Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1138.10 up $1.00 (comex closing time)
Silver $15.70 up 44 cents.
In the access market 5:15 pm
Gold $1135.80
Silver: $15.64
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a very poor delivery day, registering 0 notices for nil ounces Silver saw 2 notices for 10,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 212.94 tonnes for a loss of 90 tonnes over that period.
In silver, the open interest rose by 145 contracts despite the fact that silver was up 76 cents on Friday. The total silver OI now rests at 158,051 contracts In ounces, the OI is still represented by .790 billion oz or 113% of annual global silver production (ex Russia ex China).
In silver we had 2 notices served upon for 10,000 oz.
In gold, the total comex gold OI rose to 421,506 for a gain of 2490 contracts. We had 0 notices filed for nil oz today.
We had a small withdrawal in tonnage at the GLD to the tune of 0.22 tonnes and this would probably be to pay for storage and insurance fees; thus the inventory rests tonight at 688.98 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 a small withdrawal in silver inventory at the SLV to the tune of 134,000 oz/ Inventory rests at 318.395 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rise by only 145 contracts up to 158,051 despite the fact that silver was dramatically up in price to the tune of 76 cents with respect to Friday’s trading. The total OI for gold rose by 2490 contracts to 421,506 contracts, as gold was up $22.90 on Friday. Looks like the bankers were loathe to supply the paper in silver.
(report Harvey)
2.Gold trading overnight, Goldcore
(/Mark OByrne)
Asian affairs: China off on holiday/no news
European affairs:
3a) Poor PMI numbers throughout Europe as pundits now are demanding more QE
(zero hedge)
b) The troika has demanded that Greece raise taxes on the shipping industry which is their number one industry leader. The problem is the ship owners collecting will leave for other jurisdictions
(zero hedge)
c) Things not doing too good over at Air France as workers are furious of job cuts. Workers storm the fence where executives were meeting and ripped out the clothes of executives:
(zero hedge0
Russia + USA affairs/Middle eastern affairs
4. a)Iran is now set for a ground invasion
(zero hedge)
b)Russia bombs ISIS with bunker busters/ISIS fighters flee
(zero hedge)
c) After controlling the skies, Russia now threatens with a naval blockage
(zero hedge)
Global affairs:
5) TPP deal struck (zero hedge)
EMERGING MARKETS
6a) Australia;s bubble about to burst
(zero hedge)
b) Threats that an emerging market meltdown may cause a global financial meltdown
(zero hedge)
Oil related stories
7a) Saudi Arabia cuts its official bench mark for oil/this is hoarded by China which in turn causes shipping rates to rise
(zero hedge)
b) Saudi Foreign reserves (USA dollars) fall to 3 yr lows
(zero hedge)
8 USA stories/Trading of equities NY
a) Trading today on the NY bourses 2 commentaries
(zero hedge)
b) Dennis Gartman does it again as he is again bullish on stocks/just wait until he is blown out of the water again
(zero hedge)
c) Markit’s Service PMI falters to 55.1 with expectations of 55.6/USA has now entered the recessionary world
(Markit/zero edge)
d) USA 3 month treasury bills trade at exactly 0.00% yield. NIRP is next
(zero hedge)
e) Trouble at solar company SunEdison, once a darling of Wall Street/margin calls and huge layoffs (zero hedge)
f) Bad news from Dupont due to poor performance namely in Brazil
(zero hedge)
g) Closing commentary/Raul Meijer
9. Physical stories
- Smaulgld comments that gold demand in the latest week is 65.7 tonnes and total gold withdrawn (equals demand) so far this year: 1958 tonnes of gold. (Smaulgld)
- Two hundred investors sue the ECB over its unfair treatment by giving a huge haircut to them and not to the ECB (GATA/UKTelegraph)
- Mining companies are giving away their gold and silver as they all suffer/Jefferson companies/GATA)
- Dave Kranzler: How come no one will take on the comex gold/silver short? (Dave Kranzler iRD)
- Ben Bernanke claims that some bankers should have gone to jail for their crimes of 2008 (Yahoo news)
- Bill Holter on Russian advances into Syria and what it means! (Bill Holter)
Let us head over to the comex:
October contract month:
Initial standings
Oct 5.2015
| Gold |
Ounces
|
| Withdrawals from Dealers Inventory in oz | nil |
| Withdrawals from Customer Inventory in oz nil | 4,298.271 oz
Delaware, Scotia |
| Deposits to the Dealer Inventory in oz | nil |
| Deposits to the Customer Inventory, in oz | nil
|
| No of oz served (contracts) today | 0 contracts
nil oz |
| No of oz to be served (notices) | 1664 contracts
166,400 oz |
| Total monthly oz gold served (contracts) so far this month | 126 contracts
(12,600 oz) |
| Total accumulative withdrawals of gold from the Dealers inventory this month | nil |
| Total accumulative withdrawal of gold from the Customer inventory this month | 6,497.5 oz |
Total customer deposit: nil oz
***extremely unusual to have no activity of gold on second day notice especially with 6.227 tonnes of gold standing for delivery.
October silver Initial standings
Oct 5/2015:
| Silver |
Ounces
|
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory | 919,441.714 oz
Brinks,CNT, Delaware |
| Deposits to the Dealer Inventory | nil |
| Deposits to the Customer Inventory | 600.373.660 oz
CNT |
| No of oz served (contracts) | 2 contracts (10,000 oz) |
| No of oz to be served (notices) | 36 contracts (180,000 oz) |
| Total monthly oz silver served (contracts) | 29 contracts (145,000 oz) |
| Total accumulative withdrawal of silver from the Dealers inventory this month | nil oz |
| Total accumulative withdrawal of silver from the Customer inventory this month | 3,362,916.3 oz |
Today, we had 0 deposit into the dealer account:
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 660,372.660 oz
total withdrawals from customer: 919,551.714 oz
And now SLV:
oCT 5/we had a small withdrawal of inventory at the SLV of 134,000 oz/and this is also to pay for fees/inventory rests at 318.395 million oz
Oct 2.2015: no change in silver inventory at the SLV/inventory rests at 318.529 million oz
Oct 1.2015:another addition of 1,145,000 oz of silver inventory added to the SLV inventory./inventory rests at 318.529 million oz
Sept 30/no change in silver inventory at the SLV/Inventory rests at 317.384 million oz
sept 29.2015: we had another withdrawal of 859,000 oz from the SLV/Inventory rests at 317.384 million oz
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
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. * * * * *
BIS Warns of ‘Major Faultlines’ In Global Debt Bubble
– BIS warns “unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills”
– Bank of International Settlements warns that recent turmoil is not caused by isolated incidents
– Debt levels are now so extreme they threaten the financial system
– Ultra low rates have led to mal-investment and bigger boom/bust cycles
– Emerging markets vulnerable to deeper crises
– ECB easy money may juice markets for a while but reckoning is coming
– BIS acknowledge that central banks rig markets
– Gold and silver protect against crises in financial system
BIS via Business Insider
In a stark warning, the Bank for International Settlements (BIS), the central bank of central banks, has said in its quarterly report that the turmoil that has shaken global stock markets in recent weeks showed how developed and emerging markets were exposed to the unwinding of financial vulnerabilities built up since the 2008 crisis.
The sell-offs rocking equity markets reflect the “release of pressure” accumulated along “major fault lines”, the BIS said, as it warned that investors should not expect central banks to be able to ride to the rescue and solve such deep-rooted problems.
The BIS thus dispelled the misleading narrative that the growing instability in global markets can be brought under control by the Federal Reserve and other masters of monetary policy.
According to the head of its Monetary and Economic department, Claudio Borio “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.”
In the report the BIS – known as the central bank of central banks – warned that recent turmoil in markets were not caused by isolated incidents but rather “the release of pressure that has gradually accumulated over the years along major fault lines”.
The Bank was one of the few large entities to warn in advance of the crash in 2008 [see “Gold Up as the $500 Trillion Derivatives Time Bomb Keeps Ticking“]. The report warned that debt levels are now so extreme that they threaten the entire financial system.
Public and private debt in the developed world has risen 36% since the crisis and is now 265% of GDP. It adds that the post-crisis problems have been dealt with with the same ineffectual policies that caused the crisis – prolonged ultra low interest rates and easy monetary policy.
In this period of ultra low rates – and rates have not risen in almost a decade – rich countries have become bloated on debt rather than paying down and clearing the imbalances in the system. The West may consequently be entering a period of stagnation similar to the trap that has afflicted Japan since the 1990’s.
Borio warned that investor reliance on every pronouncement by the Fed were hampering its desire to return to a normal rate environment.
“This is . . . a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks’ every word and deed, in turn complicating the needed policy normalisation,” – Claudio Borio
The low rate environment has led to an array of wasteful “investment” such as ghost cities in China and pumping up share prices with stock buybacks in the U.S. where the underlying business is not performing.
The BIS warns that the already battered emerging markets are particularly vulnerable to crisis. While debt to GDP ratios are mild compared to those of the developed economies at 167% they have increased by 50% since 2007 which usually precipitates a major crisis.
Emerging markets are further exposed because of the large amount of dollar denominated debt they have taken on – over $3 trillion for non-financial corporations. If and when the Fed begin to raise rates it will affect liquidity in emerging markets and may also cause capital flight into the perceived stronger dollar.
“Dollar borrowing . . . [spills] over into the rest of the economy in the form of easier credit conditions,” said Hyun Song Shin, who advises the BIS. “When the dollar borrowing is reversed, these easier domestic financial conditions will be reversed.”
Incidentally, in covering the story, the FT matter-of-factly stated that “markets have been systematically rigged by central bankers” – a charge for which we and others have been ridiculed for making in the past.
Unlike the many US dollar denominated paper instruments that have been created in an unprecedented fashion in recent years and continue to be – gold is finite.
Gold bears the confidence of millions of people throughout the world and especially people – both poor and rich – in Asia. People in the the non-western world value gold’s intrinsic value far above the promises of politicians and bankers and far above the unbacked and increasingly debased paper and electronic currency of today.
DAILY PRICES
Today’s Gold Prices: USD 1134.35, EUR 1006.43 and GBP 746.28 per ounce.
Friday’s Gold Prices: USD 1106.30, EUR 990.86 and GBP 730.21 per ounce.
(LBMA AM)
Gold in USD – 1 Week
After the poor jobs report on Friday, gold rose and silver surged. Gold was up 2.2% or $23 and closed at $1,137.30 while silver surged over 5% or 68 cents to $15.24. Gold was 0.8% lower last week while silver rose 1.1%.
Gold bullion is slightly lower in European trading after posting their biggest one-day jump since January after the worse than expected jobs report on Friday. Gold has consolidated on Friday’s price gains and is trading near $1,136 following a 2.2% rise on Friday.
Silver surged 5.4% on Friday, its sharpest rise since December, 2014. It rose to its highest in two weeks of $15.35 early on Monday and also appears to consolidating on the sharp gains seen on Friday.
Palladium hit a 3-1/2-month high of $706 on Monday, while platinum is trading at $910 after hitting a near-seven-year low in the previous session.
Download 7 Key Allocated Storage Must Haves
end
This should give you a good idea of the huge demand for gold coming from China. They have not let up at all!!
Gold withdrawals from China in the last reporting week of Sept 25 was 65.681 tonnes. Withdrawals (equals demand) for the year: 1,958 or 50.25 tonnes per week. Total annualized rate will approximate 2650 tonnes this year.
(courtesy Smaulgld)
China’s President Confirms Practice Of Moving Official Reserve Assets To Other Entities In China
By Louis Cammarosano of Smaulgld
- Shanghai Gold Exchange withdrawals were 65.681 tonnes of gold during the week ended September 25, 2015.
- Total gold withdrawals on the Shanghai Gold Exchange year to date are 1,958 tonnes.
- Withdrawals on the Shanghai Gold Exchange are running 37.2% higher than last year and 17.88% higher than 2013’s record withdrawals.
- Hong Kong gold kilobar withdrawals pass 565 tonnes in 2015.
- Chinese President Xi Jinping admits “some assets in foreign exchanges were transferred from the central bank to domestic banks, enterprises and individuals”
Shanghai Gold Exchange
The Shanghai Gold Exchange (SGE) delivered 65.681 tonnes of gold during the week ended September 25,2015. During prior trading week ended September 18 2015, the SGE withdrawals were 63.22 tonnes of gold.
The two week total of withdrawals is 128.90 tonnes of gold and the year to date total is 1,958 tonnes, for an annualized run rate of approximately 2,650 tonnes.
Shanghai Gold Exchange vs. Global Mining Production
Total global gold mining production in 2014 was 2,608* tonnes. The volume of gold withdrawn on the Shanghai Gold Exchange this year is pacing to be about 2,650 tonnes or roughly equivalent to the total global mining production of last year. This leaves little or no mining supply to satisfy global gold demand in India (expected 2015 gold demand of about 1,000 tonnes) and the rest of the world.
Shanghai Gold Exchange and HongKong Kilo Bar Withdrawls vs. Global Mining Production
Through September 25 2015, Shanghai Gold Exchange withdrawals are 1958 tonnes and through September 30, 2015 Hong Kong Kilo bar withdrawals (see below) are 565 tons.
Combined year to date the withdrawals on both exchanges are 2,523 tonnes through the first nine months of 2015. Modest projections could take the combined gold withdrawals from Hong Kong Kilo bars and the Shanghai Gold Exchange to 2,900 tonnes in 2015.
Shanghai Gold Exchange Withdrawals vs. Comex Deliveries
In “Silver and Gold Short and Long Positions on Comex” we noted:
Comex is a place where banks trade gold and silver they don’t have to banks who buy gold and silver they don’t want.
These following two charts illustrate the point:
Two Week Withdrawals on the Shanghai Gold Exchange in September 2015 vs. Comex 2014
Withdrawals on the Shanghai Gold Exchange were 137 tonnes during the two week period ended September 18, 2015, compared to just 85 tonnes delivered in all of 2014 on Comex.
