Sept 28/UBS set to ‘spill the beans’ on other banks in the criminal investigation on gold/silver manipulation/Glencore stock collapses today/Credit defaut swaps indicate 50% chance of default/Chinese coal company lay off 100,000 workers in North East China/Catalonia vote brings in separatists in the majority/gather 48% of the vote/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1132.00 down $14.00   (comex closing time)

Silver $14.54 down 57 cents.

In the access market 5:15 pm

Gold $1132.70

Silver:  $14.60

I wrote the following last Thursday:

“On the 24th of September, 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.”

still holds true today!


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

At the gold comex today we had a poor delivery day, registering 0 notices for nil ounces  Silver saw 3 notices for 15,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 213.24 tonnes for a loss of 90 tonnes over that period.

In silver, the open interest rose by 654 contracts despite the fact that silver was down in price by 2 cents on Friday.   The total silver OI now rests at 155,866 contracts In ounces, the OI is still represented by .777 billion oz or 110% of annual global silver production (ex Russia ex China).

In silver we had 3 notices served upon for 15,000 oz.

In gold, the total comex gold OI fell to 418,367 for a loss of 7,295 contracts. This is par for the course as we always see a contraction as we approach an active delivery month. We had 9 notices filed for nil oz today.

We had a monstrous addition of 3.87 tonnes at the GLD;  thus the inventory rests tonight at 684.14 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex.   In silver, we had no change in silver inventory at the SLV/Inventory rests at 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 654 contracts up to 155,866 despite the fact that silver was down by 2 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 7,295 contracts to 418,367 contracts, as gold was down $7.80 on Friday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

Asian affairs:

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

(zero hedge)

b) China delivers another black swan event by the firing of 100,000  coal workers in the north east of China’s.

(zero hedge)

European affairs:

5)A  Catalonia referendum on Sunday voted  to secede the rest of Spain

(zero hedge)

b) Another black swan???Glencore implodes with its stock falling 25% and its credit default swaps indicating a 50% chance of default. Remember that these guys are like Lehman with huge numbers of derivatives (together with phony hypothecation and rehypothecation). A default may bring the entire financial system to its knees (zero hedge/Bloomberg/dave Kranzler/IRD)  3 commentaries.

Russia  + Middle Eastern affairs

6 a)  China is now set to join Russia in their attack of ISIS in Syria.

Also Iraq is to share intelligence to Russia and Iran trying to knock out ISIS in Iraq.

(zero hedge)

6b) Saudi Arabia draws a huge amount of USA reserves to plug holes in its balance sheet.  This is dangerous for the uSA dollar.

(London’s Financial Times)

6c)  The Russian rouble plummets seconds after Putin has finished speaking at the UN

(zero hedge)


none today

8.  Oil related stories

none today.

9 USA stories/Trading of equities NY

a) Trading today on the NY bourses 2 commentaries

b)  Earning season is upon us and two companies can have a profound effect on S and P earnings:

  1. Apple
  2.  Bank of America

see why!!  (zero hedge)

c) Money markets break as interest rate swaps turn negative which is totally unheard of:  it means that counterparty risk is less than treasury rate.  What really is happening is collateral is disappearing causing this huge distortion  (zero hedge//IMPORTANT)

d) Dallas Fed implodes (Dallas Fed survey)

e) Pending home sales falter for 4th month in a row (zero hedge)

f)  Personal income rises at the slowest pace in 5 month (BLS)

10.  Physical stories

  1. Chris Martenson explains how gold is moving from west to east as our western bankers manipulate the price of gold. Because of backwardation, Chris believes that time is running out on the manipulators.
  2. Craig Hemke outlines the huge withdrawal of client gold from Mocatta.  Is this the beginnings of a huge bank run? (Craig Hemke/TFMetals).
  3. Chris Powell on the financialization of the gold market and how this gives an unfair advantage to the bankers who have created infinite paper claims manipulating the price of gold southbound. Chris Powell taken on Bron Suchecki’s comments. (Chris Powell/GATA)
  4. I brought this to your attention on Friday but it is so important we have provided this important Koos Jansen paper to you again: Did the POBC covertly buy 1,747 tonnes of gold in London?. (courtesy Koos Jansen)
  5. Today, the Indian government does not need proof of where your gold came from in order to “paperize” it. (Deccan Herald/India)
  6. As markets become for financialized, the more they are rigged. (Chris Powell/GATA)
  7. The big story of the day:  UBS who has been consistently first relaying to regulators the criminal schemes of all the bankers, states that it is in communication with regulators in conjunction with the manipulation of gold (zero hedge/UBS)
  8.  Bill Holter’s huge paper tonight is titled: “The Final Flush Is At Hand”

Let us head over to the comex:

The total gold comex open interest fell from 425,662 down to 418,367  for a loss of 7,295 contracts as gold was down $7.80 with respect to Friday’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 both of these development continued in earnest. (contraction of total OI and a drop in gold ounces standing).  We now enter the delivery month of September and here the OI fell by a whopping 60 contracts down to 6 (the drop makes no sense at the end of the active delivery month) . We had 5 notices filed yesterday so we lost 55 gold contracts or an additional 5500 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 8,279 contracts down to 8,279. The big December contract saw it’s OI fall by 1968 contracts from 293,901 down to 291,933. 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 180,023 which is poor. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 164,478 contracts.
Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI rose by 654 contracts from 155,212 up to 155,866 despite silver being down by only  2 cents with respect to Friday’s price . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. The bankers continue to pull their hair out trying to extricate themselves  from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena We are now in the active delivery month of September. Here the OI fell by 237 contracts to 101. We had 236 notices filed yesterday, so we lost 1 silver contract or an additional 5,000 oz  will not stand for delivery in this active delivery month of September.
The big December contract saw its OI rise by 154 contracts up to 115,972.  The estimated volume today was estimated at 61,357 contracts (just comex sales during regular business hours) which is huge (we had some big rollovers).  The confirmed volume yesterday (regular plus access market) came in at 32,551 contracts which is excellent in volume.
We had 3 notices filed for 15,000 oz.

September contract month:

Initial standings

September 28.2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  996.65 oz
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) 6 contracts (600 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 402,982.5  oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 1 customer withdrawals:
 i) Out of Scotia:  996.65 oz
total customer withdrawal: 996.65 oz
We had 0 customer deposits:

Total customer deposit: nil  oz

 JPMorgan has a total of 10,777.279 oz or.3352 tonnes in its dealer or registered account.
JPMorgan now has 741,559.509 oz or 23.06 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the final total number of gold ounces standing for the 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 (0) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the September contract month:
No of notices served so far (29) x 100 oz  or ounces + {OI for the front month (6)– the number of  notices served upon today (0) x 100 oz which equals 9,000 oz  standing  in this month of Sept (0.1086 tonnes of gold).
we lost 5500 gold ounces standing in this non active delivery month of September and I would be willing to bet that these were cash settled..
Total dealer inventory 161,938.008 or 5.0369 tonnes
Total gold inventory (dealer and customer) =6,855,675.315   or 213.24 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 213.24 tonnes for a loss of 90 tonnes over that period.
 the comex continues to bleed gold 
And now for silver

September silver initial standings

September 28/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  1,783,933.590 oz



Deposits to the Dealer Inventory 442,525.920 oz


Deposits to the Customer Inventory 644,520.910 oz


No of oz served (contracts) 3 contracts  (15,000 oz)
No of oz to be served (notices) 98 contracts (490,000 oz)
Total monthly oz silver served (contracts) 1462 contracts (7,310,000 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 22,156,883.9 oz

Today, we had 0 deposit into the dealer account:


total dealer deposit; nil oz

we had 0 dealer withdrawals:
total dealer withdrawal: nil  oz
We had 2 customer deposits:
 i) Into CNT:  928.900 oz
ii) Into HSBC:  643,592.01 oz

total customer deposits: 644,520.910  oz

We had 3 customer withdrawal:
i) Out of Brinks:   848,457.84 oz
iii) out of CNT:  244,615.76 oz
iv) Out of Scotia:  690,859.59  oz

total withdrawals from customer:1,783,933.590    oz

we had 0  adjustment
Total dealer inventory: 46.220 million oz
Total of all silver inventory (dealer and customer) 166.308 million oz
The total number of notices filed today for the September contract month is represented by 3 contracts for 15,000 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 (1462) x 5,000 oz  = 7,310,000 oz to which we add the difference between the open interest for the front month of September (101) and the number of notices served upon today (3) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
1462 (notices served so far)x 5000 oz +( 101) { OI for front month of September ) -number of notices served upon today (3} x 5000 oz ,=7,800,000 oz of silver standing for the September contract month.
we lost 1 contract or an additional 5,000 oz will not stand in this active month of September.
 the comex resumes its liquidation 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 28/another huge addition of 3.87 tonnes of gold into the GLD/Inventory rests tonight at 684.14 tonnes
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 28/2015 GLD : 684.14 tonnes

And now SLV:

sept 28./no change in silver inventory/rests tonight at 318.243 million oz/

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


September 28/2015:  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 62.7%
Percentage of fund in silver:37.0%
cash .3%( Sept 28/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+1.86%!!!! NAV (Sept 28/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV falls to – .64% to NAV September 28/2015)
Note: Sprott silver trust back  into positive territory at +1.86% Sprott physical gold trust is back into negative territory at -.64%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. * * * * *

Overnight gold/silver trading from Asia and Europe overnight:
courtesy Goldcore/Blog/Mark O’Byrne/Stephen Flood

Buy Gold While You Still Can!

In part 1 of his 2 part report on the ever-tightening supply of physical gold, Chris Martenson describes the fascinating data that “reveals the extent of the West’s massive dis-hoarding of physical gold”. He points out the enormous and growing disconnect between the cash and physical markets for gold which, as he explains, has major repercussions for physical gold storage.

Martenson also describes how the Fed watches the price of gold very carefully, regarding it as a “golden thermometer” of market sentiment.

An important update on the supply of physical gold
by Chris Martenson

One of our long-running themes here is that the truly historic and massive flows of gold from West to East is (someday) going to stop, for the simple reason that there will be no more physical bullion left to move.

It’s just a basic supply vs. demand issue.  At current rates of flow, sooner or later the West will entirely run out of physical gold to sell to China and India.  Although long before that hard limit, we suspect that the remaining holders of gold in the West will cease their willingness to part with their gold.

So the date at which “the West runs out of gold to sell” is somewhere between now and whenever the last willing Western seller parts with their last ounce.  As each day passes, we get closer and closer to that fateful moment.

Read more on Chris Martenson’s PeakProsperity


Today’s Gold Prices: USD 1137.60, EUR 1016.26 and GBP 747.23 per ounce.
Friday’s Gold Prices: USD 1145.50, EUR 1027.63 and GBP 752.18 per ounce.

GoldCore: Gold in EUR - 1 month
Gold in EUR – 1 Month

Gold closed at $1146.60 with a 0.61% gain on the week.  Silver closed at $15.08, down $0.05 and down just 0.46% for the week.  Euro gold fell to about €1023 and platinum lost $7 to $945.



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An excellent presentation explaining why gold is moving west to east and how the manipulators are working behind to scenes in order for this to happen.  Martensen believes that due to the tightness of gold  (backwardation in London) the time for our banker friends to manipulate gold lower is  over
(courtesy Chris Martenson/Peak Prosperity)

Gold “Tightness”: When There’s No More To Sell, There’s No More To Buy (At Any Price)

Submitted by Chris Martenson via,

One of our long-running themes here is that the truly historic and massive flows of gold from West to East is (someday) going to stop, for the simple reason that there will be no more physical bullion left to move. 

It’s just a basic supply vs. demand issue.  At current rates of flow, sooner or later the West will entirely run out of physical gold to sell to China and India.  Although long before that hard limit, we suspect that the remaining holders of gold in the West will cease their willingness to part with their gold.

So the date at which “the West runs out of gold to sell” is somewhere between now and whenever the last willing Western seller parts with their last ounce.  As each day passes, we get closer and closer to that fateful moment. 

This report centers on preponderance of fascinating data revealing the extent of the West’s massive dis-hoarding of physical gold, for the first time, begins to allow us to start estimating the range of end-dates for the flow to the East.

Here’s the punchline: there’s an enormous and growing disconnect between the cash and physical markets for gold. This is exactly what we would expect to precede a major market-shaking event based on a physical gold shortage.

Stopping the Flows

There are only two outcomes that will stop the process of Western gold flowing East, one illegitimate and the other legitimate.

  1. It becomes illegal to sell gold.  This is the favored approach of central planners who prefer to force change by dictate rather than via free markets and free will.   Unfortunately, this strain of political intervention is dominant in the West, particularly in the US and EU.
  2. The price of gold dramatically rises. A large increase in the price of gold will (paradoxically) cause greater demand for gold in the West and (sensibly) less demand in the East. This is what should legitimately happen given current supply and demand dynamics. But it may not.

There’s always a 3rd option, we suppose: economically carpet-bombing China and India’s financial systems to scare/force some gold back out. Consider such an approach along the ‘economic hitman’ lines of thinking.

This would be done, for example, by having outside interests sell the Rupee furiously, driving down its value and forcing the Indian monetary authorities to defend it by using up foreign reserves to buy the Rupee. Then wait for India to run out of foreign reserves and then casually ‘suggest’ that its government use gold sales to continue defending its currency.  India’s leaders would have to find ways to somehow ‘coax’ gold from its citizens.  I think we can all imagine the sorts of draconian rules and penalties that desperate governments would deploy in such a situation.

As a side note, I believe this is the same process that was used to ‘coax’ a lot of gold out of the GLD trust since 2012. After enough bear raids on the price of gold, which began somewhat suspiciously almost exactly on the date that QE3 was announced, Western gold ‘investors’ lost interest in the yellow metal, sold their GLD shares in droves, and hundreds of tons of gold were liberated from that stockpile.

