when we still have some power?


Governments will fight until the last drop of blood is spilled; they assume it will be your blood, not theirs. We will see the opposite of transparency unfold along with a rush to eliminate cash. This will force Europeans into electronic money for that is the solution to prevent bank runs. The head economist of the Deutsche Bundesbank warned that the ECB cannot afford to tell the people the truth about banking for it may lead to bank runs.



The banking crisis in Europe is huge because bank reserves are a mixture of sovereign debt from each member state. The only way to prevent this potential banking failure crisis is to withhold the results of bank stress tests from the public.


The ECB is most likely going to follow this advice to prevent the public from knowing which banks are in the worst shape.


If you do not know whom to trust, human nature will distrust everyone.


Scandinavian affairs:  (and Taiwan)
The race to the bottom accelerates with great speed as Norway and Taiwan cut their rates.
(courtesy zero hedge)

Global Easing Bonanza Continues As Norway, Taiwan Cut Rates To Spur Struggling Economies

On several occasions this year we’ve profiled Norway where the central bank, much like the Riksbank in neighboring Sweden, is walking a fine line between keeping rates low to support the economy (not to mention remain competitive in the global currency wars) and being mindful of the effect low rates have on an overheating housing market.

Like the Riksbank, The Norges Bank is in a tough spot. The property bubble quite clearly needs to be arrested but using monetary policy to rein in the housing market means leaning hawkish in a world of DM doves and that can be exceptionally dangerous especially when your economy is heavily dependent on oil and crude prices are crashing.

Indeed, the pain from low oil prices has become so acute that Norway may ultimately be forced to tap its $900 billion sovereign wealth fund in order to avoid fiscal retrenchment.

Given the above, no one was surprised (well, no one except PhD economists, most of whom got this one wrong) when the Norges Bank cut rates on Thursday, taking the overnight depo rate to a record low of 0.75%. Here’s Bloomberg:

Norway’s central bank cut interest rates to an all-time low and said it may ease policy further as it seeks to rescue an expansion in western Europe’s biggest petroleum producer amid a plunge in oil prices.


The overnight deposit rate was lowered by 25 basis points to 0.75 percent, the Oslo-based central bank said Thursday.The move was forecast by seven of the 17 economists surveyed by Bloomberg, with the remainder expecting no change. The bank forecast its rate may fall as low as 0.59 percent in third quarter of next year. The krone plunged 2 percent against the euro on the news, its biggest drop since August.


“Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out,” Governor Oeystein Olsen said in a statement


After easing policy in June, Olsen signaled as much as a 70 percent chance of another rate cut this autumn. Since then, oil prices have dropped about 25 percent. That has driven down the krone by about 7 percent against the euro in the period, pushing inflation above the central bank’s 2.5 percent target.


The collapse in oil prices is already taking its toll on the $500 billion economy. Mainland growth slowed to 0.2 percent in the second quarter while total output shrank 0.1 percent. Unemployment is now hovering at the highest since 2006 as oil companies have cut more than 20,000 jobs.

Of course the FOMC’s “clean relent” was a factor as the following (again from Bloomberg) makes clear:

Governor Oeystein Olsen Says Fed’s decision to hold rates earlier this month came at a time when “interest rate expectations were down when we compared it with our previous estimates. The decision by the Fed supported that picture. It was not decisive, it underlined and strengthened our picture”


Says “all central banks are waiting for the Fed. There are a number of challenges with continuing in a low interest- rate world that have spillover effects on smaller economies. The low interest rate level in Norway is explained by the fact that rates internationally are at a very low level. That will be important for everybody


Says is ‘‘aware that lower rates could fuel the housing market. There are other forces in play here: the general increased slack in the economy — increased unemployment — stricter lending conditions in banks which are now imposed by the ministry. We already see and hear that it has had some effect on bank behavior. Most importantly, there are other considerations for guiding our interest rate decision — the outlook for the Norwegian economy is slightly worse than what we saw in June”

And here’s Goldman’s take:

Norges Bank cut its policy rate path today by 25bp to 0.75%. Uncertainty ahead of today’s decision was very high. Our base case was for no change, but we had pencilled in an almost equal risk of a cut. The consensus expectation was also for no cut, but only marginally so (Cons, GS: 1.0%). Norges Bank adopted something close in line with our alternative scenario, whereby the fall in oil prices was seen as materially affecting the economic outlook (via weaker offshore oil investments) and the recent upside surprise to inflation was seen as more transitory, resulting in a cut and the adoption of a dovish policy rate path. This path indicates around a 60%-70% probability of another cut over the coming year. In addition, the adopted path remains low and flat for most of 2017 and 2018. The revision to mainland growth was nevertheless small, while inflation in the coming two years was revised up.


All of the above served to send NOK plunging to a 13-year low against the dollar and a YTD low against Sweden’s krona (paging Stefan Ingves: Sweden is still losing in the currency wars):

Bottom line: if the now ubiquitous “lower for longer” crude thesis plays out, and if the ECB ends up plunging further into NIRP and dragging the Riksbank and the SNB with it, don’t be surprised to see Norway cut further even if doing so means exacerbating the housing bubble.

Meanwhile, in Taiwan, the central bank cut rates for the first time since 2009 overnight and it’s not too difficult to guess why. The yuan devaluation depressed onshore demand just as it weighed on regional export competitiveness and ultimately, Taiwan simply couldn’t afford to hold out any longer. Here’s Bloomberg:

Taiwan lowered its policy rate for the first time since the global financial crisis, sending forwards on the island’s currency to a six-year low.


The central bank cut the benchmark discount rate by 12.5 basis points to 1.75 percent, it said in a statement in Taipei on Thursday. Eleven of 24 economists surveyed by Bloomberg predicted a cut, while the remaining 13 had expected the rate to be held for the 17th straight quarter.


Taiwan’s economy is slowing as its technology exports are weighed by increased competition from China, where growth is also moderating. The island’s expansion rate for the third quarter will be lower and inflation is subdued, central bank Governor Perng Fai-nan said at a press briefing after the rate decision was announced.


Speculation of a rate cut mounted as the island’s economic outlook deteriorated. In June, only two of 26 economists polled by Bloomberg expected a reduction in 2015, with three seeing a hike. Expectations for steady policy had helped make Taiwan’s dollar among the best performing emerging-market currencies this year as central banks from China to India all eased cash supply.


Like the rest of Asia, Taiwan is suffering from weaker exports and growth with the only surprise being that the central bank hadn’t cut before today, said Gareth Leather at Capital Economics Ltd. in London.

“It’s Taiwan playing catch up.”

So in short, the global currency wars continue unabated as a combination of a dovish Fed, lackluster global demand, and slumping commodity prices conspire to accelerate the race to the bottom.

As we never tire of reminding the world’s central banks, incessant rate cutting and the persistence of ultra accommodative monetary policy comes with very real risks including, but certainly not limited to, property bubbles like those seen in Norway and Sweden, and the irony is that when these risks finally manifest themselves in crisis, central banks will be in no position to respond because they will have exhausted their counter-cyclical breathing room by pushing forward with the very same policies that created the crises in the first place.


The emerging market currency carnage continues as 4 of our major commodity countries are in serious trouble as they sell dollars in the hope of salvaging their currency.  The 4 countries in trouble are Brazil, Turkey, South Africa, and now Mexico as their twin deficits (current account and fiscal) blow up.
Early this morning;
(courtesy zero hedge)

Currency Carnage: The Global FX Heatmap Is A Bloodbath

If it was Janet Yellen’s intention when deciding not to hike rates to stop the surge of the USD against emerging market currencies in hopes of halting the relentless global capital outflows and the resulting Quantitative Tightning, to avoid a new global currency crisis… she failed.