Shangahai Gold Exchange Withdrawals vs Comex Deliveries of Gold 2008-2015
The chart illustrates that paper market vs. physical market natures of the Comex and Shanghai Gold Exchanges.
China is becoming the center of the Asian gold world. A $16 billion China Gold Fund was announced in May and the Shanghai Gold Exchange continues to establish itself as viable competitor to the gold trading centers in London and Chicago. China’s gold imports, trading and mining production are one of the cornerstones of China’s de-dollarization/Yuan strengthening initiatives that focuses no so much on selling U.S. Treasuries but creating alternative financial systems like the Asian Infrastrucure Investment Bank.
China is widely believed to be making a play for inclusion in the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) Program later this year. If China fails to gain inclusion in the SDR, its recent initiatives to strengthen its currency and gain greater acceptance of the Yuan may provide a strong alternative to the IMF regime.
China Updates its Gold Holdings
China recently announced their first update to their official gold holdings since 2009. The People’s Bank of China announced that their gold holdings had climbed from 1054 tons to 1658 tons, making China the fifth largest gold holding nation in the world.
China chose to incude six years worth of gold accumulation (over 600 tons) all in the month of June.
Last month China reported that they added 19.3 tons (610,000 ounces) of gold to their reserves in July bringing their total to 1,677 tons (53.93 million ounces). Earlier this month the PBOC updated their August gold reserves, indicating that they had added 16 tonnes of gold to their reserves, bringing their total to over 1693 tonnes.
Chinese gold reserves grew by 16 tonnes in August.
China’s recent update to its gold holdings put it in fifth place among gold holding nations.
Many suspect that China has far more gold than they have reported. Click here for an explanation on where China’s gold might be.
Chinese President Xi Jinping recently confirmed the practice of moving the People’s Bank of China’s reserve assets to other entities in China: “some assets in foreign exchanges were transferred from the central bank to domestic banks, enterprises and individuals” This might explain where some of China’s gold hoard, that many suspect they posses but have not reported as reserves, may be located.
* * *
How does all that gold get to China?
The Bank of China also recently joined the auction process at the London Bullion Market Association where the price of gold is determined.
In addition, the Chicago Mercantile Exchange futures contract for Hong Kong Kilobars has experienced withdrawls of an average of more than five tons of gold a day since it began in mid March earlier this year. As of September 30, 2015, over 535 tonnes of gold have been withdrawn pursuant to this program since March 2015 for an annualized run rate over 1,200 tonnes of gold a year.
COMEX Hong Kong Gold Kilobar Withdrawals Through September 30, 2015
Comex Hong Kong gold kilo bar withdrawals have passed 565 tonnes since March 2015 and passed 18 tonnes on three trading days in September.
The Bank of China also recently joined the auction process at the London Bullion Market Association where the price of gold is determined.
China is the world’s largest gold producer:
China is the world’s largest gold producer with mining production over 2,000 tons the past five years. China hasmined 228.7 tons of gold during the first six month of 2015.
Volume of Gold Withdrawals on the Shanghai Gold Exchange
Shanghai Gold Exchange Withdrawals for the week ended September 25, 2015, were over 65 tonnes.
The volume of withdrawals of gold on the Shanghai Gold Exchange as of September 25, 2015, is running 37.2% higher than 2014 during the same period and 17.9% higher than 2013’s record pace.
Withdrawals of gold as of September 25, 2015, on the Shanghai Gold Exchange are running 37% higher than last year and 18% higher than the record pace set in 2013.
In addition to the vibrant Shanghai Gold Exchange and increasing world leading gold mining production, China is also the world’s largest gold importer. Here is a chart showing the volumes of gold traded on the Shanghai Gold Exchange vs. gold imported through Hong Kong as of July 2015.
China also imports unreported amounts of gold through Shanghai.
* * *
All charts, other than those labeled “Smaulgld”, courtesy of Nick Laird.
*Gold Mining Production Source:2014 Gold Year Book published by CPM Group. There are various estimates of global gold mining production ranging from 2,600 tons to3100 metric tons.
Shanghai Gold Exchange Data source GoldMinerPulse
end
This should be fun:
(courtesy zero hedge)
European Central Bank sued by 200 investors over Greek debt deal
Submitted by cpowell on Sun, 2015-10-04 15:30. Section: Daily Dispatches
By Mehreen Khan
The Telegraph, London
Saturday, October 4, 2015
The European Central Bank is being sued by more than 200 investors over its role in Greece’s debt restructuring, in a case that could pave the way for a raft of legal action from the private sector.
A group of Italian retail investors are claiming damages in excess of E12 million from the ECB for an alleged violation of its “equal” creditor status during the biggest private sector debt restructuring in history in 2012.
During the episode, the ECB was able to “swap” its holdings of Greek government debt for protected bonds with no repayment date. The move ensured the ECB did not suffer losses from the deal to stave off a Greek bankruptcy in March 2012.
Private sector creditors, however, were forced into accepting a 53.5 percent “haircut” on their holdings. …
… For the remainder of the report:
http://www.telegraph.co.uk/finance/economics/11907490/European-Central-B…
end
The following is going on in the entire gold/silver equity markets.
When this is over there will be huge lawsuits flying all over the place:
(courtesy GATA/Jeffersoncompanies.com)
Gold and silver assets are practically being given away — want to check some out?
Of course the sector is full of anomalous stories like Sabina’s, even if not many of them involve resources as large. But they all are subject to the “cyclicality” in the sector that Humphreys and McLeod discuss in the interview. That is, if the sector ever turns, the trip from the outhouse to the penthouse can be pretty fast.All this is another reason why, if you think that the “financial repression” being undertaken by central banks won’t succeed forever and that free-market pricing may return to the monetary metals eventually, you should consider attending the New Orleans Investment Conference at the end of this month. Along with GATA Chairman Bill Murphy and your secretary/treasurer, many experts in the gold and silver mining sector will be speaking, and many resource companies, including Sabina itself, will be exhibiting.
Watch the Sabina interview and then learn about the New Orleans conference here:
https://jeffersoncompanies.com/landing/gata
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
Submitted by cpowell on Sun, 2015-10-04 21:41. Section: Daily Dispatches
5:41p ET Sunday, October 4, 2015
Dear Friend of GATA and Gold:
For more evidence that the gold and silver mining sector is priced for extinction, priced as if mere paper promises of metal will substitute for the real thing until the end of time, watch the 16-minute interview done recently by Tommy Humphreys of CEO.CA with Sabina Gold & Silver CEO Bruce McLeod posted here:
http://ceo.ca/2015/10/02/sabina-gold-silver-back-river-bruce-mcleod-ceo/
The company, whose big project is in the Nunavut province of Canada, was valued at $1 billion a few years ago. Now Sabina’s market capitalization is a mere $75 million. McLeod notes that Sabina has established gold reserves of more than 5 million ounces but they are being valued at a mere $6 per ounce, even as permitting is close to complete; that Sabina’s project would be substantially profitable at current gold prices; and that the “project pipeline” in the gold and silver mining sector is drying up while major producing mines are being depleted.
end
Dave Kranzler: How come no one will attack the Comex gold short?
Submitted by cpowell on Sun, 2015-10-04 22:01. Section: Daily Dispatches
6:07p ET Sunday, October 4, 2015
Dear Friend of GATA and Gold:
Though the ratio of paper gold claims to real metal ready for delivery on the New York Commodities Exchange has reached 180 to 1 and only 162,000 ounces are listed as ready for delivery, Dave Kranzler of Investment Research Dynamics figures that no one will attack the phenomenal short position for fear of retaliation by the U.S. government. Kranzler’s commentary is headlined “How Come No One Will Attack the Comex Gold Short?” and it’s posted at the IRD Internet site here:
http://investmentresearchdynamics.com/how-come-no-one-will-attack-the-co…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
end
(courtesy Yahoo/GATA)
The great enabler condemns the enabled
Submitted by cpowell on Mon, 2015-10-05 00:57. Section: Daily Dispatches
Bernanke: Wall Street Execs Should Have Gone to Jail for Crisis
By the Associated Press
via Yahoo News
Sunday, October 4, 2015
WASHINGTON — Former Federal Reserve Chairman Ben Bernanke says some Wall Street executives should have gone to jail for their roles in the financial crisis that gripped the country in 2008 and triggered the Great Recession.
Billions of dollars in fines have been levied against major banks and brokerage firms in the wake of the economic meltdown that was in large part triggered by reckless lending and shady securities dealings that blew up a housing bubble.
But in an interview with USA Today published Sunday–
http://www.usatoday.com/story/news/politics/2015/10/04/ben-bernanke-exec…
— Bernanke said he thinks that in addition to the corporations, individuals should have been held more accountable.
“It would have been my preference to have more investigations of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm,” Bernanke said.
Asked if someone should have gone to jail, the former Fed chairman replied, “Yeah, I think so.” He did not, however, name any individual he thought should have been prosecuted and noted that the Federal Reserve is not a law-enforcement agency. …
… For the remainder of the report:
http://finance.yahoo.com/news/bernanke-wall-st-execs-gone-211351321.html
end
India to mint a sovereign gold coin:
the demand will be extremely high. I do not know how that will curb gold imports as the gold coin must be manufactured:
(courtesy/Frank Holmes/Mineweb)
India issues its first sovereign gold coin… to curb gold imports
Less than 10% of all Indian gold demand is in bars and coins.
Frank Holmes (U.S. Investors) | 5 October 2015 13:00
Gold tends not to leave India once it enters. As the world’s largest importer, the country consumes massive quantities of the yellow metal—it’s on track to take in 900 tonnes of the stuff this year—where it remains in private families’ coffers, mostly in the form of jewelry and decorative heirlooms. It’s estimated that less than 10 percent of all Indian gold demand is in bars and coins.
That might change this month—strong emphasis on “might”—as the India Government Mint will issue its first-ever sovereign gold coin, just in time for the fall festival season, which kicks off November 11. The coin will reportedly feature the Ashoka Chakra, the traditional 24-spoked symbol that appears on India’s national flag.
Consider the immense popularity of the American Eagle, the Canadian Maple Leaf, the British Sovereign, the South African Krugerrand and others—and now this month, India’s coin will join their exalted ranks. You might wonder why India, whose notoriously insatiable demand for gold stretches back millennia, has only recently decided to join other nations in issuing a sovereign gold coin.
http://www.mineweb.com/wp-content/uploads/2015/10/Screenshot-2015-10-05-12.53.22.png?befd39http://www.mineweb.com/wp-content/uploads/2015/10/Screenshot-2015-10-05-12.53.22.png?befd39
The answer has much to do with the government’s interest in trimming massive net inflows of the yellow metal and containing its impact on the country’s trade balance. As I said, gold is so highly-valued by Indian citizens that once it enters the country, it stays in the country, largely as family heirlooms.
The World Gold Council estimates that 50 percent of Indian wedding expenses is on gold. And when you consider that about 20 million weddings occur each year on average in India—many of them featuring gold in some capacity—it becomes very clear that this affinity to the precious metal is shared by all.
Furthermore, because many Indians distrust government banks, they prefer to protect their financial security by holding physical gold.
And who can blame them? India’s own central bank holds more than 557 tonnes of the metal for the very same reason: financial security.
But apparently the government takes the position that you can have too much of a good thing, even something as precious and auspicious as gold, and therefore seeks greater control on how it manages net inflows.
“Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country,” says Arun Jaitley, India’s Minister of Finance,
But will Indians be buying? It’s probably too early to tell.
Indian government policy to change gold investing
What can be said is that the plan to issue the coin is part of a broader government strategy to change the way Indians invest in gold. I always say that government policy is a precursor to change, and the new policies announced back in the spring are scheduled to go into effect soon.
One such program involves a gold bond, “which would not be backed by gold,” explains Jeffrey Christian,a managing partner at commodities consultancy group CPM Group, who spoke recently at the Denver Gold Forum. Instead, the bonds would be issued by the Reserve Bank of India, the underlying assumption being that some Indians would prefer gold-indexed bonds to actual bullion.
“And so they think that they can discourage physical gold demand because it put stress on [the government’s] current account balances a few years ago,” Christian says.
Then there’s the so-called “gold monetization scheme,” which is a program designed to encourage individuals and temples laden with gold to voluntarily deposit some of their bullion in exchange for a “2 percent or more” interest rate.
Theoretically, the gold would be held on deposit. In practice, however—again, according to Christian—it would be lent or sold to the jewelry industry, thereby reducing gold imports.
This means, of course, that the bullion—including everything from gold trinkets to cherished wedding ornaments—would be melted down.
“Not many [Indians] would want to see their long-preserved, family-inherited, emotionally-attached piece of yellow metal lose its identity and ‘feel’ by melting it for meager return,” writes columnist Dinesh Unnikrishnan of Indian news agency Firstpost.
The government’s multifaceted strategy might not be as drastic as the one enacted by President Franklin Roosevelt in 1933, which forbade the “hoarding of gold coin, gold bullion and gold certificates within the continental United States.” For now, Indians’ participation in the two progressed programs is completely voluntarily.
“Given the cultural and traditional affinity of Indians to their family-owned gold ornaments,” Unnikrishnan writes, “the only incentive for them to come forward and pledge their gold under the scheme is higher returns.”
Will Indians be enticed?