What is truly odd from a chart perspective: this hammering down of gold started just after it had broken to the upside out of a textbook perfect triangle, when it looked seemingly ready to head off to higher values:

But in the days immediately following the QE3 announcement, gold shed $100, then barely recovered, and just wandered lower until it was violently slammed from $1550 to $1350 over one night (of course) in April 2013.

Now this was highly fortuitous for the ever-lucky Federal Reseve. After launching the largest money printing campaign in US history, the Fed did not need gold heading any higher, possibly providing a signal that would cast doubt on the wisdom or possible effectiveness of its easy-money policies. Policies, mind you, that the years since have proven to do little more than enrich the banker class and the 0.1%, as well as lard the system with extraordinary levels of new indebtedness and liquidity.

The Fed Indeed Cares About Gold

Gold, when unfettered, has a habit of sending signals that the Fed really doesn’t like. Therefore the Fed is at the top of everyone’s suspect list when it comes to wondering who might be behind the suspicious gold slams. Whether the Fed does it directly is rather doubtful; but they have a lot of useful proxies out there in their cartel network.

To reveal the extent to which gold sits front and center in the Fed’s mind, and how they think of it, here’s an excerpt from a 1993 FOMC meeting’s full transcript. Note that the full meeting notes from Fed meetings are only released years after the fact. The most recent ones available are only from 2009. Listen to what this FOMC voting member had to say about gold:

At the last meeting I was very concerned about what commodity prices were doing. And as you know, they got lucky again and told us that the rate of inflation was higher than we thought it was.


Now, I know there’s nothing to it but they did get lucky. I’ve had plenty of econometric studies tell me how lucky commodity prices can get. I told you at the time that the reason I had not been upset before the March FOMC meeting was that the price of gold was well behaved.


But I said that the price of gold was moving.The price of gold at that time had moved up from 328 to 344, and I don’t know what I was so excited about! I guess it was that I thought the price of gold was going on up. Now, if the price of gold goes up, long bond rates will not be involved.


People can talk about gold’s price being due to what the Chinese are buying; that’s the silliest nonsense that ever was.The price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency, and they want to gain security through owning gold.


A monetary policy step at this time is a win/win. I don’t know what is going to happen for sure. I hope Mike is correct that the rate of inflation will move back down to 2.6 percent for the remaining 8 months of this calendar year. If we make a move and Mike is correct, we could take credit for having accomplished this and the price of gold will soon be down to the 328 level and we can lower the fed funds rate at that point in time and declare victory.

(Source – Fed)

There it is, in black and white from an FOMC member’s own mouth spelling out the primary reason why I hold gold: I lack faith in our fiat money system. He nailed it.  Or rather, I have very great faith that the people managing the money system will print too much and ultimately destroy it. Same thing, said differently.

And of course the people at the Fed are acutely aware of gold’s role as a barometer of people’s faith in ‘fiat money.’ Of course they track it very carefully, discuss it, and worry about it when it is sending ‘the wrong signals.’ I would, too, if in their shoes.

The Federal Reserve Note (a.k.a. the US dollar) is literally nothing more than an idea.  It has no intrinsic value. America’s money supply is just digital ones and zeros careening about the planet, accompanied by a much smaller amount of actual paper currency. The last thing an idea needs is to be exposed as fraudulent. Trust is everything for a currency — when that dies, the currency dies.

The other thing you can note from these FOMC minutes is that gold pops up 19 times in the conversation. The Fed members are are actively and deliberately discussing its price, role in setting interest rates, and the psychological impact of a rising or falling gold price.

Later in that same meeting Mr. Greenspan says:

My inclination for today–and I’m frankly most curious to get other people’s views–would be to go to a tilt toward tightness and to watch the psychology as best we can. By the latter I mean to watch what is happening to the bond market, the exchange markets, and the price of gold…


I have one other issue I’d like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.


There’s an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology. Now, we don’t have the legal right to sell gold but I’m just frankly curious about what people’s views are on situations of this nature because something unusual is involved in policy here.We’re not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing.

The recap of all this is that the Fed watches the price of gold carefully, frets over whether the price of gold is ‘sending the right signals’ to market participants, and pays attention to gold’s impact on market psychology (with an eye to controlling it).

In short, the Fed keeps a close eye on the “golden thermometer”.

Back to the supply story for gold.  Not long after gold began its downward price movement in 2012, the GLD trust began coughing up a lot of gold, eventually shedding more than 500 tonnes; a truly massive amount.


In my mind, the absolute slamming of gold in 2013 was done by a few select entities and represents one of the clearest cases of price manipulation on the recent record.  While we can debate the reasons ‘why’ gold was manipulated lower or ‘who’ did it, to me, there’s no question about how it was done. Or that it was done.

Massive amounts of paper gold were dumped into a thin overnight market with the specific intent of driving down the price of gold.

It’s an open and shut case of price manipulation. Textbook perfect.

Even if these bear raids were performed by self-interested parties that made money while doing it, you can be sure the Fed was smiling thankfully in the background and that the SEC wasn’t going to spend one minute looking into whether any securities laws were broken (especially those related to price manipulation). Gold’s falling “thermometer” was exactly what the central planners wanted the world to see.

Down and Out

The paper markets for gold are centered in the US, while the physical market for gold is centered in London (but increasingly Shanghai).  It’s safe to say that the paper markets set the spot price, while the physical movement of gold originates in London.

What’s increasingly obvious is the growing disconnect between the paper and physical markets. This is exactly what we’d expect to see if the paper markets were pushing in one direction (down) while physical gold was heading in a different direction (out).

The tension between these ‘down and out’ movements is building and, according to a senior manager of one of the largest gold refineries in the world located in Switzerland, the current price of gold “has no correlation to the physical market.”

He notes a lot of on-going tightness in the physical market. Unsurprisingly, gold is moving from West to East with vaults in London supplying much of the physical metal that’s being refined into fresh kilo bars and sent off to China and India.

But given the astonishing amount of physical demand, why has the price of gold been heading steadily lower over the past several years?

The aforementioned Swiss refiner is equally perplexed:

If I am honest, the only thing I could share now with you would be that I’m perplexed about the discrepancy between the prices and the situation of the physical market. This is something I still do not understand and is a riddle for me every day. For all people who are interested in precious metals, the physical side of this business should be given more emphasis.

(Source – Transcript)

There’s no mystery as to demand going up in China and India as the price went down. Interested buyers will buy more at a lower price.

But its a big mystery as to why Western “investors” seem more interested in selling gold than buying it right now.

Evidence of Physical Tightness

Besides the first-hand experience of the Swiss refiner, there have been numerous stories in the main stream press also pointing to tightness in the London physical gold market as well as relentless demand from China and India being the driver of that condition:

Gold demand from China and India picks up

Sep 2, 2015


London’s gold market is showing tentative signs of increased demand for bullion from consumers in emerging markets, after the price of the precious metal fell to its lowest level in five years in July.


The cost of borrowing physical gold in London has risen sharply in recent weeks.That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.


“[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.


The move comes as Indian gold demand picked up in July, with shipments of gold from Switzerland to India more than trebling. Most of that gold is likely to originally come from London before it is melted down into kilobars by Swiss refineries, according to analysts.


In the first half of this year, total recorded exports of gold from the UK were 50 per cent higher than the first half of 2014, on a monthly average basis, according to Rhona O’Connell, head of metals for GFMS at Thomson Reuters. More than 90 per cent was headed for a combination of China, Hong Kong and Switzerland.


London remains the world’s biggest centre for trading and storing gold.


Shipments and exports are up very strongly and nearly all of that gold is headed to just two countries; China and India.

India Precious Metals Import Explosive – August Gold 126t, Silver 1,400t

Sept 10, 2015


In the month of August 2015, India imported 126 tonnes of gold and 1,400 tonnes of silver, according to data fromInfodrive India. Gold import into India is rising after a steep fall due to government import restrictions implemented in 2013.


Year-to-date India has imported 654 tonnes of gold, which is 66 % up year on year. 6,782 tonnes in silver bars have crossed the Indian border so far this year, up 96 % y/y.


Gold import is set to reach an annualized 980 tonnes, which would be up 26 % relative to 2014 and would be the second highest figure on (my) record – my record goes back to 2008.


Silver import is on track to reach an annualized 10,172 tonnes, up 44 % y/y!This would be a staggering 37 % of world mining.


With China and India’s combined appetite for gold being higher than total world mining output, it only stands to reason that somebody has to be parting with their physical gold and those entities appear to be substantially located in the US and UK.

When There’s No More To Sell, There’s No More To Buy

All the above evidence of a tightening physical market for gold is just the tip of the iceberg.

In Part 2: Why Gold Is Headed Higher & May Be Unavailable At Any Price we look at the frightening inventory declines in bullion storage that the LBMA and the COMEX have experienced over the past year.

We then lay out how this deliberate suppression of gold prices by the central planners is destined to end: with MUCH higher prices for gold, and much less availability. In fact, there is high likelihood we will experience a point at which it may be nearly impossible for the average investor to acquire physical gold, as there will be no sellers willing to part with it.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)


As I have been outlining to you on a daily basis, one could see that massive amounts of clients (eligible gold) has been leaving comex vaults.  Today, Turd Ferguson (Craig Hemke) goes back 2 years and highlights how massive amounts of gold is leaving the vaults of Scotia Mocatta, the oldest of the bullion banks. Are clients orchestrating a bank run in gold?
(courtesy Craig Hemke/TFMetals)

A Comex Bank Run For Scotia Mocatta

While much has been made about the record low Comex registered gold inventory, we’ve also been following a slow-motion “run” on the gold vaults of Scotia Mocatta. Could this be evidence of failing confidence in the bullion bank system?

First, a reminder of what the terms “eligible” and “registered” mean:

Gold held in the eligible category is gold that meets the exchange requirements. Eligible gold is simply the gold that is stored in Comex warehouses. The Banks store/vault this gold for private clients and this gold is NOT available for immediate delivery to futures contract holders.

Registered gold means that the gold has been certified to meet the exchange standards for purity and size. Registered gold is deliverable or available for delivery to a long contract holder standing for bullion delivery.

OK? Then let’s get started. No sense spending a lot of time with speculation. Instead, we’ll just give you the numbers and let you decide for yourself.

The oldest CME Gold Stocks report we could find in our files is from almost exactly two years ago today and dated September 30, 2013. Note the size of Scotia’s registered, eligible and total vault. (For fun, you might also note registered gold total for all six depositories. See the blue arrow.)

<click to enlarge>

As you can see, two years ago The Scoche reported to have holdings of 168,579 ounces of registered gold and 2,820,376 ounces of eligible gold for a total vault of 2,988,955 troy ounces or about 93 metric tonnes of gold.

OK, with that report as a reference, let’s fast forward a few months to the report datedJanuary 13, 2014. As you can see below, Scotia’s vault is down a little bit. Registered gold is just 88,532 ounces and eligible is 2,524,008 ounces for a total vault of 2,612,540 troy ounces or a little over 81 metric tonnes.

Moving forward, our next snapshot is dated August 12, 2014 and, WOW, look at the change! Scotia’s registered vault has soared to 303,091 ounces and it’s eligible vault is back up to 2,748,423 ounces. This brings the total vault up to a whopping 3,051,514 troy ounces or nearly 95 metric tonnes of gold. (Also note that the TOTAL Comex registered vault has grown to 1,106,902 ounces.)

Let’s fast forward again and review the report from March 5, 2015. There hadn’t been much overall change for the previous seven months and you can see the continued, static nature of the reporting below. As of the previous day, Scotia reported registered holdings of 345,778 ounces and eligible holdings of 2,720,391 ounces for a total vault of 3,066,169 troy ounces or still about 95 metric tonnes.

And now here is where the intrigue begins. Did you notice the withdrawal on the report above? That day, Scotia reported a movement of 114,790 ounces out of their registered vault. At the time, it seemed like no big deal…just the daily Comex delivery shenanigans. However, that withdrawal marked a significant top in the total size of Scotia’s Comex gold vault.

Let’s count it down. Here’s April 16, 2015. Note that the total vault is already down to 2,282,697 ounces or 71 mts:

By April 21, 2015, they’re down to 2,164,737 or 67 metric tonnes:

And by May 7, 2015, they’re down to a total of 1,879,274 troy ounces or 58 metric tonnes:

So, was this just a two-month anomaly? Did gold soon begin flowing back into The Scoshe’s vault? Nope. Below is the report from June 16, 2015. Scotia’s vault now holds just 176,734 ounces in registered gold and 1,446,588 in eligible gold for a total of 1,623,322 troy ounces or a little over 50 metric tonnes:

Here’s August 10, 2015 showing 180,412 in registered and 1,124,028 in eligible for a total of 1,304,440 troy ounces or just over 40 metric tonnes of gold:

Which brings us to the most recent report dated yesterday, September 24, 2015. The latest total for the amount of gold held in Scotia Mocatta’s Comex gold vault are as follows:

  • Total registered gold: 92,017 troy ounces
  • Total eligible gold: 1,084,123 troy ounces
  • Total vault: 1,176,140 troy ounces or 36.6 metric tonnes

(Additionally, be sure to note that the TOTAL Comex registered vault, which peaked at over 1.1 million ounces in August of 2014, remains at just 162,034 or down about 85% in a little over a year.)

So, to summarize…Over the past seven months, the Comex vaults of Canada’s largest Bullion Bank, Scotia Mocatta, have seen significant and persistent withdrawals. How much? See below:

DATE                   TOTAL REGISTERED               TOTAL ELIGIBLE                TOTAL COMBINED

3/5/15                                 345,778                                            2,720,391                           3,066,169 OR 95.37 mts

9/24/15                                92,017                                             1,084,123                            1,176,140 OR 36.58 mts

TOTAL CHANGE        (253,761 or 73.4%)                    (1,636,268 or 60.2%)                  (1,890,029 or 61.6%)


Ultimately, the question you must ask yourself is this:

Are we seeing a “run” on the “bank”?

