oct 14/Gold rises as the bankers do everything in their power to contain gold/silver rises above 16.00 dollars/huge gain of 7.74 tonnes of gold inventory at the GLD/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1180.10 up $14.30   (comex closing time)

Silver $16.10  up 20 cents.

In the access market 5:15 pm

Gold $1185.60

Silver:  $16.13

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 1 notice for 5,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.52 tonnes for a loss of 95 tonnes over that period.

In silver, the open interest rose by a considerable 1520  contracts despite the fact that silver was up by only 4 cents on yesterday. I guess in silver nobody of importance wants to leave the arena.  The total silver OI now rests at 161,346 contracts In ounces, the OI is still represented by .806 billion oz or 114% of annual global silver production (ex Russia ex China).

In silver we had 1 notice served upon for 5,000 oz.

In gold, the total comex gold OI rose to 435,928 for a gain of 2299 contracts.  We had 0 notices filed for nil oz today.

We had a huge increase  in tonnage  at the GLD to the tune of 7.74 tonnes /   thus the inventory rests tonight at 694.94 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex.   In silver, we had no changes in silver inventory at the SLV  / Inventory rests at 315.152 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 a considerable 1520 contracts up to 161,346 despite the fact that silver was up  by only 4 cents with respect to yesterday’s trading.   The total OI for gold rose by 2299 contracts to 435,928 contracts, despite the fact that gold was up $0.90 yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

plus

Asian , European and Russian/Middle eastern affairs

 

8 USA stories/Trading of equities NY

 

9.  Physical stories

 

Let us head over to the comex:

The total gold comex open interest rose from 433,629 down to 435,928  for a  of gain of 2299 contracts despite the fact that gold was up $0.90 with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter of these developments continued but a slower pace.  The new active delivery month we enter is October and here the OI fell by 126 contracts down to 1142. We had 0 notices filed yesterday so we lost 126 contracts or 12,600 additional oz will not stand for delivery.  The November contract went up by 28 contracts up to 240. The big December contract saw it’s OI fall by 219 contracts from 295,171 down to 294,952. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was  179,298 which is fair. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 153,172 contracts.
Today we had 0 notices filed for 100 oz.
And now for the wild silver comex results. Silver OI rose by a considerable  contracts from  159,826 up to 161,346 despite the fact that the price of silver was up  to the tune of only 4 cents yesterday.  Since October is not an active month, we will not see a huge contraction in the OI standing for delivery. The bankers continue to pull their hair out trying to extricate themselves  from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena. We enter the October contract month which saw it’s OI rise by 2 contracts up to 14. We had 0 contracts filed yesterday so we  gained 2 contracts or an additional 10,000 silver ounces that will stand for metal in this non active month of October. The November contract month saw it’s OI remain constant at 37.
The big December contract saw its OI rise by 38 contracts up to 110,169. The estimated volume today as to number of contracts sold is 57,188 contracts (regular business hours, 8 20 am to 1:30 pm) is huge as the bankers through everything but the kitchen sink at silver trying to contain the price below 16.00.  The confirmed volume yesterday (regular plus access market) came in at 46,712 contracts which is excellent in volume.
We had 0 notices filed for 165,000 oz.

October contract month:

Initial standings

Oct 14.2015

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  nil
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  32,150.00 oz

Scotia

1000 Kilobars

 

No of oz served (contracts) today 0 contracts

nil oz 

No of oz to be served (notices) 1268 contracts

126,800  oz

Total monthly oz gold served (contracts) so far this month 190 contracts

(19,000 oz)

Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 184,991.8  oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 0 customer withdrawals:  
total customer withdrawal nil  oz
We had 1 customer deposit:
 i) Into Scotia:  32,150.000 oz (1000 kilobars)

Total customer deposit:32,150.00  oz

 

 JPMorgan has a total of 10,777.279 oz or.3352 tonnes in its dealer or registered account.
***JPMorgan now has 580,809.509 oz or 18.06 tonnes in its customer account.
.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
 
To calculate the final total number of gold ounces standing for the Oct contract month, we take the total number of notices filed so far for the month (190) x 100 oz  or 19,000 oz , to which we  add the difference between the open interest for the front month of Oct. (1268 contracts) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals the number of ounces standing.
 
Thus the initial standings for gold for the Oct. contract month:
No of notices served so far (190) x 100 oz  or ounces + {OI for the front month 1142)– the number of  notices served upon today (0 x 100 oz which equals 116,100 oz  standing  in this month of Oct (3.61100 tonnes of gold).
We lost 126 contracts or an additional 12,600 oz will not stand for delivery.  It seems that the cash settlements resumed in earnest today.
We thus have 3.61 tonnes of gold standing and only 5.3378 tonnes of registered gold (for sale gold/dealer gold) waiting to serve upon those standing.
 
Total dealer inventory 171,613.368 oz or 5.3378 tonnes
Total gold inventory (dealer and customer) =6,704,069.599   or 208.52 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 208.52 tonnes for a loss of 95 tonnes over that period.
 
end
And now for silver

October silver Initial standings

Oct 14/2015:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 50,170.728  oz

,Scotia

 

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory  482,186.200 oz

HSBC

nilNo of oz served (contracts) 1 contract  (5,000 oz)
No of oz to be served (notices) 13 contracts (65,000 oz)
Total monthly oz silver served (contracts) 63 contracts (315,000 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 7,881,343.4 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit; nil oz

we had 0 dealer withdrawals:
total dealer withdrawal: nil  oz
We had 1 customer deposits:
 i) into Scotia: 482,186.200  oz

total customer deposits: 482,186.200 oz

We had 1 customer withdrawals:
 i) out of HSBC:  50,170.728 oz

total withdrawals from customer: 50,170.728    oz

we had 1  adjustments
 i) out of CNT:  178,219.24 oz was adjusted out of the dealer and this landed into the customer account of CNT
Total dealer inventory: 42.886 million oz
Total of all silver inventory (dealer and customer) 163,002 million oz
 *
The total number of notices filed today for the September contract month is represented by 1 contract for 5,000 oz. To calculate the number of silver ounces that will stand for delivery in Oct., we take the total number of notices filed for the month so far at (63) x 5,000 oz  = 315,000 oz to which we add the difference between the open interest for the front month of September (14) and the number of notices served upon today (1) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the Oct. contract month:
63 (notices served so far)x 5000 oz +(14) { OI for front month of September ) -number of notices served upon today (1} x 5000 oz ,=380,000 oz of silver standing for the Oct. contract month.
 we gained 10,000 additional oz of silver standing in this delivery month of October.
the comex resumes its liquidation of silver from the customer side. 
*** Ladies and Gentlemen: we are having an old fashioned bank run but instead of paper money being removed, it is silver.
end

 

The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China
And now the Gold inventory at the GLD:
Oct 14/a huge increase  in gold tonnage of 7.74 tonnes/inventory 694.94 tonnes
oct 13/no changes in gold inventory at the GLD/rest at  687.20 tonnes
Oct 12./2015:  no change in gold inventory at the GLD/rests at 687.20 tonnes
Oct 9.2015: no change in gold inventory at the GLD/rests at 687.20 tonnes
Oct 8.2015: no change in gold inventory at the GLD/inventory rests at 687.20 tonnes
Oct 7/ a withdrawal of 1.78 tonnes at the GLD today/Inventory rests at 687.20 tonnes
oct 6/ no change in gold inventory at the GLD/Inventory rests at 688.98 tonnes.
OCT 5/ a small withdrawal of .22 tonnes of gold inventory at the GLD/Inventory rests at 688.98
oct 2.2015: another addition of 1.78 tonnes of gold inventory at the GLD/Inventory rests at 689.20 tonnes
Oct 1.2015/ a huge addition of 3.28 tonnes of gold inventory at the GLD/Inventory rests at 687.42 tonnes
Sept 30./no change in tonnage at the GLD/Inventory rests at 684.14 tonnes
Sept 29.2015: no change in tonnage at the GLD/inventory rests at 684.14 tonnes
sept 28/another huge addition of 3.87 tonnes of gold into the GLD/Inventory rests tonight at 684.14 tonnes
Sept 25/we had a huge addition of 5.66 tonnes into the GLD/Inventory rests at 680.27 tonnes.
sept 24.2015; no change in gold inventory/inventory rests at 676.40 tonnes
Sept 23.2015: we gained a rather large 1.79 tonnes of gold into the GLD/Inventory rests tonight at 676.40
Oct 14/2015 GLD : 694.94 tonnes*
* London is having a tough time sourcing gold. I believe that the last few days of additional GLD gold is a paper gold addition and not real physical.
end

And now SLV

Oct 14/no change in silver ETF/silver inventory/rests tonight at 315.152 million oz

oct 13/no change in silver ETF /silver inventory/rests tonight at 315.152 million oz

:oct 12/ no change in the silver ETF/silver inventory rests tonight at 315.152 million oz

Oct 9.2015:/no change in the silver ETF SLV inventory/rests tonight at 315.152 million oz/

Oct 8.2015/no changes in the silver ETF  SLV/Inventory rests tonight at 315.152 million oz

Oct 7/a huge withdrawal of 3.243 million oz from the SLV/Inventory rests tonight at 315.152 million oz

Oct 6/no change in silver inventory/inventory rests at 318.395 million oz

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

oct 14/2015:  tonight inventory rests at 315.152 million oz***
 ** the jury is still out if the addition of silver is real or paper silver
especially with London in silver backwardation.
end
 
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 6.9 percent to NAV usa funds and Negative 7.3% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.9%
Percentage of fund in silver:37.9%
cash .2%( Oct 14.2015).
2. Sprott silver fund (PSLV): Premium to NAV falls to+0.23%!!!! NAV (Oct 14/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to – .75% to NAV Oct 14/2015)
Note: Sprott silver trust back  into positive territory at +0.23% Sprott physical gold trust is back into negative territory at -.75%Central fund of Canada’s is still in jail.