END
and now Bill Holter…
(courtesy Bill Holter/Holter Sinclair collaboration)
My commentary this week will be spotty as I am travelling. As my available time to write is limited, below is a comment from reader “J.H.” in regards to the theory of a “truth bomb” being released by Mr. Putin. My comments will follow:
1 Chinese yuan vs USA dollar/yuan falls a bit in value, this time at 6.3570/Shanghai bourse: closed for holiday, hang sang: green
2 Nikkei closed up 280.36 or 1.58%
3. Europe stocks in the green /USA dollar index down to 95.79/Euro up to 1.1230
3b Japan 10 year bond yield: falls to .313% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.27
3c Nikkei now just above 18,000
3d USA/Yen rate now above the important 120 barrier this morning
3e WTI: 46.02 and Brent: 48.68
3f Gold down /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .516 per cent. German bunds in negative yields from 5 years out
Greece sees its 2 year rate falls to 10.39%/Greek stocks this morning up by 3.08%: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield falls to : 8.12%
3k Gold at $1132.00 /silver $15.27 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 1 1/4 in roubles/dollar) 65.12,
3m oil into the 46 dollar handle for WTI and 48 handle for Brent/ China purchases huge supplies from Saudi Arabia
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 .9727as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0923 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 on criminal charges/
3r the 5 year German bund now in negative territory with the 10 year moving closer to negativity to +.513%/German 5 year rate negative%!!!
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 2.00% early this morning. Thirty year rate below 3% at 2.85% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks, Futures Jump On Barrage Of Bad Economic News; Glencore Surges, Volkswagen Slumps
Following Friday’s disastrous payrolls report, which confirmed all the pre-recessionary economic data and signaled that instead of approaching “lift-off” and decoupling from the rest of the world, the US economy is following the emerging markets into a slowdown in what may be the first global, synchronized recession since 2008, the market saw its biggest intraday surge since 2011 and the sharpest short covering squeeze in history, we are happy to announce that the “market” is now solidly back in “bad news is good news” mode.
We are even happier to announce that overnight UK, Europe and the rest of the world had a boatload of bad economic news to report, after Service PMI reports around the globe confirmed that the world is rapidly relapsing into an economic slowdown… just what the USDJPY surge ordered.
It all started with the UK, where the biggest component of local GDP, Services as measured by the PMI survey, printed at the lowest level since April 2013, or 53.3, down from 55.6, far below the 54.9 expected. And to think only a few months ago some of the more naive elements were hoping for a BOE rate hike.
Then we moved to Europe, where it was from bad to worse; here are the final Service PMI highlights:
- Italy: 53.3, down from 54.6 and below the 54.1 expected;
- Spain: 55.1, down from 59.6, below the 58.7 expected and the worst since November 2014;
- Germany: 54.1, down from 54.3 and below the 54.3 expected;
The only silver lining which once again quite paradoxically was the French number rising from 51.2 to 51.9 could not boost either the final Europe Service or Composite PMIs, both of which dropped and missed expectations, sliding from 54.0 to 53.7 and 53.9 to 53.6, respectively.
According to Goldman, for the area-wide level, a composite PMI reading of 53.6 is associated with growth of around +0.4/0.5%qoq, which means that the initial credit impulse from Mario Draghi’s QE is now long gone, and Europe will soon be forced to contemplate even more easing.
This bevy of overnight bad news is also precisely why futures are a solid green as of this morning, up 10%, or about 0.5% from Friday’s berserk top as all the pretense of a rate hike is gone, and the market is fully back to doing what it does best: price in even more (hoped for) generosity from central banks for a brief sugar fix, as Janet Yellen’s plans for a rate normalization crash and burn before her eyes.
Finally, if that wasn’t enough, overnight the World Bank cut its growth forecast for China and other key Emerging Market countries, and now expects China 2015 GDP to come in at 6.9% vs 7.1% forecasted in April. The Bank now sees China growing at 6.7% and 6.5% in 2016 and 2017 respectively. China will likely be a key meeting agenda this time. The World Bank has also reduced 2015 growth forecasts for Indonesia, Philippines and Thailand. Away from Asia, the World growth forecast for 2015, 2016 and 2017 have also been cut to 2.5%, 3.0% and 3.1% from the previous 2.9%, 3.2% and 3.2%, respectively.
Elsewhere, following a strategic leak over the weekend bythe Telegraph that Glencore management is said to be dismissive of suggestions that the commodities giant could be taken private and is “open to takeover offers, but doesn’t think any buyers could afford the fair value” – something which any company anywhere would say, however the actual takeover offer is “oddly” missing – the stock soared as much as 70% in Hong Kong trading, and was up as much as 20% earlier, before cutting gains to up 8%, trading just above 100p on the latest short squeeze. Ironically, the “takeover” gambit leak is what companies use as a last resource defense mechanism, suggesting that unless copper prices rebound solidly in the coming weeks there will be some truly dire newsflow out of the giant commodity trader.
On the other hand, the “other” company, Germany’s systemic automaker, Volkswagen, slide as much as 4% earlierafter its designated Chairman Hans Dieter Poetsch warned the cheating scandal poses “an existence-threatening crisis for the company.” In other words, VOW has at least a few more weeks before it too is subject to “leaks” of a possible takeover it doesn’t deem would value the company fairly.
A closer look at regional markets takes us first to Asia where equity markets tracked Friday’s positive close on Wall Street after NFP missed expectations and pushed back forecasts of a Fed rate lift-off and perhaps even more QE or NIRP. Hang Seng (+1.6%) was led by gains in casino names as last week’s reports that China would support Macau continued to bolster stocks, while Macau China visitor arrivals for early October rose by 21.6% Y/Y. ASX 200 (+2%) outperformed amid strength in commodity names, while Nikkei 225 (+1.6%) was bolstered by broad sector-based gains with the Asia-Pac region further underpinned by reports that the TPP deal is close to completion. Markets in mainland China remained closed due to Golden Week holiday.
The Trans-Pacific Partnership Trade deal between 12 countries around the pacific including US, which would open up trade barriers, is said to be a step closer after officials agreed to compromise on time frame for pharmaceutical companies’ monopolies on new drugs.
In Europe, equities have kicked off the week in the green (Euro Stoxx: +2.6%), following on from sentiment in the US on Friday and Asia from overnight. The US nonfarm payroll report from Friday suggests that US rates could remain lower for longer and as such has led to strength in global equities, despite initial weakness due to the downbeat view of the US economy, while strength in the commodity sector has seen energy names outperform. On a company specific basis, Glencore (+6.0%) lead Europe higher after talk that the Singapore Sovereign Wealth fund and Mitsui are interested in Co.’s agriculture business. Elsewhere K+S (-20.5%) weighs on gains after suggestions that Potash have withdrawn their interest in the Co., while Volkswagen (-3.0%) continues to underperform in the aftermath of the emissions scandal.
Fixed income markets have moved in tandem with market sentiment, with Bunds weaker this morning amid strength in equities, while Portugal 10yr bond yields have hit a 5 month low amid talk of post vote PS/PAF deal after the incumbent received the most votes in the Portuguese election, but not enough to form an outright majority. The US comes to market this week with 3s, 10s and 30s for a total offering size of USD 58Bn, which is unchanged from last month’s auction size.
In Commodities, WTI crude futures rose overnight as the greenback fell, while gold traded relatively flat to hold onto the majority of Friday’s gains where it saw its biggest intraday climb since January after the miss on US non-farm payrolls pushed back expectations of the timing for the Fed rate lift-off. Elsewhere, palladium has held onto its emission scandal inspired gains and copper prices continued to gain as sentiment for riskier assets was bolstered by the prospects of lower rates for longer.
In FX, the USD underperformed overnight (USD-Index: -0.3%) in the wake of the aforementioned nonfarm payroll report on Friday, while GBP has also seen weakness on the back of the lowest services and composite PMIs since April 2013 (Services 53.3 vs. Exp. 56.0). However EUR has been relatively unmoved by generally lower than expected services and composite PMIs from Europe (Eurozone services PMI 53.7 vs. Exp 54). NZD has been the notable outperformer in the Asia-Pacific region, with NZD/USD breaking above its 50 DMA at 0.6456 as well as the 65.0000 handle, bolstered by weakness in commodities and selling in AUD/NZD through 0.9000. This comes ahead of the Fonterra GlobalDairyTrade auction later today, while other highlights include US services PMI and ISM Non-Manf. Composite.
Finally, the ongoing situation in Syria has seen Russia continue airstrikes in the country, with the Turkish foreign minister accusing Russia of violating Turkish airspace.
On the US economic calendar we get Service PMI data at 9:45 am as well the non-mfg ISM 15 minutes later. The first is expected to print at 55.7, up from the preliminary print of 55.6, while the ISM index is expected to slide from decline to 58.
Bulletin Headline Summary From Bloomberg and RanSquawk
- European equities have kicked off the week in the green following on from sentiment in the US on Friday and Asia from overnight
- The USD underperformed overnight in the wake of Friday’s nonfarm payroll report, while GBP has also seen weakness on the back of the lowest services and composite PM’s since April 2013
- Today’s highlights include US services PM! and ISM Non-Manf. Composite as well as the Fonterra GlobalDairyTrade auction
- Treasuries decline, paring gains sparked Friday by last week’s weaker than expected payrolls and before U.S. sells $58b in 3Y/10Y/30Y debt starting tomorrow.
- More and more, bond traders are drawing the same conclusion: central bankers globally are coming up short in their attempts to combat the world’s economic woes as outlook for inflation worldwide now approaching lows last seen during crisis
- The euro region’s economic recovery risks faltering after growth momentum eased in September, Markit Economics said, boosting possibility of more QE from ECB
- U.K. services growth faltered in September, highlighting the breadth of the fallout from weakness in the global economy
- Developing East Asian economies are feeling the weight of China’s growth slowdown, with the World Bank cutting the region’s growth forecasts through 2017
- Economists brought forward forecasts for when the Bank of Japan may next increase stimulus after economic data that pointed to the risk of the economy falling back into recession
- Boston Fed President Eric Rosengren said the U.S. economy needs to be growing at a 2% pace in 2H to justify an interest-rate increase by December
- As world powers are drawn deeper into Syria’s conflict, the list of reasons why the war won’t end anytime soon is only getting longer
- With wounds only just healing after the euro area agreed to throw Greece another financial lifeline, the country’s inability to process tens of thousands of refugees turning up at its doorstep threatens to reopen them all over again
- While there is pressure on Glencore’s balance sheet given low commodity prices, the stress doesn’t mean the company won’t survive and “the belief that Glencore is having a ‘Lehman moment’ seems unfounded’’, Paul Gait, an analyst at Sanford C. Bernstein & Co. said Monday
- Sovereign 10Y bond yields higher. Asian and European stocks rise, U.S. equity-index futures gain. Crude oil and copper gain, gold declines
DB’s Jim Reid concludes the overnight wrap
The most interesting bit of news over the weekend was that Apple have applied for a patent to produce an iRing. I may have to renew my vows as I’d love to be the first person to propose with an object that also allows you to also check the football scores. However I suspect I might go the same way as Liverpool’s manager yesterday if I’d used an iRing to propose.
Hopefully Liverpool’s season will now turn round as sharply as Friday’s session. It had threatened to become a day where bad news = bad news but after a 57 point range in the S&P 500, bad news = good news as the S&P 500 rose +1.43% at the close after having dipped as much as 1.57% within 30mins of the open after the poor payroll report. The most interesting development saw 10yr USTs falling more than 10bps after the number before closing around 4bp lower at 1.99% the first sub-2% close since April. In Europe 10 year Bunds hit 0.50% for the first time since the end of May. In terms of Fed pricing the probability of a hike in October fell to 10% and the probability of one by December to 31%. We need to go out to at least March 2016 before the market prices a 50%+ probability of a hike.
Perhaps the huge rally from the lows reflected markets that were too bearishly positioned going into the report and perhaps the likelihood that any suggestion of a Fed rise will now almost certainly be off the table for at least 2 and a half months (and probably well into 2016). This finally gave markets a bit of room to react to the latest round of plate spinning from the Fed, actions that the BoJ and the ECB are likely to reinforce with interest soon (see below).
Our thesis continues to be that central banks are trapped into additional stimulus measures given the extraordinary measures already propping up markets (artificially in many cases). They can’t afford to allow the plates to crash now having spun them so aggressively for so long. Friday’s weak payroll print reinforces this view and it’ll also be interesting to see the BoJ meeting this Wednesday. It might be too early for Kuroda to signal further easing but with a recent return to deflation (Headline prices ex Fresh food down 0.1% yoy in August) and the 2% target a long way off surely they have forced themselves into further action very soon. While expectations are seemingly mounting our Japan economist sees a low likelihood of any further easing on Wednesday partly because the September Tankan report was steady and the BoJ’s mostly closely watched underlying inflation trend is on the rise. That said there seems to be a small group calling for further easing on 30 October when the BoJ publishes its economic outlook as it may provide the central bank/Kuroda a more credible platform to justify a move.
The ECB are unlikely to be far behind and back on Friday, DB’s Mark Wall and Marco Stringa revised their ECB call prior to the payrolls upset. They have not downgraded their euro-area growth projections and still think that the more pessimistic scenarios are overstated. However, falling commodity prices and the recent euro appreciation have put renewed downward pressure on inflation, despite the domestic demand recovery. They see headline inflation in the euro area remaining sub-target at about 1.5% in 2017 and expect a six month flexible extension of QE to be announced in December.
With fears of a possible downturn building, our Euro economics team have made their real-time economic monitoring system now available on Bloomberg to DB clients. SIREN monitors on a daily frequency both how quickly the euro-area economy is growing (Momentum) and how outcomes compare with expectations (Surprise). Both SIREN components correlate closely with but tend to lead similar market sensitive indices. Last week, SIREN Surprise rose to its highest value since mid April. However, this is not signalling a stronger euro-area economy as SIREN Momentum has weakened slightly. Hence, the positive surprise seems to be driven by excessive pessimism rather than an accelerating recovery.