Over the past 6+ months, clients of Scotia Mocatta, technically the oldest of all the Bullion Banks, have removed over 60% of their gold stored and kept in safekeeping with this company. Hmmm. Why the sudden rush to re-establish ownership and lay claim to gold held within The Comex vaulting system?

Again, nearly 60 metric tonnes of gold, stored by The Scoshe for their clients, have now been removed. And, over the same time period, total Comex registered gold has fallen by 85%?

Does this constitute a slow-burning lack of confidence or “run”? Are clients of Scotia Mocatta seeking to slowly, gradually reclaim their gold from the over-leased and over-hypothecated bullion bank system?

Would you want to be left holding the bag with nothing but paper certificates and warehouse receipts when the paper derivative pricing scheme finally collapses? Me, neither. And perhaps the closely-connected clients of the world’s oldest bullion bank feel the same way? If you hold gold in safekeeping with Scotia or any of the other Bullion Banks, you might want to follow their lead.



 (courtesy Chris Powell/GATA)

The more markets are ‘financialized,’ the more central banks can rig them


9:30p ET Saturday, September 26, 2015

Dear Friend of GATA and Gold:

Perth Mint research director Bron Suchecki today elaborates on the Physical Gold Fund’s interview with an unidentified Swiss gold refinery executive, which GATA called to your attention Wednesday —

— and largely concurs with the executive, especially his assertion that the suppression of the gold price by the futures markets can go on forever if buyers don’t actually take delivery. Suchecki also raises a couple of questions he wishes had been posed to the refinery executive.

But Suchecki also notes that “markets are more financialized these days” and advises gold investors to “get over it.” He adds: “I guess some people think that if only futures markets could be banned and everyone had to trade physical, the price would magically shoot up. They forget that if you ban all forms of paper gold, you ban paper longs. And in any case, any paper contract can be synthesized using physical and borrow/lend. They also seem unaware that the net position of paper trading is, by arbitrage, reflected into the physical market, and vice versa.”

This misses something crucial: that the more that markets are “financialized,” the more advantage passes to those with the greater access to financing. Since central banks are able to create infinite money and, as GATA has established with extensive documentation, certain central banks and their agents are the biggest shorts in the gold market and very possibly the biggest shorts in the commodity markets generally, and surreptitiously so —

— whatever position central banks take in the futures markets will be nearly impossible to defeat excerpt perhaps by other central banks. For nobody else can create infinite money for futures trading purposes.

That’s why Suchecki’s mockery of so many “paper longs” in gold for not having the money to take delivery is irrelevant. If somehow futures trading in gold could be banned and only cash-on-the-barrelhead trading in gold allowed, the gold market indeed would be transformed, not by “magic” but by the evaporation of the “financializing” advantage of the primary shorts in the market, the central banks. And as the “financializing” advantage evaporated, so would the vast supply of “paper gold” that central banks have created or underwritten, which Suchecki himself acknowledges has a suppressive effect on the price of gold.

Suchecki’s commentary is headlined “Refinery View of the State of the Gold Market” and it’s posted at the Perth Mint’s Internet site here:…

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



I brought this to your attention on Friday, but it is so important, I am repeating it for those that may have missed this:

(courtesy zero hedge)

Posted on 25 Sep 2015 by

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 read The Mechanics Of The Chinese Domestic Gold MarketPBOC 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 from 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 while circumventing 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 theChinese 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.

More from Alex (September 2013):

…We talked to the head of the largest refinery in Switzerland and he told us directly that all that metal that’s coming out of London is being refined into kilo bars and sent to China, as well as metal that’s coming in from other areas in the world, that’s all going to China. It’s way more than is being reported or moved through the exchanges. All the kilo bars go to the Chinese people but the PBOC is likely only buying good delivery [GD].

There you have it. More clues the PBOC does not buy gold through the SGE (where only gold bars smaller than GD are traded). But there is more.

Although, it’s virtually impossible to track monetary gold flows, the least we can do is try. In recent weeks Ronan Manly, Bron Suchecki, Nick Laird and I conducted a small investigation with respect to how much monetary and non-monetary gold is left in the UK. Luckily for us, the London Bullion Market Association (LBMA) has published a few estimates in recent years about the total amount of physical gold in London (monetary and non-monetary). In 2011, it was 9,000 tonnes. In 2015, it had dropped to 6,256 tonneslikely all in GD bars. These estimates from the LBMA combined with our investigation have resulted in the next charts (conceived by Nick Laird, Sharelynx):



For a better understanding of physical gold located in London you can read this post by Ronan, this post by Nick or have a look at the next diagram conceived by Jesse (Cafe Americain):



According to gold trade data from HMRC, the UK saw a net (non-monetary) gold outflow from 1 January 2011 to 30 June 2015 of 997 tonnes. Have a look at the chart below. The UK net exported 1,425 tonnes in 2013. In 2014 net export fell to 448 tonnes. Add to that the UK net imported 904 tonnes in 2012.

UK Gold Trade 2011 - June 2015

We don’t know exactly when in 2011 the LBMA measured there were 9,000 tonnes of gold in London, but it doesn’t really matter. In the chart above we can see that the most significant movements since 2011 have taken place in 2012 and 2013. If we measure the flow of gold from the UK between 2012 and 2014, the net outflow is 970 tonnes. So it’s not that important when in 2011 the 9,000 tonnes were counted by the LBMA. What is important is that since 2011 not more than 997 tonnes of non-monetary gold has left the UK, according to official trade statistics. 

Nick Laird and I noticed that although the total amount of physical gold in London fell roughly 2,744 tonnes (9,000 – 6,256) over four years (graph 1), only 997 tonnes were net exported as non-monetary gold (graph 4). This makes me wonder where the residual 1,747 tonnes (2,744 – 997) went. Possibly, this gold has been monetized in the UK and covertly shipped to a central bank in Asia, for example China. I don’t have rock hard evidence, but it fits right into the wider analyses.

Furthermore, from 2006 to 2011, the UK was a net importer every year. If the 9,000 tonnes estimate by the LBMA was hopelessly outdated, say, it was from 2008, this would increase the “missing gold” even more (as net export over the years would have been smaller than 997 tonnes).

What stands out for now is, (i) the LBMA has stated there were 9,000 tonnes of physical gold in London in 2011 and (ii) gold trade provided by HMRC reflects all physical movement of non-monetary gold in and out of the UK. Both these handles have nothing to do with complicated rules on changes in ownership of gold in London (that I’m aware of). Therefor we must conclude 2,744 tonnes left the UK since 2011, but only 997 tonnes was seen leaving as non-monetary gold. Where did the residual 1,747 tonnes go?

This investigation is far from finished, next I will research historic UK gold tarde – as far back as possible. Hopefully we can find another piece of the puzzle.





Indian government desperate to paperize gold.  Now you do not have to show where your gold came from


(courtesy Deccan Herald/India/GATA)

Indian government may not ask questions about gold submitted for paperizing


Government to Make Gold Monetisation Scheme Attractive Before Launch

From the Deccan Herald
Bangalore, India
Monday, September 28, 2015

In a bid to make the much-awaited gold monetisation scheme more attractive, the government may do away with the requirement of receipt of purchase for ancestral gold. The same rule may also apply to temple and trust gold, which is estimated to be in huge quantity.

The Union Cabinet had earlier this month approved the scheme. The idea behind mobilising gold held by households and institutions in the country is to put the precious metal into productive use.

The long-term objective is to reduce the country’s reliance on the import of gold to meet domestic demand.

According to the original draft scheme required a depositor to show the purchase receipt of gold besides filling up a KYC form before giving away their gold for melting. But tonnes of gold lying with Indian households has been passed on from generation to generation which does not have any proof of ownership.

“We are trying to make the scheme less cumbersome so that more and more people come forward to deposit their household gold. It is possible that gold passed on as heritage from generations may not have any proof of purchase,” a senior official said.

… For the remainder of the report:

For the remainder of the report:…





Lawrence Williams: CPM Group’s Christian contrives to minimize Shanghai gold offtake


8:365p ET Sunday, September 17, 2015

Dear Friend of GATA and Gold:

Monetary metals sector journalist Lawrence Williams tonight marvels at the offtake on the Shanghai Gold Exchange and suggests that CPM Group’s Jeff Christian is contriving theories to discredit the huge volumes being reported. Williams’ commentary is headlined “Latest SGE Gold Deliveries Suggest Enormous 2015 Total of Over 2,650 Tonnes” and it’s posted at the Sharps Pixley Internet site here:

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





(courtesy Business Standard, New Delhi/GATA)

Metals and Minerals Trading Corp. to produce, market India’s sovereign gold coins


Dillip Satapathy
Business Standard, New Delhi
Monday, September 28, 2015

BHUBANESWAR, India — Metals and Minerals Trading Corp., under the Union commerce ministry, will manufacture and market sovereign gold coins in India and abroad.

“We have been given the responsibility. Finance minister Arun Jaitley had announced about the issue of these gold coins in his budget speech in February,” MMTC chairman and managing director Ved Prakash told Business Standard.

The coins will be launched by Prime Minister Narendra Modi in October before the peaking of festive season gold buying for Dhanteras and Diwali.

The coins will come in 5 grammes and 10 grammes weight category. The price will be at par with coins sold by other agencies and banks.

“We are not taking it up as a commercial venture,” said Prakash, adding that the design of the coins, with Ashok Chakra and the image of Mahatma Gandhi on them, has already been approved.

The state-owned trading company intends to produce 20,000 gold coins a month initially and would scale it up to 50,000 coins a month, depending on the demand. …

… For the remainder of the report:…






The biggest story in decades:  UBS is now ready to spill the beans on the massive manipulation in gold.

(courtesy zero hedge/UBS)

UBS Is About To Blow The Cover On A Massive Gold-Rigging Scandal

With countless settlements documenting the rigging of every single asset class, it was only a matter of time before the regulators – some 10 years behind the curve as usual – finally cracked down on gold manipulation as well, even though as we have shown in the past, central banks in general and the Fed in particular are among the biggest gold manipulators.

That said, we are confident by now nobody will be surprised that there was manipulation going on in the gold casino. In fact, ever since Germany’s Bafin launched a probe into Deutsche Bank for gold and silver manipulation, it has been very clear that the only question is how many banks will end up paying billions to settle the rigging of the gold market (with nobody going to prison as usual, of course).

Earlier today, we learned that the Swiss competition watchdog just became the latest to enjoin the ongoing gold manipulation probe when as Reuters reported, it launched an investigation into possible collusion in the precious metals market by several major banks, it said on Monday, the latest in a string of probes into gold, silver, platinum and palladium pricing.

Here are the details that should come as a surprise to nobody:

Global precious metals trading has been under regulatory scrutiny since December 2013, when German banking regulator Bafin demanded documents from Deutsche Bank under an inquiry into suspected manipulation of gold and silver benchmarks by banks. Even though the market has moved to reform the process of deciding on its price benchmarks, accusations of manipulation have refused to go away.


Switzerland’s WEKO said its investigation, the result of a preliminary probe, was looking atwhether UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui conspired to set bid/ask spreads.


“It (WEKO) has indications that possible prohibited competitive agreements in the trading of precious metals were agreed among the banks mentioned,” WEKO said in a statement.

Don’t hold your breath though: “A WEKO spokesman said the investigation would likely conclude in either 2016 or 2017, adding that the banks were suspected of violating Swiss corporate rules.” Those, and virtually all other market rules.

The good news is that unlike Bart Chilton’s charade “inquiry” into silver manipulation when after years of “probing” the CFTC found “nothing”, at least the Swiss will find proof of rigging for the simple reason that it is there.

he banks face financial penalties if WEKO finds them guilty of wrongdoing, the spokesman said, though he declined to comment on the size of any possible fine.

No please, anything but “financial penalties” for rigging the gold market.

Aside from regulatory probes, a number of lawsuits have also been filed in U.S. courts alleging a conspiracy to manipulate precious metals prices.


Commenting on the WEKO probe, a Julius Baer spokesman said the bank was cooperating with authorities.


In a statement, Deutsche Bank said it was cooperating with requests for information from “certain regulatory authorities” over precious metal benchmarks but declined to comment further.


Representatives for UBS, Barclays, Morgan Stanley and HSBC declined to comment. Mitsui was not immediately available for comment.

Some so-called experts promptly scrambled to talk down the upcoming proof that so-called “paranoid” gold bugs have been right all along:

The impact of the probes on wider precious metals trading was likely to be muted, according to Brian Lucey, professor of finance at the School of Business, Trinity College Dublin.


“The question is not if individuals, or groups of individuals are collaborating to rig the game for themselves, the question is if this has any material effect,” he said. “I’m not convinced collusive behaviour will have a meaningful effect micro-economically to the structure of gold trading around the world.”

Oh so the question is not if traders and banks made billions in illegal profits by rigging yet another market, but “if this has any material effect.” Give this man another distinguished financial professorship title: with observations like that what can one say but… “Keynesian genius.”

* * *

However, as we said above, none of the above, and certainly not the idiotic “finance professor” statements, will come as any surprise to anyone.

What will, however, is that unlike previous gold probe cases, this one will actually have consequences.

How do we know?

Because just like in LIBOR-gate, just like in FX-gate, it is the biggest rat of all, Swiss megabank UBS, that is about to turn on its former criminal peers.

As Bloomberg reported earlierUBS was granted conditional leniency in Swiss antitrust probe of possible manipulation of precious metal prices, a person with knowledge of the matter said.

Bloomberg adds that the “bank may face lower fine than six other banks and financial firms suspected in probe or may avoid penalty altogether, person says.”

Why would UBS do this? The same reason UBS did so on at least on two prior occasions: the regulators have definitive proof it is involved, and gave it the option to turn evidence and to rat out its cartel peers, or face even more massive financial penalties.

UBS promptly chose the former, and took the opportunity to minimize yet another key civil (and criminal) market manipulation charge against it, especially after it was already branded a “criminal recidivist” between Libor, FX and, of course, the tax evasion scandal: one more manipulation scandal and the bank could well lose its license to operate in NYC.