Press Release OCT 6.2015

Sprott Increases Offer for Central GoldTrust and Silver Bullion Trust

Offering an Additional Premium of US$0.10 per GTU Unit payable in Sprott Physical Gold Trust Units
and US$0.025 per SBT Unit payable in Sprott Physical Silver Trust Units

When Announced on April 23, 2015, Offers Represented a Premium of US$3.06 per GTU Unit and US$0.91 per SBT Unit for Unitholders Based on Trading Value and the NAV to NAV Exchange Ratio

Premiums as of October 5, 2015 (including the Increased Consideration) are US$1.14 per GTU Unit and US$0.61 per SBT Unit

Notice of Extension and Variation to be Filed Shortly

Offers Will Now Expire on October 30, 2015 –Unitholders Urged to Tender Now

TORONTO, Oct. 6, 2015 (GLOBE NEWSWIRE) — Sprott Asset Management LP (“Sprott” or “Sprott Asset Management”), together with Sprott Physical Gold Trust (NYSE:PHYS) (TSX:PHY.U) and Sprott Physical Silver Trust (NYSE:PSLV) (TSX:PHS.U) (together the “Sprott Physical Trusts”), today announced that it has increased the consideration payable to unitholders in connection with its offers to acquire all of the outstanding units of Central GoldTrust (“GTU”) (TSX:GTU.UN) (TSX:GTU.U) (NYSEMKT:GTU) and Silver Bullion Trust (“SBT”) (TSX:SBT.UN) (TSX:SBT.U) (the “Sprott offers”).

Unitholders will now receive an additional premium of US$0.10 per GTU unit payable in Sprott Physical Gold Trust units and US$0.025 per SBT unit payable in Sprott Physical Silver Trust units (the “Premium Consideration”), in addition to the units of Sprott Physical Gold Trust and units of Sprott Physical Silver Trust, respectively, being offered on a net asset value (NAV) to NAV exchange basis. Based on trading values and the NAV to NAV Exchange Ratio (as such term is defined in the Sprott offers) at the time Sprott announced its intention to make the Sprott offers on April 23, 2015, the offers reflected a premium of US$3.06 per GTU unit and US$0.91 per SBT unit. The premium as of October 5, 2015, based on trading values, the NAV to NAV Exchange Ratio and the Premium Consideration, represents US$1.14 per GTU unit and US$0.61 per SBT unit, respectively. In connection with this increase in consideration, the expiry time for each Sprott offer is extended to 5:00 p.m. (Toronto time) on October 30, 2015.

“Central GoldTrust and Silver Bullion Trust unitholders have been burdened for too long by a group of trustees committed to protecting the interests of the Spicer family. It is only through the public spotlight that the variety of undisclosed fees paid to supposedly independent trustees has forced public disclosures and hollow justifications. Sprott’s offers to unitholders are compelling and momentum is building as we continue to show the clear advantages of the offers. The response of the GTU and SBT trustees has been to penalize unitholders with the burden of paying for costly lawsuits and expensive advisors to protect the Spicer family and the fees they receive. We are accordingly increasing our offer to compensate unitholders for this abuse of trust, and encourage them to take advantage of this opportunity to exchange their units for an immediate premium, and trade a management committed to entrenchment to one committed to their best interests,” said John Wilson, Chief Executive Officer of Sprott Asset Management.

Added Wilson, “We have provided extensions to the offers so that no unitholders are left without this opportunity to exit an underperforming investment and enter into a high quality security that functions as intended, reflecting the value of the bullion held in the trust. Sprott appreciates the support of GTU and SBT unitholders to date and currently anticipates these extensions will be the final extensions to the Sprott offers.”

As of 5:00 p.m. (Toronto time) on October 5, 2015, there were 8,194,265 GTU units (42.46% of all outstanding GTU units) and 2,055,574 SBT units (37.60% of all outstanding SBT units) tendered into the respective Sprott offers. Total units tendered as of October 5, 2015, do not include pending units which are typically received on the date of expiration.

GTU and SBT unitholders who have questions regarding the Sprott offers, are encouraged to contact Sprott Unitholders’ Service Agent, Kingsdale Shareholder Services, at 1-888-518-6805 (toll free in North America) or at 1-416-867-2272 (outside of North America) or by e-mail at contactus@kingsdaleshareholder.com.

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

Gold will end next year at $1,400 an ounce – Capital Economics

Gold prices are headed for a critical test according to The Week today. The Federal Reserve’s ‘wait and see’ stance suggests policymakers there are in no rush to increase rates this year. “Sentiment over interest rates has been controlling gold prices all year,” says The Week “as traders prepare for a rise that will lessen the attraction of non-yielding commodities and boost the dollar”.

Market analysts agree that a threshold is looming “in the form of the recent high in August and the 200-day rolling average gold price”.  However, some are more optimistic than others.  Mining.com point to analysts at Denmark’s Saxo Bank who “sense a change of sentiment is unfolding”, with a rise above the $1,170 August high confirming that “a floor has been established”.

Capital Economics are suggesting that gold could “hit $1,200 before the end of this year, rising to $1,400 by the end of 2016″.

Read the full article “Gold price rally heads for critical test

 

DAILY PRICES
Today’s Gold Prices:   USD 1173.70, EUR 1028.52 and GBP 764.76 per ounce.
Yesterday’s Gold Prices:  USD 1154.40, EUR 1014.95 and GBP 757.16 per ounce.
(LBMA AM)

Gold in USD - 1 month

Gold in USD- 1 Month

Gold was higher again yesterday closing at $1168, up $5.70 for the day. Silver closed marginally up at $15.90, up $0.05.  Euro gold rose to €1026 per ounce, platinum lost $7 to $986 per ounce.

 

Knowledge is Power

Below are some of our most popular guides in recent months:

7 Key Storage Must Haves

10 Important Points To Consider Before You Buy Gold

Essential Guide to Tax Free Gold Sovereigns

Protecting Your Savings In The Coming Bail-In Era

From Bail-Outs To Bail-Ins: Risks and Ramifications

Currency Wars: Bye, Bye Petrodollar – Buy, Buy Gold

Essential Guide To Storing Gold In Singapore

Essential Guide To Storing Gold In Switzerland

 

Mark O’Byrne
end
Only 3?
(courtesy GATA/King report/Reuters)

CME permanently bans 3 traders for spoofing, other violations

Section:

The King Report headlined this story: “Guppies Get Punished, Whales Skate.”

* * *

By Tom Polansek
Reuters
Monday, October 12, 2015

CHICAGO — CME Group Inc. has permanently banned three traders who admitted to violations including the manipulative strategy known as spoofing, according to disciplinary notices issued on Monday.

A permanent ban is a severe punishment that CME, which owns the New York Mercantile Exchange, Comex, and other markets, does not often impose on traders who break the rules. The exchange operator more commonly uses fines and trading suspensions to discipline rule breakers.

On multiple occasions from February to April 2013, a trader named Nitin Gupta repeatedly entered large orders for crude oil, gold, silver, and copper futures contracts without the intent to trade, according to CME.

Nitin entered the orders to encourage others to trade opposite smaller orders that he had resting in the markets, the company said. After receiving a fill on his smaller orders, Nitin would then cancel the large orders, CME said.

Such moves are commonly called spoofing, a strategy in which a trader tries to create a false appearance of market interest by placing orders and then immediately canceling them.

CME fined Gupta a total of $150,000 in addition to imposing a ban. …

… For the remainder of the report:

http://www.reuters.com/article/2015/10/12/cme-trading-bans-idUSL1N12C1HD…

end

China poised to issue sovereign debt in renminbi in London

Section:

By James Kynge
Financial Times, London
Tuesday, October 13, 2015

China is set to issue government debt in renminbi in London, picking the city as the first overseas financial centre in which to open a sovereign debt market as it ramps up efforts to popularise its currency, officials familiar with the issue said.

The plan is to issue Chinese Treasury bonds in renminbi in London after laying the foundations with launches of short-term debt by the People’s Bank of China, the central bank, the officials said.

The scheme is likely to be a key announcement in the visit of Xi Jinping, the president, to the UK next week, they added. It will be hailed as a breakthrough by Mr Xi’s British hosts, who are preparing to give the communist party leader a five-star welcome in an effort to gain an edge over the European rivals in attracting Chinese investment.

“London has been chosen ahead of other financial centres in Europe and the US,” said one official familiar with Mr Xi’s visit. “This shows that Beijing has decided that London is the preferred location in which to build an offshore centre for renminbi exchange and investment in a non-Chinese timezone.” …

… For the remainder of the report:

http://www.ft.com/intl/cms/s/0/5ef6329c-71c9-11e5-9b9e-690fdae72044.html

end

Gold Jumps As China Devalues Yuan By Most In 2 Months, “Boosts Reforms” Of Corporate Bond Bubble

Gold had a busy night as China’s significantly weaker Yuan ‘Fix’ sent the precious metal higher top test the 200-day moving average and Europe’s open (Asia’s close) sparked a modest flash-crash retracing the entire move.