Going back to Friday now and quickly reviewing the weak NFP report. The release came in at +142k vs. +201k expected whilst the August number was revised down from +173k to +136k. The weakness didn’t end there as the average hourly earnings MoM rate dropped to 0% from +0.2% expected and the labour force participation rate dropped to 62.4%, the lowest level since October 1977. Our economics team also highlighted that private sector payrolls were up only 118k in September which comes on the back of a very soft 100k gain in August. Private payrolls gains have averaged 138k over the last 3 months, which is the lowest since the 3-month period ending August 2012. Besides payrolls, on Friday also saw a weaker-than-expected US factory orders (-1.7% v -1.2% expected) for August and a pretty steep decline in the NY ISM in September to 44.5 from 51.1 in August.
Refreshing our screens this morning, investors are following the US lead on Friday with broad based gains seen across major equity bourses in Asia. The Nikkei, Hang Seng, and KOSPI are all over 1% higher as we type. The HSCEI index (+2.5%) is up for the third consecutive session. Chinese stocks have had a decent few days on the back of stimulus targeting Macau, automakers as well as real estate developers. Asia FX and the tone in EM assets in general are benefitting from the weak NFP on Friday. The 10yr UST yield continues to drift lower, down by just over 1bps to 1.98% as we type. Commodities are also seeing some respite with WTI and Brent trading higher for the second consecutive session. Asian CDS spreads are tighter across the board with the Asia IG iTraxx index 5bps tighter at 156bp as we go to print although new issue activity is still subdued.
It was interesting to see that the World Bank has reduced its growth forecast for China just ahead of the annual IMF/World Bank meeting in Peru later this week (9-11 Oct). The World Bank now expects China 2015 GDP to come in at 6.9% vs 7.1% forecasted in April. The Bank now sees China growing at 6.7% and 6.5% in 2016 and 2017 respectively. China will likely be a key meeting agenda this time. The World Bank has also reduced 2015 growth forecasts for Indonesia, Philippines and Thailand. Away from Asia, the World growth forecast for 2015, 2016 and 2017 have also been cut to 2.5%, 3.0% and 3.1% from the previous 2.9%, 3.2% and 3.2%, respectively.
Today we have the Services and Composite PMI wrap up with new data from Spain and Italy (both expected to weaken) and final numbers from France, Germany, the Eurozone (all three expected steady) and the US (expecting small upward revision for the Services PMI). We also have Eurozone retail sales (where the growth rate is expected to fall from +1.7%), the US non-manufacturing ISM (expected to fall slightly) and a Euro area finance ministers meeting.
end
The excuse used to ramp up all bourses today:
(courtesy zero hedge)
Peak Manipulation: Resorting To Contradictory Headlines To Lift Stocks
When stocks absolutely and completely have to go up, there is only one thing for it: the spurious headline from Nikkei (aka the new owner of the Financial Times). It is 2am in Japan but still, after Thursday’s headline that:
- BOJ IS SAID TO SEE LITTLE IMMEDIATE NEED FOR ADDING STIMULUS
It is now time for the diametrically opposite:
- BOJ MAY NEED TO EASE AGAIN WITH FED DELAY, NIKKEI SAYS
and sure enough, USDJPY jerks higher and US equities hit the day’s highs.
The supreme irony here is in the justification: according to Bloomberg, the possibility of stronger yen, prompted by lower expectations of Fed rate increase this year, may prompt further easing, Nikkei reports, citing unidentified BOJ watchers.
What everyone seems to have missed, is that by being the global funding currency, the Yen has actually plunged on lower expectations of a Fed rate hike. In other words, what we are supposed to believe is that the lower Yen has prompted the BOJ to seek… a lower Yen.
end
European affairs
The following is important as investor confidence in Europe collapses as all PMI’s from Europe collapse:
(courtesy PMI Europe/zero hedge)
Draghi Dud: Investor Confidence Collapses As PMIs Plunge Across EU
When “whatever it takes” is not enough… Despite Draghi’s promises and EU leaders’ exuberance, European Investor Confidence tumbled to its lowest since January as the Q€ bounce has now well and truly died. While volatility has picked up over the last month and reassuring tones have been uttered by every central banker in the world, it is the real economy that appears to be weighing on confidence as Eurozone Composite PMI prints at 53.6 – its lowest since February.
We’re gonna need a bigger Q€ Boat…
And since Q€ did not work to boost the economy this time – we are sure more will be demanded…
As Goldman notes,the Final estimate of the Euro area September Composite PMI came in at 53.6, 0.3pt lower than the Flash estimate. This reflects a downward revision in the services PMI (from 54.0 to 53.7). September data showed a 0.7pt decline in the Euro area Composite PMI, with declines occurring in Germany, Italy and, notably Spain. The French PMI rebounded robustly.
1. The Final/Flash revision to the Euro area September composite PMI was -0.3pt in September. The German Flash/Final revision was slightly negative (-0.2pt) and the French Flash/Final revision was robustly positive (+0.5pt).
2. The breakdown of components was mixed. Within the Euro area Composite PMI, the services PMI showed some weakness (-0.8pt to 53.7). Themanufacturing PMI ticked down only slightly, but remains at a weaker level (-0.3pt to 52.0). Within manufacturing, new orders and production nudged down. For the services component, the forward-looking elements showed ‘incoming business’ rising (+0.2pt to 53.6), while the ‘business expectations’ component fell somewhat (-0.8pt to 62.2).
3. On a country basis, the Composite PMI fell sharply in Spain (-4.1pt to 54.6), against expectations of a flat reading (Cons: 58.0). This was driven by a sharp contraction in the Spanish services components, albeit from an elevated level (-4.5pt to 55.1). Italian Composite PMI also showed some weakness in September (-1.6pt to 53.4). With today’s revisions, the September Composite PMI now shows a moderate decline in Germany (-0.9pt to 54.1) and a robust rebound in France, even if from a lower level (+1.7pt to 51.9).
Charts: Bloomberg
end
Just look at what the EU is doing to Greece. They are going to raise taxes so such levels to force them to seek other jurisdictions. Shipping is by far, Greece’s biggest industry followed by tourism:
(courtesy zero hedge)
World’s Largest Shipowners To Abandon Greece Ahead Of Major Tax Hike
Once again the reactions of desperate government policies looks like creating an even worse situation thanks to unintended (though entirely foreseeable) consequences.Amid the prospect of sharply higher shipping taxes in Greece – designed to increase revenues and ‘fix’ the debt-ridden nation, WSJ reportsmany of Greece’s world-leading shipowners are actively exploring options to leave their home country. With Greece controlling 20% of the world’s shipping fleet, the ‘quadriga’ of Greek creditors’ demands to raise taxes (because debt restructuring is out of the question) on such an ‘easy target’ as the world’s largest shipping industryappears likely to backfire as an entire industry’s revenues move out of reach of government taxers.
As The Wall Street Journal reports,
Dominated by some 800 largely family-run companies that control almost a fifth of the global shipping fleet from their base at the main Greek port of Piraeus, the industry has long been a source of national pride.
But at the behest of Greece’s international creditors, the newly re-elected Syriza-led government has reluctantly agreed to raise taxes on the long-protected sector.
And the effect of this forced action…
Many in the Greek shipping world say any increase in taxes on shipping operations would prompt a mass exodus of the country’s shipowners. Relatively low-tax global shipping centers such as Cyprus, London, Singapore and Vancouver, Canada, are positioning themselves to benefit.
“With all these places from Cyprus to Vancouver coming to Greek owners and trying to get them to move, I hope that everyone realizes there is a real possibility that many people might leave if things are handled the wrong way,” said George Gratsos, president of the Hellenic Chamber of Shipping.
…
shipping remains a bright spot in the reeling Greek economy, generating €13 billion to €19 billion, or $14.6 billion to $21.4 billion, in annual revenue and employing about 250,000 people.
“Shipping makes up 7% of Greek economic output, and logic dictates that the sector should enjoy a friendly business environment and a steady taxation system so it can grow and create more jobs, rather than moves to push it out,” he said.
* * *
Senior Greek government officials, who asked not to be named, said the finance ministry is trying to find alternative sources of income to avoid saddling owners with more taxes, but one said that “the exercise is proving very difficult.”
Final decisions on the matter are expected by the end of October.
* * *
Maybe someone at quadriga should check on what Greece’s debt-to-GDP looks like without its shipping industry. But there is a silver lining… Cyprus may be saved…
“We’re very highly relying on the second option that we have in Cyprus,” Greek owner George Procopiou, who runs one of the world’s largest fleets of tankers and liquefied-natural-gas carriers, told the Cyprus Maritime Conference in Limassol earlier this month.
“The friendly environment that we see here in Cyprus for shipping is a great lesson, proving what the cooperation between private and governmental parties can bring.”
Caught On Tape: Furious French Workers Attack Air France Executives, Rip Their Clothes Off
Earlier today amid the general gloom of Europe’s sliding non-manufacturing PMIs, the one place that stood out like a sore thumb bucking the deteriorating trend, was France which not only posted an increase from August but also beat expectations.
We strongly doubt this metric has any basis in reality because among numerous other contrary-specific factors, Bloomberg reported that as part of Air France’s long-running spat with workers over cost cuts, violence erupted earlier today as protesters stormed a meeting where managers were presenting plans for 2,900 jobs cuts, causing executives to flee with their clothes in tatters.
According to the report, human resources chief Xavier Broseta and Pierre Plissonnier, the head of long-haul flights, scaled an eight-foot high fence to escape, shielded by security guards, with Broseta emerging shirtless and Plissonnier with his suit shredded.
Casting some serious doubt on the service PMI “recovery” is that the attacks happened Monday as Air France told its works council that after the failure of productivity talks with pilots last week some 300 cockpit crew, 900 flight attendants and 1,700 ground staff might have to go. The cuts could include the first forced dismissals since the 1990s, according to the carrier, which subsequently postponed the meeting.
The company, unhappy with the terrible publicity that the photos and video clips presented below will unveil about the corporate culture at Air France, promptly tried to downplay the incident, saying in a statement that “these attacks were made by isolated and particularly violent individuals as the demonstration by personnel on strike was going on calmly,” adding that a complaint had been filed for aggravated violence. We expect many more complains will be filed before the latest surge in anger at the upcoming layoffs dissipates.
It’s not just bad news for up to 3,000 soon to be unemployed workers but for Boeing too, which may be about to see the first scrapping of Dreamliner orders:
Under the savings plan announced today, Air France’s fleet would be reduced by 14 jets,with orders for Boeing Co. 787s scrapped and aging Airbus Group SE A340s phased out. The Air France-KLM Group unit indicated there was scope for compromise should unions come forward with serious savings measure.
Air France said last week it was planning cuts to jobs, jets and routes in the absence of a deal with pilots, who had been asked to work more hours for the same pay to help end annual losses that began in 2011. Government ministers had urged the sides to continue talking so that jobs could be saved.
The upcoming layoffs were once again blamed almost entirely on events in Asia: “The changes would require a shrinking of Air France’s network, with a reduction in frequencies and more sweeping seasonal capacity cuts next year, following by the termination of some routes in 2017, especially to Asia, where competition is toughest. Frequencies to 22 destinations would be affected.”
Expect more outbursts of violence and even more profits for tailors in Paris, confirming the Keynesian “torn suit fallacy”, because the job cuts are said to be implemented around mid-December at the earliest, or just in time for the holidays.
Meanwhile, this is the outcome as the anger of several thousand French workers finally spills over.
And roll the tape:
On Thursday, in “Mid-East Coup: As Russia Pounds Militant Targets, Iran Readies Ground Invasions While Saudis Panic”, we attempted to cut through all of the Western and Russian media propaganda on the way to describing what Moscow’s involvement in Syria actually portends for the global balance of power. Here are a few excerpts that summarize what’s taking shape in the Middle East:
Putin looks to have viewed this as the ultimate geopolitical win-win. That is, Russia gets to i) expand its influence in the Middle East in defiance of Washington and its allies, a move that also helps to protect Russian energy interests and preserves the Mediterranean port at Tartus, and ii) support its allies in Tehran and Damascus thus preserving the counterbalance to the US-Saudi-Qatar alliance.
Meanwhile, Iran gets to enjoy the support of the Russian military juggernaut on the way to protecting the delicate regional nexus that is the source of Tehran’s Mid-East influence. It is absolutely critical for Iran to keep Assad in power, as the loss of Syria to the West would effectively cut the supply line between Iran and Hezbollah.
It would be difficult to overstate the significance of what appears to be going on here. This is nothing short of a Middle Eastern coup, as Iran looks to displace Saudi Arabia as the regional power broker and as Russia looks to supplant the US as the superpower puppet master.
In short, the Pentagon’s contention that Russia and Iran have formed a Mid-East “nexus” isn’t akin to the Bush administration’s hollow, largely bogus attempt to demonize America’s foreign policy critics in the eyes of the public by identifying an “axis of evil.” Rather, the Pentagon’s assessment was an attempt to come to grips with a very real effort on the part of Moscow and Tehran to tip the scales in the Mid-East away from Riyadh and Washington.
Solidifying the Assad regime in Syria serves to shore up Hezbollah and presents Tehran with an opportunity to assert itself in the name of combatting terror. The latter point there is critical. The West has long contended that Iran is the world’s foremost state sponsor of terror, and the Pentagon has variously accused the Quds Force of orchestrating attacks on US soldiers in Iraq after cooperation between Washington and Tehran broke down in the wake of Bush’s “axis of evil” comment.
Indeed, Iran was accused of masterminding a plot to kill the Saudi ambassador at a Washington DC restaurant in 2011.
Now, the tables have turned. It is the US, Saudi Arabia, and Qatar who stand accused of sponsoring Sunni extremists and it is Iran, and specifically the Revolutionary Guard, that gets to play hero.
Of course this would be largely impossible without Moscow’s stamp of superpower approval. The optics around the P5+1 nuclear deal were making it difficult for Tehran to be too public in its efforts to bolster Assad. That doesn’t mean Tehran’s support for the regime in Syria hasn’t been well documented for years, it simply means that Iran needed to observe some semblance of caution, lest its role in Syria should end up torpedoing the nuclear negotiations. Now that Moscow is officially involved, that caution is no longer obligatory and Iran is now moving to support Russian airstrikes with an outright ground incursion (just as we’ve been saying for weeks). Here’s WSJ:
Iran is expanding its already sizable role in Syria’s multisided war in the wake of Russia’s airstrikes, despite the risk of antagonizing the U.S. and its Persian Gulf allies who want to push aside President Bashar al-Assad.