Which simply means that now the official countdown on the announcement of what will be revealed as the biggest gold-manipulation and rigging scandal in history, has begun.





(courtesy Bill Holter/Sinclair-Holter collaboration)


The Final Flush Is At Hand!

Posted September 27th, 2015 at 6:36 PM (CST) by & filed under Bill Holter.

Dear CIGA,

Outright financial collapse, chaos and most probably war is not only in sight, it is imminent and unavoidable now. Normally I try to write and support my conclusions with current or past events via links to news. For this writing, because of the length and scope I don’t plan to do this. It will be assumed that you as the reader have already heard of or read evidence of what is put forth as connectable dots.

This past week, the following article was forwarded all over the internet as Deutsche Bank is “all of a sudden news”. Maybe this is a “German thing” with the latest out of Volkswagen? Deutsche Bank is not “all of a sudden”, they have been a derivatives monster for years and were saved in 2008 with part of the $16 trillion the Fed generously sprayed all over the world. The title suggesting DB will be the equivalent of five Lehmans is on the right track but not nearly severe enough. They are tied with JP Morgan as THE largest holder of derivatives in the world. Should Deutsche Bank fail, EVERYTHING FINANCIAL FAILS! It can even be said, “the entire world is Lehman” just waiting for their credit line to be cut 48 hours before complete failure.

What we are looking at now it “the FINAL FLUSH” of the Western financial system. The Federal Reserve has lost all credibility. This has followed both the Bank of Japan and European Central Bank being seen as hopelessly neutered of the ability to support the system. Confidence was THE very last “hope” and the Fed gave even that away last week. Of course the mainstream media chimed in on Friday saying the “market was up in the hopes of a rate hike in December”. Really? Are we to believe a tightening of credit is a good thing for a system buried in leverage and being dogged with liquidity drying up? This is like saying a flame thrower is the best tool for the California fires?

Money Velocity has crashed and so has global trade. Leveraged commodity trades have blown up and left many sectors dysfunctional. Has anyone stopped to think who (other than the sectors themselves) stands to lose with $45 oil? Maybe the lenders? Would this not tighten credit even further? Why do a dozen “advanced” economies already have stock markets in bear (minus 20%+) market territory?

Geopolitically we have watched as West has lined up against East militarily in many spots all over the world. The short list includes the South China Sea, Ukraine, Yemen and of course Syria. Russia began the build up militarily several weeks back along the Ukraine border and more recently inside Syria. Now China is reportedly sending hardware to Syria including ships. These are not bluffs as active fighting already exists. Can the U.S. actually “win” in any of these arenas in conventional war? It’s OK, you know the answer in your own mind, you also know what the alternative to losing conventionally is.

Before going any further I must ask you this question. Does the rule of law exist in the United States anymore? How many bankers went to jail over the blatant fraud in banking, real estate/mortgages? How many brokers went to jail for stacking MBS securities with guaranteed defaults while betting against the pools? How many exposed frauds within the Obama administration have gone un punished or even investigated? Do we really have three branches of government? Congress (Republicans) has done NOTHING they said they would when the public kicked out the snakes last November…only replaced by new ones apparently. The presidency has purged the armed forces of any conservative leadership and placed “czars” at the top of new and old agencies, what’s up with this?… which leaves the Supreme Court. They now effectively “write law” as they “interpret” ALL law. The Supremes will never see a duck as a duck and will write interpretations declaring the Sun full in the sky at midnight …final ruling and no appeal! “We the People” are screwed!

Speaking of “We the People”, while QE was used to mesmerize the middle class by holding the markets up, it in fact has gutted our real economy and has destroyed any possibility of making money the old fashioned way …by working! We now have one half or more of our population “taking” benefits and the other half “giving” them, any hope of a recovery led by the middle class is now gone as is the middle class.

Is it any wonder there are now shortages and tightness in the gold and silver markets? The East believes gold “IS” money, they also know the dollar is untenable and will not be a store of value. In fact, I believe China and Russia may step in to “help” the dollar fail. I still believe Mr. Putin will come forth with a “truth bomb”, I would love to be a fly (although hidden bugs will probably be everywhere) on the wall at tomorrow’s meeting between Presidents Xi and Obama. I can just imagine how the conversation might go, I cannot believe the U.S. will be barking ANY orders in any fashion. A sad statement but you must ask yourself this, does the U.S. have the power or ability to make demands? Remember, we are the debtor while they are the creditor!

In my opinion we are already well within the jaws of a meltdown/shutdown as liquidity is evaporating. There are a dozen developed countries with their stock markets already in bear markets (down 20% or more). All crashes come from oversold levels just as bank runs come on fast and are a surprise at the time. What is coming should be NO SURPRISE to anyone as we are looking at the end of not only an empire but of a flawed system which has endured for far too many years! This was a solvency problem in 2008 and “liquidity” was the incorrect tool used then. Now it is a bigger solvency problem with an illiquidity kicker attached …while the Fed has already used every tool imaginable and every last ounce of credibility. The loss of confidence in the issuer of the world’s reserve currency would be bad enough in an unlevered world, the loss of confidence in today’s “debt world” will be a DISASTER!

To wrap this up, do not let anything that may happen from here surprise you. The conditions are ripe for global currency crises and a shutdown of credit. The conditions are also ripe for hot war to explode in multiple venues. A meltdown or shutdown of markets will serve as a FINAL FLUSH of what remains left of the U.S. middle class. Without the “wealth” in stocks and homes, psychology will be toast. The U.S. is creating “income” from actual work at a third world level which is exactly where we are headed as our standard of living is “borrowed rather than owned”. My point is this, a market meltdown and credit shutdown will make the U.S. look like 1985 Bombay within weeks as we create nothing and have saved in “nothings” and owe everyone. This is the rosy scenario and assumes that martial law is not instituted (a poor assumption in my opinion!).


Standing watch with tears in my eyes,

Bill Holter
Holter-Sinclair collaboration
Comments welcome!





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

1 Chinese yuan vs USA dollar/yuan rises quite a bit in value, this  time at   6.3692/Shanghai bourse:  in the green and Hang Sang: green

2 Nikkei closed  down 235.40 or 1.32%

3. Europe stocks all deeply in the red     /USA dollar index up to 96.33/Euro down to 1.1178

3b Japan 10 year bond yield: rises to .352% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.04

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:  44.89 and Brent:  47.73

3f Gold down  /Yen up

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .632 per cent. German bunds in negative yields from 4 years out

 Greece  sees its 2 year rate falls to 11.14%/Greek stocks this morning down by 2/00%:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield falls to  : 8.20%  

3k Gold at $1131.60 /silver $14.69  (8 am est)

3l USA vs Russian rouble; (Russian rouble par in  roubles/dollar) 65.70,

3m oil into the 44 dollar handle for WTI and 47 handle for Brent/Saudi Arabia increases production to drive out competition.

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

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9796 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0949 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 +.632%/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 2.14% early this morning. Thirty year rate below 3% at 2.96% / yield curve flatten/foreshadowing recession.

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


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


US Futures Resume Tumble, Commodities Slide As Chinese “Hard-Landing” Fears Take Center Stage

It was all about China once again, where following a report of a historic layoff in which China’s second biggest coal producer Longmay Group fired an unprecedented 100,000 or 40% of its workforce, overnight we got the latest industrial profits figure which plunging -8.8% Y/Y was the biggest drop since at least 2011, and which the National Bureau of Statistics attributed to “exchange rate losses, weak stock markets, falling industrial goods prices as well as a bigger rise in costs than increases in revenue.” In not so many words: a “hard-landing.”

At danger of pointing out the all too obvious, China Minzu Securities noted that currency devaluation isn’t substantially helping exporters’ profit margins for now; overseas shipping volumes may increase a bit, but that may not be enough to offset the decrease in asset valuation.” Well then, there is always “moar” devaluation, right.  “Downward pressure on China’s manufacturing sector will persist for some time given the oversupply of property,” Zhu Qibing, Beijing-based analyst, says in interview. “There might be one more PBOC RRR cut toward the end of the year.” That, or the PBOC will cut the CNY by another 10-15% before the year is done.

And then, confirming that the Chinese contagion is not “spreading” but “spread”, we got Thailand customs exports data which plunging at -6.7% was double the expected -3.1% drop, as trade patterns across the entire Asia-Pac region, or rather the entire world, are now dramatically disrupted.

All of this has pushed the USDJPY down from its closing price of just around 120.50 on “Biotech Butchery” Friday to just below 120.00, which in turn has slammed US equity futures, and as of this moment:


Ironically China’s weakness, while slamming US equity futures, did not have an impact on Chinese stocks where – sure enough – hopes of more easing saved the day: while Asian equity markets tracked the lacklustre close on Wall Street where the NASDAQ Biotech index suffered its worst weekly loss in 7yrs and fell back into bear market territory, the Shanghai Comp. (+0.3%) was initially pressured after Chinese industrial profits (-8.8% vs. Prey. -2.9%) declined by the most on record but then pared losses on hopes of additional stimulus . The Nikkei 225 (-1.0%) was weighed on by a firmer JPY and many firms trading ex-dividend. The ASX 200 (+1.4%) bucked the trend amid gains in large banks and domestic M&A flow. Markets in Hong Kong, South Korea and Taiwan are closed for public holidays. 10yr JGBs traded lower on rebalancing ahead of month and fiscal half-yr end, while the BoJ entered the market to purchase JPY 1.2trl in government debt as expected.

Over in Europe, the biggest mover for once was not Volkswagen or some other emissions-masking German car marker, but well-known to Zero Hedge readers commodities trading floor with an attached mining operation Glencore, which plunged a whopping 27% so far today after an Investec report said what we have said since March 2014 (and what Goldman repeated last Thursday), namely that the company’s equity is worthless if commodity prices do not move higher. Hardly news here, but news everywhere else apparently, and as a result GLEN bonds and stock have both plunged to record lows.

Stocks kicked off the week on a negative footing (Euro Stoxx: -1.26%), with the sentiment dampened by less than impressive macroeconomic data from China, as well as reports by Les Echos citing IMF’s Lagarde suggesting that the IMF is likely to revise downwards its estimates for global growth. As a result, materials sector continued to underperform, with shares of the troubled mining and trading firm Glencore (-25.0%) continuing to slide to fresh record lows . On the other hand, shares of SABMiller (+3.2%) surged following reports that AB InBev may submit GBP 70b1n bid for the brewer.

Looking elsewhere, despite the looming supply out of Eurozone, where around EUR 18.5bIn is expected to be absorbed this week vs Prey. EUR 8.8b1n, Bunds traded bid, in part supported by the cautious sentiment observed during the opening hours of trade in Europe. At the same time, Spanish bonds outperformed, with SP/GE lOy spread tighter by 5bps after the weekend’s Catalan elections showed that despite gaining the majority of seats, the pro-independence Junts pel Si failed to gain a majority of the votes. Of note Gilts look set to strengthen from substantial month end extensions, worth 0.23yrs according to Barclays Sterling Aggregate Index.

In FX, dampened sentiment has bolstered the likes of both JPY and EUR today, with both currencies gaining against the USD as USD/JPY continues to eye 120.00 to the downside . Elsewhere, GBP outperformed its major peers on the back of the aforementioned M&A related flows from the SABmiller news.

The metals complex continues to edge lower in European trade with precious and base metals both trading lower on the back of negative outlook in China. WTI and Brent also trade in negative territory heading into the NYMEX pit open, with China concerns remaining in focus.

Going forward, today’s highlights include the release of the latest US personal income, PCE deflator and pending home sales reports, as well as comments by Fed’s Evans, Dudley and Williams.

Finally, unrelated to the macro newsflow, but what will surely be watched closely, is a tweet from Carl Icahn that tonight at midnight, the billionaire is releasing a video called Danger Ahead which “covers several critical matters I believe we need to be far more aware of.”

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Equities start the week in the red with weak Chinese data and downbeat IMF comments weighing on sentiment
  • Dampened sentiment has bolstered the likes of both JPY and EUR today, while GBP outperformed its major peers on the back of M&A related flows
  • Going forward, today’s highlights include the release of the latest US personal income, PCE deflator and pending home sales reports, as well as comments by Fed’s Evans , Dudley and Williams
  • Treasuries gain as commodity producers lead stocks lower, with Glencore Plc tumbling to a record low in London and profits at Chinese industrial companies plunging in August.
  • Chinese industrial profits plunged 8.8% last month, with the biggest drops in coal, oil and metals producers, as the pillars of China’s infrastructure-led growth model suffered from a devalued yuan, tumbling stocks and weak demand
  • Glencore Plc slid as much as 25.5%, biggest intraday decline on record, as Investec plc warned that there was little value for shareholders should low commodity prices persist
  • Driven by a retreat since mid-August, the S&P 500 has seen its average price over 12 months fall for two straight months, a pattern that accompanied the start of the last two bear markets, data compiled by Bloomberg and MKM Partners LLC show
  • Saudi Arabia has withdrawn as much as $70b from global asset managers as OPEC’s largest oil producer seeks to plug its budget deficit after crude slumped, according to financial services market intelligence company Insight Discovery m(see London’s financial Times article)
  • In Spain, Catalan president Artur Mas won 48% support in Sunday’s vote; voters in the region narrowly rejected his plan to build an independent state
  • Royal Dutch Shell Plc will halt exploration in the U.S. Arctic after $7 billion of spending ended with a well off Alaska that failed to find any meaningful quantities of oil or natural gas
  • Sovereign 10Y bond yields decline. Asian stocks mixed; European stocks and U.S. equity-index futures lower. Crude oil, copper and gold lower


Central Bank Speakers

  • 8:30am: Fed’s Dudley speaks in New York
  • 1:30pm: Fed’s Evans speaks in Milwaukee
  • 5:00pm: Fed’s Williams speaks at UCLA Anderson School of Management

DB completes the overnight event summary:

A turbulent and choppy week for financial markets finally comes to an end and one which it’s hard to imagine gave much confidence to the Fed that the volatility and nervousness that had plagued markets in the run-up to the FOMC meeting, has abated at all. A combination of factors played their part last week. Mixed signals from Fed speakers was a theme, as were continued concerns around China and emerging markets. Meanwhile, the VW emissions scandal rocked the car-maker industry, while there were concerning forecasts for global demand from Caterpillar and fragility in the biotech industry. A more upbeat report from Nike on Friday confused matters somewhat while economic data continues to be relatively mixed on the whole. Friday saw a late sell-off in health-care names which resulted in the S&P 500 (-0.05%) nudging into negative territory and falling for the fifth time in the last six sessions. In the period from the highs prior to the Yellen press conference shortly following the FOMC decision to Friday’s close, the index has in fact fallen 4.5%. It’s been much the same for US credit too where CDX IG has widened nearly 10bps with primary market latching onto any window of stability to get deals away. Interestingly rates markets have been more stable. US 10y Treasury yields have fallen ‘only’ 13bps with the bulk of that move coming in the very short period of time immediately following the FOMC decision, with yields somewhat range bound ever since. December liftoff expectations have certainly been heavy hit however and we finished Friday pricing a 43% chance of a hike, well down from the 64% we got 12 days ago.