 

 end
(courtesy Bill Holter)
What will happen to silver and gold …?
It has been a while since I have written anything close to being considered a “rant”.  Instead, using cool and common sense logic of connecting dots for readers has been my method of choice.  Over just the last several weeks, the “obviousness” of what is coming has been astounding.  I can only wonder why the “inevitable” has not yet been seen by the masses?  Though Mark Dice giving the choice of a candy bar or a 10 ounce silver bar …only to run out of candy may be the answer?
The tone has definitely changed in the markets, nearly ALL markets.  Maybe it is because of the things I wrote about recently, central bank’s loss of credibility or U.S. power and strength being questioned not only in the Middle East and elsewhere?  Mainstream media who barraged the gold market with hit pieces and laughed at anyone not in equities only two months back have had to change their tone dramatically … because they had some explaining to do.
For brevity let’s just look at the gold and silver markets.  While recently talking to Jim Sinclair, he said the price of gold is like someone walking up to you in a clown suit and wondering why you thought something might be wrong?  I ask you this, what do you suppose will happen with silver and gold after UBShttp://www.zerohedge.com/news/2015-09-28/ubs-about-blow-cover-massive-gold-price-rigging-scandal becomes the state’s witness in Switzerland’s gold rigging investigation?  Before going any further, doesn’t this just confirm that us “conspiracy whackos” or “GIAMATTs” (gold is manipulated all the time) according to the Norcini’s/Gartman’s/Christian’s and Casey’s of the world …were correct?  Are we to believe gold and silver are THE only markets in the world that are not manipulated?  Only an idiot or the disingenuous could believe this!
It is most obviously clear the world needs to REFLATE.  Not just part of the world, the entire world …which includes China as their bubble has burst.  Zerohedge remarked yesterdayhttp://www.zerohedge.com/news/2015-10-12/why-gold-surging-bofa-says-expect-massive-policy-shift-2016 “if China is indeed set to reflate at all costs, watch as a few hundred million Chinese drop their infatuation with the housing and stock bubbles, and go back to the one asset class that throughout history has been the best defense for currency devaluation and runaway inflation.”  I ask, what do you suppose will happen to gold and silver?
As for the crazy “gold bugs”, what the heck has happened to them?  They were on the right track and now become scared and petrified …just at the very moment they will need their insurance!  The brain washing has worked, even the once sane are questioning their sanity!  As Jim has said, “this is most probably the bull market in gold you never sell” …yet hard money people are in a panic?
  Let me explain the above and also answer the question in the title.  Simply put, gold and silver will ultimately go “no offer”.   The laughable inventories at COMEX and LBMA will be gobbled up and erased within mere minutes.  Gold will go into hiding and not be offered at any dollar price…for “a time” but I’ll get to this shortly.  What “price” will gold reach in dollars?  This is a question no one can answer because we have no idea how many new dollars will be created by the Fed to battle the financial monster of their own making.  We also have no idea if even one ounce remains in Ft. Knox.  Is the number $5,000?  $10,000?  $50,000?  When literally $100’s of trillion in debt and over $1 quadrillion in derivatives come down (and they mathematically will), they will seek the safe haven of “cash”.  “Cash” without liability that is!  The above ground gold stock is only about $5 trillion, what do you suppose will happen when several $100 trillion sets their sight on the safety of real money?  The number of $50,000 may be off by a zero or two!
As for Jim’s comment about this rally being the one you never sell, I’d like to clean this up a bit.  “Never” is a very long time and one should “never say never”.  What he meant to say is this, this coming rally will be the one you NEVER sell for dollars, euros, yen, pounds or maybe even yuan.  It will be foolish to “sell” your gold for a fiat currency …ANY fiat currency.  I believe when the system breaks and gold does go into hiding, it will not reappear for sale until new and credible currencies are issued.  The mindset will change and holders of gold will only be coaxed to sell for something they can have confidence in.  It is this thought process which will be at the center of asset repricings as we re set.
  Let me finish with this, I and many others have been called “fearmongers” for writing about the coming collapse.  “We”, those who said these same things in 2007 and 2008 were branded fearmongers then also.  The thing is this, nothing has changed, nothing has been fixed and in fact the world is more in debt and further leveraged than it was back then.  This is 2008 all over again only worse and this time …the global central banks and sovereign treasuries cannot ride in and fix anything because they have already blown their credibility! 
  We live in a world which is financially foundationed by the currency of a bankrupt issuer who prints this money to purchase their own bonds.  Several $100 trillion of debt and over $1 quadrillion in derivatives rely on this currency for their “value and pricing”.   It amazes me how so many people who once knew “what” exactly they owned, now don’t even have a clue because of the psy ops so well orchestrated.  This is for ALL THE MARBLES and THE MOST IMPORTANT CROSSROADS IN MODERN DAY HISTORY! Please dig deep for your own common sense and logic …your financial life depends on it !
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com
end
     
And now your overnight WEDNESDAY morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan falls quite a bit in value, this  time at  6.3460 Shanghai bourse: down .93%, hang sang: red 

2 Nikkei closed  down 343.74 points or 1.89%

3. Europe stocks all  in the red    /USA dollar index down to 94.46/Euro up to 1.1411

3b Japan 10 year bond yield: falls slightly to .310% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.26

3c Nikkei now just below 18,000

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

3e WTI: 47.60  and Brent:   49.32

3f Gold up  /Yen up

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .569 per cent. German bunds in negative yields from 5 years out

 Greece  sees its 2 year rate falls to 9.33%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield rises to  : 7.87%  

3k Gold at $1176.50 /silver $16.13 (10 am est)

3l USA vs Russian rouble; (Russian rouble up 52/100 in  roubles/dollar) 62.75

3m oil into the 46 dollar handle for WTI and 49 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 .9551 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0901 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 negativity to +.569%/German 5 year rate negative%!!!

3s The ELA lowers to  87.9 billion euros, a reduction of 1.0 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 2.02% early this morning. Thirty year rate below 3% at 2.89% / yield curve flatten/foreshadowing recession.

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

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

Futures Continue Slide On Latest Chinese Economic Disappointments, Gold Hammered

When China was closed for one week at the end of September, something which helped catalyze the biggest weekly surge in US stocks in years, out of sight meant out of mind, and many (mostly algos) were hoping that China’s problems would miraculously just go away. Alas after yesterday’s latest trade data disappointment, it was once again China which confirmed that nothing is getting better with its economy in fact quite the contrary, and one quick look at the chart of wholesale, or factory-gate deflation, below shows that China is rapidly collapsing to a level last seen in 2009 because Chinese PPI plunged by 5.9% Y/Y, its 43rd consecutive drop – a swoon which is almost as bad as Caterpillar retail sales data.

 

Consumer price inflation wasn’t much better (aside from food prices which jumped, but as the Fed has repeatedly acknowledged, nobody cares about rising food prices), and at 1.6%, it came below the 1.8% expected, resulting in the first slowdown in 4 months.

 

The result of this latest Chinese economic rout dragged Asian equity markets traded lower as risk sentiment remained weak following yesterday’s release of soft Chinese import figures. Nikkei 225 (-1.9%) underperformed and fell below 18,000 amid broad based losses, while the ASX 200 (-0.1 %) was weighed on by the energy sector as crude prices remained near lows. Shanghai Comp. (-0.9%) pared its lacklustre CPI and PPI inspired losses following gains in material names, after the announcement of domestic output cuts and gains in metal prices. Finally, JGBs trade mildly higher amid weaker risk sentiment in Asia.

Perhaps the biggest consequences of China’s inflation data is that the world’s second largest economy continues to export deflation at an alarming pace, as was confirmed just an hour ago when Germany sold 5 Year Bunds at a negative rate of -0.03%, down from +0.12% in September, and the lowest since April as negative rates once again return to Germany and are sure to make the ECB and Buba’s life a living hell.

The European equity session kicked off with yet another uninspiring performance by equity indices (Euro Stoxx: -0.8%), with stocks heading into the North American session lower across the board as market participants digest more disappointing macroeconomic data from China and also react to less than impressive earnings report by JP Morgan. Also of note, ASML shares (-4.1) fell sharply in early European trade after Europe’s largest semiconductor-equipment maker warned of lower demand.

As a result, flight to quality trade supported Bunds since the open, with peripheral bond yield spreads widening and Portuguese bonds underperforming ahead of supply. Looking elsewhere, further flattening has been seen on the short-sterling curve amid a somewhat mixed UK jobs report (ILO Unemployment Rate 3Mths M/M 5.40% vs. Exp. 5.50%, Weekly Earnings ex-Bonus 3M/3M Y/Y 2.80% vs. Exp. 3.00%).

In FX, Cable has been the notable outperformer in FX markets, with participants focusing on the employment aspect of the UK data rather than the wage growth, which revealed the highest employment rate since records began in 1971, with GBP also benefiting from M&A flow on the back of yesterday’s SABMiller and AB InBev provisional agreement.

Elsewhere, the USD-index has continued to ebb lower during European hours as EUR was supported by an unwind of carry trades amid the risk-averse tone, USD is also being weighed on by GBP which is paring some of yesterday’s losses with GBP/USD breaking out of its tight overnight range. This meant that the preferred risk carry trade, the USDJPY is now below 119.50 and sliding.

And most curiously, until just minutes ago China’s deflationary wave also meant that gold was soaring – since it implies even more easing by the PBOC eventually – and then out of nowhere, perhaps the BIS gold selling team finally came back from lunch, gold had a furious slam which sent it lower by $10 in the matter of seconds, a move reminiscent of the now busted spoofs that we caught in the past and which led the CFTC to actually do something for once.

This happened just as the yellow metal was about to breach the 200 DMA at USD 1176.77 after reaching 3 month highs, and take off to the next resistance level. Convenient.

While the energy complex has seen modest weakness to remain near one week lows, with participants looking ahead to the API crude oil inventories aftermarket, with the release delayed by a day as a result of the Columbus Day holiday.