Politicians in the region close to Tehran as well as analysts who have been closely following its role in Syria say a decision has been made, in close coordination with the Russians and the Assad regime, to increase the number of fighters on the ground through Iran’s network of local and foreign proxies.
The support also could involve more Iranian commanders, military advisers and expert fighters usually assigned to these units, these people said.
Wiam Wahhab, a former Lebanese minister allied to Iran and Mr. Assad, stressed that Iran wouldn’t be dispatching troops in the conventional sense. Instead, they were likely to be officers and advisers from the Islamic Revolutionary Guard Corps, or IRGC, he said.
“I know there is a major battle upon us and everything needed for this battle will be made available,” said Mr. Wahhab, who has some members from his own political party fighting in Syria alongside the regime. “There is a plan to carry out offensive operations in more than one spot.”
Experts believe Iran has some 7,000 IRGC members and Iranian paramilitary volunteers operating in Syria already.
Separate from the regular army, the IRGC was founded in the aftermath of the 1979 revolution as an ideological “people’s army” reporting directly to the supreme leader, Iran’s top decision maker.
The more than 100,000-strong force controls a vast military, economic and security power structure in Iran and is in charge of proxies across the region. Its paramilitary organization, the Basij, was the lead force in the crackdown on pro-democracy demonstrators in 2009.
Since late 2012 Iran has played a lead role in organizing, training and funding local pro-regime militias in Syria, many of them members of Mr. Assad’s Alawite minority, a branch of Shiite Islam. Experts believe they number between 150,000 and 190,000—possibly more than what remains of Syria’s conventional army.
What’s more, some experts estimate 20,000 Shiite foreign fighters are on the ground, backed by both Shiite Iran and its main proxy in the region, the Lebanese Shiite militia Hezbollah.
About 5,000 of them are new arrivals from Iraq in July and August alone, said Phillip Smyth, a researcher at the University of Maryland. He said this figure was compiled through his own contacts with some of these fighters, flight data between Baghdad and Damascus as well as social media postings. “It looks like it was timed out to coincide with the Russian move,” Mr. Smyth said.
Yes, it certainly does “look like” that, and it wasn’t hard to see this coming. Here’s another excerpt from our recent analysis:
Back in June, the commander of Iran’s Quds Force, Qasem Soleimaini, visited a town north of Latakia on the frontlines of Syria’s protracted civil war. Following that visit, he promised that Tehran and Damascus were set to unveil a new strategy that would “surprise the world.”
Just a little over a month later, Soleimani – in violation of a UN travel ban – visited Russia and held meetings with The Kremlin.
Make no mistake, this is shaping up to be the most spectacular US foreign policy debacle since Vietnam – and we don’t think that’s an exaggeration.
The US, in conjunction with Saudi Arabia and Qatar, attempted to train and support Sunni extremists to overthrow the Assad regime. Some of those Sunni extremists ended up going crazy and declaring a Medeival caliphate putting the Pentagon and Langley in the hilarious position of being forced to classify al-Qaeda as “moderate.” The situation spun out of control leading to hundreds of thousands of civilian deaths and when Washington finally decided to try and find real “moderates” to help contain the Frankenstein monster the CIA had created in ISIS (there were of course numerous other CIA efforts to arm and train anti-Assad fighters, see below for the fate of the most “successful” of those groups), the effort ended up being a complete embarrassment that culminated with the admission that only “four or five” remained and just days after that admission, those “four or five” were car jacked by al-Qaeda in what was perhaps the most under-reported piece of foreign policy comedy in history.
Meanwhile, Iran sensed an epic opportunity to capitalize on Washington’s incompetence. Tehran then sent its most powerful general to Russia where a pitch was made to upend the Mid-East balance of power. The Kremlin loved the idea because after all, Moscow is stinging from Western economic sanctions and Vladimir Putin is keen on showing the West that, in the wake of the controversy surrounding the annexation of Crimea and the conflict in eastern Ukraine, Russia isn’t set to back down. Thanks to the fact that the US chose extremists as its weapon of choice in Syria, Russia gets to frame its involvement as a “war on terror” and thanks to Russia’s involvement, Iran gets to safely broadcast its military support for Assad just weeks after the nuclear deal was struck. Now, Russian airstrikes have debilitated the only group of CIA-backed fighters that had actually proven to be somewhat effective and Iran and Hezbollah are preparing a massive ground invasion under cover of Russian air support. Worse still, the entire on-the-ground effort is being coordinated by the Iranian general who is public enemy number one in Western intelligence circles and he’s effectively operating at the behest of Putin, the man that Western media paints as the most dangerous person on the planet.
As incompetent as the US has proven to be throughout the entire debacle, it’s still difficult to imagine that Washington, Riyadh, London, Doha, and Jerusalem are going to take this laying down and on that note, we close with our assessment from Thursday:
If Russia ends up bolstering Iran’s position in Syria (by expanding Hezbollah’s influence and capabilities) and if the Russian air force effectively takes control of Iraq thus allowing Iran to exert a greater influence over the government in Baghdad, the fragile balance of power that has existed in the region will be turned on its head and in the event this plays out, one should not expect Washington, Riyadh, Jerusalem, and London to simply go gentle into that good night.
Russia Claims ISIS Now On The Ropes As Fighters Desert After 60 Airstrikes In 72 Hours
One question that’s been asked repeatedly over the past thirteen months is why Washington has been unable to achieve the Pentagon’s stated goal of “degrading and defeating” ISIS despite the fact that the “battle” pits the most advanced air force on the planet against what amounts to a ragtag band of militants running around the desert in basketball shoes.
Those of a skeptical persuasion have been inclined to suggest that perhaps the US isn’t fully committed to the fight. Explanations for that suggestion range from the mainstream (the White House is loathe to get the US into another Mid-East war) to the “conspiratorial” (the CIA created ISIS and thus doesn’t want to destroy the group due to its value as a strategic asset).
The implication in all of this is that a modern army that was truly determined to destroy the group could likely do so in a matter of months if not weeks and so once Russia began flying sorties from Latakia, the world was anxious to see just how long the various rebel groups operating in Syria could hold up under bombardment by the Russian air force.
The answer, apparently, is “less than a week.”
On Saturday, the Russian Ministry of Defense said it has conducted 60 bombing runs in 72 hours, hitting more than 50 ISIS targets.
According to the ministry (Facebook page is here),Islamic State fighters are in a state of “panic” and more than 600 have deserted.
Here’s what happens when the Russians locate a terrorist “command center”:
According to The Kremlin, the structure shown in the video is (or, more appropriately, “was”) “an ISIS hardened command centre near Raqqah.” Su-34s hit it with concrete-piercing BETAB-500s setting off a series of explosions and fires that “completely destroyed the object.”
Here’s RT:
Surgical airstrikes by Russian fighter jets have knocked out a number of Islamic State installations in Syria, including the battle headquarters of a jihadist group near Raqqa, according to the Russian Defense Ministry.
“Over the past 24 hours, Sukhoi Su-34 and Su-24M fighter jets have performed 20 sorties and hit nine Islamic State installations,” Igor Konashenkov, Russia’s Defense Ministry spokesman, reported.
Konashenkov added that yesterday evening Russian aircraft went on six sorties, inflicting strikes on three terrorist installations.
“A bunker-busting BETAB-500 air bomb dropped from a Sukhoi Su-34 bomber near Raqqa has eliminated the command post of one of the terror groups, together with an underground storage facility for explosives and munitions,” the spokesman said.
Commenting on the video filmed by a Russian UAV monitoring the assault near Raqqa, Konashenkov noted, “a powerful explosion inside the bunker indicates it was also used for storing a large quantity of munitions.
“As you can see, a direct hit on the installation resulted in the detonation of explosives and multiple fires. It was completely demolished,” the spokesman said.
And here’s the Russian Defense Ministry taking a page out of the US Postal Service’s “neither rain, sleet, snow, nor hail” book on the way to serving notice that nothing is going to stop the Russian air force from exterminating Assad’s enemies in Syria:
Twenty-four hours a day #UAV’s are monitoring the situation in the ISIS activity areas. All the detected targets are effectively engaged day and night in any weather conditions.
Now obviously one must consider the source here, but Kremlin spin tactics aside, one cannot help but be amazed with the pace at which this is apparently unfolding. If any of the above is even close to accurate, it means that Russia is on schedule to declare victory over ISIS (and everyone else it looks like) in a matter of weeks, which would not only be extremely embarrassing for Washington, but would also effectively prove that the US has never truly embarked on an honest effort to rid Syria of the extremist groups the Western media claims are the scourge of humanity.
Summed up in 10 priceless seconds…
Russia Escalates Syria Proxy War: Threatens Full Naval Blockade Of Syria
Last week, NATO’s supreme allied commander for Europe, General Philip Breedlove, suggested that Russia has effectively declared a no-fly zone in Syria.
That contention was supported by Moscow’s rather bold move to effectively instruct the US-led coalition to keep its planes out of the sky starting last Wednesday. Ultimately, The Kremlin has declared a monopoly on Syrian air space for the duration of Russia’s military campaign, marking an epic embarrassment for Washington, and serving notice to the anti-regime forces operating in Syria that there’s a new sheriff in town.
Well, don’t look now, but in addition to the de facto no-fly zone, some experts are out suggesting that Russia is set to use its Black Sea fleet to enforce a blockade on the Syrian coast. Here’s Sputnik:
Russia’s Black Sea Fleet may be used in Syria to blockade the Syrian coastline and deliver armaments, as well as possibly deliver artillery strikes, the head of Russian State Duma’s defense committee and former Black Sea Fleet commander Vladimir Komoyedov said.
“Regarding the large-scale use of the Black Sea Fleet in this operation, I don’t think it will happen, but in terms of a coastal blockade, I think that it’s quite [possible]. The delivery of artillery strikes hasn’t been excluded; the ships are ready for this, but there is no point in it for now. The terrorists are in deep, where the artillery cannot reach,” Komoyedov said.
Komoyedov added that the size of the naval grouping used in the operation will depend on the intensity of the fighting. He noted that currently, the navy’s Mediterranean flotilla is currently sufficient for actions in the given area.
Komoyedov also said that auxiliary vessels will certainly be used in the operation against ISIL to deliver armaments as well as military and technical equipment.
Meanwhile, the aerial bombardment continues unabated as Russian warplanes have reportedly destroyed “a terrorist base in the woods” where tanks – which are ironically Soviet made- were stationed. Here’s RT:
The Russian Air Force in Syria has conducted 25 sorties on 9 Islamic State installations in the last 24 hours, eliminating a disguised terrorist base equipped with tanks, a command center and a communication hub, the Defense Ministry reported.
Russian bombers taking off from Khmeimim airbase knocked out a terrorist base hidden in the woods near the city of Idlib, eliminating 30 vehicles, among which were several Soviet-made T-55 tanks.
“Six airstrikes hit the base, and the terrorists’ equipment was fully destroyed,” Konashenkov said.
And here’s the video which purportedly shows the attack on the hidden ISIS base:
While according to Russian weatherwomen, mother nature is smiling on The Kremlin’s efforts (via The Guardian):
It’s warm and sunny in Syria – and conditions are perfect for flying fighter jets and launching airstrikes, according to a weather report broadcast on Russian state television.
“Russian aerospace forces are continuing their operation in Syria. Experts say the timing for it was chosen very well in terms of weather,”said the forecaster in a segment aired on Rossiya 24 on Sunday, standing in front of a screen showing a Sukhoi Su-27 fighter jet with the words “flying weather”.
For those wondering how long it would be before an “accident” took place, “inadvertently” pitting Russian fighter planes against NATO, we got the answer on Monday as Turkey scrambled F-16s to the border after Russia allegedly violated Ankara’s air space. Here’s a bit of color from BBC:
Russia said the incident was a “navigational error” and that it has “clarified” the matter to Ankara.
Turkish jets patrolling the border were also “harassed” by an unidentified plane on Sunday, Turkey said.
Turkey, a Nato member, has called the Russian strikes a “grave mistake”.
Turkish Prime Minister Ahmet Davutoglu told Turkish TV that the rules of engagement were clear, whoever violates its airspace.
“The Turkish Armed Forces are clearly instructed. Even if it is a flying bird, it will be intercepted,” he said.
Only, that’s not true, because the first time Ankara shoots down a Russian “flying bird”, Erdogan will have a real war on his hands and will swiftly discover that while bombing air force-less Kurdish separatists with impunity is easy, dog fights with Russian fighter pilots are not, and just about the last thing Turkey needs with inflation soaring and the lira tumbling and elections looming is to go to war with Russia.
In any event, the situation is clearly escalating, and as the Russians get more bold with each passing NATO bluff and subsequent fold, the stakes get still higher. As hyperbolic as it may sound, the West is now one Erodgan miscalculation away from open warfare with Russia and Moscow looks to be just days away from enforcing a full naval blockade of what is rapidly becoming a Mid-East Kremlin colony.
Trans-Pacific Partnership Deal Struck As “Corporate Secrecy” Wins Again
Once again the corporatocracy wins as the so-called “Trojan horse” Trans-Pacific Partnership (TPP) trade agreement has been finalized. As WSJ reports, the U.S., Japan and 10 countries around the Pacific reached a historic accord Monday to lower trade barriers to goods and services and set commercial rules of the road for two-fifths of the global economy, officials said.
For the U.S., the TPP (reportedly) opens agricultural markets in Japan and Canada, tightens intellectual property rules to benefit drug and technology companies, and establishes a tightknit economic bloc tochallenge China’s influence in the region (likely forcing their hand into separate trade agreements).
