sept 25/Gold and silver whacked on options expiry week/Huge addition of 5.66 tonnes of gold into GLD/Gold in backwardation for 3 months out in London/Boehner calls its quits/Shortages for silver and gold continue unabated/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1146.00 down $7.80   (comex closing time)

Silver $15.11 down 2 cents.

In the access market 5:15 pm

Gold $1145.90

Silver:  $15.11

Yesterday the comex options expired but we still have the LBMA options as well as the OTC options.  Expect gold and silver to be relatively subdued until Oct 1.2015.

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

At the gold comex today we had a poor delivery day, registering 5 notices for 500 ounces  Silver saw 236 notices for 1,800,000 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 rose by 3,570 contracts as silver was up in price by 35 cents yesterday.   The total silver OI now rests at 155,212 contracts In ounces, the OI is still represented by .776 billion oz or 110% of annual global silver production (ex Russia ex China).

In silver we had 236 notices served upon for 1,180,000 oz.

In gold, the total comex gold OI rose to 425,662 for a gain of 8,098 contracts. We had 5 notices filed for 500 oz today.

We had a monstrous addition of 5.66 tonnes at the GLD;  thus the inventory rests tonight at 680.27 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 another withdrawal of 954,000 oz of silver inventory at the SLV/Inventory rests at 318.243 million oz.

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

1. Today, we had the open interest in silver rose by 3370 contracts up to 155,212 as silver was up by 35 cents in price with respect to yesterday’s trading.   The total OI for gold rose by 8,098 contracts to 425,662 contracts, as gold was up $22.20 yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3, COT report


Asian affairs:

4. a) China opens for trading 9:30 pm est Thursday night/Friday morning 9:30 Shanghai time

(zero hedge)

European affairs:

5)A review of the Catalonia referendum on Sunday


(zero hedge)


Russian affairs



6 a)Putin to meet Obama next week as Obama seeks to save face on its middle eastern policies

(zero hedge)


b) USA senator wishes to defy international law and seek guidance as to how the Ukraine can default on Russian debt without consequence.





7. Brazil’s head of the central bank declares that he will do anything to save his country. He states that he will sell his USA foreign reserves to stop the slide in the real.  It worked today but it is only temporary

(zero hedge)



8.  Oil related stories

Oil rigs decline for the 4th week in a row


(zero hedge)




9 USA stories/Trading of equities NY

a) Trading today on the NY bourses 1 commentary

b)Second quarter GDP revised upwards to 3.9% from 3.7%.  However Atlanta Fed lowers 3rd quarter GDP to only 1.4%

(zero hedge)

c) USA Service Sector, a dead cat bounce


d) U. of Michigan consumer confidence plummets to 4 year low/2 commentaries

(U. of Michigan/zero hedge)

e) Boehner’s  resignation and what it means

two commentaries

(zero hedge)


10.  Physical stories

1. Alasdair Macleod talks about ZIRP to NIRP

2. Chris Giles/London’s Financial Times:  If you abolish cash you invite tryanny!

3. Deutsche bank gets lower funding costs because they are being mistaken for the central bank of Germany:  (Bundesbank)

4, What is the risk for a default at the silver comex on huge delays for shipment of silver bars and coins

(Pat Heller/Liberty coin)

5. Dave Kranzler of IRD on the tightness of supplies at the LBMA

Gold in backwardation in London for 3 months out

(Dave Kranzler/IRD)

6. Even though the Philippines has one of the richest mines and also citizens have been panning for gold for hundreds of years, they are still a very poor country

(New York Times)

7.  Koos Jansen does a superlative job outlining the differences of how gold is accounted for in China

i) Good delivery bars (kilobars) coming into China for sovereign purposes do not enter the SGE

ii) Good delivery bars for citizenry must go through the SGE

this may explain how 1747 tonnes of gold landed in sovereign China’s hands.



Let us head over to the comex:

The total gold comex open interest rose from 417,564 up to 425,662  for a gain of 8098 contracts as  gold was up $22.20 with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter continued with its decline as gold ounces standing rose. We now enter the delivery month of September and here the OI fell by 5 contracts down to 66 . We had 0 notices filed yesterday so we lost 5 gold contracts or an additional 500 oz will not stand for delivery in this non active month of September. The next active delivery month is October and here the OI fell by 4,193 contracts down to 14,757. The big December contract saw it’s OI rise by 10,107 contracts from  283,794 up to 293,901. 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 178,338 which is poor. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 250,608 contracts.
Today we had 5 notices filed for 500 oz.
And now for the wild silver comex results. Silver OI rose by 3370 contracts from 151,842 up to 155,212 as silver was up by 35 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 rose by 125 contracts to 338. We had 9 notices filed yesterday, so we gained 134 silver contract or an additional 670,000 oz  will stand for delivery in this active delivery month of September.
The big December contract saw its OI rise by 647 contracts up to 115,818.  The estimated volume today was estimated at 32,784 contracts (just comex sales during regular business hours) which is poor.  The confirmed volume yesterday (regular plus access market) came in at 50,300 contracts which is excellent in volume.
We had 236 notices filed for 1,180,000 oz.

September contract month:

Initial standings

September 25.2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  (nil)
No of oz served (contracts) today 5 contracts (500 oz)
No of oz to be served (notices) 61 contracts (6100 oz)
Total monthly oz gold served (contracts) so far this month 29 contracts

(2,900 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 0 customer withdrawals:
total customer withdrawal: nil oz
We had 0 customer deposits:

Total customer deposit: nil  oz

We had 1  adjustment:
 i) Out of Scotia:
97.076 oz was withdrawn from the dealer and this landed into the customer account of Scotia;
 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 5 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 Sept contract month, we take the total number of notices filed so far for the month (29) x 100 oz  or 2900 oz , to which we  add the difference between the open interest for the front month of September (66 contracts) minus the number of notices served upon today (5) 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 (29) x 100 oz  or ounces + {OI for the front month (66)– the number of  notices served upon today (5) x 100 oz which equals 9,000 oz  standing  in this month of Sept (0.2799 tonnes of gold).
we lost 500 gold ounces standing in this non active delivery month of September.
Total dealer inventory 161,938/008 or 5.0369 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 from the dealer side.
And now for silver

September silver initial standings

September 25/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  1,050,343.72 oz


Deposits to the Dealer Inventory 442,525.920 oz


Deposits to the Customer Inventory 442,525.920 oz


No of oz served (contracts) 236 contracts  (1,180,000 oz)
No of oz to be served (notices) 102 contracts (510,000 oz)
Total monthly oz silver served (contracts) 1459 contracts (7,295,000 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 20,372,950.3 oz

Today, we had 1 deposit into the dealer account:

i) Into CNT:  442,525.920  oz

total dealer deposit; 442,525.920 oz

we had 0 dealer withdrawals:
total dealer withdrawal: nil  oz
We had 2 customer deposits:
 i) Into CNT:  149,254.23 oz
ii) Into Brinks:  901,089.49 oz

total customer deposits: 1,050,343.72  oz

We had 4 customer withdrawal:
i) Out of Brinks:   5,103.40 oz
ii) Out of Delaware:  1959.000 oz
iii) out of CNT:  59,823.900
iv) Out of Scotia:  600,783.79 oz

total withdrawals from customer: 667,670.29   oz

we had 1  adjustment
 i) Out of Delaware:
62,331.49 oz was adjusted out of the customer and this landed into the dealer account of Delaware
Total dealer inventory: 46.220 million oz
Total of all silver inventory (dealer and customer) 167.447 million oz
The total number of notices filed today for the September contract month is represented by 236 contracts for 1,180,000 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 (1459) x 5,000 oz  = 7,295,000 oz to which we add the difference between the open interest for the front month of September 338) and the number of notices served upon today (236) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
1459 (notices served so far)x 5000 oz +( 338) { OI for front month of September ) -number of notices served upon today (236} x 5000 oz ,=7,805,000 oz of silver standing for the September contract month.
we gained 134 contracts or an additional 670,000 oz will stand in this active month of September.
Somebody today was in great need of silver.


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 25/we had a huge addition of 5.66 tonnes into the GLD/Inventory rests at 680.27 tonnes.
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 25/2015 GLD : 680.27 tonnes

And now SLV:

Sept 25./we had another 954,000 oz of silver withdrawn from the SLV/Inventory rests this weekend at 318.243 million oz

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 25/2015:  tonight inventory rests at 318.243 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 8.9 percent to NAV usa funds and Negative 9.0% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.6%
Percentage of fund in silver:37.2%
cash .2%( Sept 25/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+1.74%!!!! NAV (Sept 25/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to – .52% to NAV September 25/2015)
Note: Sprott silver trust back  into positive territory at +1.74% Sprott physical gold trust is back into negative territory at -.52%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. * * * * *

At 3:30 pm we get the COT report which tells us position levels of our major players.
First the Gold COT
Gold COT Report – Futures
Large Speculators Commercial Total
Long Short Spreading Long Short Long Short
182,080 120,955 56,151 149,092 206,320 387,323 383,426
Change from Prior Reporting Period
7,855 -13,723 4,638 -5,896 18,353 6,597 9,268
130 113 100 47 57 220 233
Small Speculators  
Long Short Open Interest  
31,981 35,878 419,304  
-626 -3,297 5,971  
non reportable positions Change from the previous reporting period
COT Gold Report – Positions as of Tuesday, September 22, 2015
Our large specs:
Those large specs that have been long in gold added 7855 contracts to their short side
Those large specs that have been short in gold covered a monstrous 13,723 contracts from their short side.
Our commercials:
Those commercials that have been long in gold pitched 5896 contracts from their long side.
Those commercials that have been short in gold added 18,353 contracts to their short side.
Our small specs;
Those small specs that have been long in gold pitched a tiny 626 contracts from their long side.
Those small specs that have been short in gold covered 3297 contracts.
Conclusion:  commercials go net short 24,245 contracts  (bearish) and should be put directly in jail.
And now for our silver COT:
Silver COT Report: Futures
Large Speculators Commercial
Long Short Spreading Long Short
60,413 35,554 14,554 56,244 87,558
-30 -10,626 -22 -4,926 5,031
81 57 44 40 39
Small Speculators Open Interest Total
Long Short 152,140 Long Short
20,929 14,474 131,211 137,666
-889 -250 -5,867 -4,978 -5,617
non reportable positions Positions as of: 137 129
Tuesday, September 22, 2015
Our large specs:
Those large specs that have been long in silver pitched a tiny 30 contracts from their long side.
Those large specs that have been short in silver covered a rather large 10,626 contracts.
Our commercials:
Those commercials that have been long in silver pitched a large 4926 contracts from their long side.
Those commercials that have been short in silver added 5031 contracts to their short side.
Our small specs:
Those small specs that have been long in silver pitched 889 contracts from their long side
Those small specs that have been short in silver covered a tiny 250 contracts from their short side.
Conclusion: same as gold
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

Premiums Rise and Delivery Delays Increase on Silver Coins and Bars

GoldCore's picture

Silver bullion coins are continuing to see rising premiums and delivery delays due to continuing very robust demand and a lack of supply of all silver bullion coins.

Premiums on silver eagles have been creeping up since mid-May (see chart below) and wholesale premiums have risen from 14% in May to over 25% this week. Silver eagles remain probably one of the best proxies for silver coin demand and also of investment and store of wealth demand for silver.