So as we look ahead there’s a lot to look forward to this week with economic data capped by the September payrolls reading this Friday. Market consensus is currently running at 202k which is more or less in with the forecast of DB’s Joe Lavorgna at 200k. Fedspeak will be closely watched again and it’s set to be a busy one with Dudley, Williams and Evans speaking today, Yellen and Dudley again on Wednesday, Brainard and Williams on Thursday and finally Fischer on Friday post payrolls. If that wasn’t enough, then US politics may play a factor with the end of September marking the date of the end of the fiscal year for the US government with a new budget needing to be passed. That’ll bring the terms ‘debt ceiling’ and ‘government shutdown’ back to the forefront with the latter a possibility (although House Speaker Boehner’s resignation on Friday seen by many as perhaps reducing it). So plenty to look forward to and the usual run down is at the end of the report, but firstly it’s straight to the latest in Asia this morning.

Refreshing our screens, it’s been a fairly mixed start to trading across Asia this morning. Losses are being led out of Japan where the Nikkei (-1.14%) and Topix (-0.67%) have fallen steeply. Over in China and at the midday break, it’s been another volatile start but bourses there are more or less flat at the midday break with the Shanghai Comp currently -0.19% and CSI 300 unchanged. That’s come after some steeper losses following some disappointing industrial profits data out of China. The August print of -8.8% yoy is down from -2.9% in July and is the biggest drop since records began in October 2011. Elsewhere this morning, gains are being led by the ASX which is currently up +1.17%. US equity futures are pointing towards a weak sluggish start, down just shy of half a percent while Oil is down nearly a percent.

Also in focus over the weekend was the Catalonia election where pro-independence parties Junts pel Si and CUP have won the majority of seats in parliament, but have fallen short of the required number of votes for majority. Junts pel Si has won just shy of 40% of votes along with 62 seats while CUP won 10 seats and around 8% of votes. That means pro independence parties have won 72 of the 135 seats in parliament, but just fallen short of the majority percentage of votes with 48%. With the result counted for, DB’s Marco Stringa continues to believe that Junts pel Si will carry on with its pledge to declare unilaterally the independence of Catalonia in about 18 months unless the central government brings a binding referendum on independence. Nevertheless, it’s set to be a demanding scenario from both a legal and political perspective, with perhaps a compromise centered on an overhaul of regional financing sometime in 2016 the most reasonable scenario.

Elsewhere, the weekend press has also been dominated by more stories out of VW. Late on Friday the saga took another negative turn as news broke that the ECB had decided to suspend its buying of ABS backed by VW car loans, raising fears that the company may now struggle to borrow to fund sale and lease deals on new cars. Before the ECB announcement, DB’s Elen Callahan did argue that the company’s recent troubles should not have a huge effect on ABS investors, “given that the vehicles are still ‘safe and legal to drive’ and that the repairs will come at no cost to the owner, we do not expect borrowers to become disincentivized from making their contractual monthly payment on their VW vehicle.” So whilst the exit of the ECB from purchasing the debt is a negative it does not necessarily imply sharply higher default risk. Nevertheless in a large, prominent IG name many previously saw as safe, the exit of a high profile buyer for its debt (in the form of the ECB) at a time of great uncertainty for the company will likely have a magnified effect.

Recapping markets on Friday. Equity bourses had initially got off to a firmer footing following a decent session in Europe, seemingly buoyed from Fed Chair Yellen’s comments late Thursday. The Stoxx 600 closed up +2.84% while there were strong gains also for the DAX (+2.77%) and CAC (+3.07%). This translated into a strong start for US equities, which, also buoyed by an upward revision to Q2 GDP and some upbeat numbers out of Nike particularly around sales in China saw the S&P 500 rise +1%, only for a decline late in the session for health care names wipe out that initial optimism. The decent leg lower for Biotech names saw the NASDAQ close down -1.01% although the Dow (+0.70%) managed to finish in positive territory. Sovereign bond markets were better behaved for the most part with the benchmark 10y yield closing up +3.6bps to 2.162%, while DM yields in Europe were generally 5-6bps higher. The US Dollar had a firmer day with the Dollar index closing up +0.29%, while Oil markets also closed higher with WTI up nearly 2%.

Turning to the data-flow, it was the third and final reading for US Q2 GDP which attracted most of the attention after the data was revised up two-tenths to 3.9% qoq, helped by decent upward revisions to consumer spending (mostly on services) and structures spending in particular. The third reading for the Core PCE was also nudged up slightly by one-tenth to 1.9% qoq. Elsewhere, there was little surprise in the flash services PMI for September which printed at 55.6 as expected, up half a point from August. Meanwhile, there was a positive read-through from the University of Michigan consumer sentiment print after being revised up at the final reading to 87.2, up 1.5pts from the initial print and ahead of expectations for a rise to 86.5. It was a pretty quiet calendar for data prior to this in Europe. The only notable release out of France where we saw consumer confidence for September nudge up 3pts to 97 (vs. 94 expected). Meanwhile, the Kansas City Fed’s George weighed in with her latest view, saying that ‘I think the conditions are there’ to begin liftoff and that ‘you cannot afford to get into a state of paralysis’ in looking for stronger data.


Let us begin:  China’s Shanghai stock exchange opens at 9;30 Sunday night/Monday morning 9:30 am Shanghai time

(courtesy zero hedge)

Chinese GDP Propaganda Full Frontal: Plunge In Key Data Points Pitched As Bullish

The fact that China habitually overstates its GDP growth is probably the worst kept secret in the world next to Russia’s support for the Ukrainian separatists at Donetsk.

In short, the idea that China’s economy is growing at a 7% clip is so laughable that at this juncture, even the very “serious” people are openly challenging it. To be sure, it’s not entirely clear what part of the fabricated numbers represent willful deception and what part simply derive from an inability to accurately assess the situation. For instance, the deflator tracks producer prices more closelythan it probably should, meaning GDP is overstated in times of plunging commodity prices but that might well stem more from a lack of robust statistical systems than it does from a desire to mislead the market.

In any event, getting an accurate read on Chinese economic growth has become something of a contest. It’s almost as if the market thinks that one day, the truth will come out and everyone wants to be able to say “my estimate was the closest.” What’s particularly interesting about the whole thing is that a quick look at the variables that Premier Li Keqiang himself has said are a better proxy for economic growth in the country (electricity usage, rail freight volume, and credit growth) suggest GDP growth in China may actually be running below 4%. SocGen’sAlbert Edwards and any number of other analysts have noted this as well.

Of course Beijing has never seen a problem that a good dose of propaganda can’t fix which presumably explains the following bit from the Global Times (a paper owned by the ruling Communist Party’s official newspaper, the People’s Daily) which attempts to portray the weakness in electricity usage and freight volumes as a positive in light of the country’s transition towards an economic model driven by consumption and services:

China’s industrial restructuring has helped cut electricity consumption and freight transportation, while the economy has maintained a medium-to-high growth rate in the first six months, said Zhang Xiaoqiang, executive deputy director of China Center for International Economic Exchanges.


Zhang admitted that there were some doubts about China’s economic growth rate in the first half (H1), as two key indicators of economic growth, namely power consumption and freight volume, dropped remarkably.


China’s GDP expanded 7 percent in the first six months this year from the same period last year, slightly down from 7.4 percent in 2014.


Power consumption, however, only expanded 1.3 percent in the first six months, sharply lower than 5.3 percent posted last year. Freight volume expanded 4.2 percent, down from 7.5 percent last year.


The industrial sector grew at a slower pace in H1, while the service sector has become a major engine for the economic growth, said Zhang, adding that the industrial sector consumes more energy per unit of GDP than the service sector.


In freight transportation, China’s coal, steel and cement industries have been subject to restructuring and, thus, their output has dropped, leading to slowdown in growth, he said.


The discrepancy between economic growth and the two key indicators’ growth in the first six months did not fit with previous patterns, but industrial restructuring is a new factor, and should be taken into account when analyzing the new situation, he said.

Consider that, along with the following chart, and draw your own conclusions…

Sunday morning est:
This is a biggy!!  The huge LongMay group, the largest coal miners in the north east of China has announced a massive 100,000 layoff of its working force i.e. 40% of all its workers.  Another BLACK SWAN EVENT???
(courtesy zero hedge)

China’s Hard-Landing Has Arrived: Chinese Coal Company Fires 100,000

The global commodity collapse is finally starting to take its toll on what China truly cares about: the employment of the tens of millions of currently employed and soon to be unemployed workers.

On Friday, in a move that would make even Hewlett-Packard’s Meg Whitman blush, Harbin-based Heilongjiang Longmay Mining Holding Group, or Longmay Group, the biggest met coal miner in northeast China which has been struggling to reduce massive losses in recent months as a result of the commodity collapse, just confirmed China’s “hard-landing” has arrived when it announced on its website it would cut 100,000 jobs or 40% of its entire 240,000-strong labor force.

Impacted by the slump in coal prices, the group saw its loss over January-August surged more than 1.1 billion yuan ($17.2 million) from the year before. In the first half of 2015, the group closed eight coking coal mines most of which had approached the end of their mining lives, due to poor production margins amid bleak sales.

Chaiman of the group Wang Zhikui said the job losses were a way of helping the company stop bleeding.” The heavily-indebted company also plans to sell its non-coal related businesses to help pay off its debts, said Wang. The State-owned mining group has subsidiaries in Jixi, Hegang, Shuangyashan and Qitaihe in Heilongjiang province, which account for about half the region’s coal production.

According to China Daily, last year, Longmay launched a management restructuring and cut thousands of jobs to stay profitable, amid the overall industry decline. However, the company still reported around 5 billion yuan ($815 million) in losses.

It has been a dramatic fall from grace for the company, which in 2011 reported 800 million yuan in profit with annual production exceeding 50 million metric tons.

Experts said staff costs remain a major reason for the company’s continued heavy losses. That, and the ongoing collapse in met coal prices of course.

Last year its coal production stood at 49 million tons, just 10 percent that of Shenhua Group Corp Ltd, China’s biggest coal producer. But Longmay’s workforce remains well above that of Shenhua’s 214,000 in total.

The announcement came in the midst of Chinese president Xi Jinping’s ongoing tour to the United States, where he assured politicians and businessmen that China’s economy will achieve the targeted 7% growth in gross domestic product.

It gets worse, especially in a worst case scenario: Longmay also has 180,000 pensioners to take care of, with life-long payments covering pensions and medical insurance, which are also considered a huge financial burden. As China Daily notes, “Personnel is probably its largest cost,” said Deng Shun, an analyst at Shanghai-based energy consultancy ICIS C1 Energy.

“Actually many traditional State-owned coal enterprises are facing the same kind of problem. It has become more severe as the industry remains on a downward trend.”

Deng also cautioned on the social problems that massive layoffs may cause, suggesting a reduction in welfare or salaries might be a better way to cut back on costs.

The shocking move is a harbinger of more pain for not only the local government-backed and heavily indebted company, with an eventual bankruptcy looking increasingly probable unless met coal prices don’t stage a miraculous rebound, but China’s entire coal sector, which in recent years has been a source of millions of jobs to China’s unskilled labor force.

And as China’s commodity bubble bursts, and the fixed-investment surge mean reverts, the coal industry is set to become a source of millions of job losses.

Incidentally, far more than the Chinese stock bubble burst, or even the credit and housing bubble, the implications from mass defaults of coal companies are precisely what is keeping Beijing up at night.

As the WSJ reported in a piece earlier this week, “for decades, an army of migrant workers drove China’s boom times, flocking to its cities to sew T-shirts, assemble iPhones, or build apartment blocks and Olympic stadiums. The arrangement helped millions of poor, rural Chinese join a new consumer class, though many also paid a heavy price.

The paper of record adds:

now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest.”

Because if there is one thing China’s politburo simply can not afford right now, is to layer public unrest and civil violence on top of an economy which is already in “hard-landing” move. Forget black – this would be the bloody swan that nobody could “possibly have seen coming.”

As for the future of China’s unskilled labor industries, the Fifth Element’s Jean-Baptiste Emanuel Zorg has a good idea of what’s coming.

European affairs
A black swan event?  Catalonia votes to secede:
(courtesy zero hedge)

Catalan ‘Secessionists’ Set To Win Election Amid Record Turnout

On Friday we previewed what we said could be the next European black swan.

In short, elections in Catalonia on Sunday were a proxy for an independence referendum.

The outcome is critical for several reasons, not the least of which are i) Spain’s debt-to-GDP ratio could spike to 125% in an independence scenario, ii) Catalonia would likely be forced out of the euro in the event they secede, iii) the impact on social stability is decisively unclear, iv) Catalonia accounts for nearly a fifth of Spanish GDP.

Here are the results, tallied amid record turnout.