However, Obama is likely to face a tough fight to get the deal through Congress(especially in light of presidential candidates’ opposition).
The US, Japan and 10 other Pacific Rim economies have reached agreement to strike the largest trade pact seen anywhere in two decades, in what is a huge strategic and political win for US President Barack Obama and Japan’s Shinzo Abe.
As The Wall Street Journal reports,
The deal, if approved by Congress, will mark an effective expansion of the North American Free Trade Agreement launched two decades ago to include Japan, Australia, Chile, Peru and several southeast Asian nations.
The trade deal has been in the works since 2008 but has been stymied by politically sensitive disputes, including a fight between the U.S. and Japan over the automobile industry.
Beyond that, however, it represents the economic backbone of the Obama administration’s strategic “pivot” to Asia and a response to the rise of the US’s chief rival, China, and its growing regional and global influence. It is also a key component of the “third arrow” of economic reforms that Mr Abe has been pursuing in Japan since taking office in 2012.
Biotechs, among others, are the big winners…
In pharmaceuticals and other industries, U.S. officials sought a deal that would be acceptable to other countries and as many members of Congress as possible, without triggering the outright opposition of a major business group. Many Democratic lawmakers and groups backing generic drugs and less expensive medicine didn’t want any more than five years of exclusivity for biologic drugs, and it wasn’t immediately clear if the compromise in the TPP would satisfy their concerns.
One of the last disputes to be resolved pitted Australia against the U.S., which was seeking up to 12 years of protection for biologic drugs against generic imitators. The two countries reached a complicated compromise that provides at least five and potentially up to eight years of exclusivity for biologics. Chile, Peru and other countries remained concerned about adding to the price of drugs through long exclusivity periods, according to people following the talks.
In another last-minute deal, Canada and Japan agreed to increase access to their tightly controlled dairy markets,allowing some American dairy products in, but New Zealand also persuaded the U.S. to accept more of its milk products. The sour milk fight caught the attention of Congress, where Sen. Ron Wyden (D., Ore.) and Rep. Paul Ryan (R., Wis.), two lawmakers overseeing trade policy, demanded that dairy producers in their states gain more access to Canadian consumers, a sensitive concession for Canada during its own election season.
But critics remain vocal…
U.S. labor unions and their allies among consumer and environmental groups are among the biggest critics of the TPP. The left-wing opposition has prevented Mr. Obama from getting many fellow Democrats—already skeptical of the deal’s benefits to U.S. workers—to support his trade policy.
An array of Republican lawmakers object to provisions that would strengthen the influence of labor groups, impinge on the ability of tobacco companies to fight against packaging rules and other laws overseas, and possibly harm local industries, from dairy farmers to sugar.
So it isn’t over yet… (as The FT reports)
The deal announced on Monday by trade ministers from the 12 countries still must be signed formally by the countries’ leaders and ratified by their parliaments. In the US Mr Obama is likely to face a tough fight to get the deal through Congress next year, especially as presidential candidates like Republican frontrunner Donald Trump have argued against the TPP.
Only a handful of Democrats support Mr. Obama’s trade policy, and Republican support is unpredictable in the 2016 election year, depending on the stance of presidential candidates and new leadership in the House. As it is, the deal can’t go to a vote before Congress until early next year.
The odds of passage in Congress will hinge in large part on the final language in a number of provisions, ranging from the strengthening of rights for labor unions to whether U.S. cigarette companies will face special limitations within TPP countries.
“I will carefully scrutinize it to see whether my concerns about rushing into a deal before meeting all U.S. objectives are justified,” Sen. Orrin Hatch (R., Utah), chairman of the Senate Finance Committee, said in a statement Sunday before the deal was completed.
Critics around the world have also lambasted the deal for being negotiated in secret and being biased towards corporations, criticisms that are likely to be amplified when the national legislatures seek to ratify the TPP in the months to come.
* * *
Finally, as we detailed previously, the most troubling aspect of the TPP, asserts Ellen Brown, is the Investor-State Dispute Settlement (ISDS) provision, which “first appeared in a bilateral trade agreement in 1959.” Brown continues:
According to The Economist, ISDS gives foreign firms a special right to apply to a secretive tribunal of highly paid corporate lawyers for compensation whenever the government passes a law … that [negatively impacts] corporate profits — such things as discouraging smoking, protecting the environment or preventing nuclear catastrophe.
Imagine a scenario in which the U.S., coming to its senses about climate change, imposes a revenue-neutral carbon fee on fossil energy. According to provisions of the TPP, a fossil-fuel company in a signatory nation could then sue the U.S. for lost profits, real or imagined.
The threat is not idle. In 2012, the U.S.’s Occidental Petroleum received an ISDS settlement of $2.3 billion from the government of Ecuador because of that country’s apparently legal termination of an oil-concession contract. Currently, the Swedish nuclear-power utility Vattenfall is suing the German government for $4.7 billion in compensation, following Germany’s phase-out of nuclear plants in the wake of Japan’s Fukushima disaster.
The ISDS provisions of the TPP are insidious: the means by which signatory nations voluntarily surrender national sovereignty to the authority of corporate tribunals, without appeal, and apparently without exit provisions. No wonder the negotiations are secret.
Packaged as a gift to the American people that will renew industry and make us more competitive, the Trans-Pacific Partnership is a Trojan horse. It’s a coup by multinational corporations who want global subservience to their agenda. Buyer beware. Citizens beware.
Australia Is “Going Down Under”: “The Bubble Is About To Burst”, RBS Warns
Thanks to a variety of idiosyncratic political crises and country-specific stumbling blocks, Brazil, Turkey, Malaysia, and to a lesser extent Russia, have received the lion’s share of coverage when it comes to assessing the EM damage wrought by the comically bad combination of slumping commodities prices, depressed Chinese demand, slowing global trade, and a “surprise” yuan devaluation.
Put simply, the intractable political stalemate in Brazil, the civil war in Turkey, the 1MDB scandal in Malaysia (and the fact that the country was at the center of the 1998 meltdown), and the hit Russia has taken from depressed crude prices mean that if you want to pen a story about emerging market chaos, those four countries have plenty to offer in terms of going beyond the generic “falling commodities + a decelerating China = bad news for EM” narrative.
But just because other vulnerable countries aren’t beset with ethnic violence and/or street protests doesn’t mean they too aren’t facing crises due to falling commodity prices and the slowdown of the Chinese growth machine.
One such country is Australia, which in some respects is an emerging market dressed up like a developed economy, and which of course has suffered mightily from the commodities carnage and China’s transition away from an investment-led growth model.
Out with a fresh look at the risks facing Australia is RBS’ Alberto Gallo. Notable excerpts are presented below.
* * *
From RBS
Australia has become a commodity focused economy, with an increasing exposure to China. For the past decades, Australia has been buoyed by the rapid Chinese expansion, which outpaced the rest of the world. Australia benefited from China’s strong demand for commodities given its investment-led growth model. China is Australia’s top export destination and 59% of those exports are in iron-ore. But as China struggles to manage its ongoing credit crunch and continues its shift to consumption-led growth Australia’s economy is likely to be hurt by lower demand for commodities.
The economy is slowing due to external headwinds. Last quarter, Australian GDP grew at just 0.2% QoQ, its lowest level in the last three years (and below the market consensus of 0.4%). According to the Australian Bureau of Statistics (ABS) the growth rate was driven by higher domestic demand, while lower exports and a declining mining industry continue to present headwinds. Mining’s gross value-added to GDP fell by – 0.3% QoQ in Q2.Despite Reserve Bank of Australia (RBA) governor, Glenn Stevens, citing lower growth as potentially a “feature of the post financial crisis world” meaning that “potential growth is a bit lower”, Australia’s slowing economy is more than just a victim of the post financial crisis world, in our view. Rising unemployment coupled with soaring house prices and vulnerabilities in the commodity and construction sectors are all cause for concern.
Unemployment is rising, and could increase further, given the high proportion of employment in the vulnerable mining and construction sectors. Unemployment is at 6.2%, just shy of the ten year high of 6.3%. Although the number itself is not worryingly high, unemployment has been rising for the last three years, and is likely to continue in our view. Mining and commodity sectors employ 4.5% of the workforce. With lower demand for commodities from China, unemployment in these sectors could rise. Also, unemployment may rise in the construction sector (8.9% of workforce) given vulnerabilities in the housing market, as we explain below.
There are domestic headwinds, too. The housing market is vulnerable, with overvalued properties and over-levered households. House prices in Australia have risen by 22% in the last three years (according to the Australian Residential Property Price Index), with property prices in Sydney overtaking those in London. House prices have risen faster than both disposable income and inflation in recent years, with the gap between growth in house prices and household income closing by over 40% in the last three years.
If unemployment continues to rise, due to losses in mining and construction, the house price bubble could pop. Rising unemployment in the mining industry, due to its exposure to a slowing China, will create risks in the property market; house prices are likely to fall as the newly unemployed could be forced to sell.
The RBA has less dry powder now. The central bank has cut rates twice this year, from 2.25% in March to 2% now. As the domestic economy slows, accommodative policy is needed to encourage investment, particularly in non-mining sectors, to boost growth and create jobs. However, with rates already at 2%, there is much less headroom for monetary easing to offset a downturn in Australia.
The worst is yet to come, in our view.
* * *
So summarizing in the simplest possible terms: slowing demand for commodities leads to rising unemployment which means trouble for overleveraged households and that’s bad news for the country’s housing bubble. Meanwhile, the RBA is running out of ammo.
If ever there were a bearish narrative that’s easy to grasp, surely that’s it.
Of course thanks to the ascension of Malcolm Turnbull, Australia may have a secret weapon…
Emerging Market Meltdown May Plunge Global Economy Into Recession
When the Fed effectively telegraphed its new reaction function last month, the FOMC served notice to the world that it was not only acutely aware of what’s going on in emerging markets, but also extremely worried about the possibility that hiking rates could end up triggering something far worse than the “tantrum” that unfolded across EM in 2013.
The dire scenario facing the world’s emerging economies has by now been well documented.
In short, slumping commodity prices, depressed raw materials demand from the Chinese growth engine, a slowdown in global trade, and a loss of competitiveness thanks to the yuan devaluation have conspired with a number of idiosyncratic, country-specific political risk factors to wreak havoc on EM FX and put an immense amount of pressure of the accumulated stash of USD-denominated reserves.
For the Fed, this presents a serious problem. Hiking rates has the potential to accelerate EM capital outflows and yet not hiking rates does too. That is, a soaring dollar will obviously ratchet up the pressure on EM FX but then again, because the uncertainty the FOMC fosters by continuing to delay liftoff contributes to a gradual capital outflow, not hiking rates endangers EM as well.
As we’ve been keen to point out, DM central banks aren’t operating in a vacuum. That is, if a policy “mistake” serves to tip EM over the edge, the crisis will feed back into the world’s advanced economies forcing DM central banks to immediately recant any and all hawkishness. For more evidence of EM fragility and the link between an emerging market meltdown and DM stability, we go to FT:
Emerging economies risk “leading the world economy into a slump”, with lower growth and a rout in financial markets, according to the latest Brookings Institution-Financial Times tracking index.
Released ahead of the annual meetings of the International Monetary Fund and World Bank in Lima, Peru, the index paints a much more pessimistic outlook than the fund is likely to predict later this week.
According to Eswar Prasad of Brookings, weak economic data across most poorer economies has created “a dangerous combination of divergent growth patterns, deficient demand, and deflationary risks”.
The Tiger index — Tracking Indices for the Global Economic Recovery — shows how measures of real activity, financial markets and investor confidence compare with their historical averages in the global economy and within each country.
The extreme weakness in the emerging market component of the Tiger growth index shows that data releases have been significantly weaker than their historic averages.
Divergence is almost as important as a new trend highlighted in the index, however, with India emerging as a bright spot and commodity importers such as Brazil and Russia mired in recession.
Because emerging economies are now much more important in the global economy and growth rates are still higher than their developed counterparts, global growth is still hovering around 3 per cent, close to its long-term average.
The concern, according to Mr Prasad is that the slump in emerging economies’ confidence will infect advanced economist in the months ahead.
Of course the trouble in EM portends a drain in global FX reserves. This is what Deutsche Bank has dubbed the end of the “Great Accumulation” and, all else equal, it’s a drain on global liquidity as exported capital from commodity producers turns negative. Here’s BNP on what the picture looked like in Q2:
The Q2 2015 COFER (Currency Composition of Foreign Exchange Reserves) report from the IMF contained some key changes. For the first time, the IMF reported the list of 92 countries that are providing reserve allocation data. Importantly China started reporting its FX allocations for the first time, although still on a partial basis, with the goal of increasing the reported portfolio to full coverage of FX reserves over the next two to three years. A full inclusion of China would push the share of allocated to total reserves over 80%, making COFER reserve allocation data much more representative and relevant for analysing EM FX reserve management trends.
On a valuation adjusted basis, we estimate that total foreign exchange reserve holdings declined by USD 107bn in Q2. The IMF no longer reports the split between advanced and emerging economies but it’s very likely that much of this decrease was due to EM FX intervention.
In other words, the dynamics that have propped up the global financial system for decades are now unwinding and at a much more fundamental level than what occurred in 2008. Emerging markets are now liquidating their USD cushions and a combination of low commodity prices and hightened political risks threatens to set the world’s most important emerging markets back decades.