As of this moment, at least four EM currencies had crashed to record lows against the dollar:

  • the Brazilian Real
  • the Turkish Lira
  • the Mexican Peso
  • the South African Rand

Expect many more to follow.

Here is the carnage for the key pairs:

And the heatmap for today:

And over the past 52 weeks:

With the carnage acelerating since Yellen “checkened out”…

Charts: Bloomberg

Russian and USA relations:
Putin makes the decision to knock out ISIS with or without USA help. Checkmate Mr Obama!!
(courtesy zero hedge)

Endgame: Putin Plans To Strike ISIS With Or Without The U.S.

On Sunday, we noted that Washington’s strategy in Syria has now officially unravelled.

John Kerry, speaking from London following talks with British Foreign Secretary Philip Hammond, essentially admitted over the weekend that Russia’s move to bolster the Assad regime at Latakia effectively means that the timing of Assad’s exit is now completely indeterminate. Here’s how we summed up the situation:

Moscow, realizing that instead of undertaking an earnest effort to fight terror in Syria, the US had simply adopted a containment strategy for ISIS while holding the group up to the public as the boogeyman par excellence, publicly invited Washington to join Russia in a once-and-for-all push to wipe Islamic State from the face of the earth. Of course The Kremlin knew the US wanted no such thing until Assad was gone, but by extending the invitation, Putin had literally called Washington’s bluff, forcing The White House to either admit that this isn’t about ISIS at all, or else join Russia in fighting them. The genius of that move is that if Washington does indeed coordinate its efforts to fight ISIS with Moscow, the US will be fighting to stabilize the very regime it sought to oust. 

Revelations (which surprised no one but the Pentagon apparently) that Moscow is coordinating its efforts in Syria with Tehran only serve to reinforce the contention that Assad isn’t going anywhere anytime soon, and the US will either be forced to aid in the effort to destroy the very same Sunni extremists that it in some cases worked very hard to support, or else admit that countering Russia and supporting Washington’s regional allies in their efforts to remove Assad takes precedence over eliminating ISIS. Because the latter option is untenable for obvious reasons, Washington has a very real problem on its hands – and Vladimir Putin just made it worse.

As Bloomberg reports, The Kremlin is prepared to launch unilateral strikes against ISIS targets if the US is unwilling to cooperate. Here’s more:

President Vladimir Putin, determined to strengthen Russia’s only military outpost in the Middle East, is preparing to launch unilateral airstrikes against Islamic State from inside Syria if the U.S. rejects his proposal to join forces, two people familiar with the matter said.


Putin’s preferred course of action, though, is for America and its allies to agree to coordinate their campaign against the terrorist group with Russia, Iran and the Syrian army, which the Obama administration has so far resisted, according to a person close to the Kremlin and an adviser to the Defense Ministry in Moscow.


Russian diplomacy has shifted into overdrive as Putin seeks to avoid the collapse of the embattled regime of Bashar al-Assad, a longtime ally who’s fighting both a 4 1/2 year civil war and Sunni extremists under the banner of Islamic State. Israeli Prime Minister Benjamin Netanyahu flew to Moscow for talks with Putin on Monday, followed by Turkish President Recep Tayyip Erdogan on Tuesday.


Putin’s proposal, which Russia has communicated to the U.S., calls for a “parallel track” of joint military action accompanied by a political transition away from Assad, a key U.S. demand, according to a third person. The initiative will be the centerpiece of Putin’s one-day trip to New York for the United Nations General Assembly on Sept. 28, which may include talks with President Barack Obama.


“Russia is hoping common sense will prevail and Obama takes Putin’s outstretched hand,” said Elena Suponina, a senior Middle East analyst at the Institute of Strategic Studies, which advises the Kremlin. “But Putin will act anyway if this doesn’t happen.”

And that, as they say, it that. Checkmate.

The four-year effort to oust Assad by first supporting and then tolerating the rise of Sunni extremists (presaged in a leaked diplomatic cable) has failed and the Kremlin has officially served a burn notice on a former CIA “strategic asset.”

There are two things to note here.

First, Russia of course is fully aware that the US has never had any intention of eradicating ISIS completely. As recently as last week, Moscow’s allies in Tehran specifically accused Washington of pursuing nothing more than a containment policy as it relates to ISIS, as allowing the group to continue to operate in Syria ensures that the Assad regime remains under pressure.

Second, even if Russia does agree to some manner of managed transition away from Assad, you can be absolutely sure that Moscow is not going to risk the lives of its soldiers (not to mention its international reputation) only to have the US dictate what Syria’s new government looks likeand indeed, Tehran will have absolutely nothing of a regime that doesn’t perpetuate the existing Mid-East balance of power which depends upon Syria not falling to the West. Additionally – and this is also critical – Russia will of course be keen on ensuring that whoever comes after Assad looks after Russia’s interests at its naval base at Tartus. This means that even if the US, Saudi Arabia, and Qatar are forced to publicly support a managed transition, Washington, Riyadh, and Doha will privately be extremely disappointed with the outcome which begs the following question: what will be the next strategy to oust Assad and will it be accompanied by something even worse than a four-year-old bloody civil war and the creation of a band of black flag-waving militants bent on re-establishing a medieval caliphate?



Are they nuts????.  If Ukraine joins NATO that will be the straw that broke the camel’s back.  Putin will not stand for that.  Expect nukes in Kaliningrad.
(courtesy Tass/Moscow) and special thanks to  Robert H for sending this to us

Kremlin: Ukraine’s plans to join NATO to force Russia to take countermeasures

September 22, 20:59 UTC+3

The plans which are being declared by the Ukrainian leaders can only be regretful, Kremlin spokesman says
President of Ukraine Petro Poroshenko (left) and NATO Secretary-General Jens Stoltenberg (right)

President of Ukraine Petro Poroshenko (left) and NATO Secretary-General Jens Stoltenberg (right)

© Nikolay Lazarenko/Ukrainian president’s press service/TASS

MOSCOW, September 22 /TASS/. Ukraine’s plans to join NATO will force Russia to take countermeasures, Kremlin Spokesman Dmitry Peskov warned on Tuesday.

“Of course, any expansion of an organization like NATO in the direction of our borders will make it imperative for us to take countermeasures to ensure our own national security,” Peskov told TASS.

He said that President Putin had warned about that many times. “The plans which are being declared by the Ukrainian leaders can only be regretful,” the Kremlin spokesman went on to say.

Ukrainian President Petro Poroshenko told a meeting of the Council for National Security and Defense in Kiev on Tuesday that Ukraine’s cooperation with NATO was strategic. He also said that Ukraine and NATO had never been closer than they were today. NATO Secretary-General Jens Stoltenberg took part in the meeting.

“Naturally, NATO has never changed and is incapable of changing its intended purpose given the initial goals behind its creation,” the Kremlin spokesman said.

“In this case we should remember that this organization was created for the purpose of confrontation and at the time of confrontation,” Peskov explained adding that NATO could not change its nature and the main purpose of existence.





In the Middle East:


Just unbelievable!!

Over 717 Die In Saudi Arabia Following Deadliest Stampede In Hajj History

Perhaps when a crane fell on the Grand Mosque in Mecca on September 11, resulting in over 87 deaths, following what some said was lightning striking, perhaps it was indeed a sign.

Overnight, while the western world was following every twist of the Pope’s visit to the US and the spreading impact Germany’s “Diesel Swan”, the Muslim world was again focused on Mecca where the first day of the Eid al-Adha, one of the holiest holidays in the Muslim calendar took place when millions of Muslims make their pilgrimage, or hajj, to Mecca.

And like on many previous occasions, the Muslim pilgrimage to Mecca once again led to a tragic loss of life in what may be the deadliest stampede in pilgiramge history when at least 717 people died and another 805 were injured.