From Bloomberg:

Catalonia’s pro-independence parties are on the cusp of winning a majority of votes in Sunday’s regional election, invigorating their campaign to break away from Spain and create a new European state, according to an exit poll.


The Junts pel Si alliance backed by President Artur Mas and an anti-capitalist party CUP, which also backs independence, won 49.8 percent of the vote in Sunday’s ballot, according to an exit poll published by the regional government’s television station, TV3. Junts pel Si is on track to win as many as 66 representatives in the 135-seat assembly and CUP was projected to win at least another 11.


While Catalonia’s 5.5 million eligible voters are officially choosing lawmakers for the regional assembly, Mas has billed the election as a test of the popular will to remain part of the Spanish state. The separatists are challenging Prime MinisterMariano Rajoy’s authority as he prepares to seek re-election in Spanish general elections due in December.


While the legal barriers to a breakaway remain high, the campaign risks seeing Catalonia excluded from the European Union and its single currency, roiling the market for Spain’s 1 trillion euros ($1.1 trillion) of sovereign debt.


The ballot comes as Spain is recovering from its worst recession in a generation and battling to stabilize its public debt. Catalonia, which makes up almost 20 percent of the country’s economy, is a net contributor to Spain’s tax system, helping to finance poorer territories such as Andalusia.


Mas and his main separatist ally Oriol Junqueras want to use their majority in the regional assembly to force the government in Madrid to negotiate a timetable for completing secession within 18 months. Rajoy says their plan is unconstitutional and has refused to discuss it.

*  *  *

Full 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.

Glencore implodes:
Black Swan???

Glencore Implodes: Stock Plunges Most On Record, CDS Blows Up On Equity Wipeout Fears


* * *

Just last Thursday we asked whether Goldman was “preparing to sacrifice the next Lehman“, by which of course we meant the world’s largest commodity trading counterparty, Baar, Switzerland-based Glencore which just two weeks ago unveiled an unprecedented “doomsday” capital raising and deleveraging plan which in retrospect… was not enough.

The punchline of Goldman’s report was that if commodity prices drop 5%, or even stay where they are, then Glencore’s investment grade rating – the most critical aspect of its trading operation where a downgrade to junk would launch a collateral and margin-call waterfall cascade a la AIG – would be lost. From Goldman:

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

As we added on Thursday, “what a junking of Glencore would do, is start a collateral demand waterfall cascade that the cash-strapped company simply would not be able to sustain.” So having laid out the strawman, Goldman next, very conveniently, explains just what would take for the Investment Grade trap to slam shut: “it would only take a c.5% fall in spot commodities prices for concerns about its credit rating to resurface.

Of course, Glencore’s leverage to commodity prices was first explained in our March 2014 post, in which we saidbuying Glencore CDS is the best and easiest way to bet on a Chinese credit and commodity crunch.

Fast forward to Monday morning when those who bought into Glencore’s equity offering at 125p less than two weeks ago on September 16, are already down a whopping 43% (we won’t even bother calculating the loss since the company’s 2011 IPO), following the biggest daily drop in Glencore history, with the stock mauled some 27% at last check…

… on the heels of a note from Investec which said nothing Zero Hedge readers did not already know, but which is spooking everyone else into realizing that the commodity trading Titanic may well be sinking.

In the note Investec notes that “using a PE-based approach to evaluate equity value going forward, in proportion to debt, we note that the heavily indebted companies (GLEN, AAL) could see almost all equity value eliminated under spot conditions, leaving nothing for shareholders…. GLEN recent restructuring may prove just the start for the majors if spot prices prevail – this supports our concern that we are still a distance from the “value point” in the sector.

In other words, even if commodity prices remain unchanged, GLEN equity could be doughnut. If commodity prices continue dropping, then – well – just read out prediction from last year.

It also means that bondholders are next in line to hold the equity after a debt-for-equity, which has also pushed Glencore’s bonds to record lows, with the GLEN €1.25b notes due March 2021 dropping three cents to 78 cents on euro, while the €750m bonds due March 2025 decline four cents to 67 cents. Both are at record lows.

If and when the bondholders realize a bankruptcy would leave them with negative enterprise value when netting out all the margin calls, we wouldn’t be surprised to see bonds trading below 50 in the coming months if not weeks.

Meanwhile, those who listened to our reco to buy Glencore CDS at 170 bps in March 2014 can take the rest of the year off. As of this moment, GLEN Credit Default Swap were pushing on 600 bps, 4 times wider, and on pace to take out the 2011 liquidity crunch highs. After that, it’s smooth sailing to all time wides and the start of a self-fulfilling prophecy which leads to the Companys’s IG downgrade and the collapse of trillions in derivative notionals as what may be the trading desk of the biggest commodity counterparty quietly goes out of business.


Glencore Default Risk Surges Above 50%

Glencore is in total free-fall across all markets today. Most worrying for systemic risk concerns is the rush into credit protection that has occurred, as counterparties attempt to hedge their exposures. Forthe first time since 2009, Glencore CDS are being quoted with upfront pricing (something that happens as firms become seriously distressed). Based on the latest data, it costs 875bps per year (or 14% upfront) to buy protection against a Glencore default (which implies – given standard recoveries – a 54% chance of default).


Do not panic!!


These are the highest levels of risk since the post-Lehman systemic crisis…


As Bloomberg reports,

Derivatives traders started demanding upfront payments to protect against a default by the company, the first time that’s happened since 2009, according to data provider CMA


The cost of five-year credit-default swaps jumped so high that they effectively were pricing in 54% odds that the company defaults, CMA data show


“Glencore management need to make an official announcement to calm nerves,” said Darren Reece, a money manager at GAM Holdings AG in London, which oversees $127b

Charts: Bloomberg


Dave Kranzler explains how this could cause a global derivative meltdown:
(courtesy Dave Kranzler IRD)

Glencore Could Trigger A Global Derivatives Nuclear Meltdown

The middle class in America is like the housewife who knows her husband is cheating on her but she chooses to ignore it and pretend it will stop.   – Anonymous FOD – Friend of Dave’s

The system has been totally hijacked.  Make NO mistake about it, gold was hit hard when the paper trading in London cranked up after the SGE had turned off its lights for the day. The reason:  Glencore.

Anyone remember Enron?  Probably not.  Most people have already forgotten, mostly, that their taxpayer dollars were used by ex-Goldman CEO Henry Paulson to bail out Goldman Sachs in 2008 when he was Treasury Secretary.  His primary motive was to preserve the value of the $250 million in warrants he still owned after he got to unload $500 million in stock – tax-free.  Recently Zerohedge found a snapshot of Paulson laughing about the entire matter.

Glencore is going to make Enron look like a polite tea and cake break.  Gold was smashed when paper London opened because the Fed, BoE and ECB can not under any circumstances let the price of gold spike up – like it should be doing – and thereby alert the world that there’s a big problem in the world of derivatives related to Glencore, among other “things” (Emerging Market FX contract, energy, Biotech ETFs, etc).

The issue with Glencore, since we all saw it coming which means the Central Banks saw it coming, is the degree to which the CB’s have been able to “brace” for its impact.  The problem, however, is that just like Enron and the big banks before it, there is  100% probability that Glencore upper management has:  a)  lied about the market value of its assets, both on and off balance sheet;  b)  has lied about the true amount and nature of its derivatives exposure;  c) has been lied to by rank and file who are in charge of accounting and reporting the data to upper management (trust, me I know this goes on because I saw it first-hand at Bankers Trust;  and foremost, e)  has NO idea the true nature of its total exposure to the full lunar eclipse world of OTC derivatives.

Given that  Glencore management has fed the Central Banks a big bag of lies about the size of the risk exposure at the Company, it’s not probable that the Central Banks are properly prepared to put out the fuse on the nuclear derivatives bomb that has been lit.  This is why the stock market is shitting the bed today and this why the price of gold was bombed like an ISIS camp by a joint effort of London and NYC bombers.

Just ask Jamie Dimon about this regard in reference to the London Whale blow up.  Dimon admitted that he had no idea how large JPM’s exposure was at the time.  The London Whale is a sea-algae molecule in size compared to Glencore and the entire body of OTC derivatives connected to anything Glencore has touched.

Can you smell middle class flesh burning yet?  It’s starting to burn my nostrils…


And for those interested in Glencore’s debt:
we have 1.25 billion coming due in 2021
and here are the lucky big holders of its debt:

Deutsche bank, Dekabank, the French bank Credit Agricole, and the Danish bank: Danske bank

Russia and Middle Eastern affairs:
Another biggy!!  China is to join forces with Russia in knocking out ISIS in Syria.  Also Iraq is to share intelligence with Iran on knocking out ISIS in Iraq.  USA foreign policy blows up again
(courtesy zero hedge)

US On The Ropes: China To Join Russian Military In Syria While Iraq Strikes Intel Deal With Moscow, Tehran

Last Thursday, we askedif China was set to join Russia and Iran in support of the Assad regime in Syria. 

Our interest was piqued when the pro-Assad Al-Masdar (citing an unnamed SAA “senior officer”), said Chinese “personnel and aerial assets” are set to arrive within weeks. To the uninitiated, this may seem to have come out of left field, so to speak. However, anyone who has followed the conflict and who knows a bit about the global balance of power is aware that Beijing has for some time expressed its support for Damascus, most notably by voting with Russia to veto a Security Council resolution that would have seen the conflict in Syria referred to the Hague. Here’s what China had to say at the May 22, 2014 meeting:

For some time now, the Security Council has maintained unity and coordination on the question of Syria, thanks to efforts by Council members, including China, to accommodate the major concerns of all parties. At a time when seriously diverging views exist among the parties concerning the draft resolution, we believe that the Council should continue holding consultations, rather than forcing a vote on the draft resolution, in order to avoid undermining Council unity or obstructing coordination and cooperation on questions such as Syria and other major serious issues. Regrettably, China’s approach has not been taken on board; China therefore voted against the draft resolution.

In other words, China could see the writing on the wall and it, like Russia, was not pleased with where things seemed to be headed. A little more than a year later and Moscow has effectively called time on the strategy of using Sunni extremist groups to destabilize Assad and given what we know about Beijing’s efforts to project China’s growing military might, it wouldn’t exactly be surprising to see the PLA turn up at Latakia as well. 

Sure enough, Russian media now says that according to Russian Senator Igor Morozov, Beijing has decided to join the fight. Here’s Pravda (translated):

According to the Russian Senator Igor Morozov, Beijing has taken decision to take part in combating IS and sent its vessels to the Syrian coast.


Igor Morozov, member of the Russian Federation Committee on International Affairs claimed about the beginning of the military operation by China against the IS terrorists. “It is known, that China has joined our military operation in Syria, the Chinese cruiser has already entered the Mediterranean, aircraft carrier follows it,” Morozov said.


According to him, Iran may soon join the operation carried out by Russia against the IS terrorists, via Hezbollah.Thus, the Russian coalition in the region gains ground, and most reasonable step of the US would be to join it. Although the stance of Moscow and Washington on the ways of settlement of the Syrian conflict differs, nonetheless, low efficiency of the US coalition acts against terrorists is obvious. Islamists have just strengthened their positions.


As Leonid Krutakov told Pravda.Ru in an interview, the most serious conflict is currently taking place namely between China and the US. Moscow may support any party, the expert believes, and that is what will change the world order for many years.

Clearly, one has to consider the source here, but as noted above, if Beijing is indeed set to enter the fray, it would be entirely consistent with China’s position on Syria and also with the PLA’s desire to take a more assertive role in international affairs.

Meanwhile, it now looks as though the very same Russian-Iran “nexus” that’s playing spoiler in Syria is also set to take over the fight against ISIS in Iraq, as Baghdad has now struck a deal to officially share intelligence with Moscow and Tehran. Here’s CNN:

Iraq says it has reached a deal to share intelligence with Russia, Iran and Syria in the fight against ISIS militants.


The announcement on Saturday from the Iraqi military cited “the increasing concern from Russia about thousands of Russian terrorists committing criminal acts within ISIS.”


The news comes amid U.S. concerns about Russia’s recent military buildup in Syria and would appear to confirm American suspicions of some kind of cooperation between Baghdad and Moscow.

We’d be remiss if we failed to note the significance here. The entire narrative is falling apart for the US, as Russia and Iran are now moving to transform the half-hearted Western effort to contain ISIS into a very serious effort to eradicate the group. Recall that just a little over a week ago, Quds Force commander Qassem Soleimani essentially accused the US of intentionally keeping Islamic State around so that the group can continue to advance Washington’s geopolitical agenda by serving as a destabilizing element in Syria. According to the Pentagon, Soleimani’s visit to Russia (which, you’re reminded, violated a UN travel ban and infuriated opponents of the Iran nuclear deal) was “very important” in terms of accelerating the timetable on Russia’s inevitable involvement in Syria. It is of course Soleimani who commands the Shiite militias battling ISIS in Iraq. Now, it appears that in addition to the cooperation in Syria, he has managed to secure a Russian-Iran partnership for Tehran’s Iraqi operations as well. Here’s GOP mouthpiece Fox News:

Russian, Syrian and Iranian military commanders have set up a coordination cell in Baghdad in recent days to try to begin working with Iranian-backed Shia militias fighting the Islamic State, Fox News has learned. 


Western intelligence sources say the coordination cell includes low-level Russian generals. U.S. officials say it is not clear whether the Iraqi government is involved at the moment. 


Describing the arrival of Russian military personnel in Baghdad, one senior U.S. official said, “They are popping up everywhere.” 


While the U.S. also is fighting the Islamic State, the Obama administration has voiced concern that Russia’s involvement, at least in Syria, could have a destabilizing effect. 


Moscow, though, has fostered ties with the governments in both Syria and Iraq. In May, Iraqi Prime Minister Haider al-Abadi flew to Moscow for an official visit to discuss potential Russian arms transfers and shared intelligence capability, as well as the enhancement of security and military capabilities, according to a statement by the Iraqi prime minister’s office at the time. 