Importantly, it’s no longer a matter of whether DM central bankers can correct the problem by adopting policies that will serve to boost global demand, but rather if the world’s most vaunted central planners can keep things from completely unraveling and on that note we close with the following from the above cited Eswar Prasad:
“The impotence of monetary policy in boosting growth and staving off deflationary pressures has become painfully apparent, especially when it is acting in isolation and when a large number of countries are resorting to the same limited playbook.”
end
Tanker Rates Soar As China Hoards Saudi’s “Cheap” Oil Amid Biggest Price Cut Since 2012
The oil patch is full of conundra currently… crude price declines globally to near 2009 lows but supertanker day-rates (demand) soaring over $100,000 for the first time since 2008. However, today’s news that Saudi Arabia is slashing its price (to a $3.20 discount to the bechmark with the largest price cut since 2012)suggests in an effort to shore up tumbling reserves and capture more market share amid dwindling demand (and excess supply) – a price war has begun led by US ally Saudi Arabia… and China is hoarding crude at these low-low prices.
With crude prices stuck near multi-year lows…
Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand. As Bloomberg reports,
Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement.
The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg.
“They needed to cut pricing to keep Saudi crude competitive with other grades,”Robin Mills, a Dubai-based analyst at Manaar Energy Consulting, said by phone.“Demand has been a bit weaker, leading to the cuts.”
But, the paradox is that ‘demand’ appears extremely high judging by the soaring rate for super-tankers…
As Bloomberg reports, the world’s biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.
Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route,earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.
Bookings by Chinese oil companies surged this week to collect oil from regions including the Middle Eastand West Africa, the world’s biggest loading areas, according to George Los, a New York-based analyst at shipbroker Charles R. Weber Co. The Asian country imported 26.6 million metric tons of crude in August, 5.6 percent more than a year earlier, according to customs data.
“China was particularly more active in the market with a record number of fixtures this week from all areas,” said Los. “I hadn’t expected that and it came as a surprise,” he said, adding that it may be difficult for rates to rise much higher.
* * *
The bottom line appears to be that China is “buying low” and squeezing suppliers which is keeping prices suppressed even as demand appears to be soaring (from China’s hoarding).
Saudi Petrodollar Reserves Fall To 32 Month Low Amid Crude Carnage, Proxy Wars, Budget Bleed
Two weeks after Beijing shifted to a new currency regime in an effort to bring about a managed yuan devaluation, we explained why it really all comes down to the death of the petrodollar. When China began to burn through its FX reserves in a frantic attempt to put the deval genie back in the bottle, the world suddenly awoke to what it means when emerging markets begin burning through their rainy day funds.
Of course the reserve burn had been unfolding for quite sometime. That is, China’s epic UST liquidation was simply the most dramatic example of a dynamic that was already at play. As Deutsche Bank noted, the “Great Accumulation” ended months ago, as the world’s emerging economies began to dip into their USD war chests to defend against commodity currency carnage and the attendant capital outflows.
Nowhere is this more apparent than in Saudi Arabia, where Riyadh has been forced to tap the SAMA piggy bank amid the largely self inflicted pain from slumping crude, the war in Yemen, and the necessity of maintaining social order by preserving the lifestyle of everyday Saudis. Now, as the fiscal deficit balloons to 20% of GDP and falling crude prices put the kingdom on the path to a current account nightmare, reserves have fallen to their lowest levels in 32 months. Here’s Bloomberg:
Saudi Arabia’s net foreign assets fell to the lowest level in more than two years in August and demand for loans among private businesses slowed, as the kingdom grappled with oil prices below $50 a barrel.
Falling for a seventh month in a row, net foreign assets held by the central bank dropped to $654.5 billion, the lowest since February 2013. That compares with $661 billion in July, the Saudi Arabian Monetary Agency said in its monthly report. Credit to private businesses grew 8.4 percent, the slowest rate since 2011.
The biggest Arab economy is showing signs of strain after oil prices tumbled about 50 percent over the past 12 months, pushing authorities to search for savings and sell bonds for the first time since 2007. The government, so far, has been short on specifics on how it will reduce spending, though planners are said to be considering measures long viewed as off-limits or unnecessary, including phasing out fuel subsidies and investing in renewable energy.
The uncertainty may slow demand for loans for the rest of the year, Dima Jardaneh, Dubai-based senior economist at investment bank EFG-Hermes, said by phone. “Until there is more clarity on issues like government spending cuts, there will be a lot of wait-and-see attitude from the private sector.”
Importantly, any meaningful intervention on the part of Riyadh in Syria will only serve to increase the SAMA strain.
For those interested in getting a read on where things are headed both in terms of global monetary policy and geopolitics, watch the Saudi FX reserve figure closely as it not only serves as a guide to how long the kingdom can hold out in the literal war against the Houthis in Yemen and the figurative war against the US shale complex, but also proxies (along with Chinese reserves of course) for the extent to which the quantitative tightening thesis is playing out in EM.
Euro/USA 1.1230 up .0033
USA/JAPAN YEN 120.27 up .407 (and thus the necessary ramp for bourses around the globe)
GBP/USA 1.5183 up .0005
USA/CAN 1.3098 down .0051
Early this Monday morning in Europe, the Euro rose by 33 basis points, trading now just above the 1.12 level rising to 1.1230; 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, and the successful ramping of the USA/yen cross,causing all bourses to rise. Last night the Chinese yuan fell in value . The USA/CNY rate at closing last night: 6.3570, (yuan weakened)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a southbound trajectory as settled down again in Japan up by 41 basis points and trading now just above the all important 120 level to 120.27 yen to the dollar.
The pound was up this morning by 5 basis points as it now trades just below the 1.52 level at 1.5183.
The Canadian dollar reversed course by rising 51 basis points to 1.3098 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 up 280.36 or 1.58%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses mostly in the green … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai closed (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)green/India’s Sensex in the green/
Gold very early morning trading: $1130.00
silver:$15.25
Early Monday morning USA 10 year bond yield: 2.00% !!! flat in basis points from Friday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.85 par in basis points.
USA dollar index early Monday morning: 96.30 up 10 cents from Friday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3559 down .0065 (Chinese yuan flat/holiday)
Biggest Short Squeeze In 4 Years Leads To Longest Winning Streak Of 2015
Everything must be awesome, right!!!
This 5-day run is even bigger than the ramp off the October 2014 Bullard lows…
This is the biggest 2-day short-squeeze since October 2011 (the last time the market squeezed like this was after the Black Monday plunge… which saw new lows hit)
Volume was abysmal…
Across asset classes since Payrolls…
* * *
Off Friday’s lows, the move in stocks is epic…
On the day, cash indices surged again… (note that S&P remains just shy of the 50-day moving average at 2000.25)..
But The Dow rallied back to its 50DMA…
As VIX was clubbed like a baby seal…5th day in a row… (biggest 5 day drop since mid July)
As USDJPY did the heavy-lifting..Spot The Difference..
Energy was the best-performing sector (most squeezed) as crude surged…
Notably, financial stocks bounce is entirely decoupled from credit markets…
While the broad credit market rallied, No deals priced in the high-yield market on Monday.
The primary market has been shut since September 25. Meanwhile spreads continue to widen. The average high-yield bond spread hit a new 2015 high of T+683bp.
The average spreads on Double B, Single “B” and Triple “C” rated credits hit new 2015 highs of T+477bp, T+700bp and T+1323bp, respectively. The high-grade and high-yield average spread differential hit a new 2015 high of 503bp.
Treasury yields continued to spike all day…
The USD was heavily bid during the US session after weakness again overnight…
Silver has been the biggest winner post-payrolls as Gold, Copper and Crude are all clustered around the same gains…
Charts: Bloomberg
It Doesn’t Matter (Until It Does)
end
Bulls Beware: Days After Calling For Bear Market, Gartman Declares The “Bearish Run In Global Stocks Is Over”
It was just last Tuesday, when the market was poised for continued deterioration, that the long-awaited savior for the bulls emerged when Gartman turned mega-bearish again, warnings that a “Bear Market Will Take S&P To 1420-1550.” Specifically, everyone favorite comic flip-flopper said “there are still many who deny that this is a bear market, but it is that and we fear that it has a good distance to the downside yet to travel. Merely to get to “The Box” shall take the S&P to 1420-1550! Rallies are to be sold; weakness is not to be bought.”
This announcement proceeded to unleash one of the biggest market rallies in recent months,
It appears that all that is now over, and overnight, the bear market has been called off when Gartman flopped yet again, this time with his latest “bold” call, and has, once again, turned “bullish of stocks” calling that end of the “bearish run in global stocks.” To wit:
SHARE PRICES TURNED VIOLENTLY AND SHARPLY HIGHER FRIDAY here in the US, in Canada and in Europe, and they have continued to strengthen in Asian share dealing. Further as believers in and followers of “Reversal” days on the charts we are this morning making the bold… indeed, for us, the very bold … statement that the bearish run in global stocks is over; that the bearish run to the downside in US shares is over and that we are henceforth to err bullishly of shares, diametrically opposed to the position we have had for the past several months wherein we erred steadily… almost relentlessly… bearishly. We made the change from manifestly bearish of commodity prices to one that was incipiently bullish of them several weeks ago, and we made the shift from having been even more manifestly bearish of crude oil for the past many months to one incipiently bullish instead, and we are now finishing the trifecta as we turn bullish of stocks.
You know what to do!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!.
Dow Surges 650 Points Off “Dismal Jobs Data” Lows, Small Caps Up 5%!
Small Caps are up 5% off post-payrolls lows and The Dow is up over 650 points as the lower-for-longer, please-give-us-QE4 panic-buying ramp continues… and all this with no Bullard (for now).
Squeeeeeeeze….
As The Dow charges on…
Charts: Bloomberg
On the heels of China’s, Japan’s, Brazil’s, and Europe’s Services PMI weakness (and US Manufacturing PMI and ISM weakness), Markit’s US Services PMI printed 55.1 (missing exectations of 55.6) and dropping to its lowest since June. This catch-down to Manufacturing weakness suggests the mid-year bounce is well and truly dead as even Markit admits, “it remains unclear as to whether growth will weaken further as we move into Q4.” Additionally, after its exuberant spike to 10 year highs in July, ISM Services continued to drop back (to 56.9 missing expectations) .
Services (blue) appear to catching down to Manufacturing (red) in the ISM and PMI surveys…
After spiking to 10-year-highs in July, ISM Services continues to slide back to reality.
Just remember:
- *ISM’S HOLCOMB IS HOPEFUL MANUFACTURING IS NEARING BOTTOM
So hope is what we are waiting for.. that could be a problem.
On the inflation front, average prices charged decline for the second month running, which represented the first back-to-back declines in output charges since the survey began six years ago.
Looking ahead, service providers are optimistic about the business outlook, but the degree of positive sentiment dipped to its second-lowest since June 2012
The US economic growth slowed in the third quarter according the PMI surveys, down to around 2.2%. But this largely represents a payback after growth rebounded in the second quarter, suggesting that the economy is settling down to a moderate rate of growth in line with its long term average.
Hiring also remains relatively robust, albeit down from earlier in the year,again suggesting that the economy has shifted down a gear but remains in good health.
At the moment it remains unclear as to whether growth will weaken further as we move into the fourth quarter.However, with inflationary pressures waning, policymakers may have some breathing space to gauge the extent of any slowdown. Lower fuel costs helped push average prices charged for goods and services dropping at steepest rate for nearly five years.
Charts: Bloomberg
end
wow!! this is a first: 3 month treasury bills sell for 0% coupon. NIRP next:
(courtesy zero hedge)_
Treasury Sells 3-Month Bills At 0% Yield For First Time Ever
“Investors” are so desperate to hold on to short-term paper that they paid $100 for a 3-month Treasury-bill at today’s auction. That is a 0% yield – for the first time ever – lower even than the auction right after Lehman’s bankruptcy in Nov 2008.
Chart: Bloomberg
It is probably safe to say that NIRP next, followed by more negative yields further to the right as the US gradually becomes Europe.
US Services Economy “Bounce” Dies As ‘Hope’ Tumbles To 39-Month Lows
On the heels of China’s, Japan’s, Brazil’s, and Europe’s Services PMI weakness (and US Manufacturing PMI and ISM weakness), Markit’s US Services PMI printed 55.1 (missing expectations of 55.6) and dropping to its lowest since June. This catch-down to Manufacturing weakness suggests the mid-year bounce is well and truly dead as even Markit admits, “it remains unclear as to whether growth will weaken further as we move into Q4.” Additionally, after its exuberant spike to 10 year highs in July, ISM Services continued to drop back (to 56.9 missing expectations) .
Services (blue) appear to catching down to Manufacturing (red) in the ISM and PMI surveys…
After spiking to 10-year-highs in July, ISM Services continues to slide back to reality.
Just remember:
- *ISM’S HOLCOMB IS HOPEFUL MANUFACTURING IS NEARING BOTTOM
So hope is what we are waiting for.. that could be a problem.
On the inflation front, average prices charged decline for the second month running, which represented the first back-to-back declines in output charges since the survey began six years ago.
Looking ahead, service providers are optimistic about the business outlook, but the degree of positive sentiment dipped to its second-lowest since June 2012
The US economic growth slowed in the third quarter according the PMI surveys, down to around 2.2%. But this largely represents a payback after growth rebounded in the second quarter, suggesting that the economy is settling down to a moderate rate of growth in line with its long term average.
Hiring also remains relatively robust, albeit down from earlier in the year,again suggesting that the economy has shifted down a gear but remains in good health.
At the moment it remains unclear as to whether growth will weaken further as we move into the fourth quarter.However, with inflationary pressures waning, policymakers may have some breathing space to gauge the extent of any slowdown. Lower fuel costs helped push average prices charged for goods and services dropping at steepest rate for nearly five years.
Charts: Bloomberg
Bad News Piles On For Hedge Fund Hotel SunEdison: First $315MM Margin Call, Now Mass Layoffs
It has been a long way up and quick ride down for SunEdison but bad news keeps piling up for the hedge fund hotel even as it dead-cat-bounces again. As the stock bounces, just as it bounced in September after Steve Cohen’s Point72 exposed their stake and JPM jumped to the rescue, uncertainty remains extreme. Amid a surge in debt and increasingly negative operating cash-flow, the plunge in stock (asset) price may have triggered a cross-collateral margin call of around $315 million. Furthermore, mass layoffs are on the cards as the CEO attempts to “optimize” the business.