According to the NYT, the deaths occurred around 9 a.m., on the first day of Eid al-Adha, as millions of Muslims were making their pilgrimage, or hajj, to Mecca. The accident took place at the intersection of two roads in Mina, causing many to fall and others to panic, according to Saudi Arabia’s civil defense directorate.

BBC adds that the incident happened when there was a “sudden increase” in the number of pilgrims heading towards pillars, the statement said.

This “resulted in a stampede among the pilgrims and the collapse of a large number of them”, it added.

Security personnel and the Saudi Red Crescent were “immediately” deployed to prevent more people heading towards the area, the directorate said.

What is perplexing is that while today’s may be the most bloody stampede in hajj history, it will merely be the latest in a long series of tragic events which seemingly lead to absolutely no change whatsoever. The following is a list from the Daily Sabah listing the history of deadly hajj events over the years.


  • September 24: A stampede during the “stoning of the devil” ritual in Mina, near Mecca, leaves at least 453 people dead and 719 injured.
  • September 11: 109 people are killed and hundreds injured, including many foreigners, when a crane collapses on Mecca’s Grand Mosque after strong winds and heavy rain.


  • January 6: 76 people die when a hotel collapses in the city center.
  • January 12: 364 pilgrims are killed in a stampede during the stoning ritual in Mina.


  • January 22: Three pilgrims are crushed to death in a stampede at the stoning ceremony in Mina.


  • February 1: 251 people are killed in a stampede at Mina.


  • February 11: 14 faithful, including six women, die on the first day of the stoning ritual.


  • March 5: 35 pilgrims, including 23 women, die at the ritual in Mina.


  • April 9: More than 118 people are killed and 180 injured in a stampede at Mina.


  • April 15: A fire caused by a gas stove rips through a camp housing pilgrims at Mina, killing 343 and injuring around 1,500.


  • May 7: Three people die and 99 are injured when a fire breaks out at the Mina camp.


  • May 24: 270 people are killed in a stampede during the stoning, an incident authorities attribute to “record numbers” of pilgrims at the site.

* * *

Which brings us to today, when the at least 453 dead is one of the largest stampede death tolls in hajj history, which already may have found a scapegoat: according to Al Jazeera, the head of Central Hajj Committee Prince Khaled al-Faisal blamed the stampede on “some pilgrims from African nationalities.

Of course, it had nothing to do with the organizers repeating the same mistakes over and over and never actually learning.

Meanwhile, this is how the tragedy looked through the lens of Twitter:


Emerging markets;
as mentioned above emerging market currency carnage continues:
(courtesy zero hedge)

Despite Fed ‘Fold’, Emerging Market Currency Carnage Continues

Having cited China and EM concerns, The Fed’s chickening out from a rate-hike was ‘supposed’ to provide some support from the drastically derisking emerging markets of the world… it did not. In fact, MSCI Emerging Market FX index just crashed to its lowest since September 2009 with Brazil, South Africa, and Indonesia seeing the biggest plunges post-Fed.


New 6 year lows for EM FX… (lowest since 9/7/09)


But a look at the underlying names shows serious carnage…


And post-Fed, it’s ugly in Brazil…



Charts: Bloomberg



A huge story for today.  Petrobras default risks become larger and larger.  These guys have a total of 134 billion USA equivalent debt with 90 billion of that in USA dollar denominated debt.  As China continues to devalue, then scarce USA dollars will leave Brazil as risks increase.


Petrobras is a powder keg…


(courtesy zero hedge)

Petrobras Default Looms Under $90B Dollar-Denominated Debt

There is blood on the streets wherever you look in Brazil today, but probably of most interest to the hundreds of US asset managers (the ones managing your mutual funds) is what happens to Petrobras as it remains so widely held. As we noted below, bond prices are collapsing and default risk is soaring, and with the nation’s currency collapsing amid the lower-for-longer oil prices, $90 billion of dollar-denominated debt could soon potentially be too burdensome for the company to repay.

Default Risk is exploding…

And as New York Shock Exchange details,

S&P recently lowered Brazil’s credit rating to junk status. It later downgraded 60 corporate and infrastructure entities in Brazil, including cutting Petrobras (NYSE:PBR) two notches to “BB.” Petrobras has been reeling from acorruption scandal that reportedly involved Petrobras’ executives and directors awarding suppliers over-inflated contracts in exchange for kickbacks. The scandal has cost the company billions of dollars, and has been a blow to the reputation of Brazil’s President Dilma Rousseff.

PBR is off about 70% over the past year, versus a 50% decline for the Brazilian ETF (NYSEARCA:EWZ) and flat growth for the S&P 500 (NYSEARCA:SPY). Investors should continue to avoid PBR for the following reasons:

Stagnant Revenue And Earnings

When it rains, it pours for Petrobras. In addition to the corruption scandal, a free fall in oil prices has stymied the company’s revenue growth. For the first half of 2015, Petrobras’ revenue was down 27% Y/Y from $71.4 billion to $52.0 billion, while EBITDA growth was flat. EBITDA margin increased to 26% in the first half of 2015 from 19% in the year-earlier period, as the company slashed cost of sales, SG&A expense and R&D.

To stem cash burn, Petrobras slashed its five-year capital spending by 40% and has been cancelingdrilling contracts with suppliers such as Sete Brasil and Vantage Drilling (NYSEMKT:VTG). These are prudent steps given that oil prices are off 60% from their Q2 2014 peak and the global economy is showing signs of slowing. If sub-$60 oil prices are the new normal, stagnant revenue and earnings growth may be in the cards regardless of the company’s cost-cutting measures.

$90B Dollar-Denominated Debt

Zero interest rates in the U.S. have prompted investors to look to emerging markets for higher yields. Investors have provided dollar-denominated debt to companies like Petrobras at higher rates than U.S. treasuries, but lower than what companies in emerging markets could get locally. Borrowing in dollars and paying in Brazilian real had previously not been a problem.


However, the real has depreciated over 38% against the dollar over the past year, making un-hedged dollar-denominated debt prohibitively expensive.

In Q2, Petrobras had $134 billion in debt load, which equated to about 4.9x run-rate EBITDA – junk levels.About 70% (over $90 billion) of that was dollar-denominated, which means that it will probably take more real for Petrobras to repay its debt going forward.

If China continues to devalue the yuan or if the U.S. raises interest rates, it could spur more capital flight out of Brazil and pressure the real further. Either way, I believe Petrobras’ dollar-denominated debt will appreciate to levels that could potentially become too burdensome for the company to repay.





Then late in the morning, the Brazilian real tumbled again: now at 4.21 reals to the dollar.

The real has fallen from 1.70 reals a few years ago to the dizzy heights of 4.21.  There is a lot of blood on the streets.


(courtesy zero hedge)


An Un”real” Move: Brazil Currency In Freefall After Record Low Consumer Confidence

On Wednesday, we got what might fairly be characterized as the first sign that Brazil has reached the point of no return. 

The country’s recent woes are no secret and the S&P downgrade served notice to the entire world that that at least some very “serious” people believe that the negative feedback loop between the country’s economic and political crises may soon serve to tip one of the world’s most important emerging economies into chaos.

But what happened on Wednesday marked a new low. By almost all accounts, the move by Brazilian lawmakers to uphold 26 of President Dilma Rousseff’s 32 expenditure vetoes should have given the plunging real some respite. Only it didn’t. The BRL’s harrowing slide continued unabated, forcing the central bank to intervene with swaps and an FX credit line in what Rabobank’s Christian Lawrence says is a pretty clear sign of “panic”.