Looking ahead, after yesterday’s disappointing earnings results from JPM and INTC, today Q3 season continues with pre market earnings from BlackRock, Bank of America, Delta Air and Wells Fargo as well as aftermarket reports from Netflix and PNC Financial Services. On the economic docket, the main focus will be the September retail sales report. Current expectations are for headline sales to have risen +0.2% mom during the month, while our US team are a touch more optimistic, forecasting a +0.3% mom rise. Ex autos, expectations are for a fall of -0.1% mom. The retail control component is set to be closely watched too given the data is used to estimate goods consumption in the GDP accounts. Away from this, we’ve also got the September PPI print due, followed later by business inventories and the Fed’s Beige Book. Earnings wise it’s the turn of Delta Airlines, Bank of American and Wells Fargo all due to report pre or during market hours.

Bulletin Headline Summary

  • GBP has been the notable outperformer in FX markets, after today saw the highest employment rate since records began in 1971
  • Asian and European indices see weakness amid continued dampened sentiment as participants digest more disappointing data from China and react to less than impressive earnings report by JP Morgan
  • Today’s highlights include US retail sales report, PPI, the weekly API crude oil inventories update and earnings by Wells Fargo, Bank of America, Blackrock and Netflix
  • Treasuries gain as global stocks and commodities fell after China’s producer prices extended a record set of declines and consumer prices rose less than forecast.
  • China’s CPI increased 1.6% in Sept., est. +1.8%, from 2% rise in August; PPI fell 5.9%, extending its streak of negative readings to 43 months, the National Bureau of Statistics said Wednesday
  • PBOC’s expansion of a program allowing lenders to use credit assets as collateral when borrowing funds from the central bank isn’t a version of QE, according to the top economist at the PBOC’s research department
  • This time it’s the steel industry’s turn in the China debt guessing game, as investors wonder if a potential bond default by Sinosteel Co. is an omen of things to come amid slowing demand
  • Central bank and sovereign wealth fund assets will shrink by $1.2t by the end of the year as China and petrostates including Russia and Saudi Arabia dip into their savings amid slower growth and lower crude revenues, according to UBS
  • UN investigators are set on Thursday to end their probe into Iran’s nuclear past, taking the next step toward the lifting of oil and financial sanctions imposed on the Islamic Republic
  • Russian computer attacks have become more brazen and more destructive as the country grows increasingly at odds with the U.S. and European nations over military goals first in Ukraine and now Syria
  • Italian Prime Minister Matteo Renzi said that for much of this year the EU mishandled the biggest influx of refugees since World War II, changing tack in reaction to events rather than adopting a long-term strategy
  • $11.75b IG priced yesterday, no high yield. BofAML Corporate Master Index OAS holds at +173, YTD range 180/129. High Yield Master II OAS widens 11bp to +624, YTD range 683/438
  • Sovereign 10Y bond yields decline. Asian and European stocks fall, U.S. equity-index futures decline. Crude oil, copper and gold drop

DB’s Jim Reid completes the overnight recap

JP Morgan’s results after the US bell left investors largely disappointed. Quarterly profits rose less than analyst estimates, while a greater than expected slide in trading revenues saw the bank’s share price fall a percent in extended trading. Also out after-market, Intel reported a drop in quarterly profits, albeit holding in better than consensus estimates along with revenues, although a less than convincing management outlook for the sector saw shares also decline in extended trading. Johnson & Johnson was the other notable company to report yesterday, the numbers making for mixed reading after a beat at the profit line but the top-line missing after being weighed down by the stronger dollar.

The other main story overnight is out of China where, hot on the heels of yesterday’s trade data, the latest inflation numbers are in. CPI dropped back to +1.6% yoy (vs. +1.8% expected) in September, down from +2.0% in August after food price inflation slowed in the month. Meanwhile, deflationary pressures at the factory gate show no signs of abating. PPI printed at -5.9% yoy in September, as expected and unchanged from August, marking the 43rd consecutive negative print as a result.

While the data is likely to spark further PBoC stimulus chatter, Chinese equity markets are trading with little obvious direction following the numbers. The Shanghai Comp (+0.06%) and CSI 300 (+0.07%) are more or less unchanged at the break, that’s having initially plunged following the report, before then rallying nearly 1.5% off the day’s lows, only to then retreat once again into the midday break.

Meanwhile, Singapore is the other headline grabber this morning after the MAS eased for the second time this year, reducing the rate of appreciation in the Singapore Dollar. The move was as expected, although there were hopes that the MAS may be more aggressive in its easing. The Singapore Dollar is up half a percent on the back of it. Elsewhere, most other Asia bourses are lower this morning in trading. The Nikkei (-1.62%) is the notable decliner, while the Hang Seng (-0.56%), Kospi (-0.45%) and ASX (-0.17%) are also down this morning. Credit indices in Asia, Australia and Japan are a couple of basis points wider.

It was a weak session yesterday for risk assets globally, feeding off the concerns emanating from the China trade numbers. European markets continued the generally weak tone from the Asia session, the Stoxx 600 finishing -0.92%. That saw the S&P 500 open down, although a rally of nearly a percent from the initial lows in the late afternoon yesterday saw the index at one stage actually break its pre-FOMC highs, only to the then reverse course with Oil falling (WTI -0.93%), the index eventually finishing -0.68%. The Dow (-0.29%) snapped its seven-day winning streak too while the Vix (+9%) was up for the first time this month.

The Treasury market reopened yesterday with 10y yields down just over 4bps to settle at 2.045%, while the Fed’s Tarullo argued against the Fed hiking this year, joining the chorus of support for a delay that we’ve seen from Evans and Brainard also in recent days. The Fed Governor highlighted that in his own perspective, he needs to see some tangible evidence that would give him reasonable confidence that inflation is returning to target, while also noting that ‘past relationships between inflation and joblessness don’t seem to be operating effectively’. Tarullo also warned that ‘a premature rise might be harder to deal with than waiting a little bit longer’. St Louis Fed President Bullard was also in the press yesterday, reiterating his view that the case for raising rates is ‘clear and compelling’. Bullard did however acknowledge that it would be difficult for the Fed to raise at the October meeting given the limited data since the last meeting.

Meanwhile, EM currencies were heavy hit yesterday also, with falls of at least 1.5% for currencies in Colombia, Australia, Russia, Indonesia, South Africa and Brazil. The latter in particular saw its currency fall more than 3%, while the Bovespa (-4.00%) led equity market losses as political uncertainty in the country was heightened further after impeachment proceedings into President Rousseff were suspended by the Supreme Court.

Yesterday’s sole data release in the US came in the form of the NFIB small business optimism reading for September which rose 0.2pts to 96.1 (vs. 95.5 expected). Some of the focus in the European session was on a notable downturn in the latest German ZEW survey. The October current situations print fell 12.3pts to 55.2 (vs. 64.0 expected), the lowest reading since March, while expectations also fell, down 10.2pts to 1.9 (vs. 6.5) and highlighting the fallout from the recent VW scandal.

Elsewhere, in the UK we got the latest inflation numbers for September. After a -0.1% mom (vs. 0.0% expected) print for the month, the YoY rate dipped back into negative territory at -0.1%, having temporarily dipped into deflationary territory back in April earlier this year. The core stayed unchanged at +1.0% yoy after hopes for a modest one-tenth rise, while PPI output prices (-0.1% mom as expected) and RPI (-0.1% mom vs. +0.1% expected) were also soft last month. BoE policy maker McCafferty attempted to downplay the latest numbers by highlighting the transitory impacts from oil and commodity prices.

Meanwhile, we also heard first comments from new BoE member Vlieghe, who was seemingly in no rush to raise rates and slightly more dovish at the margin. With regards to inflation, Vlieghe told lawmakers that ‘there are risks to either side, but given the current low levels on inflation the risks are probably skewed to the downside’. The BoE official also highlighted disappointment around global growth, saying that ‘it is one of the things that will prevent the UK economy from accelerating meaningfully’.

Onto today’s calendar now. There’s more inflation data for us to digest this morning in Europe, this time with Italy, Spain and France due to report. In the UK we’ve got the latest employment report due out along with weekly earnings data, while this will be shortly followed by the Euro area industrial production print. Over in the US, the main focus will be the aforementioned September retail sales report. Current expectations are for headline sales to have risen +0.2% mom during the month, while our US team are a touch more optimistic, forecasting a +0.3% mom rise. Ex autos, expectations are for a fall of -0.1% mom. The retail control component is set to be closely watched too given the data is used to estimate goods consumption in the GDP accounts. Away from this, we’ve also got the September PPI print due, followed later by business inventories and the Fed’s Beige Book. Earnings wise it’s the turn of Delta Airlines, Bank of American and Wells Fargo all due to report pre or during market hours.

end

 

Late Tuesday night 9:30 pm est/Wednesday 9:30 am Shanghai time zone

(courtesy zero hedge)

AsiaPac Stocks Extend Losses As China “Boosts Reforms” Of Corporate Bond Bubble, Devalues Yuan Most In 2 Months

AsiaPac stocks are extending losses in early trading as it appears our fears about the Chinese coporate bond market bubble are also on the minds of Chinese regulators as they look to “boost reforms.” After the PBOC has fixed the Yuan stronger for 8 straight days, the onshore and offshore Yuan has weakened appreciably in the last 24 hours and PBOC has devalued Yuan by 177pips  – the biggest in 2 months(as PBOC researchers push to “speed up Yuan internationalization” and implicitly inclusion in the SDR basket).

 

AsiaPac stocks are lower again…

  • *CHINA’S CSI 300 STOCK-INDEX FUTURES FALL 0.5% TO 3,400
  • *MSCI ASIA PACIFIC INDEX DROPS 1.4%, EXTENDING DECLINE

As fears rise of a bubble in Chinese corporate bonds…

Reform it!

  • *CHINA TO BOOST CORPORATE BOND MARKET REFORM: 21ST HERALD

Good luck, as Commerzbank’s Zhou concludes…

“Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash… This game can’t go on forever.”