Another squeeze…
Charts: Bloomberg
Some investors have dumped the stock due to low oil prices and turmoil in commodity markets — a problem for other public solar companies as well.However, short sellers have targeted SunEdison more than its competitors.
Recent acquisitions have nearly doubled SunEdison’s debt load and increased negative operating cash flow. The Vivint acquisition, which wasn’t an obvious fit with SunEdison’s culture and traditional business of building large solar-power plants, added to investor skepticism.
The stock has become a playground for hedge funds.
But uncertainty remains extreme…
SunEdison may have triggered a collateral call on its $410 million margin loan, a report from CreditSights says,citing a decline in the financially-linked TerraForm Power Inc (known as a “yieldco,” the spin-off of a related business venture), which fell 36% in September and continued to slide, down 49% year to date.
After sifting through four different SEC documents – a 10Q at SunEdison, an equity prospectus at TerraForm, a convertible bond 8K from SunEdison and a margin loan agreement at SunEdison… the report concludes it is possible SunEdison to be dragged down by TerraForm and the added burden of posting cash collateral for the margin loan that was backed by stock.
CreditSights says the margin loan is yet another example of lack of disclosure but they reiterate their our conclusion on the collateral call.
As Creditsights concludes…
there are a lot of moving parts to SunEdison and the more we find the more negative we get on the sponsor company of TerraForm Power.
And now, as GreenTechMedia.com’s Stephen Lacey reports, SunEdison is now culling its workforce.
According to a company-wide memo from CEO Ahmad Chatila released on September 30,SunEdison will be laying off around 10 percent of its 7,300 employees. Many employees received notices on Friday.
“Overall, the proposed changes result in an overall reduction of about 30%, 20% being from non-labor expenses and about 10% from headcount reduction. And this process will take some time to complete. Most of the changes will be announced during the fourth quarter with some final steps expected in the first quarter of 2016,” reads the memo.
The staff reduction will come through integrating acquired companies and “eliminating redundancy.” It will also come from simplifying management structures in different areas of the business, and focusing on a smaller range of geographic regions.
The cuts have reached all the way to the VP level, but not the executive level. Sources within the company expressed worry and surprise that the cuts didn’t impact the architects of the Vivint acquisition.
When asked for comment, SunEdison would not address the cuts specifically.
“We are proposing to take several actions around the world to optimize our business, align with current and expected market opportunities and position ourselves for long-term growth. In October we plan to provide investors with a more comprehensive view of our business structure and go-forward strategic growth plan in a conference call,” wrote spokesperson Gordon Handelsman in an email.
More details on SunEdison’s plans to “align with current and expected market opportunities” will be forthcoming this week.
DuPont Stock Soars After CEO Quits And Company Slashes Q3 EPS Guidance By Nearly 50%
Several months ago activist Nelson Peltz may lost his proxy fight against DuPont, but in retrospect he may be counting his lucky stars as moments ago the company became only the latest chemical giant to admit the gruesome reality of the global economic slump driven by a historic USD surge, when it not only cut its second half operating EPS from $0.75 to $0.40, in the process also slashing full year operating EPS from a prior guidance of $3.10 to just $2.75 mostly blaming Brazil, but in an even bigger shocker also reported that its CEO and Chairman Ellen Kaufman is retiring from the company effective October 16.
First, the reason for the dramatic guidance cut, from the company:
DuPont announced that it now expects operating earnings per share for the full year to be approximately $2.75, compared with the prior guidance of $3.10. The revised outlook primarily reflects continued strengthening of the U.S. dollar versus currencies in emerging markets, particularly the Brazilian Real; and a further weakening of agricultural markets, primarily in Brazil. The new guidance assumes full-year currency impacts of $0.72 per share, versus the prior expectation of approximately $0.60 per share. Excluding the impact of currency, the revised guidance for full-year operating earnings per share, including expected benefits from share repurchases and cost savings, represents an approximately 3 percent increase in operating earnings per share year over year. The company now expects second-half operating earnings per share to be approximately $0.40, compared with the prior guidance of $0.75. Approximately 25 percent of expected second-half operating earnings will be earned in the third quarter. Prior year operating earnings were $3.36 and $0.96 per share for the full year and second-half 2014, respectively. Reconciliations of non-GAAP measures are included at the end of this release.
Demand for crop protection and seed products, primarily in Brazil, further weakened in the third quarter impacted by macroeconomic and competitive pressures. In Brazil, where the planting season is in progress, tighter farmer profit margins and credit are causing growers to be more cautious in their spending. The company is experiencing reduced demand for crop protection products reflecting low insect pressure and lower seed volumes as growers are expected to reduce hybrid corn planted area.
The U.S dollar continues to strengthen versus currencies in emerging markets. The Brazilian Real has declined more than 60 percent year over year and approximately 20 percent since the company reported second-quarter results.
In response to these macro conditions, the company announced that it is accelerating, by one year, its operational redesign cost saving actions and as result, expects to achieve $1.3 billion of savings on a run rate basis by the end of 2016. In addition, the company announced its commitment to achieving additional cost savings as a part of its operational redesign and is targeting approximately $1.6 billion on a run rate basis by the end of 2017. Plans related to the additional cost savings are expected to be finalized in the fourth quarter.
Nick Fanandakis, DuPont’s Chief Financial Officer, said, “As macro conditions have deteriorated further, we are intensifying our effort to offset these pressures with further productivity improvements and cost savings, while making disciplined and targeted investments in innovation to increase value for shareholders over the long term. While we are experiencing challenging market conditions this season in Brazil, we continue to see long-term strategic growth opportunities for our products. Over the long term, we believe our pipeline of new products and our portfolio of capabilities position us well in global agriculture markets.”
And as for the retirement of Ellen Kaufman…
Ellen Kullman, Chair and CEO of DuPont, announced that she will retire from the company effective October 16. On that date, Edward Breen, a current member of the DuPont Board of Directors, will assume the role of Interim Chair and CEO of DuPont. The Board has engaged an executive recruitment firm to identify a full-time replacement.
“Over the past seven years, with the dedication of our entire team, we have transformed this great company by focusing our portfolio, streamlining the organization, and driving innovation that leverages our unique science and engineering capabilities. With a strong foundation in place now is the right time for a new leader to continue to drive the pace of change to capitalize fully on the opportunity ahead,” said Kullman. “I want to express my sincere thanks and admiration to all of my DuPont colleagues around the world. I have complete confidence that they will realize the enormous potential of the next generation DuPont.”
“We thank Ellen for her extraordinary leadership as Chair and CEO of DuPont. During more than 27 years with the company, Ellen has consistently led constructive change by focusing the organization on identifying and solving our customers’ needs. As our Chair and CEO, Ellen led DuPont through the global recession and the dramatic transformation of the last several years with the highest standard of integrity and commitment,” said Alexander Cutler, DuPont’s Lead Independent Director.
Despite the collapse in full year EPS, the stock is surging and is now up 10% on a day in which the company just cut its 2015 EPS by 12%,
for the simple reason that the market now believes that Nelson Peltz will redouble his activist campaign to soak up what little free cash flow the company has and load up the company with even more debt, to distribute the proceeds to shareholders as fast as possible before the next leg down in the global economy.
end
How Bad Can This Get, And How Fast?
Submitted by Raul Ilargi Meijer via The Automatic Earth,
There’s so much negative real bad economic and financial news out there that it’s hard to choose a ‘favorite’, but I guess I’m going to have to go with what underlies and ‘structures’ it all, the IIF stating that for the first time since 1988 and the Reagan presidency, there’s more money flowing out of emerging markets than there’s flowing in. That is for sure a watershed moment.
And no, that trend is not going to be reversed either anytime soon. Emerging economies, even if they wouldn’t include China -but they do-, have relied exclusively on selling ‘stuff’ to the rich world which combined cheap commodities with cheap labor, and now they see their customer base shrink rapidly just as they were preparing to harvest the big loot.
Now, I hope I can be forgiven for thinking from the get-go that this was always a really dumb model. That emerging nations would provide the cheap labor, and the west would kill of its manufacturing base and turn into a service economy.
This goes very predictably wrong if and when we figure out that A) economies that don’t manufacture anything can’t buy much of anything, and B) that we can sell those services our economies are ‘producing’ only to ourselves, as long as the emerging nations maintain a low enough pay model to make their products worth our while to import.
It makes one wonder how many 6 year-olds would NOT be able to figure this out. In the same vein, how many of them would be hard put to understand that our economies, overwhelmed by, and drowning in, debt, cannot be rescued by more debt? Here’s thinking the sole reason so many of us don’t get it is that we’ve been told it’s terribly hard to grasp, and you need a 10-year university course to ‘get it’.
I see a bad US jobs report coming in as we speak, and that’s not really saying much of anything. The damage not only runs far deeper than those massaged reports, it’s also already been done ages ago. Non-farm employment reports are Brooklyn Bridge-for-sale territory.
We’d all be much better off looking at the $11-13 trillion in ‘value’ lost from global equity markets in Q3. Or, for that matter, at Goldman’s statement that, and I’m only slightly paraphrasing here, only companies buying up their own stocks could save the S&P 500 for 2015.
Think about it: we don’t make much of anything anymore, and what we do make hardly anybody wants to buy, so we issue debt and buy it up ourselves. This may well be presented as a clever ‘investment’ model, but I aks of you: how much closer to eating our own excrements are we comfortable getting?
Stock buybacks can have strategic advantages in specific circumstances in healthy economies, but massive buybacks on the back of too-cheap credit/debt is not one of those circumstances. It’s desperation writ very large.
One other article that stuck out, because it brings into the bright shining limelight the longtime Automatic Earth assertion that we are headed for a disastrous “multiple claims to underlying real wealth”, is Paul Brodsky’s piece served by Tyler Durden. It has far more value than any alleged jobs article, because it describes the real world, not some distorted fantasy:
There Are Five Times More Claims On Dollars As Dollars In Existence
[..] the data show plainly there are five times as many claims for US dollars as US dollars in existence. Does this matter to investors? Well, yes, it matters a lot. Not only is there not enough money to repay outstanding debt; the widening gap between credit and money is making it more difficult to service the debt and more difficult for nominal US GDP to grow through further credit extension and debt assumption.
Remember, only a dollar can service and repay dollar-denominated debt. Principal and interest payments cannot be made with widgets or labor, only dollars. This means that future demand and output growth generated through more credit issuance and debt assumption is self-defeating. In fact, it adds to the problem.
[..] the value of dollar-denominated assets is not supported by the money with which it is ostensibly valued. This has not been a problem historically because the proportion of un-reserved credit has been low relative to asset values and cash flow. As we are seeing today, however, it is becoming a significant problem because balance sheets are already highly levered and zero-bound interest rates chokes off the incentive to refinance asset prices higher.
If the total value of US denominated assets is, say, $100 trillion, and the US dollar money stock is somewhere around $12 trillion, then the inescapable implication is that the market’s expects either: a) $88 trillion more US dollars will be created in the future to fund the purchase of the gross asset pool at current valuations; b) there has to be a decline in the nominal value of aggregate assets, or; c) both.
The US is not going to ‘create’ $88 trillion. More debt cannot solve this. And so the only option available is a huge decline in asset ‘values’. ‘Values’ that have been grossly distorted for years now, and which we all could have known can’t be kept from falling back to earth indefinitely.
Just Friday morning, we saw 3 other key indicators all point way down. That’s not in itself peculiar or anything, what’s peculiar is that it’s taken so long for people to figure out which way the wind blows. And I betcha, most still won’t get it. Because they’re all exclusively looking for signs of a recovery.
They’ve been looking for 8 years or so now, and there’s always some piece of data that can be found to feed the blinders, but it’s all been nonsense for 8 years running.Your economy, my economy, and the global economy, can and will not recover, and certainly not as long as more debt is injected in our already insanely overindebted financial systems.
You can’t fight historically unequaled amounts of debt with even more debt. But yeah, well, that’s the only trick our pony can think of. Those 3 key indicators -and there’s more where they came from- are the Guardian Gauge:‘Destruction Of Wealth’ Warning Looms Over Stocks, the Global Dow: Key Global Equity Index Has Fallen Off The Precipice and the IIF’s take on net capital flows for global emerging markets I started out with, Is This The Mother Of All Warnings On Emerging Markets?
I don’t want to make this another of those endless articles, but do click the links, and do read up on each of them. And then shiver. Have a stiff drink. Unless you’re still looking for a recovery. And let’s not forget, yes, it’s true that massive stock buybacks in the US, Europe, perhaps even China, as well as more QE to infinity and beyond, may save a bunch of numbers and you might be sitting pretty yet under the yuletide tree.
But the simplest of principles stands no matter what: there’s no way out of this that doesn’t lead through the exact kind of massive debt deleveraging that all governments and central banks are ostensibly trying desperately to prevent.And which will make the debt deflation, certainly after 8 years of trying to push the 180º opposite way, epic and monumental.
On the bright side: at least if you would have read the Automatic Earth through those past 8 years, you would have known and hopefully been prepared for that debt deflation. It’s not as if it’s something new or unexpected, not around here.
$13 trillion in market losses in just one quarter would be very hard to make up for even in very favorable circumstances. We have no such circumstances. We’ve built our very lives on squeezing China et al for 27 years, and issuing more debt as if there’s no tomorrow – sort of a self-fulfilling prophecy -, and now we’ve belatedly realized that there’s a time limit on that model.
But hey, by all means, it’s your money, and it’s your life,so do keep on betting on that recovery, and the return to ‘normal’, whatever that once was. Put it all on red. Go crazy! You do risk becoming a lonely crowd though. Meanwhile, those of us down here with our feet planted in the real earth have just this one question:“How bad can this get, and how fast?”.
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