Iranian Quds Force commander Qassem Soleimani also was spotted in Baghdad on Sept 22. He met with Shia militias backed by Iran; intelligence officials believe he met with Russians as well. 

And here is ISW:

What appears to have happened here is this: Vladimir Putin has exploited both the fight against ISIS and Iran’s need to preserve the regional balance of power on the way to enhancing Russia’s influence over Mid-East affairs which in turn helps to ensure that Gazprom’s interests are protected going forward. 

 Thanks to the awkward position the US has gotten itself in by covertly allying itself with various Sunni extremist groups, Washington is for all intents and purposes powerless to stop Putin lest the public should sudddenly get wise to the fact that combatting Russia’s resurrgence and preventing Iran from expanding its interests are more imporant than fighting terror.

In short, Washington gambled on a dangerous game of geopolitical chess, lost, and now faces two rather terrifyingly disastrous outcomes: 1) China establishing a presence in the Mid-East in concert with Russia and Iran, and 2) seeing Iraq effectively ceded to the Quds Force and ultimately, to the Russian army.

 The Saudis has just withdrawn  billions USA to plug holes in its balance sheet: a dagger into the heart of the USA dollar!!
London’s Financial Times/what a biggy!!

Saudi Arabia withdraws overseas funds

Saudi Arabia has withdrawn tens of billions of dollars from global asset managers as the oil-rich kingdom seeks to cut its widening deficit and reduce exposure to volatile equities markets amid the sustained slump in oil prices.

The Saudi Arabian Monetary Agency’s foreign reserves have slumped by nearly $73bn since oil prices started to decline last year as the kingdom keeps spending to sustain the economy and fund its military campaign in Yemen.

The central bank is also turning to domestic banks to finance a bond programme to offset the rapid decline in reserves.

This month, several managers were hit by a new wave of redemptions, which came on top of an initial round of withdrawals this year, people aware of the matter said.

“It was our Black Monday,” said one fund manager, referring to the large number of assets withdrawn by Saudi Arabia last week.

Institutions benefited from years of rising assets under management from oil-rich Gulf states, but are now feeling the pinch after oil prices collapsed last year.

Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, said fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.

“The big question is when will they come back, because managers have been really quite reliant on Sama for business in recent years,” he said.

Since the third quarter of 2014, Sama’s reserves held in foreign securities have declined by $71bn, accounting for almost all of the $72.8bn reduction in overall overseas assets.

Other industry executives estimate that Sama has withdrawn even more than $70bn from existing managers.

While some of this cash has been used to fund the deficit, these executives say the central bank is also seeking to reinvest into less risky, more liquid products.

“They are not comfortable with their exposure to global equities,” said another manager.

Fund managers with strong ties to Gulf sovereign wealth funds, such as BlackRock, Franklin Templeton and Legal & General, have received redemption notices, according to people aware of the matter.

Some fund managers have seen several billions of dollars of withdrawals, or the equivalent of a fifth to a quarter of their Saudi assets under management, the people aware of the matter said.

Institutions such as State Street, Northern Trust and BNY Mellon have large amount of assets under management and are therefore also likely to have been hit hard by the Gulf governments’ cash grab, the people added.

“We are not that surprised,” said another fund manager. “Sama has been on high risk for a while and we were prepared for this.”

Sama has over the years built up a broad range of institutions handling its funds, including other names such as Aberdeen Asset Management, Fidelity, Invesco and Goldman Sachs.

BlackRock, which bankers describe as the manager handling the largest amount of Gulf funds, has already reported net outflows from Europe, the Middle East and Africa.

Its second-quarter financial results reported a net outflow of $24.1bn from Emea, as opposed to an inflow of $17.7bn in the first quarter.

Market participants say the outflow is in part explained by redemptions from Saudi Arabia and other Gulf sovereign funds, such as Abu Dhabi.

BlackRock and other funds declined to comment or did not respond to requests for comment. Sama did not respond to request for comment.

Additional reporting by David Oakley in London

And just as Putin finished speaking at the UN today:

Currency Warfare: Ruble Plunges As Putin Speech Ends

We are sure it’s just a coincidence but seconds after Vladimir Putin concluded his speech at The UN calling for a broad anti-terrorist coalition, the Russian Ruble was sold aggressively (after a relatively news-less and quiet day in the currency)…



It appears the USD weakness evident during President Obama’s earlier speech was reciprocated.


Charts: Bloomberg


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

Euro/USA 1.1178 down .0014

USA/JAPAN YEN 120.04 down .5031

GBP/USA 1.5191 up .0043

USA/CAN 1.3350 up .0015

Early this Monday morning in Europe, the Euro fell by 14 basis points, trading now well below the 1.12 level falling to 1.1178; 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,along with rising peripheral bond yields. Last night the Chinese yuan rose in value . The USA/CNY rate at closing last night:  6.3692, (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 northbound trajectory  as settled up again in Japan up by 50 basis points and trading now just above the all important  120 level to 120.04 yen to the dollar and thus  the necessary ramp for European bourses was provided

The pound was up this morning by 43 basis points as it now trades just below the 1.52 level at 1.5191.

The Canadian dollar reversed course by falling 15 basis points to 1.3350 to the dollar. (Harper called an election for Oct 19)


We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially  with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this Monday morning: closed down 235.40 or 1.32%

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

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

Gold very early morning trading: $1134.00


Early Monday morning USA 10 year bond yield: 2.14% !!! down 2 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  2.92 down 2 in basis points.

USA dollar index early Monday morning: 96.29 up 7 cents from Friday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Monday morning
And now for your closing numbers for Monday night:
Closing Portuguese 10 year bond yield: 2.51% down 5 in basis points from Friday
Japanese 10 year bond yield: .358% !! up 3  basis points from Friday but extremely low
Your closing Spanish 10 year government bond, Monday, down 11 in basis points. 
Spanish 10 year bond yield: 1.93% !!!!!!
Your Monday closing Italian 10 year bond yield: 1.75% down 5  in basis points from Thursday: trading 18 basis point lower than Spain.
Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 Euro/USA: 1.1225 up .0035 (Euro up 35 basis points)
USA/Japan: 119.85 down 0.697 (Yen up 70 basis points)
Great Britain/USA: 1.5179 up .0028 (Pound up 28 basis points
USA/Canada: 1.3371 up .0037 (Canadian dollar up 6 basis points)

USA/Chinese Yuan:  6.3885  up .0148  (Chinese yuan down badly/on shore)

This afternoon, the Euro rose by 35 basis points to trade at 1.1225. The Yen rose to 119.85 for a gain of 70 basis points. The pound was up 28 basis points, trading at 1.5179. The Canadian dollar fell 37 basis points to 1.3371 and is near record lows.. The USA/Yuan closed at 6.3885/up.0148 (yuan down)
Your closing 10 yr USA bond yield: down 6 basis points from Friday at 2.100%// ( trading below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.87 down 9 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 96.05 down 17 cents on the day .
European and Dow Jones stock index closes:
England FTSE down 150.15 points or 2.46%
Paris CAC down 123.61 points or 2.76%
German Dax down 204.98 points or 2.12%
Spain’s Ibex down 125.30 points or 1.32%
Italian FTSE-MIB down 579.62 or 2.72%
The Dow down 312.78 or 1.92%
Nasdaq; down 130.34 or 2.78%
OIL: WTI:  $44.49    and  Brent:  $47.34
Closing USA/Russian rouble cross: 66.05  down 64/100 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

Stocks Battered To Black Monday Lows Amid Credit Crash, Biotech Bloodbath, & Commodity Carnage

Just because…

The epicenter of today’s earthquake was Biotech and Corporate Bonds…

Biotechs were bloodbath’d – IBB dropped almost 8% today alone – the biggest drop since August 2011 – testing back to Black Monday lows and now unchanged since October 2014…

This is the longest losing streak for Biotechs since Lehman

Investors should not worry though…

High yield bond prices have fallen for 12 of the last 13 days and today’s decline was the biggest daily drop since Nov 2011, breaking towards Nov 2011 spike lows…

In context – this means HYG is unchanged since Lehman!!

*  *  *

All the major US Equity Indices are at or below Black Monday Lows…


So what did the major equity indices do?


Cash indices show Small Caps and Nasdaq were the biggest losers…


With everything now red post-QE3…


Financials dropped 2% on the day (with homebuilders, materials, energy and healthcare all battered)…


More worryingly, US financials made new 2015 lows (below Black Monday lows) as they continue to catch down to credit risk (as Glancore counterparty risks rise)…


There were some other total collapses in stocks that are widely held by hedge funds today…

SUNE crashed another 17% to 2 year lows… (breaking the Black Monday Lows)


Not so valiant Valeant after getting a pricing subpoena…


And of course – Glencore…

*  *  *

Treasury yields started the day off higher but as data, and fed speak hit along with US Open selling pressure, safe-haven flows flooded into equities… 30Y -9bps is the biggest absolute drop since early July… NOTE: 2s30s has flattened to 4 week lows


High yield bond spreads crashed wider today (after the CDX roll) – this was the worst day in at least a year for CDX HY…


as Energy credit risk spiked to near record highs…


The USDollar was sold after the US Open – having been bid through the Asia, European day…


Commodities were mugged all day as we suspect commodity group liquidations and counterparty risk reductions weighed on the whole complex…


Silver had its worst day in a month...6 waterfalls…


Charts: Bloomberg

Bonus Chart: All The FedSpeak has confused markets even more with 2015 rate hike odds now at record lows…

Let in the afternoon the market breaks in NY:

And The Market Breaks…

Stocks are down hard, JPY momo is not working, nor is VIX… time to break something…


Source: NYSE Alerts


Zero hedge outlines two companies that can truly effect the start of earnings season:
1. Apple
2. Bank of America
he explains why:
(courtesy zero hedge)

As A Very “Grim” Earnings Season Unfolds, All Eyes Will Be On This Company

Earlier this week we said that with the third quarter just days away from the history books, Wall Street is preparing for the worst earnings season since 2009, with Factset further noting that “if the index reports a decline in earnings for Q3, it will mark the first back-to-back quarters of earnings declines since 2009.”

We presented the following table from ISI which showed that not only is the US now officially in a revenue recession, with every single quarter in 2015 set to post a decline from the previous year, with even the overly optimistic consensus case of a 4% increase in Q1 2016 revenues unable to regain sales last seen in Q3 2014, but S&P500 expected earnings in Q1 2016 of 119, a 6% increase from the previous year, will barely put the market back to levels seen in Q3 2014. 

But before we get there we have to get through Q3: a quarter when not only revenues are set to tumble another 5%, but this time not even hundreds of billions in buybacks will prevent the  EPS from sliding, and according to Factset, Q3 EPS are set to tumble 4.5%.

In other words, while the revenue recession continues, the S&P 500 is about to enter its first earnings recession in six years.

Earlier today the mainstream media caught up noting that “Wall Street is bracing for a grim earnings season, with little improvement expected anytime soon” and added some facts of its own: expectations for future quarters are falling as well. A rolling 12-month forward earnings per share forecast now stands near negative 2 percent, the lowest since late 2009, when it was down 10.1 percent, according to Thomson Reuters I/B/E/S data.

“The 3.9 percent estimated decline in third-quarter profits – down sharply from a July 1 forecast for a 0.4 percent dip – would be the first quarterly profit decline for the S&P 500 since the third quarter of 2009.”

“Earnings recessions aren’t good things. I don’t care what the state of the economy is or anything else,” said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston. Michael is clearly paid the “big bucks” for a reason.

Another investor paid big bucks is Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, Georgia, who cited earnings growth as one of the drivers of the market: “How can we drive the market higher when all of these signals aren’t showing a lot of prosperity?”

How indeed.

And while in the past attention has traditionally fallen on AAPL as the marginal source of growth, this time not even AAPL can save the market-leading tech sector. As weshowed two weeks ago, even with AAPL, Q3 Info-Tech EPS are set to record their first annual drop since Q2 2013. Should AAPL stumble if as some suggest iPhone 6S sales are far weaker than expected, and watch the bottom fall out from under the market.


But it isn’t AAPL that everyone will be looking at this quarter – the company that will make or break the Q3 earnings season is not even a tech company at all, but a financial: it’s Bank of America.

The reason, as Factset points out, is that thanks to a base effect from a very weak Q3 in 2014, Bank of America is not only projected to be the largest contributor to year-over-year earnings growth for the Financials sector, but it is also projected to be the largest positive contributor to year-over-year earnings for the entire S&P 500!

The positive contribution from Bank of America to the earnings for the Financials sector and the S&P 500 index as a whole can mainly be attributed to an easy comparison to a year-ago loss. The mean EPS estimate for Bank of America for Q3 2015 is $0.36, compared to year-ago EPS of -$0.01. In the year-ago quarter, the company reported a charge for a settlement with the Department of Justice, which reduced EPS by $0.43. Bank of America has only reported a loss in two (Q1 2014 and Q3 2014) of the previous ten quarters.

This is how big BofA’s contribution to Q3 earnings season will be: if Bank of America is excluded from the index, the estimated earnings growth rate for the Financials sectors would fall to 0.7% from 8.2%, while the estimated earnings decline for the S&P 500 would increase to -5.9% from -4.5%.

In other words, if BofA has some major and unexpectedlitigation provision or some “rogue” loss as a result of marking its deeply underwater bond portfolio to market as Jefferies did last week pushing its fixed income revenue(not profit) negative, the drop in the S&P will increase by a whopping 30%, and all due to just one company.