*  *  *

The Yuan has been ‘fixed’ stronger for 8 straight days… but tonight PBOC devalues Yuan by 177pips – the most in 2 months

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3408 AGAINST U.S. DOLLAR
  • *CHINA WEAKENS YUAN FIXING MOST SINCE AUG. 13

And PBOC reseeacrhers are pushing for rapid internationalization of Yuan (and inclusion in the SDR basket)… beginning their paper with the rather USD reserve Currency Status challenging statement:

World History tells us that economic power is necessarily financial power, only to become the financial powerhouse before it can become an economic power.

China must speed up yuan internationalization to develop the finance industry, PBOC research bureau head Lu Lei writes in People’s Daily.

  • The yuan needs to be included in the SDR basket, Lu writes
  • China’s current financial structure is dominated by indirect financing and doesn’t make enough sense, Lu writes
  • China should further improve stock market and increase the proportion of equity financing, Lu writes

Financial power is the inevitable direction of sustainable development of economic power

Charts: Bloomberg

end
As I mentioned to you on several occasions, the huge non performing loans inside China’s banking system can only be described as a neutron bomb.  In this commentary,  the total amount  loans in the Chinese banking system is 31 trillion.  If 8.3% is NPV the collateral necessary to put the banks to proper collateral if 1 trillion usa.
(courtesy zero hedge)

CLSA Just Stumbled On The Neutron Bomb In China’s Banking System

Two weeks ago, using Macquarie data, we found something disturbing at China’s micro level: not only are a quarter of Chinese firms with debt unable to cover their annual interest expense currently…

 

…. but when just looking at the commodity sector, roughly half of all companies are in the same dire straits, as a result of the collapse in commodity prices which translates into a drop off in cash flow which makes just the annual all-in cash interest payment impossible .

 

Over the weekend, Hong-Kong based CLSA decided to take this micro-level data and look at it from the top-down. What it found was stunning.

According to CLSA estimates, Chinese banks’ bad debts ratio could be as high 8.1% a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator!

As Reuters reports, the estimate is based on analysis of outstanding debts for more than 2700 A-share companies (ex-financials) and their ability to repay loans. Or in other words, if one backs into the true bad debt, not the number given for window dressing purposes by Chinese “regulators”, based on collapsing cash flows, what one gets is a NPL that is nearly 10% of all outstanding Chinese debt.

Reuters has some more details on the methodology:

  • Two consecutive years of a co’s interest coverage (EBITDA/interest expense) below 1x or losses for two successive years qualifies for debts to be treated as “bad” in CLSA’s analysis.
  • By these measures, wholesale & retail and manufacturing sectors boast the highest implied NPLs at 21.1% and 15.8% respectively, taking into account total debt
  • While China’s real estate sector has been the most aggressive in adding debt, profitability at developers in tier-1 cities has held up well, muting the overall NPLs for the sector
  • Developers in tier-2 and tier-3 cities, however, show high implied NPLs
  • As bad debts rise, burden falls on PBOC to ensure sufficient liquidity so that Chinese banks can gradually absorb the credit costs, CLSA says.

Yes, the PBOC’s burden most certainly rises, and what a burden it is: here’s why.

The chart below shows the history of total Chinese bank assets: as of the latest official data, the number is roughly $30 trillion.

If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 8% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $1 trillion.

In other words, while China has been injecting incremental liquidity into the system and stubbornly getting no results for it leading experts everywhere to wonder just where all this money is going, the real reason for the lack of a credit impulse is that banks have been quietly soaking up the funds not to lend them out, but to plug a gargantuan, $1 trillion, solvency shortfall which amounts to 10% of China’s GDP!

end
GLENCORE AND EUROPEAN AFFAIRS
the Chinese faulty shadow banking sector which predominately used copper may be the key to the survival of Glencore as it unwinds.
(courtesy zero hedge)

The Biggest Threat To Glencore’s Survival: The Unwind Of China’s Copper “Carry Trade”

Since we first exposed the topic of China’s Commodity-Financing Deals (CCFDs) in May 2013, deals which some have since called China’s commodity carry trades”, and warning of the looming “bronze swan” once said deals are unwound, copper (among most collateralized commodities) has been slumping.

The double-whammy of central-bank-inspired overcapacity, with a crackdown on the CCFD shadow credit markets has now flowed into the miners/producers – no more so than Glencore and Trafigura (as we have detailed).

A subsequent analysis by Goldman attempted to quantify just how big CFD “carry trade” is as follows:

Fast forward to the recent shocking developments involving Glencore, which recently crashed to a record low price as the market finally realized what we had been saying all along: Glencore is a levered bet on not only China’s economy, but the fate of copper pricing.

And while talking heads proclaim the worst is over, Bloomberg looks back at the carry trade first discussed here, and finds that as much as 70% of finished copper backs the “carry trade” whose upcoming unwind will lead to even more price pain.

As we introduced in 2013, the critical issue of how China uses commodities as financial assets was, and remains, largely ignored and vastly misunderstood: i.e., the fact that copper’s ubiquitous arbitrage and rehypothecation role in China’s economy through the use of Chinese Copper Financing Deals (CCFD) is coming to an end.

Copper, as China pundits may know, is the key shadow interest rate arbitrage tool, through the use of financing deals that use commodities with high value-to-density ratios such as gold, copper, nickel, which in turn are used as collateral against which USD-denominated China-domestic Letters of Credit are pleged, in what can often result in a seemingly infinite rehypothecation loop (see explanation below) between related onshore and offshore entities, allowing loop participants to pick up virtually risk-free arbitrage (i.e., profits), which however boosts China’s FX lending and leads to upward pressure on the CNY.

 

Since the end result of this arbitrage hits China’s current account directly, and is the reason for the recent aberrations in Chinese export data that have made a mockery of China’s economic data reporting, China’s State Administration on Foreign Exchange (SAFE) on May 5 finally passed new regulations which will effectively end such financing deals.

 

The impact of this development can not be overstated: according to independent observers, as well as firms like Goldman, this will not only impact the copper market (very adversely) as copper will suddenly go from a positive return/carry asset to a negative carry asset leading to wholesale dumping from bonded warehouses, but will likely take out a substantial chunk of synthetic shadow leverage out of the Chinese market and economy.

 

Naturally, for an economy in which credit creation is of utmost importance, the loss of one such key financing channel will have very unintended consequences at best, and could potentially lead to a significant “credit event” in the world’s fastest growing large economy at worst.

Read the full article here for the ugly reality details.

As we concluded in May 2013, “if you haven’t shorted copper after reading the above…. we suggest you re-read it.”

This is what happened next:

 

And while Glencore managed to hedge/survive its way through 18 months of commodity price declines, until the damn broke this year:

 

The recent dead-cat-bounce has been proclaimed by many as ‘proving’ the worst is over.

However, as Bloomberg reports, when it tears off the scab on the festering wound over China’s CFDs aka commodity “carry trade”, the pain for copper – and thus Glencore – longs may be only just starting:

The great mystery of metals is the amount used to finance the Chinese carry trade, or collateral used to borrow cheap dollars to buy yuan-backed high-interest-carrying notes. The Bank for International Settlements says this trade may be $1 trillion to $2 trillion, tying up tens of millions of metric tons of iron ore, aluminum and other metals. About a year of global copper consumption (22 million mt) equals just 5% to 10% of the estimate. The true figure will determine real China metal demand and future inventory.

 

Carry trade distorts China copper demand, leads to oversupply

 

The impact of the Chinese metal carry trade is in the distortion of the true underlying copper demand, and a buildup in the metal’s inventory, strictly for collateral in financing. China accounts for 46% of global copper demand, according to the Word Bureau of Metals Statistics. One question analysts must ask: What if it’s just 35%? The potential stopping of this trade, and normalization of the distorted demand, will provide understanding of China’s true copper needs and their potential growth.

 

If nickel is a guide, carry trade’s unwinding would roil markets

 

Nickel prices have fallen by half since year-end 2013, when they surged after No. 1 global exporter Indonesia banned exports of nonprocessed ore. Inventories are near record levels. The likely culprits for the higher inventory and price crash are the large amounts of the metal held off exchanges because they were used as collateral in a carry trade that took advantage of China’s high interest rates. A warehouse scandal at the Qingdao complex prompted banks to call in these trades, pummeling nickel prices.

 

China carry trade dismantling could be a $2 trillion unwind

 

The lucrative practice of using commodities as collateral to make money from interest-rate differentials inside and outside of China, a practice known as the carry trade, could cause significant pressure on commodity markets, were the trade to unravel. The Bank for International Settlements says this trade exceeds $1.2 trillion worth of commodities and could reach $2 trillion. Any major change in the direction of this trade could flood the market with more supply.

 

 

China traders’ yuan metals carry trade worked, until it didn’t

 

A depreciating yuan has hurt the carry trades of those who benefited from when the currency was strengthening, and the trades have begun to unravel, which may cause significant disruption in global metal markets. For almost a decade, the Chinese allowed the yuan to appreciate vs. the U.S. dollar and many other global currencies. In 2014, as the country began to open up its currency to foreign trading, it began to weaken, culminating with a 2% depreciation in August.

 

As China stokes economy with lower rates, carry hurts metals

 

The rise of the “carry trade,” which used metal as collateral to finance low-cost U.S. dollar-based capital sources to invest in high-interest- yielding yuan credit, could rapidly decline as China sharply cuts interest rates to stoke internal demand. Lower rates inside China may hurt the value of the yuan as the interest-rate differential with other currencies becomes less compelling. Massive amounts of metal could be tied up in this trade, and its unwinding may be the story to watch in 2016.

 

Up to 70% of copper imports may be caught in China carry trade

 

The Chinese have used various commodities to back the trillion-dollar carry trade, now the question is by how much. As much as 70% of finished copper imports may have been used, according to a report in the Financial Times. This would mean 15 million to 25 million metric tons of copper could be tied up in the carry trade.  Any significant unwinding of this trade could cause significant disruptions to global copper markets.