The shortage of silver coins is due to continuing robust demand and a lack of supply of silver bullion coins. It is primarily due to a lack of coin minting capacity and of actual coin blanks or planchets.

At the same time, it should be noted that premiums are not far above the level seen in 2013 when they went over 22%. Indeed, at the height of the financial crisis in late 2008, premiums on silver eagle coins surged over 70%  (see chart below) due to sharp fall in the silver price after the Lehman collapse and the very high silver demand seen at the time.

The U.S. and Canadian Mints are rationing supply and wholesalers are waiting on allocations. For a second week in a row, the U.S Mint has reduced its weekly allocation of silver eagles – limiting sales of the silver coins since their return after temporarily selling out in July.

The allocation this week fell to 750,000 eagles, which is a large over 7% reduction at a time of high demand and delivery delays in the market. Last week’s allocation dropped by 19% to 809,500 coins from the prior week’s supply of 1 million coins. The opening week of September also saw a rationing of just 1 million coins.

These weekly inventories have been snapped up almost immediately. In the last two weeks, all available Eagles were bought in just two days.

Note: Given continuing and deepening delays for certain popular bullion coins and bars and rising premiums we believe it is important to keep our clients and subscribers aware of the most up to date premiums and availability. The prices quoted are indicative and can change at any time. The premiums quoted are for smaller orders and there are volume discounts and lower premiums on larger orders.

American Silver Eagle sales at 34,304,500 for the year continue to run at a record pace, up nearly 15% through the same time last year. In 2014 when Silver Eagle sales ended at a record 44,006,000, the coins through Sept. 21, 2014 posted sales of 29,871,000.

Last year, the U.S. Mint also had to allocate sales but not during the traditionally quieter summer months.

Another sign of strong demand for silver is the very high demand for the  Perth Mint’s new 2016 silver kangaroo coin. The Perth Mint was quickly cleared out of the initial allocations.

Wholesale demand was unprecedented, with current orders already far exceeding expectations. This demand has created a significant backlog, which the Perth Mint is working to resolve by making additional press time available for manufacturing.

They temporarily suspended taking orders to ensure the current backlog does not get any bigger. Moving forward they will allocate a specific number of silver coins to their authorised dealers – one of which is GoldCore.

The huge demand for the new coin is due to continuing robust demand for silver bullion in general but also due to the competitive pricing on the new coins. Also, the fact that the Kangaroos are a brand new coin and many dealers bought them knowing that bullion coin buyers and collectors will wish to acquire the new coins.

Retail bullion buyers remain the primary buyers of silver bullion today. There is chatter of some institutional buying of bullion coins and bars as well but we have yet to see evidence of this. The move higher in premiums is quite a big move up in a short period of time and is important to keep an eye on. It is interesting, that premiums began to move higher in mid May when there were suggestions that JP Morgan was buying silver in volume.

We expect the current situation to continue and possibly to deepen as silver remains undervalued.

Bullion buyers are looking at silver at near $15 per ounce, gold at over $1,150 per ounce and the gold silver ratio at 76 (1154/15.26) and they rightly see silver as good value relative to gold and indeed to stock, bond and property markets, many of which remain near all time record highs. Conversely silver is nearly 70% below its record nominal high in 2011 and 90% below its inflation adjusted high or real record high of $150 per ounce in 1980.

Mainstream retail “mom and pop” investors are not buying bullion as the lack of risk aversion has led to stocks and property again becoming the assets of choice of retail investors – as was the case in 1999 and 2007. We all know how that turned out.

The smart money is re-balancing and selling their recent outperforming assets and ‘winners’ such as stocks and buying gold and particularly silver bullion today in anticipation of higher prices.


Today’s Gold Prices: USD 1145.50, EUR 1027.63 and GBP 752.18 per ounce.
Yesterday’s Gold Prices: USD 1134.45, EUR 1012.31 and GBP 742.73 per ounce.

Gold in US Dollars – 1 Week


Gold rose over 2% yesterday or $22.80 to $1,152.90 per ounce yesterday while silver rose 34 cents or 2.3% to $15.13 per ounce. Gold also eked out further gains in euros, pounds and most major currencies.

In Singapore, gold bullion moved lower and remained weak in trading in London, remaining above the $1,140 per ounce level. Silver prices are another 0.5% lower to $15.16 today, while platinum is 0.8% lower

Gold is lower after yesterday’s  2.1% rally, which took it back above its 100-day simple moving average at $1,149 per ounce.  Gold has not managed to close above that level since mid June.

Gold has had a nice move up in recent days and its 14 day relative strength index is up to 58.8. This is its most elevated in a month but it is still some way from overbought territory suggesting further gains may be due prior to a pullback.

Palladium is 1% higher again today and has surged 8% this week – its biggest weekly rise since March 2013. The move this week appears to be a short squeeze and may be the precursor for the long awaited move higher in gold and silver.

The fundamental backdrop for gold remains bullish as central banks continue to add to their gold allocations and the credibility of the Federal Reserve increasingly comes into question.

Janet Yellen’s ill health over night will not help increasing doubts about the Fed’s stewardship of U.S. monetary policy and of the U.S. economy itself.

The 69 year old faltered near the end of her presentation, pausing for a long stretch, stumbling over some words and coughing. Michael Ash, the chairman of UMass Amherst’s economics department, approached Yellen to ask if she was all right and offered to help her off stage as she concluded. The Fed blamed Ms. Yellen’s stumble on feeling dehydrated after a long day and long speech under bright light.

It sets the stage for the succession of Stanley Fischer, one of the most dovish central bankers in the world and one of the most radical proponents of uber ultra loose monetary policies. He is a strong proponent of money printing and further QE would be expected under his stewardship.

Indeed, his radical monetary policies go as far as to advocate that central banks digitally create money in order to buy stocks and support stock market indices. His likely accession to the Fed throne will be extremely bullish for gold.

Creditor nation central banks continue to add to their gold allocations. Russia, Kazakhstan and Belarus increased  their gold reserves in August.  Kazakhstan increased their reserves for a 35th consecutive month and Russia has been adding to their gold bullion reserves since 2007.

Kazakhstan purchased about 2.1 metric tons to take its reserves to about 210.2 tons last month, while Russia boosted holdings to 1,317.7 tons from 1,288.2 tons in July, data on the IMF’s website showed. Belarus expanded its reserves to 47.1 tons as Mexico cut them for a 14th month.

Russia, Kazakhstan and Belarus are buying gold along with China due to concerns about the value of the dollar and other fiat currencies.

Read more on the blog


Gold price surges to 1-mth high following Draghi comments – Bullion Desk
Kazakhstan, Russia Buy More Gold as Mexico Cuts, IMF Data Show – Bloomberg
Yellen resumes schedule after struggling to finish speech – Bloomberg
Janet Yellen cuts speech short  – CNBC
Wall Street falls sharply as Caterpillar weighs – Reuters


Something has changed in the gold trade: Gartman – – CNBC
Janet Yellen Falters During Speech, Receives Medical Attention – Zero Hedge
China, economic propaganda, and the US Federal Reserve – MoneyWeek
China consumers tighten belts, a red flag for the global economy – Reuters
France signals EU treaty change to avert Brexit, warns on euro survival – The Telegraph

Read more News & Commentary on





Koos Jansen does a great job explaining how good delivery bars are entering China:

a) for sovereign China the good delivery bars goes straight into the POBC vaults


b) for citizenry gold, the good delivery bars must go through the SGE.


these facts have been given to us on countless occasions by Koos in the past.  It may suggest that the POBC may have covertly bough 1747 tonnes of sovereign gold!!



(courtesy Koos Jansen)

The London Float And PBOC Gold Purchases

Did the PBOC covertly buy 1,747 tonnes of gold in London?

This BullionStar blogpost is part of a chronological storyline. Please make sure you’ve readThe Mechanics Of The Chinese Domestic Gold Market, PBOC Gold Purchases: Separating Facts from Speculation and The London Bullion Market And International Gold Trade, or it will be difficult to understand the finesses.

This week I listened to an interview with a Swiss refiner which promptly reminded me of an interview I conducted with Alex Stanczyk (currently Managing Director of Physical Gold Fund SP) on 9 September 2013 about what he was hearing from industry insiders on Chinese gold demand. Back then we knew very little about the Chinese gold market and how physical gold across the globe was flowing towards China. This started to change on 18 September 2013 when I published my first analysis on the structure of the Chinese gold market with the Shanghai Gold Exchange (SGE) at its core; a topic that since then has been discussed by researchers at investment banks, in the blogosphere and in the mainstream media. The Western gold space has learned a great deal about the Chinese gold market and global gold flows, though we’re always left with loose ends. For example, the issue regarding PBOC gold purchases; how much gold do they truly have and where was it bought? Does the PBOC buy 400-ounce Good Delivery (GD) bars in London and covertly transports these gold bars to its gold vaults in China mainland, or are the Good Delivery gold bars shipped to Switzerland, refined into 1 Kg 9999 gold bars, sent forward to the Chinese mainland where they’re required to be sold through the SGE gold exchange and from where they can be bought (in clear sight) by the PBOC. The latter would imply that the full gold flow would be visible for anyone with an Internet connection.

Yesterday I re-read my interview with Alex from September 2013 in which he shared information form industry insiders. From Alex (September 2013):

One of our partners had lunch in the recent past with the head of the largest global operations company in security transport. He said there is a lot of gold that they’re moving into China that’s not going through exchanges. If the gold is for the government they don’t have to declare where it’s going. They don’t have to declare where it’s going in, or where it’s heading. If you look at the way the Chinese do things, why would they tell?

With the knowledge we have now, this quote from 2013 is even more interesting, as it describes what has come together in the past years through several analysis. Consider the following:


    • Good Delivery gold bars can be monetized – in countries like the UK, Hong Kong, Switzerland and Singapore – from where they can be shipped into China whilecircumventing global trade statistics. This is because monetary Good Delivery gold bars are exempt from global trade statistics (UN, IMTS 2010). Needless to say monetary imports into China are conducted by the PBOC.


  • Non-monetary Good Delivery gold bars (declared at international customs departments) imported into the Chinese domestic gold market are required to be sold through the SGE. However, trading volume at the SGE in GD bars has been a mere 3 tonnes in all of history.

We can thus conclude that if any Good Delivery gold bars have entered China these did not go through the SGE system where Chinese citizens, banks and institutions buy gold. Instead, it’s likely that the Good Delivery gold bars that crossed the Chinese border went directly to the PBOC vaults…


(courtesy Alasdair Macleod)



Alasdair Macleod: From ZIRP to NIRP


1:34p ET Thursday, September 24, 2015

Dear Friend of GATA and Gold:

GoldMoney research director Alasdair Macleod today nails the madness of the increasing contemplation by central bankers of a policy of negative interest rates.

“By forcing people into paying to maintain cash and bank deposits,” Macleod writes, “central bankers are playing fast and loose with the public’s patient acceptance that state-issued money actually has any value at all. There is a tension between this cavalier macroeconomic attitude and what amounts to a prospective tax on personal liquidity.

“Furthermore, negative interest rate policy makes the hidden tax of monetary inflation, of which the public is generally unaware, suddenly very visible. Already zero interest rate policy has created enormous unfunded pension liabilities in both private and public sectors, by requiring greater levels of capital to fund a given income stream. Savers are generally unaware of this problem. But how do you value pension liabilities with NIRP? Anyone with savings, which is the majority of consumers, is due for a very rude awakening.”