The fact that the currency did not stabilize after Rousseff’s vetoes were upheld seems to indicate that, at least in the near-term, nothing can stop the BRL from falling further and indeed that assessment is consistent with the idea that a prolonged period of currency weakness is necessary if Brazil is to mark a proper “adjustment.” 

On the heels of Wednesday’s carnage it wasn’t hard to predict what would happen on Thursday and sure enough, the BRL is plunging anew after consumer confidence for September came in at the lowest level on record.

The headline print was 76.3, but as you can see from the following look at the subcomponents, there’s a marked disconnect between reality and “hope”:

Here’s Reuters:

Brazilian consumer confidence fell to an all-time low for a third straight month in September as a deepening political crisis stoked pessimism among families already struggling with inflation and unemployment, a private survey showed on Thursday.


The Getulio Vargas Foundation (FGV) said its confidence index fell to 76.3 in September, the lowest since the data series began in 2005, from 80.6 in August.


“It will take a sequence of good economic news and the political tensions to ease in order to change this scenario,” FGV economist Viviane Seda Bittencourt said in the data release posted on FGV’s website.

Yes, a “sequence of good economic news and the easing of political tensions” is necessary, and because neither of those things has any chance of actually happening, don’t expect Brazilians’ outlook to brighten any time soon.

We also got a look at unemployment for August and the picture wasn’t pretty there either, as the 7.6% print represents a remarkable increase from a year ago, when unemployment stood at just 5%. “We expect the labor market to deteriorate further. Policy tightening, depressed consumer and business confidence, and tighter financial conditions are expected to lead to deep recession in 2015-16, visibly higher unemployment rates in 2015 and 2016, and declining real wage growth,” Goldman laments.

Meanwhile, the central bank is out with its latest quarterly inflation report which unsurprisingly suggests that pass-through from the BRL debacle will weigh heavily going forward. Here are the bullets:

  • BRAZIL’S 2016 CPI AT 5.4% IN MKT OUTLOOK; WAS 5.1%
  • BRAZIL’S 2015 CPI AT 9.5% IN MKT OUTLOOK; WAS 9.1%

Here’s Goldman on why, despite the outlook for inflation, a Selic hike isn’t likely:

In all, notwithstanding the deep economic recession and depressed consumer and business sentiment, the current balance of risks for short-term inflation is not favorable and demands that at the least monetary policy remains vigilant. And one could argue that given the drifting currency, deterioration of inflation expectations and expected weaker contribution of fiscal policy to disinflate the economy, the balance of risk for inflation would demand additional near-term rate hikes in order to really force inflation down to the target by end-2016. However, given the rapidly deteriorating real activity picture and heightened political/institutional noise and uncertainty, near-term rate hikes are unlikely (unless the authorities fail to stabilize the currency). After all, the Copom has been reiterating that “the remaining risks for the secure convergence of projected inflation to the target in 2016 are consistent with the lagged and cumulative impact of the monetary policy actions, but demand that monetary policy remains vigilant in case of significant deviations of projected inflation from the target.”


Notwithstanding the fact that projected inflation for year-end 2016 has deviated further from the 4.50% target we are of the view that rather than additional Selic rate hikes the Copom will instead opt to keep the policy rate at the current 14.25% restrictive level for a longer period of time in order to continue to disinflate the economy and assure convergence of inflation to the target by some time in 2H2017.After all, according to our proprietary Real Financial Conditions Index (FCI), overall financial conditions have tightened very significantly in recent weeks (driven by the steepening of the yield curve and higher CDS spreads), and will likely turn even more restrictive/contractionary by 1Q2016 when, due to high base effect, headline inflation is projected to moderate to below 8% from a projected 9.5% in 2015. Furthermore, the current level of macroeconomic and political uncertainty is so high that more negative and disruptive tail-event economic scenarios cannot be altogether ruled out.


The takeaway there is that the gap between Copom’s target and reality is widening.

And then there was this:


So in other words, the inflation-growth outcome (i.e. stagflation) is set to get materially worse after hitting a decade low in Q2, which of course means consumer confidence will continue to make new lows and that, in turn, portends further trouble in the most important indicator of all for Brazil, shown in the following chart:

*  *  *

Bonus chart (CDS still blowing out to post-Lehman wides):

Brazil Inflation Report





Oil related stories:



the medium sized shale boys are having difficulty tapping the bond market as they struggle to pay back their huge debt:


(courtesy zero hedge)


The Shale Party’s Over: “Closed” Bond Market Means “Restructuring Is Inevitable”

With the market’s perceived risk of default across the energy space at record highs, it should be no surprise that willingness to lend (even for the greater-fool reach-for-yielders) is collapsing. As Bloomberg reports, oil services companies are finding alternative ways to raise cash and repay debt after falling crude prices has made it difficult for them to get funding from traditional sources. As one restructuring firm warned, “bond markets are closed for these companies, especially small ones, and banks may not be lending to them at this stage,” with another ominoulsy warning, “getting new liquidity in this market could be a painful exercise. For many companies, financial restructuring seems inevitable.”


Credit risk for Energy firms has exploded…

As Bloomberg Briefs reports, energy companies are being shut out of bond markets and lenders are reducing credit lines after prices dropped about 60 percent from last year’s peak.


Services companies in Europe are starting to run out of cash as producers from Royal Dutch Shell Plc to Petroleo Brasileiro SA cut their own investments and delay projects.


“Bond markets are closed for these companies, especially small ones, and banks may not be lending to them at this stage,” said Nigel Thomas, partner at law firm Watson Farley & Williams in London. “Services companies need to buy time to survive during the downturn and alternative investors are able to give them that, albeit at a very expensive cost.”


Bonds issued by oil-services businesses globally dropped to $6.7 billion this year, on pace for the least in a decade, according to data compiled by Bloomberg. French oilfield surveyor CGG SA said it had to cancel a loan in July because banks had offered unfavorable terms.


Charts: Bloomberg


Energy-services companies are searching for new investors and funding strategies as even lenders of last resort pull back.Hedge funds and private-equity firms that previously sought to lend at high rates are becoming reluctant to step in after getting stuck with losing positions.

*  *  *

However, the situation is even worse than that, as The Wall Street Journal reports, banks are clashing with regulators over loan reviews that could crimp the flow of new credit to the oil patch.

The dispute is focused on the relatively narrow issue of loans secured by oil and gas companies’ reserves, but it highlights the much broader point of how postcrisis regulation of the financial industry is affecting sectors far from Wall Street.


On one side are the bankers who have been grappling with the plunge in oil prices and the need to shore up billions of dollars in credit extended to the energy industry. On the other are regulators eager to prevent another financial crisis while not knowing what it might be.


Caught in the middle are the small- and medium-size exploration and production companies that rely on credit lines that use their energy reserves as collateral. Banks are now beginning their fall reviews of the quality of that collateral and worry regulators could ding them for making loans the banks think are prudent.



“We disagree with the regulators,” said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry trade group. “These are good loans, they have a history of performing…we think their analysis is incorrect on this.”

*  *  *

So far, the regulators’ approach is winning out.

“It all flows downhill,” said Steve Moss, a bank analyst at Evercore ISI. “If the regulators are going to be tougher on the banks, expect the banks to be tougher on the borrowers.”

*  *  *

Leaving the endgame inevitable…

“The service industry is under enormous pressure as oil companies continue to strive for significant cuts,” said Terje Fatnes, an analyst at SEB Enskilda AS in Oslo.“Getting new liquidity in this market could be a painful exercise. For many companies, financial restructuring seems inevitable.”