Finally, if the market which has been priced to perfection for years finally cracks – and by most accounts it will be on the back of bank earnings which have not been revised lower to reflect a reality in which the long awaited recovery was just pushed back to the 8th half of 2012, and where trading revenues are again set to disappoint – then the recently bearish David Tepper will once again have the final laugh because not only will the new direction in corporate revenues and earnings by confirmed, but a very violent readjustment in the earnings multiple would be imminent. As a reminder, Tepper hinted that the new fair multiple of the S&P 500 would drop from 18x to 16x. Applying a Q3 EPS of 114 and, well, readers can do their own math…


Said differently but amounting to the same thing”
(courtesy GATA/ John Burbank/Passport Capital)

“Nothing’s Safe” Passport’s Burbank Warns “The Liquidity Of Everything Is Being Taken Down”

Having warned that “we are on the precipice of a liquidation in emerging markets like the fourth quarter of 1997,” Passport Capital’s John Burbank sits down with RealVisionTV to discuss why “the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy.” Being among 2015’s best performing hedge funds, successfully navigating this turmoiling unwind of the Fed’s efforts to “mean-revert” the world’s assets back to normal, Burbank concludes, “nothing’s safe,” no matter what The Fed does, “the liquidity of everything is being taken down.”

“The market is now going to discover just how much liquidity [or lack of it] is actually in the market.”


“QE in Europe is not the same as QE in The US”


“There’s just not enough dollars out there… everything will be liquidated”

Click image below for link to brief RealVisionTV interview:

Source: RealVisionTV

What we learned after the financial crisis was that The Fed is able to reflate assetsin The US and The World… for a time.


What The Fed learned was that their models don’t work – they didn’t have the GDP/Economic effect – and to interpret what they are doing,


I think they realize the more they do this, the more they can’t get out of it, and the more they pervert markets… and I believe they want to get out of it.

*  *  *

Full interview available here.

This is a difficult but important commentary. First, the interest rate swap is when the counterparty pays fixed but receives variable interest rate treasuries. “A negative swap spread on its surface seems to indicate that the “market” views counterparty risk as less than risk of investing in the same maturity UST.”   Obviously this is occurring in these markets due to the lack of collateral and buyers are bidding up the variable side of things to get the actual security.  It generally means that the entire money market is severely broken!!
take you time on this one!!
(courtesy zero hedge)

Wholesale Money Markets Are Broken: Ignore “Perverted” Swap Spreads At Your Own Peril

At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread, as Bloomberg notes, what Fabozzi’s bible of swap-pricing calls a “perversion” is now the rule all the way from 30Y to 2Y maturities. As one analyst notes, historical interpretations of this have been destroyed and if the flip to negative spreads persists, it would signal that its roots are in a combination of regulators’ efforts to head off another financial crisis, China selling pressure (and its impact on repo markets) and “broken” wholesale money-markets.

US Swap Spreads have collapsed rapidly in recent weeks across the entire curve…


There appears to be 5 main reasons being cited for this “perversion”(as Bloomberg explains)

1. Central Bank un-cooperation…

“There is a rebalancing of holdings by central banks and there is still a massive supply of Treasuries that has no end in sight,” said Ralph Axel, an analyst in New York at Bank of America Corp. “We see recent signs that China is selling and overall all central banks, including the Fed, are no longer the big supporters of Treasuries as they had been in recent years. This is narrowing spreads as it cheapens Treasuries.”


Some strategists are pegging the narrowing of the two-year swap spread in recent weeks to selling of Treasuries by China as that nation’s central bank moves to stabilize its currency following the surprise yuan devaluation in August.


As speculation has swirled that China is selling shorter-maturity Treasuries while other investors dumped the securities before this month’s Federal Reserve meeting, dealer holdings of U.S. government debt climbed.



That drives repo rates higher because dealers need more cash to finance those positions.

2. Unintended Consequences from Regulatory Actions (fixing the last crisis)…

Regulatory moves such as higher capital requirements have led banks to curtail market-making, crimping liquidity and driving repurchase agreement rates above bank funding benchmarks. Repo rates factor into Treasuries pricing because they’re considered the cost of financing positions in government debt.

3. Companies are piling into the debt market to lock in low borrowing costs. They frequently swap the issuance from fixed to floating payments, which causes swap spreads to tighten.

4. Wrong-footed bets have also exacerbated the slide in spreads.

Most people on the hedge-fund side had been long swaps spreads,” said David Keeble, New York-based head of fixed-income strategy at Credit Agricole SA.


“But the rising repo rates and heavy corporate issuance really convinced a lot of people to capitulate and kill off the long-swap spread trades.”

and Finally 5. Wholesale Funding markets are broken…(as Alhambra’s Jeffrey Snyder explains)…

First, some relevant history. The interest rate swap rate is quoted as the counterparty paying fixed to receive some floating (usually tied to LIBOR, which is why eurodollar futures are entangled). Since there is credit risk involved in counterparties, it had always been assumed that the swap rate would have to trade above the relevant UST rate since the US government is assumed to be without it. That all changed during panic in 2008:

October 23, 2008, was an unusual day in credit markets even within a vast sea of unusual days. Credit and “exotics” desks at banks were left scrambling to figure out how it was possible that the 30-year swap rate could trade less than the 30-year treasury. It was thought one of those immutable laws of finance that no such might occur, to the point there were stories (apocryphal or not, the tale is about the scale of disbelief) that some trading machines were never programmed to accept a negative swap spread input. The surface tension about such things was decoded under the typical generalities that stand for analysis; if the 30-year swap spread was negative that might suggest the “market” thinking about a bankrupt US government.

A negative swap spread on its surface seems to indicate that the “market” views counterparty risk as less than risk of investing in the same maturity UST. That was never the case, however, as bank balance sheet capacity was simply collapsing leading to all sorts of irregularities; thus the problem of mainstream interpretations that stay close to the surface rather than recognize the wholesale origin (chaos and disorder) beneath. On the basis a comprehensive view of the 30-year swap spread, the sea of illiquidity is brightly and fully illuminated as once more “dollar waves” crashing the global financial system – the second much more devastating than the first.

ABOOK Sept 2015 Swaps Illiquidity 30s 08 Panic

Worse, as you can see plainly above, there was a third “dollar” wave that started in early to mid-January 2009 well after TARP, ZIRP and even QE1 (once more dispelling any heroics on the part of economists at the Fed who still had no idea what to do), accounting for the final crash to the March lows.

So you can begin to fill out the broad picture as October 2008 wore on, even though the worst of the broader market panic seemed to have been left behind. The demand for fixed side hedging was only increasing as the money dealers were both withdrawing and being unwritten in their assumed steadiness (not just ratings downgrades but very visible capital deficiencies and worse in terms of extrapolations at that moment). It was in every sense a rerun of the credit default swap reversal that had nearly brought it all down in March 2008 and then again with Lehman, Wachovia and, of course, AIG that September. In short, the “buy side” was in desperation for more hedging lest their portfolios and leverage employments tend too far uncovered while the dealers were in no position to supply it; desperate demand and no supply means prices adjust quite severely, which in this case pushed the swap rate, the quoted fixed part, below the UST rate for the first time ever (not that the swap rate history was all that long by then).

One main point of emphasis for that column was that every time this occurred thereafter there was a mainstream attempt to dismiss it while simply assuming some benign explanation dutifully quoting the usual “fixed income trader.” When swap spreads turned negative again in early 2010, for example, media stories of corporate fixed income volume filled the space to assure that all was still quite well; obviously it wasn’t given what happened not long after. Loyally replaying that very same tendency, earlier this year we received the same bland message, “ignore the turn in swaps because it’s just fixed income being more normal.”

Any actual catalog of swap spreads, especially since the “dollar” began “rising”, shows that to be utterly false. There is nothing at all benign about negative spreads, especially now, after August 24, where they are stillsinking in every maturity.

ABOOK Sept 2015 Swaps Illiquidity 30s

It isn’t just the 30s, again, as this sinking has infected even the benchmark 10s and further up into the short end maturities (while the spread of spreads, 10s minus 5s, continues to expand).

ABOOK Sept 2015 Swaps Illiquidity 5s10sABOOK Sept 2015 Swaps Illiquidity 10s

In what might be the most conclusive indication of illiquidity in the entire spectrum of them, and the most troubling, the compression in swap spreads could not be more clear in terms of interpretation at the 2s:

ABOOK Sept 2015 Swaps Illiquidity 2s

Either corporate issuers suddenly decided that the week after August 19 was the perfect time to issue at maximum (because companies always float more debt during global liquidations?), or dealer capacity was so strained that it broke open all the way down to the 2-year maturity in swaps. And the truly disturbing part, again, where all the very dark interpretations lie, is what has occurred thereafter, namely that spreads are still decompressing everywhere more than a month afterward. Either companies are going nuts at worse spreads and prices (think leveraged loan prices and even AAA-spreads) or dealer-driven liquidity is seriously and durably impaired.

In that view, the eurodollar curve is confirmed as are junk bubble prices and even stocks that can’t seem to gain any footing in the aftermath (though, we are told repeatedly, they “should” have). You can only claim this is “normalizing” behavior if you accept that “normal” is the eurodollar decay and that illiquidity is the actual base condition; which it is proving to be as QE fantasy is the aberration.

Heading toward the quarter end, this should be quite concerning rather than, like LIBOR, ignored or rationalized yet again as if it were welcome and expected.

*  *  *

As Jeffrey concludes, ignore swap spreads at your own peril.




Now it is the Dallas Fed’s turn to implode; Mfg. contracts for the 9th month in a row



(courtesy Dallas Fed/zero hedge)

Dallas Fed Manufacturing Contracts For 9th Month In A Row As Jobs, Workweek, & CapEx Collapse

August’s regional Fed survey collapse was unanimous… Dallas, Richmond, New York, Philly,Chicago, and even Kansas City all flashing recessionary warnings. And so now we begin to see September’s data and Dallas Fed prints -9.5 – the 9th negative (contractionary) print in a row. While a small beat (against -10 exp.) and rise from August’s -15.8, under the surfacxe the data is a disaster with wages lower, employees contracting drastically, and average workweek collapsing. Having noted that “the quantitative easing hangover is starting” in August, it appears – judging by the biggest plunge in Capex in 5 years.

The headline survey has now been in contraction for 9 straight months…

Charts: Bloomberg

With CapEx collapsing…

Charts: Bloomberg

Just six short months ago, (now former) Dallas Fed head Richard Fisher was ushered on to the propaganda channel to puke out platitudes about how low oil prices was “net positive for Texas,” because Texas is a diverse state and being a consumer society, it’s “good for everyone.”


Yeah – not so much Dick…



Pending home sales  miss for the 4th month in a row:
(courtesy zero hedge)

Pending Home Sales Miss Fourth Month In A Row, As Northeast Weighs On Index

While the rest of the US economy was slowly but surely reentering a recession, with the only two pieces of silver lining being the relatively strong, if unbelievable, jobs data (driven by low-wage paying jobs) and the US housing market, moments ago we just got the latest confirmation that one of these two final anchors is slowly falling apart when the perpetually optimistic housing industry organization, NAR, reported that August pending home sales dropped -1.4%, on expectations of a 0.4% increase, and down from a 0.5% jump the month before. Confirming that the Chinese “hot money parking” bid is finally ending, this was the fourth consecutive miss in a row.

The alway entertaining Lawrence Yun, NAR chief economist, did his best to put some much needed lipstick on the pig saying that “even with the modest decline in contract signings, demand continues to outpace housing supply and elevate price growth in numerous markets. “Pending sales have leveled off since mid–summer, with buyers being bounded by rising prices and few available and affordable properties within their budget,” he said. “Even with existing–housing supply barely budging all summer and no relief coming from new construction, contract activity is still higher than earlier this year and a year ago.”

Don’t worry Larry, this won’t continue much longer: :according to Yun, sales in the coming months should be able to roughly maintain their current pace.” However, even Larry is starting to warn that the future is no longer so bright: “he warns that there are looming speed bumps that have the potential to impact housing.”

The only question is who to blame it on:

“The possibility of a government shutdown and any ongoing instability in the equity markets could cause some households to put off buying for the time being,” adds Yun. “Furthermore, adapting to the changes being implemented next month in the mortgage closing process could delay some sales.”

The breakdown shows that the traditional hot bed of pending home sales, the Northeast (NYC, Boston, DC) led the drop: here the Pending home sales index fell 5.6 percent to 93.3 in August. In the Midwest the index inched down 0.4 percent to 107.4 in August, and is now 6.5 percent above August 2014.  Pending home sales in the South declined 2.2 percent to an index of 121.5 in August but are still 4.1 percent above last August. The only thing keeping up the pending home sales market remains California, and the West rose 1.8 percent in August.

And as we explained previously, once China fully cracks down on those pesky hot money outflows, one can kiss the California “pending” housing market goodbye.

And now Dave talks about the uSA housing sector in trading today:
(courtesy Dave Kranzler/IRD)

The Truth Will Set You Free: Housing Getting Ripped Today

September 28, 2015Financial Markets, Housing Market, Market Manipulation, U.S. EconomyHousing bubble, NAHB, NAR, pending homes sales, stock market crash

The Dow Jones Home Construction Index is getting ripped lower today, down 5% despite a big move lower in the 10yr Treasury, which tends to drive homebuilding stocks higher regardless of what the stock market is doing.

It’s times like these when the “cover propaganda” is stripped away from the truth underneath. The termites have eaten away at the foundation of the housing market:

UntitledThe price of lumber is your “tell-tale,” as I’ve been asserting for about a year:

UntitledCan you smell the middle class flesh burning yet – especially the ones who bought and overpaid for home in the last 12 months? Many of them are already underwater vs. their mortgage.


The all important personal income rises at the slowest pace in 5 months /savings rate drops as well
(courtesy zero hedge)

Personal Income Rises At Slowest Pace In 5 Months As Savings Rate Drop

Biggest farce of them all:  odds of a rate hike diminish as Evans gives dovish comments:

(courtesy zero hedge)

Confusion-nado – 2015 Rate-Hike Odds Plunge To Record Lows After Fed’s Evans Dovish Comments

We have had “bad cop” Dudley and so now “good cop” Evans unleashes more uncertainty, confusion, and farce:


The reaction was very clear, Fed Funds Futures dipped to record lows for October (16%) and December (41%). And worse still, “dovishness” did nothing for stocks at all…



Evans added:




Charts: bloomberg



We will see you tomorrow night



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