Macleod’s analysis is headlined “From ZIRP to NIRP” and it’s posted at GoldMoney here:…

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



(courtesy Chris Giles/London’s Financial times)

Chris Giles: In cash we trust — abolish it and you invite tyranny


By Chris Giles
Financial Times, London
Wednesday, September 23, 2015

Central banks have never been so powerful, yet their ability to set the cost of borrowing, put limits on bank lending and poke their noses into every corner of the financial system is insufficient for some. Now the Bank of England’s chief economist wants to abolish the cash in your wallet and charge you for a digital equivalent.

Andy Haldane argues the world economy is entering a third leg of a long crisis: an emerging market disaster is following the Anglo-Saxon and eurozone crises of 2008 and 2011 respectively. In these circumstances he wants to be able to stimulate spending in Britain but says he cannot easily do so because interest rates are constrained not to fall below 0 per cent. He worries that if the BoE set a negative interest rate — in effect charging savers to hold their money in the hope they would spend instead — people would switch to cash, stick it under the bed and thereby get around the efforts to encourage more consumption

Attach a gloomy assessment of the efficacy of quantitative easing and other means of stimulating spending, and his answer is to get rid of cash and replace it with a digital wallet on which negative interest rates can be charged.The case might be logical, but that is not a sufficient condition for public policy. Mr Haldane thinks banning cash and switching to digital money would be a “great technological leap forward” but his words have more than an unfortunate rhetorical echo of Maoist China. It is illiberal and prioritises a skewed view of theory over public acceptability.

For the vast majority of the time when interest rates are positive, Mr Haldane’s plans are simply unnecessary. He would ban the use of paper currency and coinage that has been used for centuries in pursuit of a theoretical contingency. Some 48 per cent of all transactions in the UK use cash, defying regular predictions of its demise and making it by far the most popular payment method. No wonder wiser heads at the BoE, such as Victoria Cleland, the chief cashier, say cash is here to stay.

At times when interest rates would ideally fall below zero, the central bank still has more tools in its armoury than Mr Haldane cares to consider. Nordic countries have shown that significantly negative rates can be imposed on bank deposits without the feared shift towards people hoarding cash under mattresses, so there is already more room for conventional monetary policy to work. In addition, it is clear that in the event of a slump a broad-based tax cut financed by central bank purchases of the resulting public debt would provide the necessary stimulus.

Mr Haldane asserts that such action would send monetary credibility “down the most slippery of slopes.” This fear is far from well grounded; and, as Professor Simon Wren Lewis of Oxford observes, ruling out monetary financing of tax reductions for fear they might be popular is hardly a sensible position for an unelected central banker.

Some argue there would be beneficial side effects from abolishing notes and coins through the regularisation of illegal activities. Really? What is the more likely response of a drug dealer and client who mutually want to conduct a trade: “Let me sell you the dope on a traceable payment system”; or “Let’s use euros instead”? Cash would have to be abolished everywhere and the BoE does not have those powers, thankfully.

The anonymity of cash helps to free people from their governments and some criminality is a price worth paying for liberty, as professors Stephen Cecchetti and Kermit Schoenholtz observe. It is better if the government creates trusted, anonymous notes and coins rather than some private agent.

Mr Haldane’s proposal to ban cash has all the hallmarks of a public official confusing what is convenient for the central bank with what is in the public interest. Cash is unlikely to die a natural death — and, until it does, long may it live.




Mistaken for Bundesbank, Deutsche Bank saved on funding costs



* * *

By Nicholas Comfort
Bloomberg News
Wednesday, September 23, 2015

Deutsche Bank AG has benefited from lower funding costs in part because investors confused it with Germany’s central bank, said Stefan Krause, a member of the company’s management board.

“It’s not Deutsche Bank’s wish, but you could almost say that because of our name, a large part of the capital market thinks we’re the Bundesbank,” Krause said during a panel discussion in Dusseldorf, Germany, on Wednesday. “Global refinancing markets always offered Deutsche Bank good conditions because in the heads of the people there was always an implicit state guarantee.”

Krause was responding to a comment by fellow panel member Clemens Fuest, the president of the ZEW Center for European Economic Research, who said several studies show that banks considered too big to fail get cheaper financing. Krause, agreeing with Fuest, said Deutsche Bank also benefited from a case of mistaken identity. …

… For the remainder of the report:…




(courtesy Pat Heller/Liberty Coins/Gata)

Pat Heller: What is the risk that delayed physical silver deliveries could default?


7:30p ET Thursday, September 24, 2015

Dear Friend of GATA and Gold:

In commentary in Coin Week, veteran coin and bullion dealer Patrick A. Heller advises monetary metals buyers how to handle high premiums and delivery delays. Heller’s commentary is headlined “What Is the Risk that Delayed Physical Silver Deliveries Could Default?” and it’s posted at Coin Week here:…

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



(courtesy Dave Kranzler/IRD)

Dave Kranzler: The gold supply on the LBMA is extremely tight


10:40p ET Thursday, September 24, 2015

Dear Friend of GATA and Gold:

Dave Kranzler of Investment Research Dynamics reports tonight that backwardation in gold and silver in the London market indicates tight supplies at current prices.

“I would suggest,” Kranzler writes, “that today’s $23 move up in the price of gold on Comex options expiry day — an event on which gold is usually slammed hard in the paper market — is a direct reflection of the growing scarcity of immediately available ‘wholesale’ gold bars that can be purchased on the global market.”

Kranzler’s analysis is headlined “The Gold Supply on the LBMA Is Extremely Tight” and it’s posted at the IRD Internet site here:…

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





(courtesy ChrisPowell/GATA/NyTimes)

The Philippines — another rich country insisting on being poor


11:27p ET Thursday, September 24, 2015

Dear Friend of GATA and Gold:

The New York Times today published an interesting report about an exhibition in Manhattan of artistic gold relics from the Philippines. The first two paragraphs are appended, along with a link to the full report.

But the report may be most important for an observation deeper into the text: “Gold was always plentiful in the Philippines, readily collected by panning. Today the country is said to have the world’s second richest gold deposits.”

“Second richest gold deposits” — and yet the Philippines is a dreadfully poor country.

Of course part of this is that the country has a long history of foreign occupation, first by Spain, then by the United States, then by Japan, then briefly by the United States again, before gaining independence, so it is a new country.

Part of it is the oppression the country suffered for decades while nominally independent under a U.S.-supported dictatorship. Part of it is the corruption that endures today in the country’s young democracy.But part of it also is the suppression by Western central banks of gold prices particularly and of commodity prices generally. All countries get started by developing their natural resources. Thus gold and commodity price suppression is another form of imperialism.

The International Monetary Fund’s rule prohibiting countries from linking their currencies to gold is a mechanism of enforcement for that imperialism.

Consenting to this imperialism, the Philippines is another rich country insisting on being poor.

A year ago your secretary/treasurer wrote to the central bank of the Philippines, Bangko Sentral ng Pilipinas, noting that he would be traveling to Asia in a few weeks and would be grateful for an appointment with the bank so that the documentation of the gold price suppression scheme might be presented and explained:

Upon his return your secretary/treasurer got a letter from the bank saying it was too busy. Busy being a tool, really.

If you know any patriots in the Philippines, please pass this along to them. The country has so much potential and is full of lovely people who love Americans in spite of everything. They deserve better.

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

Review: ‘Philippine Gold: Treasures of Forgotten Kingdoms’

By Ken Johnson
The New York Times
Thursday, September 24, 2015

More than half a millennium before Ferdinand Magellan reached the archipelago now called the Philippines in 1521, a number of related societies thrived there. Little is known about them. They left no enduring architecture, monuments or literature. One thing is certain, however: They were astoundingly skillful goldsmiths.

A generous sample of those underknown peoples’ work in gold is presented in “Philippine Gold: Treasures of Forgotten Kingdoms,” a gorgeous and historically intriguing exhibition of about 120 pieces from the 10th through the 13th centuries. …

… For the remainder of the report:…

And now your overnight Friday 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   6.3735/Shanghai bourse:  in the red and Hang Sang: green

2 Nikkei closed  up 308.68 or 1.76%

3. Europe stocks all deeply in the green     /USA dollar index up to 96.39/Euro down to 1.1163

3b Japan 10 year bond yield: rises to .335% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.81

3c Nikkei now well below 18,000

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

(providing the necessary ramp for all bourses)

3e WTI:  45.19 and Brent:  48.24

3f Gold down  /Yen down

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls badly to .618 per cent. German bunds in negative yields from 4 years out

 Greece  sees its 2 year rate rises to 11.71%/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  : 8.42%  

3k Gold at $1144.05 /silver $15.08  (8 am est)

3l USA vs Russian rouble; (Russian rouble up 37/100 in  roubles/dollar) 65.68,

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

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

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9767 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0904 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  in negative territory with the 10 year moving further from negativity to +.618%/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 2.15% early this morning. Thirty year rate below 3% at 2.94% / yield curve flatten/foreshadowing recession.

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

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


Futures Surge On Renewed “Hopes” Of Fed Rate Hike, Sliding Yen

Just one week after the Fed overwhelmingly voted to keep rates unchanged, in a move that was seen as a painfully dovish admission that neither the global nor the US economy are growing at anything close to a satisfactory pace, last night, in a very macabre speech which ended prematurely when a clearly unwell Yellen called it a day, the Fed Chair tried to once again lay out the case for a rate hike before year end.

The market, which clearly ignored the glaring contradictions in Yellen’s speech which said that overseas events should not affect the Fed’s policy path just a week after the Fed statement admitted it is “monitoring developments abroad”, and also ignored Yellen explicit hint that NIRP is coming (only the size is unclear), and focused on the one thing it wanted to hear: a call to buy the all-critical USDJPY carry pair – because more dollar strength apparently is what the revenue and earnings recessioning S&P500 needs – which after trading around 120 in the past few days, had a 100 pip breakout overnight, hitting 121 just around 5am, in the process pushing US equity futures some 25 points higher at last check.


So is that it? Has the confused market, after a 7-year liquidity addiction driven by an overly generous liquidity dealing Fed, decided to go cold turkey and accept that rate hikes are positive for risk? Hardly. But it will take the confused market the usual period of time before it realizes that Yellen’s deathwish on Emerging Market currencies is about to unleash havoc on global risk flowsas we showed earlier this week.

And if rate hikes are bullish, then why flirt with 25 bps – why not just do 2.5% or better yet, 5%, and send the E-mini limit up.

Joking aside, another catalyst for the overnight surge in the S&P500 carry trade, the USDJPY, was Japan’s previously reported relapse into deflation for the first time since 2013, a clear indication that Abenomics is no longer working so, drumroll, more Abenomics is needed (i.e., more QE)!

The CPI announcement was followed by a meeting between Kuroda and Abe earlier this morning. Some, like the Nikkei, suggested the meeting was to discuss future monetary policy and further easing, something we have said is in the cards now that the ECB is off the table indefinitely and leaves the BOJ as the only source of incremental “outside money” flows into risk… Even if such a QE boost means the BOJ monetizes outstanding Treasurys that much faster and is forced to taper QE prematurely. That doesn’t matter: what matters is preserving the status quo in a regime in which central bank credibility is suddenly crashing every single day.

But back to markets, and where the aforementioned USDJPY did not take place until just before the European open, Asian equity markets traded mostly lower following Fed Chair Yellen’s less dovish than expected comments where she said she expects rate lift-off this year. Shanghai Comp. (-1.6%) led the declines on continuation of Chinese growth concerns, while the ASX 200 (-0.6%) conformed to the negative tone led lower by energy and large banking names.