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

Euro/USA 1.1242 up .0054

USA/JAPAN YEN 119.62 down .601

GBP/USA 1.5240 down .0006

USA/CAN 1.3369 up .0042

Early this Thursday morning in Europe, the Euro rose by 54 basis points, trading now well above the 1.12 level rising to 1.1242; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields,  flash crashes and crumbling European bourses (Asian bourses mixed, with Japan and Hang Sang down badly, Shanghai barely up).  Last night the Chinese yuan lowered in value . The USA/CNY rate at closing last night:  6.3825, (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 60 basis points and trading now well below the all important  120 level to 119.62 yen to the dollar and thus  the necessary ramp for European bourses was not provided and they were hit hard again.

The pound was down this morning by 6 basis points as it now trades just below the 1.53 level at 1.5240.

The Canadian dollar reversed course by falling another 42 basis points to 1.3369 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 Thursday morning: closed down 498.38 or 2.76%

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

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

Gold very early morning trading: $1136.00


Early Thursday morning USA 10 year bond yield: 2.11% !!! down 4 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  2.91 down 4 in basis points.

USA dollar index early Tuesday morning: 95.86 down 33 cents from Wednesday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Thursday morning
And now for your closing numbers for Thursday night:
Closing Portuguese 10 year bond yield: 2.56% down 4 in basis points from Wednesday
Japanese 10 year bond yield: .331% !! up 2  basis points from Wednesday but extremely low
Your closing Spanish 10 year government bond, Thursday, up 3 in basis points. (not a good sign to see rates rise and the stock market in Spain plummet)
Spanish 10 year bond yield: 1.99% !!!!!!
Your Thursday closing Italian 10 year bond yield: 1.75% par  in basis points from Wednesday: trading 24 basis point lower than Spain.
Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 Euro/USA: 1.1225 up .0037 (Euro up 37 basis points)
USA/Japan: 119.92 down 0.300 (Yen up 30 basis points)
Great Britain/USA: 1.5230 down .0017 (Pound down 17 basis points
USA/Canada: 1.3333 up .0008 (Canadian dollar down 8 basis points)

USA/Chinese Yuan:  6.3815  up .0060  (Chinese yuan down/on shore)

This afternoon, the Euro fell by 37 basis points to trade at 1.1225. The Yen rose to 119.92 for a gain of 30 basis points. The pound was down 17 basis points, trading at 1.5230. The Canadian dollar fell 8 basis points to 1.3333. The USA/Yuan closed at 6.3815/up.0060 (yuan down)
Your closing 10 yr USA bond yield: down 4 basis points from Wednesday at 2.110%// ( trading below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.89 down 6 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 95.97 down 23 cents on the day .
European and Dow Jones stock index closes:
England FTSE down 70.75 points or 1.17%
Paris CAC down 85.59 points or 1.93%
German Dax down 184.98 points or 1.92%
Spain’s Ibex down 183.20 points or 1.93%
Italian FTSE-MIB down 487.05 or 2.31%
The Dow down 78.57 or 0.48%
Nasdaq; down 18.26 or 0.36%
OIL: WTI:  $45.06    and  Brent:  $48.24
Closing USA/Russian rouble cross: 66.07  up 2.3 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

Gold Pops, Dollar Drops, As CATastrophe Slaps Stocks Ahead Of Yellen “Do-Over” Speech

Despite a lot of effort today…


BMW fears battered European stocs – not helped at all by a 4th day of China devaluation wringing the carry trade out of EUR…Weak US data pushed stocks lower but Crude’s rampathon lifted stocks (as JPY lost its mojo) and then JPM’s quant fell on his sword


Cash indices roundtripped but were unable to get green…


And since the post-FOMC peak…


CAT was the big loser after cutting outlooks and slashing jobs…


VIX was higher on the day but those crazy tails were very evident again…


And the JPM comment drove the algos wild…


The whole day was one of roundtrips…around Europe’s close…


Treasury yields tumbled as stocks sold off then began to ramp back higher as Europe closed…


The USD Dollar dumped early on as Yuan devaluation sparked more EURCNH unwinds (and EUR strength) but once again as soon as Europe closed a mysterious bid for USDs re-emerged ahead of Asia…


Commodities generally rose on the day with gold and silver most notable.


Close up on crude’s roundtrip


But it was gold and silver that stood out…


Charts: Bloomberg

Trading at NY at the opening bell:

Dow Drops 800 Points From Fed Euphoria, Bond Yields & Black Gold Plunge

Another rip sold. Dow futures are down over 140 points in the pre-open (as it appears Cramer’s pajama-wearers are derisking again). Following the 4th day of Yuan weakness, EUR-based carry trades continue their unwind and that pressure is driving USD Index notably lower, bond yields gapping lower, and commodities tumbling… except gold.



As Gold and bonds rally…

Charts: Bloomberg

Which escalated quickly to the following:

Investors Dump Dollars, Surge Into Safety Of Bonds & Bullion

That escalated quickly…





Our favourite bellwether for the health of the global economy:  Caterpillar.  They just announces another firing of up to 10,000 as they flash revenue growth.  The world’s global economy is coming to a crashing halt.
(courtesy zero hedge)

Caterpillar Shocker: Industrial Bellweather To Fire Up to 10,000; Slashes Revenue Outlook

Just three days ago after looking at the latest CAT retail sales, we asked in stunned amazement “What On Earth Is Going On With Caterpillar Sales?” and showed the following two charts:


We now know the answer. The company was merely preparing to shock its investors with a $1.5 billion cost-cutting announcement, which includes the firing of as much as 10,000 people through 2018. Far worse, however, is the company finally admitting that it can no longer pretend reality does not exist, and cut its revenue outlook by 5% with the admission that “2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.”

Of course, our readers already knew that.

From the ironically titled “Building for a Stronger Future” press release:

Caterpillar Inc. (CAT) today announced significant restructuring and cost reduction actions that are expected to lower operating costs by about $1.5 billion annually once fully implemented. The cost reduction steps will begin in late 2015 and reflect recent, current and expected market conditions. For 2015, the company’s sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about $48 billion, or $1 billion lower than the previous outlook of about $49 billion. For 2016, sales and revenues are expected to be about 5 percent below 2015.

PEORIA, Ill., Sept. 24, 2015 /PRNewswire/ — Caterpillar Inc. (CAT) today announced significant restructuring and cost reduction actions that are expected to lower operating costs by about $1.5 billion annually once fully implemented. The cost reduction steps will begin in late 2015 and reflect recent, current and expected market conditions. For 2015, the company’s sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about $48 billion, or $1 billion lower than the previous outlook of about $49 billion. For 2016, sales and revenues are expected to be about 5 percent below 2015.

Key steps planned by the company include:

  • An expected permanent reduction in Caterpillar’s salaried and management workforce, including agency, of 4,000 – 5,000 people between now and the end of 2016, with most occurring in 2015, and with a total possible workforce reduction of more than 10,000 people, including the contemplated consolidation and closures of manufacturing facilities occurring through 2018.
  • The company will offer a voluntary retirement enhancement program for qualifying employees, which will be completed by the end of 2015.
  • Slightly less than half of the $1.5 billion of cost reduction is expected to be from lower Selling, General and Administrative (SG&A) costs. The reduction in SG&A will largely be in place and effective in 2016 and occur across the company.
  • The remaining cost reductions are expected to come from lower period manufacturing costs, including savings from additional contemplated facility consolidations and closures, which could impact more than 20 facilities and slightly more than 10 percent of our manufacturing square footage. A portion of these cost reductions are expected to be effective in 2016, with more savings anticipated in 2017 and 2018.

“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,” said Doug Oberhelman, Caterpillar Chairman and CEO. “While we’ve already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don’t make these decisions lightly, but I’m confident these additional steps will better position Caterpillar to deliver solid results when demand improves.”

This year is the company’s third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.