In other words, if we, and now Bloomberg (whose Chairman Peter Grauer, incidentally, is on the Glencore board) , are correct, and if the CFD “carry trade” unwind has only just begun to impact the real supply/demand dynamics, and thus true price discovery, of copper, then we are only 30% of the way through said unwind and thus the ‘over-capacity’ concerns may be lethally – for Glencore – under-appreciated.

And while Glencore continues to shed assets, it remains dreadfully pinned to the value of the underlying commodities due to its very existence. Recall that even Bank of America said that Glencore has no equity value if commodity prices remain at current levels – one doesn’t have to be a rocket scientist (however, being an “evil” buyer of GLEN CDS would help) to figure out what will happen if 70% of China’s “fake” copper demand suddenly evaporates and the stocks of inventory have to be unloaded into an already over-supplied (and under-demanded) market.

h/t Manal

RUSSIA AND MIDDLE EASTERN AFFAIRS
RUSSIA SENDS IT’S ONLY AIRCRAFT CARRIER TO SYRIA AS IT SIGNALS THINGS WILL BECOME QUITE EXPLOSIVE
(COURTESY ZERO HEDGE)

Russia Sends Its Only Aircraft Carrier To Syria, Signals It Is Just Getting Started

As should be abundantly clear by now, The Kremlin is adopting a “slightly” different strategy when it comes to combatting terror in the Mid-East than that adopted by the US and its Western and regional allies.

The strategy of the US and its allies seems to go something like this: 1) covertly arm and train groups who you know might ultimately become terrorists because arming and training these groups may be a way to destabilize unfriendly regimes, 2) wait for blowback, 3) launch serious effort to combat terror if unfriendly regime has been “successfully” replaced by puppet government, or launch half-hearted effort to combat terror if situation still fluid and regime still clings to power. 

Obviously, that strategy is prone to all types of problems, and sensing that the US and its allies might have finally met their foreign policy blunder Waterloo in Syria, Russia decided to call everyone’s bluff by launching a real war on terror. Of course, this war conveniently restores the regime of one of Moscow’s allies, but in the end the result is the same: anyone who is a terrorist and who is also fighting Assad in Syria is in for big trouble because Russia is using this is as an opportunity to reassert itself on the world stage and also to fire up a long-dormant military juggernaut. 

Now, on the heels of hundreds of airstrikes accompanied by dramatic video footage as well as cruise missile attacks launched from Russian warships in the Caspian, The Kremlin is sending its lone heavy aircraft carrier into the fight. This is only the ship’s sixth deployment in history. 

 Here’s more from Flashnord (Google translated):

Heavy aircraft carrier (heavy aircraft), “Admiral Kuznetsov” is Russia’s only aircraft carrier, the weekend will go from Murmansk to the shores of Syria, said FlashNord source in the Northern Fleet command.

 

“The cruiser dock repair completed until the end of the week go to the coast of Syria, where he joined the operation to destroy the group” Islamic State “,” – a spokesman said.

 

According to him, from May to August this year was held aircraft carrier dock repair 82 Shipyard in Roslyakovo (Murmansk region). Then, on a regular docked in Murmansk, he walked up to the restoration of full combat readiness.

 

Since September 30, Russia carries out air operations in Syria with the aim of destroying the objects of the “Islamic state.”

Here are some images:

Here’s a bit of color via Reuters from earlier this year. Notably, the Kuznetsov isn’t known for being in particularly great working order which probably makes the chances of some kind of accident that much greater:

When the Soviet Union launched Kuznetsov in 1985, it was a major technical accomplishment for the then-superpower. Moscow began assembling Varyag, a sister ship of Kuznetsov, around the same time. It also started work on a true full-size carrier, as big as anything the United States builds.

 

But the Soviet Union’s collapse in 1991 abruptly halted the carrier program.

 

Russia was left with Kuznetsov as its sole flattop and, deprived of funds and Ukraine’s assistance, has struggled to keep the vessel in working condition. Since the ship was commissioned into frontline service in the early 1990s, Kuznetsov has deployed just five times. Each deployment, lasting between three and six months, saw the flattop sail from its home port in northern Russia around Europe and into the Mediterranean as a show of force and to demonstrate support for Russia’s allies in the region, including Syria.

end

Iran ready to send in thousands of troops to Syria in a mop up operation as they attempt to seize a key city
(courtesy Reuters/zero hedge)

Iran Sends “Thousands” Of Troops To Syria For Russian-Backed Assault On Key City

As those who follow Mid-East affairs are acutely aware, the regime in Syria has enjoyed both military and financial support from Iran for the duration of the country’s civil war.

Syria cannot fall to the West if Tehran intends to preserve the regional balance of power and an Iran-friendly Damascus ensures the supply lines remain open between the IRGC and Hezbollah. Lose Syria, and suddenly, the Mid-East tide turns in favor of the Saudis and Qatar and that, clearly, is an unacceptable outcome.

That said, Iran’s role on the ground in Syria has taken some off guard of late. Perhaps it’s the fact that Tehran’s participation on the ground has become more overt even as one would imagine that Iran would be keen to not antagonize the West on the heels of the nuclear deal which has the potential to facilitate the lifting of crippling economic sanctions. The key seems to be Russia’s involvement, which effectively gives Iran’s Syrian ground operations the superpower stamp of approval.

The strategy, as we’ve noted on several occasions of late, is that Russia clears the way with aggressive aerial bombardments and then Iran, operating through either Hezbollah, Iraqi Shiite militias, and/or the IRGC sweeps in on the ground and takes care of whatever anti-regime forces may be left in the wake of the Russian airstrikes.

This has worked well thus far and now apparently, Iran has sent “thousands” of troops to Syria in preparation for an assault on Aleppo. Here’sReuters:

A delegation of Iranian lawmakers arrived in Damascus on Wednesday in the build-up to a joint operation against insurgents in northwest Syria, and said U.S.-led efforts to fight rebels had failed.

 

The visit, led by the chairman of the Iranian parliament’s National Security and Foreign Policy Commission, Alaeddin Boroujerdi, came as Iranian troops prepared to bolster a Syrian army offensive that two senior officials told Reuters would target rebels in Aleppo.

 

The attack, which the officials said would be backed by Russian air strikes, underlined the growing involvement in the civil war of Syrian President Bashar al-Assad’s two main allies, which has alarmed a U.S.-led coalition opposed to the president that is bombing Islamic State militants.

 

“The international coalition led by America has failed in the fight against terrorism. The cooperation between Syria, Iraq, Iran and Russia has been positive and successful,” Boroujerdi was quoted as saying by Iran’s state broadcaster IRIB as he arrived at Damascus airport.

 

The delegation was due to meet Assad, said officials.

 

Iran has sent thousands of troops into Syria in recent days to bolster the planned ground offensive in Aleppo, the two officials told Reuters.

And a bit more color:

Syria’s army along with Iranian and Hezbollah allies will soon launch a ground attack supported by Russian air strikes against insurgents in the Aleppo area, two senior regional officials told Reuters on Tuesday.

 

Control of Aleppo city and the surrounding province in the area near the Turkish border is divided among the Syrian government, insurgent groups fighting Assad and the Islamic State group that controls some rural areas near the city.

 

“The big battle preparations in that area are clear,” said one of the officials familiar with the plans. “There is a large mobilization of the Syrian army … elite Hezbollah fighters, and thousands of Iranians who arrived in stages in recent days.”

As a reminder, Aleppo is very close to the so-called “ISIS free zone” that the US and Turkey planned to establish months ago. Here’s the map:

This means that Russian and Iranian forces will be closing in on a particularly sensitive area of the country as it relates to the Syrian-Turkish border, setting the stage for more tension between Ankara and Moscow and suggesting that the Iran-Russia “nexus” is on the verge of marking yet another key milestone in the effort to restore the regime.

Bear in mind that this has all unfolded in the space of just a few weeks, and we wonder just how long it will be before the assault on Raqqa will begin, because if the ISIS capital were to fall, the end would truly be nigh for anti-regime elements operating in Syria.

end
More troubles for Brazil:
(courtesy zero hedge)

Brazil Faces Unemployment “Crisis”, As Retail Sales Plunge, Rousseff Blasts “Coup-Mongers”

Brazilian President Dilma Rousseff got a rare bit of respite on Tuesday when a Supreme Court justice granted an injunction that delays a lower house vote which could have paved the way for impeachment proceedings.

House speaker Eduardo Cunha has remained defiant, vowing to exercise his “constitutional prerogative” to review impeachment requests.

Of course Cunha has his own set of problems. Allegations of corruption tied to the discovery of Swiss bank accounts have led to calls for his resignation and that, in turn, has Rousseff’s “aides fear[ing] the speaker could try to speed up the impeachment process.” As Reuters notes, if Cunha accepts even one of three impeachment petitions he has on his desk, “a parliamentary commission with representatives of all parties would analyze it and put it to a lower house vote.”

It is essentially a race against time to see if the house ethics committee will force his resignation before he can secure the lower house support to force a Senate impeachment trial.

For her part, Rousseff has accused the opposition of “coup-mongering” following last week’s ruling by the TCU that she cooked the fiscal books. 

Meanwhile, as the intractable political stalemate keeps investors on edge regarding whether the government will be stable enough to enact the reforms needed to plug the budget gap, the economy continues to crumble.

We got a look at retail sales for August today and the picture was not pretty. Core retail sales fell by a larger-than-expected 0.9% month on month and July was revised lower to -1.6%. Broad retail sales fell 2.0% auto sales crashed 5.2%. Annually, core fell by 6.9% broad by 9.6% yoy. Here’s Goldman with the takeaway:

The near-term outlook for private consumption and retail sales remains negative owing to the significant deceleration of credit flows from both private and public banks, high levels of household indebtedness, declining job creation and real wage growth, higher interest rates, higher taxes (including via inflation), higher utility and transportation tariffs, heightened economic and political uncertainty and very depressed (record low) consumer confidence.