Japan’s Nikkei 225 (+1.8%) fluctuated between gains and losses as strength in health care was offset by weakness in tech names, while Sharp (-8%) fell to record lows after it confirmed that it will miss its H1 profit forecast. JGBs initially tracked the losses in T notes post-Yellen comments but the better than prior enhanced liquidity auction added support.

But if Asia limped along, European equity markets positive blasted off (Euro Stoxx: +3.0%) heading into the North American crossover, bolstered not only by the global Yen carry but also by stock specific news as German automakers see a rebound from recent losses after German press reported that there has been no suggestion of BMW exhaust manipulation despite contradictory reports yesterday. However it is worth noting that Euro Stoxx remains lower by around 1.5% for the week on the back of the ongoing emissions scandal.

In FX, the final session of the week starts with USD dominating proceedings, with the greenback bolstered by comments last night from Fed’s Yellen (USD-index: +0.3%). Yellen’s comments yesterday were seen as less dovish than expected, whereby she said she expects rate lift-off this year – of course the Fed has been saying that for the past year. The real question is not if the Fed will hike rates in 2015 – it is when in 2016 Goldman will give the greenlight for a 2016 hike, if ever.

For now, however, USD has continued to strengthen throughout the morning to weigh on major pairs, with EUR/USD breaking below its 50 and 100 DMAs. USD strength also saw downside in fixed income markets, with T-notes heading into the North American crossover lower by round 11 ticks and Bunds Dec’15 futures trading below 155.50.

On today’s US event calendar we will get the third and final reading for Q2 GDP where the consensus expectation is for no change to the 3.7% print. We’ll also get the flash services and composite PMI readings along with the final September print for University of Michigan consumer sentiment. Fedspeak wise it’s the turn of Bullard and George today. Hopefully they will be better “hydrated” than Yellen.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Less-dovish than expected comments from Fed’s Yellen have supported USD and weighed on fixed income products
  • Equity markets have seen notable strength, bolstered by a rebound in automakers
  • Today’s highlights include the tertiary reading of Q2 GDP and the final reading of University of Michigan sentiment, while comments are expected from Fed’s George and Bullard and ECB’s Weidmann
  • Treasuries decline, headed for modest loss on the week, after Fed’s Yellen said in speech last night that she is ready to raise rates this year.
  • Yellen also said she intends to let the labor market run hot for a time to heal the recession’s lingering scars; the Fed chair felt unwell due to dehydration toward the end of her speech and briefly sought medical attention
  • After hovering near zero for months, the Bank of Japan’s main inflation gauge dropped into negative territory as weak domestic demand and plunging oil prices wiped out the impact of Governor Haruhiko Kuroda’s unprecedented monetary stimulus
  • Prime Minister Abe’s reboot of his economic agenda has left analysts scratching their heads, after Japan’s leader unveiled three new policy pillars — strong economy, child care support, social security — without tying them to previous plan
  • Money is leaving China faster than ever, according to a Bloomberg gauge tracking capital flows, as an estimated $141.66b left the country in August, exceeding the previous record of $124.62b in July
  • Brazilian policy makers will ignore pressure from traders to increase borrowing costs and are confident that keeping interest rates on hold is sufficient to tame inflation, central bank President Alexandre Tombini said
  • Four years after Obama’s August 2011 ultimatum that Syrian president Bashar al-Assad must go, world leaders descending on New York for the United Nations General Assembly are closer to agreeing that Assad can stay
  • Volkswagen AG is set to appoint Porsche brand chief Matthias Mueller as its new CEO and announce the departure of top executives in a sweeping overhaul to begin repairing the carmaker’s image tarnished by rigged emissions tests
  • Sovereign 10Y bond yields mostly higher. Asian stocks mostly higher; European stocks and U.S. equity-index futures gain. Crude oil and copper gain, gold falls


DB concludes the key event wrap of the previous day

So after another volatile and ultimately weak day for risk assets once again yesterday, Fed Chair Yellen, speaking after markets closed, underlined her case that raising rates will be appropriate later this year but also sought to add some soothing words around the outlook for the US economy. Yellen said that ‘it will be likely appropriate to raise the target range of the federal funds rate sometime later this year and to continue boosting short term rates at a gradual pace thereafter as the labour market improves further and inflation moves back to our 2% objective’. Yellen suggested that this was the view of most FOMC participants and that the more prudent strategy would be to begin tightening in a timely fashion and at a gradual pace. Unsurprisingly, the Fed Chair highlighted the well versed transitory factors holding back inflation, namely lower energy prices and the stronger Dollar but made mention once again that these factors are expected to wane. The labour market was highlighted as ‘not being far away from full employment’, while her view on US economic prospects was that they ‘generally appear solid’.

While the overall tone felt certainly more upbeat relative to last week, warning signs were still signaled which should keep the market guessing. Yellen noted that ‘we cannot be certain about the pace at which the headwinds still restraining the domestic economy will continue to fade’ and that ‘recent global economic and financial developments highlight the risk that a slowdown in foreign growth might restrain US economic activity somewhat further’. While she was of the view that the Fed will be ready to move later this year, it was noted that ‘if the economy surprises us, our judgments about appropriate monetary policy will change’. December liftoff expectations have been given a boost following the speech with a move now priced at 49%, up from 43% this time yesterday. Markets are pricing in little chance of a rate rise next month however, still hovering around 18%.

Overnight in Asia the only major data point has been Japan’s August inflation print. Looking at the numbers and it was something of a mixed report with the CPI excluding fresh food figure slipping into negative territory for the first time since April 2013 at -0.1% YoY, although the number excluding food and energy rose to +0.8% YoY. The report and the potential implications of it for the BoJ’s purchase program has helped Japanese markets buck the trend in overnight action with the Nikkei up +0.7% whilst the Hang Seng fell -0.5%, the Shanghai composite fell -1.8% and the broad S&P Asia 50 was down -0.7%. Debate as to whether the BoJ will adjust their policy at their next meeting on October 7th will certainly continue after these latest reads.

Back to yesterday. Sentiment continues to be rocked in markets at the moment and yesterday’s news out of Caterpillar that the company is set to cut up to 10,000 jobs as well cutting its full year revenue forecast set a ripple effect through the industrials sector. Much like Wednesday, the S&P 500 did stage a +1% rebound off the intraday lows but it was too little too late once again as it finished the session down -0.34%. The index is in fact down 4.4% now from the highs shortly following the FOMC decision last week after the fifth daily decline in the last six days. The losses were steeper in the European session as the fallout from the emissions scandal spread to other carmakers with BMW now the latest to come under scrutiny. That saw the DAX (-1.92%) plummet to the lowest level this year while the Stoxx 600 sold-off -2.12% with YTD returns dipping into the negative territory for the first time this year. It’s amazing to think that the index at one stage in April had seen YTD gains as high as +21%. European credit markets were also weak yesterday with Crossover and Main widening 18bps and 5bps respectively. The commodity complex was actually relatively well behaved. WTI and Brent finished up just shy of a percent, while Aluminum (+0.13%) and Copper (-0.12%) were little moved. Gold was the outlier however after surging over 2% yesterday to the highest level in a month.

Meanwhile, it was a big day for Central Bank moves yesterday as we saw Norway, Taiwan and Ukraine all ease. The big surprise was in Norway where the Norges Bank cut the overnight deposit rate by 25bps to 0.75% and to an all-time low while at the same time hinted at further cuts ahead. The first cut by Taiwan since 2009 was also a surprise to the majority, while in the Ukraine borrowing costs were lowered for the second consecutive month. Refreshing our numbers and assuming the ECB as representing 19 CB’s, we make that 56 different Central Banks to have eased monetary policy this year, of which 13 by our count were a surprise relative to market expectations.

There was plenty of economic data for markets to absorb yesterday too. In the US August headline durable goods declined -2.0% mom, although slightly better than the -2.3% decline expected with the fall attributed to the volatile aircraft and defense components. Excluding transportation, the print was a smidgen behind consensus (0.0% mom vs. +0.1% expected). Core capex orders (-0.2% mom) fell as expected having risen 2.1% in July. Meanwhile, there was further weakness in the Kansas City Fed manufacturing activity index which printed at -8 (vs. -6 expected) for September. There was weakness also in the Chicago Fed national activity index (-0.41 vs. +0.24 expected) however better news was to be had in the housing sector. New home sales rose +5.7% mom in August (vs. +1.6% expected) with a decent upward revision to July also. That saw the annualized rate of new home sales rise 30k to 552k and the highest in seven years. Finally, initial jobless claims printed at 267k last week, nudging the four week average down to 272k and the lowest in more than a month.

Before this in Europe, headlines dominated by the emissions scandal overshadowed what was actually a relatively upbeat German IFO reading. The September business climate headline reading rose a modest 0.1pts to 108.5 (vs. 107.9 expected). This was given a lift by the expectations index which rose 1.1pts to 103.3 (vs. 101.4 expected) and the highest since April which offset a slight decline in the current assessment index to 114 (vs. 114.7 expected), a fall of 0.8pts. Our colleagues in Germany believe that the latest data supports their case of 0.5% quarterly growth in Q3, in line with what the composite PMI suggested.

Before we take a look at today’s calendar, one event which will be worth keeping an eye on this Sunday will be the election in Catalonia. Yesterday, DB’s Marco Stringa and Abhishek Singhania published a note updating the current situation and looking ahead to what the elections may mean further down the line. They note that the recent polls have suggested pro-independence Junts pel Si and CUP are set to win the majority of seats and are creeping close to the majority of votes as well. Junts pel Si has argued that an absolute majority would be sufficient to declare victory in the de-factor referendum for independence regardless of the share of votes in any case. It pledges to declare unilaterally the independence of Catalonia in about 18 months unless the central government allows a binding referendum on independence. Our colleagues are of the view that given there is little else keeping such a heterogeneous coalition together, the pair will continue on the pro-independence path. However, what makes this more difficult is that any changing in the Constitution to allow Catalonia’s independence appears to be an extremely demanding scenario from both a legal and political perspective. The team also think that from an economic and financial perspective, a unilateral declaration of independence by Catalonia would likely be a lose-lose outcome for both Catalonia and Spain. There is also the risk that the election will leave a deeply divided Catalonia and deep division between Catalonia and the central government, so a negative outcome can’t be ruled out. Marco and Abhishek ultimately believe that a compromise in 2016 seems the most reasonable scenario, but it won’t be easy.

Turning over to today’s calendar now then. It’s a fairly quiet end to the week in Europe this morning with just French consumer confidence and Euro area money supply data due. Over in the US this afternoon we will get the third and final reading for Q2 GDP where the consensus expectation is for no change to the 3.7% print. We’ll also get the flash services and composite PMI readings along with the final September print for University of Michigan consumer sentiment. Fedspeak wise it’s the turn of Bullard and George today







Let us begin.  Late last night 9:30 pm Thursday night/Friday morning 9:30 am Shanghai

“Hawkish”-er Yellen & Japanese Deflation Spark Uncertainty Across AsiaPac

The evening started on a high note when Janet Yellen’s survival giving a speech warranted a 100 point rip in Dow futures (and USD strength). Then Japan stepped up with its first deflationary CPI print since April 2013(which of course was met with stock-buying because moar QQE is overdue but that soon faded). EM FX is tumbling further (with Malaysia leading the charge). Chinese credit risk jumps tro a new 2 year high (as SHIBOR remains entirely manipulated flat) as China halts its 4-day devaluation with a tiny nudge stronger in the Yuan fix.