“Our strategy is to deliver superior total shareholder returns through the business cycle, and growth is a key element of that strategy. However, several of the key industries we serve – including mining, oil and gas, construction and rail – have a long history of substantial cyclicality. While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns,” added Oberhelman.

Today’s announcement is in addition to significant actions already taken. Since 2013, Caterpillar has closed or announced plans to close or consolidate more than 20 facilities, impacting 8 million square feet of manufacturing space. The company has also reduced its total workforce by more than 31,000 since mid-2012.

“We recognize today’s news and actions taken in recent years are difficult for our employees, their families and the communities where we’re located. We have a talented and dedicated workforce, and we know this will be hard for them,” said Oberhelman.

While Caterpillar has taken action in response to macro-economic challenges, it has remained focused on strategy execution – and that has driven positive operational results, including:

  • Market share has improved in products across much of the company.
  • The company has delivered on decremental profit pull through targets as Lean manufacturing has driven its 2015 gross margin rate higher, and it is right in line with its highest level in 20 years.
  • Product quality is as good as it has been in Caterpillar’s history.
  • Today, Caterpillar safety levels are among the best for heavy manufacturers.

“Operational improvements have contributed to our strong balance sheet and cash flow. In fact, three of our four best years of Machinery, Energy & Transportation (ME&T) operating cash flow have occurred since 2011 – at the same time sales and revenues have been under pressure. That’s driven substantial improvement in our quarterly dividend. Our dividend increased 15 percent in 2013, 17 percent in 2014 and 10 percent in 2015. That’s enabled $8.2 billion of share repurchases over the past three years,” said Oberhelman.

Pre-tax costs associated with these actions are expected to be about $2 billion for employee-related severance and other termination benefits, and other exit-related costs associated with the consolidation of manufacturing facilities.

Following are questions and answers related to today’s announcement:

Q1: Can you be more specific about which manufacturing facilities are being consolidated and/or closed? Which of your businesses are affected? What regions of the world will be impacted?

A: We are contemplating restructuring actions that could impact more than 20 facilities around the world and across our three large segments – Construction Industries, Resource Industries and Energy & Transportation. There are many factors that impact these contemplated decisions and the subsequent timing of when each would be announced and implemented. Employees will be notified as decisions are made for each facility.

Q2: You’ve updated your 2015 outlook for sales and revenues, but not for profit. Can you provide more context on 2015 profit?

A: We are lowering the 2015 sales and revenues outlook to about $48 billion, which is about $1 billion lower than our previous outlook of about $49 billion. The $1 billion decline is a result of broadly weaker business conditions across our three large segments – Construction Industries, Energy & Transportation and Resource Industries. The $1 billion decline is expected to impact both the third and fourth quarters of 2015.

We will provide an update of the 2015 profit outlook with our third-quarter financial release in late October. That said, the decline in the sales outlook and higher restructuring costs as a result of today’s announcement will be negative for profit. On the positive side, we expect that costs (not including restructuring costs) will be favorable. Over the next few weeks, we will have a better view of how these factors, particularly restructuring costs, will impact 2015 profit.

Q3: You typically provide a preliminary outlook of the following year in your third-quarter financial release. It seems as though you’ve done that in today’s announcement. Why have you done that earlier than normal?

A: We started our planning process earlier than usual due to the convergence of challenging marketplace conditions our business is facing. At this point, we are experiencing continued weakness in key industries that we serve. We expect that will lead to our fourth consecutive year of sales decline, with our sales and revenues down about 5 percent in 2016 versus 2015. We currently expect the decline in sales and revenues in 2016 will occur in all three of our large segments – Construction Industries, Energy & Transportation and Resource Industries – with the most significant decline in the oil and gas portion of our Energy and Transportation segment. With the continuing decline in sales, it was appropriate to take the additional restructuring and cost reduction actions that were announced today, and issuing next year’s preliminary sales and revenues outlook provided additional context for today’s restructuring announcement.

Q4: While you usually provide next year’s profit outlook in January, is there any context you can provide to help put 2016 profit in perspective?

A: We have more work to do to complete our profit plan for 2016 and to understand how today’s announcement affects each of our businesses. That said, there are three directional points related to 2016 profit that are noteworthy – two negative to profit versus 2015 and one that we expect to be positive. On the negative side, 2015 had a gain on the sale of our remaining ownership of our third-party logistics business that helped profit in 2015 by about $0.14 per share; that will not repeat in 2016. Second, the sales decline in 2016 (about 5 percent) is expected to be concentrated in relatively higher margin products, so the impact of sales mix is expected to be unfavorable about $500 million. On the positive side for profit, we expect that about half of the cost reduction expected from the restructuring actions in today’s release ($1.5 billion) will be effective in 2016. We expect to provide an updated outlook for sales and revenues and a profit outlook for 2016 in more detail with our year-end financial release in January.

Q5: Does today’s announcement reflect a change in your long-term view of the key industries you serve – construction, mining, oil and gas, etc.?

A: Many of the key industries we serve have a long history of substantial cyclicality and are currently well below prior peak levels. For example, mining equipment sales are far below the prior peak and are substantially below what we would consider a reasonable replacement level. Oil and gas has declined substantially as a result of lower oil prices, and construction equipment sales are well below prior peaks in North America, Latin America, Europe, Africa, the Middle East and Asia Pacific. As the world economy improves, we strongly believe the need for Cat® products and services for infrastructure, mining, commodities, energy and transportation will improve. With the actions we’ve taken over the past few years, along with the restructuring announced today, we believe Caterpillar will be well positioned to deliver solid results when these industries recover and demand improves.

* * *

No more dead CAT bounces: the stock is tumbling on the “news”.

Another Fed Survey indicator collapses.  The Chicago Activity Index ( a national manufacturing index) just hit a 6th month low and landed in negative territory falling from .34 down to negative .41
(courtesy/Chicago Fed National Activity Index).

Another Regional Fed Survey Collapses – Chicago Activity Index Hits 6-Month Lows

From Dallas to Philly, and from New York to Richmond, the regional Fed surveys have been ugly. So not to be outdone, Chicago Fed’s National Activity Index collapsed from +0.34 to -0.41 (dramatically missing expectations of 0.24) and testing 6-month lows. The CFNAI has now missed expectations for 7 of the last 9 months.


Ugly year so far…


The reading below zero indicates below-trend growth in the national economy and easing pressures of future inflation.


Charts: Bloomberg

This morning durable good drop the most since March as shipments tumble.  Another huge sign that the global economy is in severe stress:
(courtesy zero hedge)

Recession Countdown: Durable Goods Orders Drop Most Since March, Shipments Tumble

Durable Goods New Orders dropped 2.0% MoM in August, the biggest drop since March (but modestly beat expectations of a 2.3% drop). This extends the ex-transports YoY losing streak to 7 months of declines flashing recessionary warnings left and right. Perhaps most notable is the 0.2% drop in Capital goods Shipments (dramatically missing expectations of a 0.5% rise) and the weakest print since May.

Durable Goods New Orders YoY down for 7 consecutive months.


The less volatile ex-transports series stangated in August, on expectations of a 0.1% increase for the month, and dropping 3.9% Y/Y is now also down 7 months in a row.


But if headline durables were bad, than core capex in the form of capital goods non-defense ex aircraft both shipments and orders was a total collapse.

To wit: orders.

And shipments.


Paging the NBER: feel free to admit the US is in a recession any time now.

Kansas City Fed reports in its survey:  flashing red
Now it is all the regional Feds reporting depression like conditions within the uSA
(courtesy Kansas City Fed/zero hedge)

Recession Imminent – Kansas Becomes 6th Regional Fed Survey Flashing Red

And the regional Fed survey collapse goes on… Dallas, Richmond, New York, Philly, Chicago, and now Kansas City…


Kansas Fed prints -8 (missing expectations of -6), now negative for the 7th month in a row…something not seen outside of a recession.