 


So pretty much everything that could possibly go wrong is going wrong.

And speaking of “high levels of household indebtedness and declining job creation”, Bloomberg is out with a look at how the Brazilian dream of a middle class life – complete with homeownership, a car, and of course a high level of debt – has turned into a nightmare on the back of the deteriorating labor market. Here’s more:

In the smog-filled, run-down industrial hubs that ring the southern end of Sao Paulo, Brazil’s next big crisis is taking root.

 

The labor market, long the country’s lone economic bright spot as growth stagnated, is suddenly deteriorating rapidly, driving unemployment all the way up to 7.6 percent from a record-low 4.3 percent at the end of 2014.Nowhere are the layoffs that are fueling that surge more acute than here, in this gritty complex of steel, auto and auto-parts factories built decades ago by the likes of Ford Motor Co. and Volkswagen AG. Sao Paulo is now losing almost 20,000 jobs each and every month, the state’s industrial federation estimates.

 

Talk privately with Brazil’s most senior bankers and nearly all of them will point to unemployment as a crucial concern. For starters, it’s underpinning the national dissatisfaction that is fanning calls for the impeachment of President Dilma Rousseff and creating policy paralysis in the capital city of Brasilia. More importantly, in a country that has based its growth model in recent years on a credit-fueled boom in consumer spending, it threatens to both deepen the recession — already the worst since 1990 — and leave millions of Brazilians scrambling to repay their loans.

 

This is the situation that Rossini Santos finds himself in.

 

A 43-year-old steel worker, Santos had loaded up on debt to finance his new middle-class lifestyle. First, it was an $80,000 mortgage back in 2009 to buy a little, one-story home near the factory he worked at. Then, in early 2014, it was a $17,000 loan to purchase a Chevrolet Prizm. Just months later, though, trouble began to brew when his employer, a maker of castings for auto parts, filed for bankruptcy. The company kept operating but was limping along, and in August, Santos was fired with dozens of other workers. He’s now collecting 1,380 reais ($360) in unemployment insurance a month, just one-third of his steel worker’s salary.

 

“And now I have a mortgage and a car loan,” he said. “And with no wage, I have to tighten my belt.”

 

In a week-long series of informal conversations with Sao Paulo bankers, unemployment came up time and again as they laid out the reasons that the recession and financial crisis could intensify. They’re worried that the increase in the jobless rate has just begun; that it’s eroding consumer demand, leaving once-crowded shopping malls empty; and that, ultimately, it could drive up loan defaults.

 

Over the past decade, Latin America’s largest economy underwent a spectacular credit boom that helped pull some 40 million Brazilians into the middle class. Total loans in the banking sector climbed five-fold over that time to 3.1 trillion reais. Family household indebtedness, as a percent of annual income, jumped to 46 percent from 20 percent. Borrowing costs are rising now — the benchmark rate’s up to 14.25 percent — as policy makers try to curb inflation, and loan delinquencies are starting to inch up too. In August, they accounted for 3.1 percent of all loans, the most in two years.

In other words, Brazilian households are massively levered heading into what on some metrics looks like a depression. Copom can’t cut to boost the economy because the miserable performance of the BRL threatens inflation targets and confidence has been shaken immeasurably by a political crisis where the two main combatants (Rousseff and Cunha) are both charged with corruption.

As you can see, this is just about the worst situation imaginable at every level (political, economic, and with souring loans, financial as well). The world had better hope this isn’t a precursor to what’s about to befall EMs across the board, although if global growth and trade continue on their current trajectory, it’s difficult to see a way out.

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

Euro/USA 1.1411 up .0028

USA/JAPAN YEN 119.48 DOWN .253

GBP/USA 1.5411 up .0158

USA/CAN 1.2988 down .0030

Early this Wednesday morning in Europe, the Euro rose by 28 basis points, trading now just above the 1.14 level rising to 1.1411; 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 failure in ramping of the USA/yen cross above the 120 yen/dollar mark , causing most bourses to fall.  Last night the Chinese yuan fell in value.  The USA/CNY rate at closing last night:  6.3460 up .0184  (yuan lower)

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 slight northbound trajectory  as settled  again in Japan  by 25 basis points and trading now just below the all important  120 level to 119.48 yen to the dollar.(and thus the necessary ramp for all bourses failed in propelling bourses)

The pound was up this morning by 158 basis points as it now trades well above the 1.54 level at 1.5411.

The Canadian dollar is now trading up  30 basis points to 1.2988 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 Wednesday morning: closed down 343.74  or 1.89% 

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

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

Gold very early morning trading: $1174.25

silver:$16.10

Early Wednesday morning USA 10 year bond yield: 2.02% !!! down 5 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield falls to  2.89 down 1 in basis points.

USA dollar index early Wednesday morning: 94.46 down 30 cents from Tuesday’s close. (Resistance will be at a DXY of 100)

end
This ends the early morning numbers, Wednesday morning
 
And now for your closing numbers for Tuesday night: 2 pm 
Closing Portuguese 10 year bond yield: 2.46%up 5 in basis points from Tuesday
Japanese 10 year bond yield: .31% !! down slightly from Tuesday but still extremely low
Your closing Spanish 10 year government bond, Wednesday par in basis points. 
Spanish 10 year bond yield: 1.80% !!!!!!
Your Wednesday closing Italian 10 year bond yield: 1.63% down 3  in basis points from day: Wednesday/ trading 17 basis point lower than Spain.
IMPORTANT CURRENCY CLOSES FOR WEDNESDAY
Closing currency crosses for WEDNESDAY night/USA dollar index/USA 10 yr bond:  2:00 pm
 Euro/USA: 1.1472 up .0088 (Euro up 88 basis points)
USA/Japan: 118.82 down 0.917 (Yen up 92 basis points)
Great Britain/USA: 1.5475 down .02209(Pound up 221 basis points
USA/Canada: 1.2933 down .0086 (Canadian dollar up 86 basis points)

USA/Chinese Yuan:  6.346 up .0184  (Chinese yuan down)

This afternoon, the Euro rose by 88 basis points to trade at 1.1472. The Yen rose smartly  to 118.82 for a gain of 92 basis points. The pound was up 221` basis points, trading at 1.5475. The Canadian dollar rose 86 basis points to 1.2933. The USA/Yuan closed at 6.3460
Your closing 10 yr USA bond yield: down 7 in basis points from Tuesday at 1.97%// ( trading below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.83 down 5 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
The low yields means that the bond market is not buying the rallies on bourses.
 Your closing USA dollar index: 94.79 down 8 cents on the day .
 
European and Dow Jones stock index closes:
London:  down 72.67 points or 1.15%
German Dax:  down 116.97 points or .1.17%
Paris Cac down 34.35 points or 0.74%
Spain IBEX: down 77.70 points or 0.77 %
Italian MIB: down 210.29 points or 0.95%
The  Dow: down 157.14 or 0.92%
The Nasdaq:  down 13.76  or 0.29%
WTI Oil price;   46.11
Brent OIl:  48.95
USA dollar vs russian rouble dollar index:  62.62  down 1/100 rouble per dollar
This ends the stock indices, oil price, currency crosses and interest rate closes for today.
And now for USA stories:

First the NYSE performance today:

 

Bonds & Bullion Jump As Stocks Dump After Post-Payrolls-Pump

Nothing to see here…

 

While the headlines will be about stocks double-down-days, the most notable moves were in gold, bonds, and USDJPY – Is bad news bad news again?

 

Notably, since the September FOMC meeting “disappointment” there is a clear winner (and clear loser)…

 

 

Of course WMT’s carnage was the biggest news…

 

Which weighed heavily on the major indices (though obviously not Trannies)..

 

Leaving everything red for the week…

 

A close-up on WMT shows just how insane the move was and the massive volume…

 

 

Treasury yields tumbled the most in a month (10Y  back below 2.00%)…

 

Interestingly 5s30s curve steepened to 12-month highs…

 

FX markets saw major turmoil as The USD Index death cross contoinues to weigh (with USDJPY tumbling)…

 

Commodities rose on the USD weakness (aside from crude which – aside from some opening shenangigans – was deadstick)…

 

As Gold broke to 4 month highs, breaking green YTD and above the 200DMA – this is the 8th up day in the last 9…

 

 

Charts: Bloomberg

Bonus Chart: Peak Farce?

end

Retail sales reported today and it gave a sustained recessionary signal as it tumbled  to negative .1%.  The entire globe is in recession or worse a depression.

 

(courtesy zero hedge)

US Retail Sales Tumble Most Since January, Signal Sustained Recessionary Environment

One year ago the abysmal retail sales data crushed the market’s hope that the recovery from the 7th half of 2012 was imminent. It also unleashed the Treasury flash crash, where the 40 bps plunge in yields was according to Jamie Dimon was a 1 in 3 billion year occurence. It only ended when Bullard hinted at QE4.

Moments ago, in a stark deja vu to precisely one year ago, retail sales disappointed even more than in October 2014, when 27 out of 27 economists thought the control group would be positive. It came at -0.1%.

The details: Retail Sales (ex Autos) dropped 0.3% in September, the 2nd drop in a row, the biggest drop since January (at the heart of the weather-driven economic weakness).

This is the 7th miss in the last 10 months…

 

For the first time since February, the ‘Control Group’ Retail Sales dropped (down 0.1% vs +0.3% expectations) as sales dropped in 7 of 13 categories (but notably autos rose significantly but was offset by a collapse in gas station spending). Notably 27 out of 27 ‘experts’ agreed that the control group sales data woul dnot be negative.. wrong!