In the words of Flash Gordon, “She’s alive…” so BTFYDD because she seemed a tad more hawkish


and USD strength…


And then Japanese CPI data hit and showed Abenomics imploding as the country dips backinto deflation


Which sparked panic-buying in Japanese stocks (moar QQE?) only to give it al lback as China opened…


EM FX not happy at the USD strength and Yellen hawkishness…


India is closed for a holiday.

Asian FX is sliding once again….


In China this worries us… It appears the new target for PBOC stability is funding rates (overnight SHIBOR) which has now been dead for 3 weeks amid massive liquidty adjustments, stocks swing, credit risk surges and CNY devaluations…

That is a new 2 year high for Chinese default risk.

Looks a lot like the tortured manipulation that happened in USDCNY before it imploded a month ago…

Chinese stocks are modestly lower…

  • *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 0.4% TO 3,272.67

As PBOC halts its 4-day devaluation (just)



Charts: Bloomberg


Will A Black Swan Land In Spain On Sunday? Full Catalonia “Referendum” Preview

Earlier this week, we asked why multiple armored vans were parked outside the Bank of Spain’s Barcelona branch.

The convoy would have been curious enough on its own, but the fact that the vehicles were stationed in the Catalan capital ahead of what amounts to an independence referendum piqued our interest and we asked if perhaps the Bank of Spain was preparing for any and all contingencies. According to the Bank of Spain itself, our suspicions were unfounded as “nothing extraordinary happened [on Wednesday] in the building of Banco de España in Barcelona.”

“By the way,” the central bank added, “there is no gold in this site of Banco de España in Barcelona.”

Maybe not, and perhaps nothing was amiss, but this Sunday’s plebiscite in Catalonia is worth watching closely as it could very well represent the next European black swan. 

To be sure, we’ve long said that in the wake of Greece’s latest bailout negotiations, political events in Spain and Portugal have the potential to further destabilize the EMU. Regional elections in May signaled a growing disaffectionamong Spanish voters with the status quo and seemed to telegraph a shift towards parties whose election promises mirror those which helped Syriza sweep to power in Greece earlier this year.

In Barcelona for instance, the anti-poverty, anti-eviction activist Ada Colau (who leads Barcelona En Comú) was elected mayor in what she called a victory “for David over Goliath.”

The point here is that on the heels of the Greek fiasco and with tensions running high thanks to the worsening migrant crisis, just about the last thing Brussels needs is for the political landscape in Spain or Portugal (which the troika is fond of holding up as austerity success stories) to shift dramatically in favor of parties who sympathize with the anti-austerity cause and while the story of Catalonia’s push for independence is a separate and distinct issue,secession would only serve to muddy the waters further ahead of general elections in December, creating further uncertainty and adding yet another destabilizing element to an already fragile situation in the EU. 

In short, while the spectre of Catalonia’s secession might serve to bolster Mariano Rajoy’s PP ahead of the general election, the market may well grow concerned about the effect Catalan independence would have on Spain’s debt-to-GDP ratio. That sets up the potential for anti-austerity parties to suggest that the pain inflicted upon Spain’s populace (see the country’s sky high unemployment rate) has ultimately been for naught. A similar dynamic is now unfolding in Portugal on the heels of the government’s admission that the cost of the Novo Banco bailout must ultimately be incorporated into the country’s budget deficit. Additionally, it’s worth noting that predicting how Spain would ultimately deal with a Catalonia that attempts to secede is difficult and it’s not hard to imagine a number of scenarios that end in social upheaval.

With that, we bring you the following preview of this weekend’s vote in Catalonia courtesy of Deutsche Bank, RBS, and The Guardian.

*  *  *

From Deutsche Bank

The 27 September election in Catalonia, which accounts for ~19% of Spanish GDP – matters. First, the pro-independence movement has transformed the election into a de-facto referendum on Catalonia’s independence – an attempt to bypass the Constitution. Second, the result of the regional election could have a bearing on the December national election.

The pro-independence parties The centre-right Convergence of Catalonia (CDC) joined forces with left-wing Catalan Republic Left (ERC) and other Catalan associations. They will run under a pro-independence joint list: Junts pel Si (Together for Yes). Junts pel Si pledges to declare unilaterally the independence of Catalonia from Spain in about 18 months if they win the election and if the secession negotiations with the central government fail. 

The pro independence parties come from a very heterogeneous political spectrum. This is not a positive.In our view, a Catalan government supported by CDC, ERC and CUP would have only the pro-independence battle to keep it standing. Hence, the leaders of such a government will likely continue on the pro-independence path not only out of conviction on its feasibility but because of lack of alternatives.

Political impact ahead of the general election

The potential threat to the unity of Spain from Catalonia could be an advantage for the PP ahead of the national election as it is probably seen as the best party to deal with such a risk.

Furthermore, there are three other factors that could lead to an increase in the support for the PP. (1) The economy continues to improve. (2) Some of those who abstained in the May election may switch back to the PP as their abstentions have helped the left to gain control of several local governments. (3) Support for the PP could be underestimated by current polls as its voters may be less willing to reveal their preferences given the party’s recent legal controversies.

A coalition with a significant role for the radical left at national level could push for a reversal of some structural reforms (such as the labour reforms). A boost for the pro business parties from the Catalan election could reduce such a risk.

From an economic and financial perspective, we think that a Catalonia’s UDI would be akin to ending up in the classic non-cooperative solution of the prisoner dilemma, i.e. a lose-lose outcome for both Catalonia and Spain:

  • Catalonia would likely be cut out of the EU based on the above EC statement and capital controls cannot be excluded.  
  • The impact would be significant also on the Spanish economy. Without an agreement to share the stock of debt with Catalonia, Spain’s’ projected public debt for 2015 would move from just above 100% of GDP to about 125% of GDP.And this accounts only for the mechanical impact. On 21 September Mas stated that if the central government refuses to negotiate, Catatonia might not pay back its liabilities to the central government.

*  *  *

From RBS

Independence faces constitutional and legal challenges from the central government. The central government’s main argument is that secession is simply unconstitutional; Section 2 of the constitution states: “The Constitution is based on the indissoluble unity of the Spanish Nation, the common and indivisible homeland of all Spaniards”. As such, the government has repeatedly blocked Catalan attempts to hold referenda on separation, most recently in September 2014. This led to a symbolic nonbinding vote held in November in which independence won by 80.8% (turnout was low at ~40%). As a last resort, the government in Madrid could invoke Article 155, which states that “if a [region] does not comply with the obligations imposed upon it by the Constitution or other laws, or acts in a way that threatens the general interest of Spain, the Government can […] via absolute majority in the Senate, adopt the necessary measures to oblige the region to forced compliance with such obligations, or for the protection of the aforementioned general interest”.Madrid has already spoken of its ability to use this power, although overriding Catalonia’s regional autonomy would be a drastic move in our opinion, heightening the ideological element of the conflict and risk alienating non-separatist Catalans.

Catalonia is highly likely to lose EU membership if separated from Spain. As highlighted by Merkel and Cameron, it would be almost impossible for Catalonia to gain EU membership, as Article 49 of the Treaty of the European Union would require Catalonia to be recognized as a “state” by all 28 member states, including Spain. The situation is similar to 2014’s Scottish independence referendum. José Manuel Barroso, the European Commission President then, suggested it would be “extremely difficult if not impossible” for an independent Scotland to join the EU. Speaking at our Credit and ABS 2015 conference yesterday, Barroso reiterated the same point regarding Catalonia. The end result of the Scottish referendum saw 45% vote to leave the UK, while 55% voted to stay in. In our view, similar concerns are likely to weigh on Catalan voters’ mind if they’re polled directly on whether to leave Spain. Uncertainty over a Euro-exit would deter voters from opting for

What does the Catalan election mean for credit? Headline risk presents more volatility for Spanish credit. But in our view, this can create an entry point to get long Spanish credit (avoiding EM-exposed names like Santander or Telefonica). Even though so far it has underperformed Italy, consistent with our views, Spain is supported by improving fundamentals on a firming recovery in the domestic economy. While we have moved to underweight on global credit (a measure of 4/10 on our bullishness scale), we remain most positive on Eurozone credit, which is relatively isolated by more ECB easing (being the ECB more under pressure to ease from deflationary pressures, the Asia slowdown hitting core Europe).

*  *  *

From The Guardian

How did we get here?

Before the previous election (in 2012), the Catalan parliament adopted a resolution asserting “the right of the people of Catalonia to be able to freely and democratically determine their collective future through a referendum”.

In the elections that followed later that year, the mostly pro-referendum parties – Convergence and Union (CiU), Republican Left of Catalonia (ERC), Initiative for Catalonia Greens-United and Alternative Left (ICV-EUiA) and the the Popular Unity Candidature (CUP) – won the most votes and seats.

However, the CiU party of Catalonia’s president, Artur Mas, lost 12 seats, and he had to rely on the support of the ERC to secure the numbers needed to form a government.

Despite their differences, and diverging factions within, the pro-referendum parties were able to muster enough votes in 2013 to pass a declaration that affirmed Catalonia’s right to self-determination, and set forth the beginning of a process to call an independence referendum.

But Spain’s constitutional court declared the declaration void and unconstitutional.

Since then, the size of demonstrations has got bigger and bigger – and support for a referendum has intensified.

The Spanish government, though, has remained firmly opposed to an independence vote, declaring attempts to hold one illegal. Technically speaking, Madrid is on the right side of the law because in order to hold a legally binding referendum the central government would need to transfer authority to the region (just like in Scotland’s referendum) – and it says it won’t.

The standoff led the Catalan government to call a snap election, the third in five years, and to label Sunday’s vote a plebiscite on independence.

Russia and the Middle East
Obama to meet Putin on the Syrian issue!!
(courtesy zero hedge)

Obama, Putin To Meet On Syria As Tension Builds Ahead Of Russian Offensive Against ISIS

By now, it’s no secret that Moscow has officially called an end to the US policy of utilizing Sunni extremists to destabilize the government of Syrian President Bashar al-Assad.

What began months ago with rumors of Russian troops operating alongside the Syrian Arab Army culminated on Wednesday with reports that Vladimir Putin will bomb ISIS positions to support Assad with or without the help of US forces. What that means is that if the US was indeed adopting a “containment strategy” vis-a-vis ISIS (versus mounting a serious attempt to defeat Bakr al-Baghdadi’s army) in order to effectively ensure that Assad would be unable to stabilize the country, the game is now up, as Moscow is set to eliminate any and all threats to the regime.

That, along with the fact that Russia and Iran are now coordinating their military efforts in support of their mutual ally in Damascus, presents Washington with a serious problem. As we’ve detailed on a number of occasions, the US now must decide between admitting that ousting Assad (and thereby refusing Russia’s offer to join forces against ISIS) takes precedence over combatting terror or else relent and assist Moscow and Tehran with stabilizing the very regime the US and its regional allies have sought to remove for at least ten years.

Although admitting that the fight against ISIS is not America’s top priority is quite clearly not an option, allying with Russia and Iran is apparently so detestable a proposition that The White House will delay a decision for as long as absolutely possible in what’s likely an attempt to use diplomatic back channels to try and see if there’s another way out that allows Washington to save face.