And Empire Fed…

Can u say “recession”?

New home sales surge as wealthy Chinese put their yuan into new homes and drive prices higher.  Note the difference between new home sales and existing home sales:
(courtesy zero hedge)

New Home Sales Surge To Highest Since Feb 2008 (As Existing Home Sales Plunge)

At 522,000 new homes sold (SAAR) in August – the highest since February 2008 – it is perhaps worth noting that this ‘recovery’ remains 60% below the prior bubble peak. Furthermore, this surge to new cycle highs comes in the same month as existing home sales plunged.


Spot The Disconnect #1…


Spot The Disconnect #2…


And here is the “recovery” in context:


Just look at what these guys are suggesting will happen in the days to come:
A negative FIVE PERCENT Fed Funds rate, and a possible outlawing of cash in conjunction with a further QE4 the likes of which we have never seen
(courtesy Albert Edwards/Bob Janjuah/zero hedge)

When Two Uber-Bears Sit Down: Albert Edwards And Bob Janjuah Expect The Fed To Cut To -5%

When two legendary “bears” (actually what they really are is realists who refuse to drink the Fed’s, the establishment’s, and the media’s Kool-Aid) such as Albert Edwards and Bob Janjuah sit down, while the outcome is hardly as dramatic as the Stay Puft marshmallow man emerging, one certainly expects very provocative and contrarian observations to emerge. This is precisely what happened one week ahead of the Fed’s last meeting.

Here is the story as told by Edwards himself in his latest note to SocGen clients:

I enjoyed afternoon tea with my fellow strategist Bob Janjuah of Nomura (aka Bob the Bear). When we occasionally meet up, we lie back and look up for a bit of clear blue sky thinking – okay, I know it’s London and the sky is usually overcast, but that sort of fits in with our bear view of the world! Among other things we wondered why no-one else entertains the possibility that rates might bottom at minus 5% Fed Funds in the coming downturn.


The next US recession will probably arrive a lot sooner than most investors expect and will likely see more desperate monetary experimentation from the Fed. Bob and I thought that this time we would see deeply negative interest rates in the US (and Europe).Sweden has led the way, dipping their toe below the water line with their current -0.35% policy rates but there will be more, much more along these lines. For if -0.35% is possible, why not – 3.5% or less? It goes without saying that deeply negative interest rates would be accompanied by a massively expanded QE4 in the US. The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come.


And so it came to pass last week – just one negative dot in the Fed policymakers’ projections for interest rates set the markets abuzz that central banks were no longer to be constrained by the zero interest rate bound. The very next day the Bank of England’s chief economist and policy wonk, Andrew Haldane, also raised the possibility of not just negative interest rates, but banning cash if people hoard it in an attempt to attain a heady 0% return – link. Wow, even Bob and I hadn’t thought of that!

Yes, it is odd that when push comes to shove, not even the biggest skeptics could conceive of the world that is about to be unleashed by tenured economists who have never held a real job in their lives, and yet – somehow – are micromanaging the entire world.

So: NIRP, QE4… or money paradrops as Citigroup shocked everyone with its modest proposal yesterday?

Actually, why not all three – after all, what does the Fed have left to lose? It appears gold is finally getting the memo that the final debasement of the reserve currency is about to be unleashed.

Now one of the more important stables hits an all time record high
(courtesy zero hedge)

Inflation Watch – Butter Prices Hit All-Time Record High

Butter prices hit $3.10 per lb today in Chicago trading – a record high – as it appears the expectations of production increases after the EU milk quota system expired in March have proved “wildly optimistic.” Of course, no one should complain at the rising cost of staples like butter (or toilet paper), just ask Jamie Dimon… “let them eat iPhones.”



Charts: Bloomberg



And coming to a supermarket near you:

Caught On Tape: Anarchy – When Chicken Prices Hit Record Highs

We have all watched the dramatic and disturbing scenes from Venezuela as ‘average joes’ fight over the last bar of soap or sheet of toilet paper as prices soar beyond anyone’s control… and said “that could never happen here.” Well with stealth-flation leaking into everyday prices wherever you look (as long as ‘you’ are not The Fed), we may have just witnessed the awakening. With prices for chicken having hit record highs, residents of America are brawling over the last winged feast

When this occurs…


This eventually happens…


“could never happen here”

Chart: Bloomberg



Now that deflation is rampaging the globe, WalMart is demanding suppliers to pass along yuan devaluation savings:

(courtesy zero hedge)


A Desperate Wal-Mart Demands Suppliers Pass Along Yuan Devaluation Savings

At Wal-Mart corporate, the idea of “everyday low costs” is something of a religion and it’s the cornerstone of the retail behemoth’s business model.

Unfortunately for employees and suppliers alike, maintaining “the low cost leader” title isn’t consistent with high wages or leniency vis-a-vis the supply chain. That explains why, after committing to spend some $1 billion to raise the wages of its lowest-paid employees, the company moved immediately to squeeze more cost savings from suppliers.

Put simply, when passing rising labor costs on to consumers isn’t an option, it’s the supply chain that suffers and now, in a frantic attempt to extract every last penny of savings in order to offset the cost of paying hundreds of thousands of workers $9/hour versus $8,Wal-Mart is effectively demanding price cuts from anyone with a connection to China in the wake of Beijing’s move to devalue the yuan. Here’s Reuters:

Wal-Mart Stores Inc is seeking price cuts from suppliers that produce goods in China, saying the retailer should share in the savings generated by China’s devaluation of the yuan, people with knowledge of the matter said.


Wal-Mart managers in recent weeks have contacted more than 10,000 suppliers in various countries, all of which have manufacturing facilities in China, seeking cost cuts of 2 percent to 6 percent on mainly general merchandise including home furnishings, apparel, health and beauty products, appliances, electronics and toys, according to a consultant who advised Wal-Mart on the move and spoke on condition of anonymity to protect his relationship with the retailer.


The company is telling suppliers that they should pass on the savings arising from the yuan devaluation so Wal-Mart can achieve EDLC, or “everyday low cost,” its term for the tight cost controls needed to keep prices low for consumers, according to executives at two vendors of durable goods, who also requested anonymity. Both were asked for cuts in the lower half of the 2 percent to 6 percent range. Both said they planned to negotiate a reduction in the proposed cuts.

This is at least the third push Wal-Mart has made this year to force suppliers to lower their costs. The first attempt came in late March when the company told suppliers to reduce marketing expenditures. Then, earlier this month, Bloomberg reported that Wal-Mart had begun adjusting payment schedules and charging storage fees. Here’s Reuters again:

Wal-Mart’s latest overture to suppliers comes as it seeks to push through broader changes designed to lower its costs through changes to vendor agreements. In June, Wal-Mart began asking all suppliers to pay fees to store inventory in Wal-Mart warehouses and in some cases has sought to extend the time Wal-Mart takes to pay its vendors.


Wal-Mart has been struggling to shore up its profit margins, which have been weighed down by a $1 billion investment announced earlier this year to increase wages for half a million store-level workers and other cost pressures. The company’s stock is down 26 percent so far this year.


Spokeswoman Deisha Barnett said the new vendor agreements are aimed at making its terms more consistent across suppliers, and were part of its efforts to keep prices low at the store.


“It’s change at the end of the day and that’s not always easy, but we think what is best for our business and ultimately best for our customers,” Barnett said.

Maybe so, but it’s certainly not what’s best for the supply chain and make no mistake, if Wal-Mart continues to apply pressure, suppliers will eventually be forced to cut jobs (just as we predicted earlier this year) because as Leon Nicholas, a senior vice president at Kantar Retail, which advises dozens of Wal-Mart suppliers told Bloomberg a few weeks ago, “you can push and push, but at the end of the day you know where the power lies.”





I am going to leave you tonight with the following piece written by David Stockman two days ago.  It explains perfectly what is going to happen to finances throughout the globe:

(courtesy David Stockman/ContraCorner Blog)

The Second Bullard Rip—–They Do Ring A Bell At The Top

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After the Fed’s cowardly capitulation to the Wall Street gamblers last week our clueless monetary politburo got quite the surprise. The post-announcement “rip” lasted all of 90 minutes, and by the market’s close on Friday the S&P 500 was down 3% from Thursday’s algo-driven spasm and 8% from the May highs.

That even left my head spinning. On Wednesday afternoon I had told Yahoo Finance that in the event of no rate hike there would be a “short term relief rally” but that even “the gamblers were losing confidence” in the Fed’s con job:

………If the fed doesn’t raise rates, there probably will be a short term relief rally,  but I think its becoming evident that even the gamblers in the casino are losing confidence in the Fed. Because however they come out this week, there will be signs of division, there will be evidence of confusion and indecision, and once that process begins to fully unfold, which it will for meeting after meeting as we go forward………(because) the Fed painted itself into a corner and has no clue how to get out…..once that process of division and confusion develops, the markets are going to lose confidence in the whole central bank bubble and were going to have a huge correction.

Alas, confidence was apparently so shaken by the Fed’s action that it’s as if they did ring a bell at the top. The relief rally got monkey-hammered on the spot.

Ironically the gong was Janet Yellen’s incoherent babbling at the post-meeting press conference. Over and over she said how everything is swell in the US after 80 months of ZIRP, and that the consumer and labor markets are nearing the pink of health. Nevertheless, she and her posse had elected to keep banging the Emergency Button, anyway, just in case something falters in Shanghai, Timbuktu or some other unspecified precinct of planet Earth.

Whether the inevitable thundering collapse of the latest and greatest of all central bank bubbles has now commenced will be known soon enough. But what is clear from last week’s market reaction is that the buy-the-dips algos have lost a lot of mojo. Perhaps they are even being reprogramed to trawl for signs of confusion, conflict and cacophony among our central banks rulers.

If so, the machines are already being pelted with some pretty hefty word clouds—–not the least from the Fed’s number one spinning top, James Bullard.

Recall last October when the market plunged by 7% he quickly cried uncle, suggesting the QE be extended, thereby triggering the Bullard Rip. Accordingly, by year-end the markets were up by 12% to an all-time high, meaning that the casino gamblers had been pleasured with another $4 trillion windfall gain.

Not this time. In a speech over the weekend Bullard lamented that the Fed had not taken even a baby step toward “normalization, and then hit the nail squarely on the head. As Wolf Richter aptly paraphrased Bullard’s unauthorized lapse into the obvious:

But “the case for normalization is simple,” he said. “The Committee’s goals have essentially been met”:

The Committee wants unemployment at its long-run level and inflation of 2%. The Committee is about as close to meeting these objectives as it has ever been in the past 50 years.

Most of the weakness in inflation was due to the plunge in oil prices, a “temporary” phenomenon, he said. “Oil prices will stabilize so that when you look at year-over-year inflation, it’s going to start coming back to 2% over the forecast horizon.”

And yet, “the Committee’s policy settings remain stuck in emergency mode,” with the Fed’s balance sheet having “ballooned to about $4.5 trillion,” from about $800 billion in 2006. And the policy rate has been stuck at about 13 basis points for “nearly seven years,” though “the Committee thinks the long-run level of the policy rate should be about 350 basis points.”

That’s 3.5%! That median of the long-run appropriate policy rate of FOMC participants is a world away from the current 0.13%. It would mean a revolutionary concept: capital would have a real, if still small cost! Good luck trying to get there, in these horrendously distorted markets, without crashing everything in sight.

So Bullard finally asked the totally obvious question: “Why do the Committee’s policy settings remain so far from normal when the objectives have essentially been met?”

And the answer? Um, well…

“The Committee has not, in my view, provided a satisfactory answer to this question.”

It turns out, however, that Bullard was just getting warmed up for his appearance this morning on CNBC, where he delivered a Bullard Rip of an altogether different kind. To wit, he ripped into the very backside of Bubblevision’s most obnoxious easy money troll, telling his startled host to pass a message to “your friend Cramer” that:

“The Fed cannot permanently raise stock prices…… to have [Cramer] cheerleading for lower rates 24 hours a day is unsavory.”

But Bullard’s Blasphemy is just a foretaste of what’s coming. Indeed, as he pointed out this morning, a rate hike at the October meeting is well nigh impossible because no press conference is scheduled for that meeting.  Were one to be announced, therefore, it would trigger a preemptive selling frenzy by the robo-machines like no other.

So the next opportunity is the December meeting, and then the rubber will most surely meet the road. That is, Yellen’s incoherent babble of last Thursday will sound crystal clear compared to whatever tortured explanation she attempts to muster when explaining that the Fed has deferred the rate hike once again.

Why? Because by year-end the “incoming data” will have exhibited, inter alia, “unexpected weakness”, global deflation will not yet have abated, rekindling of inflation will have proved unexpectedly illusive and China will have been arresting enemies of the state, not the collapse of its economy.

Indeed, Yellen essentially self-appointed the Fed as the world central bank at last Thursday’s meeting. That’s because it could find no ready excuse for its real reason for standing pat. Namely, its palpable fear of a stock market hissy fit and the implicit repudiation of its entire modus operandi.

Moreover, owing to its formulaic fixation on the utterly useless BLS establishment survey—– where Yelllen boasted about another 220,000 jobs per month—–the Fed group thinkers have become blinded to what’s actually happening in their own backyard.

So rather than recognizing the self-evidently developing business slump, it has leapt into the terra incognito of policy-making in response to the ebbs and flows of the planet’s entire $75 trillion GDP. So doing, it has also thereby hostaged itself to the wobbles of the world’s $300 trillion tower of credit market debt and traded equities and the great “known unknown” of its $700 trillion powder keg of what Warren Buffett called financial weapons of mass destruction (i.e. financial derivatives).

Yet if our Keynesian school marm had bothered to look beyond the 19 labor market graphs on her dashboard, she might have seen the ticking domestic time bomb depicted below. What it shows is that for the past two years—-as the global deflation has gathered force—- the US economy has been heading for the next recession.

To wit, since November 2013 total business sales (blue line) in the US economy have lapsed back to the flat line, while business inventories (red line)—–manufacturers, wholesale and retail—–have erupted by $100 billion or 6%.

In sum, the so-called recovery is not on the verge of lift-off, as the  Fed and its Wall Street touts proclaim, but is perched precariously on borrowed time. It will require only one unexpected shock to confidence in the C-suites before today’s massive accumulation of inventories triggers a panicked liquidation sale, thereby knocking the props out from the Fed’s entire recovery narrative.

The S&P 500 closed today exactly where it first crossed 450 days ago. It is heading for a re-test of the Bullard Rip low at 1862. If it plunges below that mark the robo machines will rage—this time in cliff diving fashion because its now evident that Keynesian central banking has failed and the money printers are hopelessly lost.
^SPX Chart

^SPX data by YCharts

That’s what today’s Bullard Rip was all about——it amounted to the bell at the top. In time it will become evident that the market is unable to break-out of the bubble finance channel it has established between 2075 and 2125 over the past year.

When December comes around and the Fed has to explain the growing signs of global and domestic recession, the robo-machines will have grown themselves an altogether new set of programs. Namely, an algorithm that says any day the Eccles Building is open for business is a good day to sell.



well that is all for today

I will see you tomorrow night



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