With the pressure building, Obama is now set to meet directly with Putin next week following the Russian President’s speech to the UN General Assembly. As Reuters notes, both the US and Russia are keen on spinning the narrative in a way that pleases their respective electorates:

U.S. President Barack Obama and Russian President Vladimir Putin will meet in New York next week at a time of high tension in Europe and the Middle East, but the Kremlin and the White House disagreed on Thursday over the top priority for the talks.


The White House insisted the meeting would focus on eastern Ukraine, where Russian-backed forces are fighting the Kiev government, prompting tough sanctions that have damaged Russia’s economy.


Moscow, however, said the main focus would be on Syria, where Russia has built up its military forces in recent weeks with combat aircraft, tanks and other equipment in support of President Bashar al-Assad.


Putin’s spokesman, Dmitry Peskov, told reporters: “Of course, the primary topic will be Syria.” Asked whether Ukraine would be discussed, he said: “Well, if time allows.”


“There will be time,” Obama’s spokesman, Josh Earnest, retorted during a briefing in Washington. Earnest, speaking at the White House, played down the possibility for any “major announcement” from the meeting.

Meanwhile, the Ayatollah has predictably moved to ensure that there will be no dialogue between Washington and Tehran with regard to Syria. Here’s WSJ:

Iran also is a core component of any Syria resolution, and administration officials hoped to quickly move to discussions with Tehran on that issue after reaching the nuclear deal. But that effort seems stalled for now.


Secretary of State John Kerry will meet with Iranian Foreign Minister Javad Zarif over the weekend.


Administration officials have said Mr. Obama is open to meeting with Iran’s president. But the Iranians have indicated to the U.S. that it won’t happen, underscoring the difficulty of redefining relations after decades of hostility.


Mr. Rouhani arrived in New York on Thursday with a mandate to convey the message that Iran is open to the world, according to analysts and diplomats inside Iran. But when it comes to the U.S., Iran is drawing a red line.


Iran’s Supreme Leader Ayatollah Ali Khamenei has said in speeches in the past month that engaging with the U.S. beyond the nuclear topic is prohibited.


Mr. Rouhani told CBS television’s “60 Minutes” in an interview this week that “many steps have to be taken before we reach such a stage.”


Saeed Laylaz, an influential political analyst in Tehran, said a meeting between the presidents “would escalate tensions inside Iran and given Mr. Khamenei’s warning, it would be viewed as a slap in the face to the supreme leader.”

Yes, and make no mistake, Khamenei is not a man who enjoys being slapped in the face and especially not by a president who, when one strips away all the niceties, is really nothing more than a figurehead.

What the above means is that the US is now completely at the mercy of Russia when it comes to determining the path forward in Syria and the only way that Washington, Saudi Arabia, and Qatar will be able to walk away with their dignity intact is if The Kremlin agrees to allow for a political transition away from Assad but even that would be nothing more than a Pyrrhic victory as there simply is no scenario in which Moscow and Tehran will allow for Assad to be replaced by a government that represents Western interests.





Do not hold your breath!!  USA taxpayers will be on the hook for new guarantees.  And Russia will not walk away from its 3 billion usa in debt.  They will be paid in order to avoid default


(courtesy zero hedge)

US Senator Demands Ukraine “Walk Away” From Debt Payments To Russia

Oh, the irony. A senator of the world’s largest creditor nation has demanded America’s allies do ‘whatever it takes’ to support Ukraine in breaking international law by refusing to pay back $3bn of debt owed to Russia in December. As RT reports, US Senator Chris Murphy of the Foreign Relations Committee exclaimed, “the international community should make it clear that we should take whatever steps necessary to give Ukraine the legal cover it needs to walk away from that debt… I don’t think Ukraine should be obligated to pay Russia back a dime.” One can only wonder how US’s creditors will feel about this perspective (maybe China and EM are already showing theirs).

In late August, a creditor committee led by Franklin Templeton (which owns about $7 billion of Ukrainian bonds) agreed a 20 percent write-off of some $18 billion worth of Eurobonds. Repayment of the remaining amount will be transferred from 2015-2023 to 2019-2027.


Russia has refused to accept Ukraine’s haircut, saying it takes no part in “the so-called debt operation” and recommended that Kiev pay in full and on time to avoid “both litigation costs and penalty interest for overdue payments.”

The US has been “treating Russia with kid gloves on this question of the debt that Ukraine owes it,” Murphy commented as RT notes…

The US and other countries should do everything to grant Ukraine the legal right to shrug off its $3 billion Russian debt due in December, said US Senator Chris Murphy of the Foreign Relations Committee in an interview with the Sputnik news agency.


“The international community should make it clear that we should take whatever steps necessary to give Ukraine the legal cover it needs to walk away from that debt…I don’t think Ukraine should be obligated to pay Russia back a dime,” said the Connecticut senator to the agency on Thursday.

On September 30, the Senate committee will meet IMF chief Christine Lagarde to discuss Kiev’s debt.

Ukraine’s government on Tuesday started restructuring public debt and suspended payments from September 23 on a number of liabilities that will be restructured. The restructuring, in particular, applies to the Russian $3 billion Eurobonds. However, the debt to Moscow was not included in the list of non-payments.


In March, the IMF approved a $17.5 billion loan to Ukraine as part of a four-year bailout plan in exchange for austerity measures. The lack of an agreement with Russia thwarts unlocking the funds.

*  *  *

Don’t hold your breath US Taxpayers – you are about to be on the hook for more “guarantees” of a nation that we still find it hard to find any reason to be involved in.

Murphy flanked by McCain at a rally in Ukraine…


Yesterday afternoon as the Brazilian currency, the real sank to 4.24 to the dollar, the Central Bank of Brazil announces that it will do all it takes to stave off sovereign insolvency.  The head huncho declared that he is going to use his foreign currency reserves to protect the real.  Not a good idea to use all your reserves to protect your currency.
(courtesy zero hedge)

SurReal”: Brazil’s Currency Stages Largest Rally In Seven Years On Central Bank “Whatever It Takes” Moment

Over the past several weeks, we’ve said on a number of occasions that even we have been surprised at how quickly the situation in Brazil has deteriorated.

To be sure, there are plenty of things for Latin America’s most important economy to worry about, including twin deficits on the fiscal and current accounts, persistently low commodity prices, FX pass-through inflation, rising unemployment, plunging consumer confidence, and a seemingly intractable political crisis.

That said, recent movements in the BRL seem to be telegraphing something worse than a transient crisis. Here’s a bit of historical context:

Indeed, the pace at which Brazil’s flagging currency has weakened against the dollar over the past two weeks suggests the country may be headed for something like an outright economic cataclysm.

As it turns out, we aren’t alone in terms of being surprised at the scope of the rout. Here’s Bloomberg with some rather amusing color on the degree to which virtually everyone has been taken off guard:

As Brazilian markets went wild this week, trading desks fell silent.


Unlike previous scares that rocked Latin America’s biggest economy — a 50-minute selloff triggered by a blackout, for example, or fear a corruption scandal is getting ever closer to the presidency — this time around there’s no shouting as clients call to demand updates or computer screens explode with instant messages. Instead, panic has given way to a shocked silence as traders watch markets unravel, according to interviews with half a dozen brokerages.


“There’s a saying that helps explain our mood around here,” said Guilherme Esquelbek, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil. “When the sea is this turbulent, the only thing you can do is sit on the sand and watch. It’s not time to get in a boat.”

No, probably not, but anyone who got in the BRL boat as the currency hit new all-time lows on Thursday was swiftly rewarded when, apparently in response to central bank President Alexandre Tombini’s suggestion that Brazil may use its FX reserves to support the currency, the BRL staged its biggest rally in seven years:

Here’s FT:

The Brazilian real on Thursday enjoyed its biggest rally in seven years after the governor of the central bank said he was willing to use “all instruments” available to policymakers to stem the currency’s recent slide.


After tumbling 1.7 per cent to a new low of R$4.2478 to the dollar earlier in the day, the real rallied by as much as 7 per cent intraday, ending a five-day losing streak. By late afternoon in New York the currency was 4.7 per cent higher, its biggest gain since November 2008 as it pared its loss against the dollar this year to 33 per cent.


On Wednesday the bank announced plans to auction $2bn worth of new currency swaps over two days — in effect restarting a programme that was scrapped earlier this year. Its president, Alexandre Tombini, on Thursday sought further to shore up investor confidence, hinting at deploying its $371bn of foreign currency reserves to buttress the real.


“In this process (to tame volatility), all instruments are available for the central bank. Foreign reserves are an insurance that could and should be used,” Mr Tombini said.

There is of course, nothing good about burning through reserves to support the currency which is why this is nothing but a knee jerk reaction to the Brazilian equivalent of Mario Draghi’s “whatever it takes” moment. As one of the economists who helped to create the real told WSJ, “I am disillusioned and upset with what’s happening. All the work that we all did to create the real, to create stability, was destroyed by the government.” 

And speaking of the government, Eurasia analyst Christopher Garman said on Thursday that if Rousseff is unable to push through all of the needed reforms (i.e. austerity), the resultant economic turmoil will likely lead to her impeachment. “The sustained market selloff is likely to push President Dilma Rousseff to double down on structural reforms that address govt’s fiscal rigidities [but] if Congress doesn’t give any ground, crisis is likely to precipitate an impeachment,” Garman notes.

Here’s a full rundown of political and other developments from Bloomberg:

  • PMDB congressmen, who had been promised two additional ministries, don’t want to accept just Health Ministry: Folha de S.Paulo
  • PT wants Education Ministry: O Globo
  • Vice President Michel Temer told President Dilma Rousseff that PMDB didn’t show that much support for govt in voting of vetoes this week: Folha
  • Senate president Renan Calheiros called for a new joint session of Congress to continue voting on vetoes on Wednesday, Sept. 30, 11:30am
  • Lower house president Eduardo Cunha says getting new ministries won’t help govt
  • Cunha finds himself isolated within PMDB: Globo
  • Some PT members calling for exits of Finance Minister Joaquim Levy, Chief of Staff Aloizio Mercadante and Justice Minister Jose Eduardo Cardozo: Folha
  • Temer said in TV spot yday that country will prove to be trustworthy by correcting mistakes and uniting; Brazil is above any party interests: Valor Economico
  • Brazilians are tired of footing the bill, PMDB said in the TV spot
  • Lawmakers disagreed yday whether Rousseff can be impeached for misdeeds allegedly carried out in her previous term; PT congressman Wadih Damous said that would be unconstitutional
  • Brazil volatility to persist until impeachment definition: Citi
  • Brazil selloff is crucial moment for Rousseff survival: Eurasia
  • Brazil could use reserves to damp currency volatility, Levy says
  • Govt said to plan appeal if TCU rejects accounts: Estado de S.Paulo
  • Rejection of fiscal accounts would be the first in history
  • Member of the court suggested that govt appeals decision to delay possible start of impeachment process by Congress based on unfavorable ruling, newspaper says
  • Temer and former President Luiz Inacio Lula da Silva believe Rousseff will finish her term: Valor Economico
  • Former President Fernando Henrique Cardoso: Rousseff making “deal with the devil” by offering PMDB posts before doing reforms
  • Former Finance Minister Guido Mantega suggested cutting spending in March 2014, Valor columnist Claudia Safatle says
  • Rousseff refused saying she would lose the election, Valor says without identifying sources
  • Fitch met with DEM party leader to assess political risk

Ultimately, all of this will manifest itself in further BRL weakness unless commodity prices suddenly mark a dramatic reversal and/or the political situation stabilizes overnight. The only other option – and, incidentally, this is the case in Turkey as well – is for the central bank to hike, and quick. On that note, we close with the following from James Gulbrandsen, chief investment officer for Latin America at asset manager NCH Capital, who spoke to Bloomberg:

“The blood is in the water and the sharks are swarming. [Copom] can harpoon them with one swift interest-rate increase and this current crisis ends.”
USA rig count declines for the 4th week in a row. Oil hardly moves.
(courtesy zero hedge)

Crude Shrugs As US Oil Rig Count Declines For 4th Week To 10-Week Lows

For the 4th week in a row , US oil rig counts declined (down 4 to 640) leaving the count as 10-week lows. This is the largest 4-week decline since May. Crude prices are undecided on how to react for now with stop runs higher and lower so far…



The breakdown is as follows:


Charts: Bloomberg

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

Euro/USA 1.1163 down .0017

USA/JAPAN YEN 120.81 up .5621

GBP/USA 1.5211 down .0019

USA/CAN 1.3320 down .0018

Early this Friday morning in Europe, the Euro fell by 17 basis points, trading now well below the 1.12 level falling to 1.1163; 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, Glencore, and the Ukraine, rising peripheral bond yields,  Last night the Chinese yuan lowered in value . The USA/CNY rate at closing last night:  6.3735, (strengthened)

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a southbound trajectory  as settled up again in Japan up by 60 basis points and trading now well above the all important  120 level to 120.81 yen to the dollar and thus  the necessary ramp for European bourses was provided

The pound was down this morning by 19 basis points as it now trades just below the 1.53 level at 1.5211.

The Canadian dollar reversed course by rising 1 basis points to 1.3320 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 Friday morning: closed up 308.68 or 1.76%

Trading from Europe and Asia:
1. Europe stocks all in the green (due to yen ramp)

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

Gold very early morning trading: $1144.20


Early Friday morning USA 10 year bond yield: 2.16% !!! up 5 in basis points from Thursday night and it is trading just above resistance at 2.27-2.32%.  The 30 yr bond yield rises to  2.94 up 3 in basis points.

USA dollar index early Friday morning: 96.39 up 9 cents from Thursday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Friday morning
And now for your closing numbers for Friday night:
Closing Portuguese 10 year bond yield: 2.56% par in basis points from Thursday
Japanese 10 year bond yield: .324% !! down 1  basis points from Thursday but extremely low
Your closing Spanish 10 year government bond, Friday, up 5 in basis points. 
Spanish 10 year bond yield: 2.04% !!!!!!
Your Friday closing Italian 10 year bond yield: 1.80% up 5  in basis points from Thursday: trading 24 basis point lower than Spain.
Closing currency crosses for FRIDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 Euro/USA: 1.1189 up .0009 (Euro up 9 basis points)
USA/Japan: 120.64 up 0.337 (Yen down 37 basis points)
Great Britain/USA: 1.5184 down .0045 (Pound down 45 basis points
USA/Canada: 1.3334 down .0006 (Canadian dollar up 6 basis points)

USA/Chinese Yuan:  6.3781  down .0034  (Chinese yuan up/on shore)

This afternoon, the Euro rose by 9 basis points to trade at 1.1189. The Yen fell to 120.64 for a loss of 34 basis points. The pound was down 45 basis points, trading at 1.5184. The Canadian dollar rose 6 basis points to 1.3334. The USA/Yuan closed at 6.3781/down.00340 (yuan down)
Your closing 10 yr USA bond yield: up 5 basis points from Thursday at 2.160%// ( trading below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.96 up 7 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 96.33 up 3 cents on the day .
European and Dow Jones stock index closes:
England FTSE up 147.92 points or 2.47%
Paris CAC up 133.423 points or 3.07%
German Dax up 260.89 points or 2.77%
Spain’s Ibex up 228.10 points or 2.45%
Italian FTSE-MIB up 757.28 or 3.68%
The Dow up 113.35 or 0.70%
Nasdaq; down 46.13 or 0.97%
OIL: WTI:  $45.63    and  Brent:  $48.61
Closing USA/Russian rouble cross: 65.60  up 45/100 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

Stocks Give Up “Yellen’s Alive” Gain Amid Biotech & Junk Bond Bloodbath

Having almost puked all over her speech last night, the “Yellen’s Alive” rally gathered pace overnight…


But then reality bit with a sudden realization that a hawkish-er Yellen actually said absolutely nothing different from what she said last week…and they are hanging on by a thread…


The last time we had a closing in stocks on a Friday as ugly as this was Aug 21st (before Black Monday)

Chinese stocks were supported all week (with Xi’s visit to the US) until last night… with SHCOMP roundtripping to unchanged


And while Europe rallied on Yellen and BMW today, it remains notbaly hard hit post-FOMC…


The Biggest News Today was Biotechs and Junk Bonds Bloodbathery…

Biotechs were monkey-hammered this week with a 12% plunge… down 6 days in a row


To Dec 2014 levels – the biggest weekly drop since Aug 2011


As S&P Biotech ETF had its worst day since August 2011…


Biotechs are down 26% from the $91.11 highs on 7/20


Who is to blame? Shrekli’s Greed or Clinton’s Populism


High yields bonds were slammed this week. HYG (The HY Bond ETF) saw its biggest weekly drop since Dec 2014 and closed at its lowest since Nov 2011…

*  *  *

The exuberance and carnage today was (once again) all about USDJPY… it appears a failed momo ramp past 121.00 around 2pmET was the trigger (along with Biotech accelerating lower)


And Futures show the price action all day long…

  • Overnight Yellen
  • 0450ET BMW “Allclear”
  • 0830ET GDP Up
  • 0930ET Boehner resignation
  • 1400ET USDJPY/Biotechs fail


Leaving cash indices roundtripping on the day… (Dow helped by NKE’s adding 60-70 points)


And it’s a bloodbath since post-FOMC peak euphoria… Small Caps & Trannies worst…


Financials outperformed today (with a gap open after Yellen’s speech) and Healthcare worst today (and on the week)…


Leaving Nasdaq in the red year-to-Date…


Let’s not forget CAT this week that saw no bounce at all today...


and another hedge fund hotel – SUNE was crushed today and this week as it appears for the 3rd month in a row, month-end liquidations are slamming…


*  *  *

So with the equity bloodbathery out of the way…

Treasury yields ended the week modestly higher after a big ramp higher this morning (releived a little as bonds rallied on equity weakness this afternoon)…


The USDollar Index gapped up on Yellen’s speech last night but went nowhere after that (even as JPY weakness offset EUR strength)


Commodities were mixed on the week with Gold and Crude higher, silver modestly lower, and copper clubbed… (not ethe morning shenanigans everyday)


Copper tumbled over 4% on the week – its biggest weekly drop since Nov 2014, closing at its lowest since May 2009…


And Gold broke above its 100-day moving-average again… will it hold this time…


Charts: Bloomberg

Bonus Chart: The Market is macro-data-dependent… so what data is The Fed imagining?


Today we got the final revision for 2nd quarter GDP and it spiked a bit to 3.9% from 3.7% due to their phony stats on consumer spending.  What is interesting is that this “spending” has been borrowed from Q3 as the Atlanta Fed has just lowered its forecast for Q3 GDP to 1.4%
(courtesy zero hedge)

Final Q2 GDP Revision Spikes To 3.9% From 3.7% On Jump In Consumer Spending

While the final Q2 GDP revision released moments ago by the Bureau of Economic Analysis is a largely meaningless number looking at the performance of the economy some 3 months ago, it will still set the momentum for today’s trade, and with its surging from a 3.7% first revision print to 3.9%, surpassing expectations of a 3.7% print, means that concerns (or perhaps hopes) for a rate hike are once again back on the table.

As the chart below shows, after printing a modest, and double-seasonally adjusted 0.6% in Q1 (originally this was negative), in the second quarter the economy is said to have grown at the fastest pace since Q3 of 2014 when the Fed was once again said to be on the verge of tightening.


The breakdown by components shows an increase in the two key items:

  • Core Personal Consumption Expenditures rose by 3.6%, far above the 3.1% in the prior revision and above the 3.2% expected. It contributed 2.42% of the final 3.91% GDP annualized number, up from 2.11% earlier.
  • Fixed Inventory also rose, adding another 0.83% to GDP, up from 0.66%

Net trade was largely unchanged while Inventories declined modestly, adding 0.02% to GDP, down from 0.22%.

What is perhaps ironic in this strong number, and the reason for the kneejerk reaction higher in stocks only to fade, is that the higher the Q2 GDP, the lower the Q3 number will be – as more spending was pulled forward, it means that consensus expectations of Q3 GDP will now surely drop below 2%, and begin to converge with the Atlanta Fed’s own Q3 GDP “nowcast“, which yesterday was revised to a paltry 1.4%.

Since much of USA manufacturing has been sent abroad, one would think that the US Service sector would perform better.
Answer: no:  warning lights are flashing!!
(courtesy zero hedge)

US Services Economy “Bounce” Is Dead, “Warning Lights Are Flashing Brighter”

fter widespread weakness in global (yes and US) manufacturing PMIs, US Services PMI dipped in September (after 2 months of modest bounce back). The pace of expansion slowed to three-month lows with service sector confidnce close to its lowest in three years. This latest print indicates a slowdown in overall new business growth for the second month running, which brought the pace of expansion down to its weakest since January. Prices dropped for the 2nd month in a row and Markit warns that “various warning lights are now flashing brighter, meaning growth may continue to weaken in coming months.”



Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:

“The survey data point to sustained steady expansion of the US economy at the end of the third quarter, but various warning lights are now flashing brighter, meaning growth may continue to weaken in coming months.


“Although the surveys suggest the economy expanded at a 2.2% annualised rate in the third quarter, growth slowed in September and could weaken further in coming months. Business optimism slumped to one of the lowest levels seen since the global financial crisis, inflows of new business rose at the weakest rate for eight months and job creation slipped to a six-month low. Growth is also becoming increasingly reliant on the services economy as manufacturers struggle against the strong dollar and weak demand in export markets.


“Average prices charged for goods and services are falling at the fastest rate seen since the survey began in late-2009, suggesting consumer price inflation will weaken in coming months.


“With growth slowing, warning lights flashing and charges falling at the fastest rate for at least six years, the survey data play into the hands of dovish policymakers and will reduce the odds of interest rates rising any time soon.”

Charts: Bloomberg



University of Michigan consumer confidence tumbles signifying the USA economy is faltering
(courtesy U. of Michigan/consumer confidence/zero hedge)

UMich Consumer Confidence Tumbles To Lowest Since October, Worst Drop In 4 Years

Despite rising modestly from the preliminary print, UMich Consumer Sentiment for September finalised at 87.2 – the lowest since October 2014. This is now the biggest 8-month drop since 2011. Inflation expectations fell modestly as “hope” fell to the lowest level since September. Household Income gain expectations continue to slide (now just 1%) back to 13 month lows.



Charts: Bloomberg

Stated differently: the weak Michigan consumer confidence means that  America is losing faith in the recovery!!
(courtesy zero hedge)

America Is Losing Faith In The “Recovery”

Despite the promises of all the central planners that wage growth is coming (any day, week, month, quarter now with the recovery promised originally in first half of 2012 now delayed to the 9th half ), it appears that Americans are starting to give up hope in that one most important economic component: income growth.


Source: Bloomberg

And so the long wait for higher incomes is coming to an end as Americans give up and sink back to the un-double seasonally adjusted wreckovery, of only for 99% of the population.

Biotechs tumbling badly today:
(courtesy zero hedge)

Is This Why Biotechs Are Tumbling: “Head And Shoulders Top” Spotted In The NBI

While no chart could have possibly predicted the populist outcry against Martin Skreli’s widely publicized, and panned, decision to crassly boost the price of a Toxoplasmosis drug by over 5000% (doing something all other biotech companies have been doing but with all the grace of a bull in a china shop thus prematurely ending the party for everyone) only to promptly undo his decision following a furious public backlash which also resulted in Hillary Clinton proposing a price cap on specialty drugs and unleashing the worst drop for biotech stocks in 2015, now that concerns about a biotech top are in play, the biotech sector just can’t seem to catch a bid, and as of moments ago was down over 3% dragging the Nasdaq just barely positive for the day even with the S&P up 0.8%

One reason for the continued weakness may be that, as Bank of America points out, there are signs the dreaded head and shoulders top has appeared in the Nasdaq Biotech Index.

While on its own this would be completely irrelevant, as fundamentally-driven investors would be quick to object, the fact that it is none other than technicians and chartists who have been instrumental in pushing biotech stocks to their recent nosebleed levels, it will be the same “chartists” who will be scrambling at any bearish signals on the way down (furthermore, for the biotech sector where for 90% of the companies it is all hype and technicals, there is no “fundamentals” to speak of).

Such as this one.

More from BofA’s Stephen Suttmeier:

Biotech struggles & shows signs of a head & shoulders top


The NASDAQ Biotech Index (NBI) shows signs of a distribution top with the risk for a deeper pullback. Unlike pullbacks in 2014, the August/September 2015 drops have struggled to hold the 200-day moving average (MA). The rally from late August looks corrective and has stalled with the 200-day and 50-day MAs at 3638-3801 starting to act as resistance. We cannot rule out a head and shoulders top and pushing below 3410-3380 would break the neckline and uptrend line from 2014 to confirm this pattern. This would suggest deeper risk to 3181 (August low) and then 3000-2860. It would take a break above 3828-3902 to completely negate the risk of a head and shoulders top.


NBI is weakening vs. the S&P 500 & leadership at risk


The NBI is weakening relative to the S&P 500 and is a market leadership group at risk. The group could experience a deeper correction within a long-term relative uptrend.


Some furhter stock-specific details:

Alexion (ALXN)

ALXN has stalled on an absolute and relative price basis. The relative ratio vs. the S&P 500 did not confirm the new highs for the stock in late 2014 and early 2015. ALXN is testing big support at $155-150 and should this give way, the risk is for a deeper drop to $140-136 and potentially $120. The $180-185 area provides initial resistance.

Amgen (AMGN)

AMGN has broken below key support at $152-147, placing the uptrend from 2011 into focus near $140. Should this give way, AMGN could see a deeper drop to $128-127 and then $110. Holding below $156-160 keeps the immediate bias bearish.

Biogen (BIIB)

BIIB remains risky with a big downside gap that is acting as resistance. While below chart resistance at $327-338, the immediate risk remains for a decline toward $250 and potentially below. BIIB is at risk for a big breakdown relative to the S&P 500.

BioMarin (BMRN)

Filling the June price gap suggests upside exhaustion. BMRN shows signs of a top and has started to weaken relative to the S&P 500. The big support comes in at $118-111, where a decisive break would confirm a top and set up a deeper decline to $100 and then $84-80. It would take a break above $133-137 to improve the pattern for BMRN

Celgene (CELG)

CELG has filled the mid-July price gap to suggest upside exhaustion. While the absolute and relative price trends are still up, the rally off the August low has stalled with risk for a retest of supports at $106 and $96-95. Additional support: $87-83. The chart pattern for CELG is risky while below $125-130.

Gilead (GILD)

GILD shows key support near $100. A failure to hold would set up a deeper drop to $92- 91 and $85-84. It would take a move above $113-117 to firm up GILD’s chart pattern. GILD/SPX is still bullish but that would change if GILD broke $100 and the relative ratio  confirmed the break with a loss of the early Sep low and uptrend line from late 2014.

Illumina (ILMN)

After gapping down in late July, ILMN has weakened and shows signs of a top. The key support is $183-179, where a decisive break would confirm a top and favor a deeper drop to $157-145. This move would likely break key relative support that goes back to early 2014. Holding below $200-214 keeps us concerned about ILMN’s chart pattern.

Incyte (INCY)

INCY is stronger chart among the 10 Biotech charts we are highlighting. The near-term key is holding chart and uptrend support at $113-109. Should INCY lose this level, it would increase the risk for a drop to $101-96 with additional support near $87. The relative ratio for INCY vs. the S&P 500 is still strong but correcting.

Regeneron (REGN)

REGN is holding up better with a stronger relative ratio vs. the S&P 500 than many other Biotech names but the stock shows an exhaustion gap and may be forming a head and shoulders top. A sustained break below $495-482 is the catalyst to confirm this pattern and set up a deeper decline to $433 to $390. Resistance comes in at $544 to $570.

Vertex (VRTX)

VRTX has weakened to break support at $114-113 with the next support at $103.75. Resistance is building between $125 and $137 and rallies that do not regain this area keep us concerned about the chart pattern for VRTX with the potential for a deeper decline toward $88-87. The relative ratio for VRTX is pulling back within an uptrend and confirming the recent weakness in the stock.

* * *

Finally, should the biotech weakness extend and drag the Nasdaq lower, not even the technical buying predicted by JPM’s head quant yesterday may be enough to keep the broader market bid up for the remainder of the day.




Divine Intervention? House Speaker Boehner Resigns From Congress

It appears the combination of another debt limit fight and government shutdown tearing his party apart along with the final arrival of a pope (after 3 tries), aides have reported that…

This surely makes government shutdown more likely and, perhaps more importantly, with Yellen blaming Congress for not hiking, this just raises the level of uncertainty.
Speaker John A. Boehner will resign from Congress and give up his House seat at the end of October, according to aides in his office.
Mr. Boehner was under extreme pressure from the right wing of his conference over whether or not to defund Planned Parenthood in a bill to keep the government open.
Boehner Statement:
*  *  *
With Boehner gone, the debt ceiling vote just got a lot trickier for the White House and Wall Street. A LOT TRICKIER.

And the market knows it…

What Boehner’s departure means;

Boehner Is Out: What This Means For Government Shutdown Odds And The Debt-Ceiling Fight

In the aftermath of John Boehner’s surprising resignation announcement, the punditry has been scrambling to opine what this departure means for the odds of a government shut down, some saying the likelihood has increased, while others, such as Goldman, confident shutdown odds are materially reduced. The truth is likely in the middle, and while the odds of a government shutdown next week are reduced as a Continuing Resolution now appears more feasible, the probability of a broader shutdown in December once the CR expires, have materially risen.

But while a government shutdown would be good news for those who claim (correctly) that the US government has not done anything in the past 7 years punting all decisions to the Fed instead, what’s is much more problematic is that the US Treasury will need an increase in the debttarget ceiling in November as shown previously, before any continuing resolution is expected to expire.

The upcoming power struggle in the GOP will make any successful and sustainable kick in the US debt limit very tough, especially when one realizes that as a result of accrud debt layering, the real US debt is, as of this moment, about $18.5 trillion – about $400 billion above the statutory debt limit of $18.1 trillion. It also means that in order to kick the can solidly for the next 2 years, the next debt ceiling will have to be just about $20 trillion. There will be quite a substantial shock among the right after realizing this unpleasant development.

In fact, a quick look at the Treasury market reveals a well-known pre-debt ceiling development: negative yields. In fact, the Bill market is now negative all the way through December 24, suggesting that the debt ceiling showdown will likely take place at the very end of the year once again, only this time investors aren’t waiting until the last moment to rush into the safety of near-term bills and are starting to pile in.


Perhaps the best explanation of the upcoming drama in the neverending government funding drama comes fromStone McCarthy, which just issued the following summary:

Prospects for a Government Shutdown and Debt Limit Battles

Key Takeaways:

  • We think House Speaker Boehner’s resignation reduces the odds of a government shutdown next week, but increases the odds of one later in the year.
  • Boehner was facing an impossible choice between appeasing hard-liners in the party threatening to unseat him and avoiding a government shutdown. Now his job is no longer a factor.
  • Will the far-right flank of the GOP be more inclined to compromise after Boehner’s departure? We don’t think so.
  • We think Treasury will need an increase in the debt limit in November, before any continuing resolution is expected to expire.

House Speaker John Boehner announced this morning that he is resigning from Congress at the end of October. We think Boehner’s decision reduces the odds of a government shutdown next week.

As we wrote in a comment two weeks ago, Boehner was faced with an impossible choice between appeasing the far-right flank of the Republican party or avoiding a government shutdown.

Congress needs to pass a continuing resolution (CR) to avoid a government shutdown next week. Most Republicans are opposed to any continuing resolution (CR) that doesn’t strip Planned Parenthood of its funding. But Boehner knows that a CR that “de-funds” Planned Parenthood is basically a dead end. In order to get the votes to pass a CR free of Planned Parenthood riders, Boehner will need to get some help from Democrats. That would have put his job as speaker in jeopardy, but now that he’s resigning, that’s a moot point. And while Boehner, like other Republicans, may want to cut off funding for Planned Parenthood, we don’t think he wants to provoke a government shutdown in the service of that goal.

We do think that the Boehner resignation may increase the risks of a government shutdown in December, and also increase the odds of the Treasury violating the debt limit or running out of cash before November. The conventional wisdom is that Majority Leader Kevin McCarthy will replace Boehner as speaker. We’re not sure that matters much — the next speaker will still face the same difficult choices as Boehner, and if he compromises too much with Democrats, his tenure could be short-lived.

For us, the key question isn’t so much who replaces Boehner as it is how the hard liners react to the Boehner resignation. Will they be mollified and therefore more willing to compromise on Planned Parenthood and the other fiscal issues dividing the two parties that we discussed in our 9/11 comment, or will they be emboldened and dig their heels in further? Our hunch at this point is the latter.

Senate GOP leaders failed yesterday to advance a continuing resolution (CR) that cuts off funding for Planned Parenthood. (The House voted last week to cut off funding for Planned Parenthood.) According to most reports, the Senate will take up a CR on Monday that funds the government through December 11 and leaves Planned Parenthood funding intact. We’re not sure how the logistics in the House will unfold, but we expect that Boehner will move to advance a “clean” CR — with the help of Democrats — before the new fiscal year starts on Thursday.

But what happens in mid December or whenever a CR expires? Congress will still be faced with the same unresolved budget issues it faces today. Will Boehner’s departure make it any easier to come to agreement on spending levels for the full fiscal year? At this juncture, we don’t see how it would.

We think Congress will need to address the debt limit before December. In our September 10 comment, we projected that Treasury will have both exhausted its measures that allow it to issue debt and run out of cash in the third week of November. Based on cash flows over the last two weeks, we think the risk is that cash runs out a little bit sooner. September tax collections have been running weaker than our forecast, although there is still some chance for a late-month surprise with individual estimated income taxes coming in stronger than expected.


Well that about does it for tonight

I will see you Monday night





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