Year-over-year data shows sustained stagnant growth in retail sales historically aligned with a recessionary environment.

 

The breakdown shows bvroad weakness.

And most notably, retail sales dropped in 7 of 13 major categories including:

  • Electronics and appliance stores -0.2%
  • Building Materials and Supplies -0.3%
  • Food and beverage -0.3%
  • Gasoline stations -3.2%
  • General merchandise stores -0.1%
  • Miscellaneous store retailers -1.3%
  • Online -0.2%

And most importantly, the control group saw its first monthly drop since the “harsh winter” crushed GDP in February.

Expect the Atlanta Fed to cut its Q3 GDP nowcast to below 1% following the latest batch of abysmal data.

 

 end
 It now begins.  The large Managed High yield bond fund owned by UBS is closing due to huge losses on its bonds. The high yielding bonds of which the majority is based on the troubled shale industry will create havoc on  the USA financial scene.
(courtesy zero hedge)

It Begins – Managed High Yield Bond Fund Liquidates After 17 Years

Since inception in June 1998, UBS’ Managed High Yield Plus Fund survived through the dot-com (and Telco) collapse and the post-Lehman credit carnage but, based on the press release today, has been felled by the current credit cycle’s crash. After 3 years of trading at an increasingly large discount to NAV, and plunging to its worst levels since the peak of the financial crisis, the board of the Fund has approved a proposal to liquidate the Fund. While timing is unclear, this is the worst case for an increasingly fragile cash bond market asBWICs galore are set to hit with “liquidty thin to zero.”

Having survived 17 years…

 

It’s Over… (as The Fund Statement reads):

Managed High Yield Plus Fund Inc. (the “Fund”) (NYSE:HYF) announced today that the Board of Directors (the “Board”) of theFund has approved a proposal to liquidate the Fund in 2016, subject to shareholder approval.

 

After careful deliberation and a thorough review of the available alternatives, and based upon the recommendation of UBS Global Asset Management (Americas) Inc. (“UBS AM”), the Fund’s manager, the Board has determined that liquidation and dissolution of the Fund is in the best interests of the Fund. A proposed plan of liquidation will be submitted for the approval of the Fund’s shareholders at a special shareholders meeting of the Fund, which will be scheduled to be held in April 2016. If the shareholders approve the proposed plan, the liquidation and dissolution of the Fund will take place as soon as reasonably practicable, but in no event later than December 31, 2016 (absent unforeseen circumstances).

 

Further information regarding the liquidation proposal, including the plan of liquidation, will be included in the proxy materials that will be mailed to the Fund’s shareholders in advance of the shareholders meeting.

*  *  *

This is a nightmare for the corporate credit market, where, as we noted previously “liquidity is thin to zero.”…

…discussing illiquid corporate credit markets is easier if you find yourself among polite company. You see, the lack of liquidity in the secondary market for corporate bonds is a somewhat benign discussion because although it unquestionably stems from a noxious combination of regulatory incompetence and irresponsible monetary policy, myopic corporate management teams and the BTFD crowd, not to mention ETF issuers, have also played an outsized role, so there’s no need to lay the blame entirely on the masters of the universe who occupy the Eccles Building and on the “liquidity providing” HFT crowd that’s found regulatory capture to be just as easy as frontrunning.

 

But while explanations for the absence of liquidity vary from market to market, the response is becoming increasingly homogenous. Put simply: market participants are simply moving away from cash markets and into derivatives. Where market depth has disappeared, it’s become increasingly difficult to transact in size without having an outsized effect on prices. This means that for big players – fund managers, for instance – selling into ever thinner secondary markets is a dangerous proposition. And not just for the manager, but for market prices in general.

In Treasury markets, traders have turned to futures to mitigate illiquidty…

…while corporate bond fund managers utilize ETFs and other portfolio products to avoid trading the underlying assets…

With the stage thus set, Bloomberg has more on the move to smaller trades and cash market substitutes:

Sometimes less is more. At least according to investment managers trying to navigate Europe’s credit markets.

 

TwentyFour Asset Management capped a bond fund to new investors at 750 million pounds ($1.2 billion) and JPMorgan Asset Management, which is marketing a 128 million-pound fund, said smaller investments are more flexible in a sell-off. Other managers are also limiting the size of their trades and using derivatives to avoid getting trapped in positions.

 

It’s become more difficult to buy and sell securities as Greece’s financial crisis curbs risk taking and dealers scale back trading activity to meet regulations introduced since the financial crisis. The Bank for International Settlements warned of a “liquidity illusion” in June because bond holdings are becoming concentrated in the hands of fund managers as banks pull back.

 

“Liquidity is generally poor in corporate bond markets and in the U.K. market it’s thin to zero,” said Mike Parsons, head of U.K. fund sales at JPMorgan Asset Management in London. “You don’t want to be in a gigantic fund where there’s potential for a lot of investors rushing for the exit at the same time. Smaller funds are more nimble.”

 

“Without enough strong liquidity, it’s hard to execute bond trades in sufficient size or price to move portfolio risk around quickly or cheaply,” he said. “The bigger the position, the harder it is to find enough liquidity to sell it or buy it.”

 

Liquidity in credit markets has dropped about 90 percent since 2006, according to Royal Bank of Scotland Group Plc. That’s because dealers are using less of their own money to trade as new regulation makes it less profitable.

 

Euro-denominated corporate bonds got an average of 5.3 dealer quotes per trade last week, up from 4.5 recorded in January and compared with a peak of 8.8 in 2009, according to Morgan Stanley data. That’s based on dealer prices compiled by Markit Group Ltd. for bonds in its iBoxx indexes.

 

Liquidity is especially bad in the U.K. corporate bond market, which is being abandoned by companies looking to take advantage of lower borrowing costs in euros and investors seeking securities that are easier to buy and sell.

 

NN Investment Partners said it seeks to manage difficult trading conditions by diversifying positions and capping trade size. The Netherlands-based asset manager avoids owning large concentrations of a single bond and uses derivatives such as credit-default swaps or futures that are easier to buy and sell, said Hans van Zwol, a portfolio manager.

 

“We really want to stay away from positions we can’t get out of,” he said.

The conundrum here is that the more reluctant market participants are to venture into increasingly illiquid cash markets, the more illiquid those markets become.

And here are the fund’s largest holdings…

 

*  *  *

Of course, this should not be a total surprise, in light of the near-record up/downgrade ratio…

Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising.

 

 

Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades.

Deteriorating fundamentals…

U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares. According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.

“We’re seeing more widespread weakness across more industry sectors in the U.S.,” Ms. Vazza said. “It’s become broader than just the commodity story.”

 

“The metrics that you measure health and credit by have peaked a while ago,” said Sivan Mahadevan, head of credit strategy at Morgan Stanley. “They are beginning to deteriorate.”

*  *  *

And as we noted earlier, the credit cycle has well and truly rolled over…

 

And no lesser market veteran than Art Cashin is concerned, What are the signals you are looking for to stay on top in such a market?

 I continue to monitor the high yield market and see where that goes. The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up.

 

Charts: Bloomberg

 end
Walmart crashes today
two commentaries
(zero hedge)

WalMart Crashes Most Since Lehman After Slashing Guidance, Sees Up To 12% EPS Drop

So much for minimum wage…

  • *WAL-MART SEES FY2017 EPS DECREASING 6-12% VS FY2016
  • *WMT PLANS REDUCTION IN CAPITAL EXPENDITURES THROUGH FY19

But – of course – in an effort to assuage fears, they have boosted the buyback to $20bn. The market is not happy – dropping the most since Lehman…

 

Carnage…

 

The one possible save…

*WAL-MART TO BUY BACK AS MUCH AS $20B OF SHARES :WMT US

end
And it plunges 17% today
(courtesy zero hedge)

WalMart Carnage: Stock Plummets Most In 17 Years After Slashing Earnings Guidance, Blames Wage Hikes

Do you see what happens Larry when Wal-mart succumbs to “progressive” pressure and hikes wages? This:

  • WMT CFO: NEW HIRES TO START AT $10 PER HOUR NEXT YEAR
  • WMT CFO: 2017 RISE IN WAGES TO COST $1.5B
  • WMT PLANS REDUCTION IN CAPITAL EXPENDITURES THROUGH FY19
  • WAL-MART SEES FY2017 EPS DECREASING 6-12% VS FY2016

More from Reuters:

  • Company says strong dollar expected to hurt full-year revenue by $15 bln
  • Company says full-year net sales growth expected to be “relatively flat”, mainly due to strong dollar; Walmart had earlier forecast 1-2 pct growth
  • Says expects fiscal 2017 earnings per share to fall by 6-12 pct due to higher wages and training costs
  • Company’s $20 bln share buyback shrugged off in another sign that allure of buybacks is fading
  • Up to Tuesday’s close, stock had fallen about 22 pct this year

The summary from WSJ:

Wal-Mart, which is hosting a meeting with analysts today, also said it projects per-share earnings to decline by 6% to 12% in its next business year. Analysts, according to Thomson Reuters, have anticipated $4.73 in per-share profit for fiscal 2017, higher than the $4.54 expected for 2016.

 

“Fiscal year 2017 will represent our heaviest investment period,” said Charles Holley, Wal-Mart’s Chief Financial Officer. Operating income will be affected by previously announced investments, Mr. Holley said. Those investments include about $1.1 billion in e-commerce and digital initiatives.

 

By fiscal 2019, Wal-Mart said it expects earnings per share to rise 5% to 10%. Separately on Wednesday, Wal-Mart said its board approved a new $20 billion share repurchase program, replacing the $8.6 billion remaining on its program authorized in 2013.

 

In August, the retailer warned its profits would suffer this year as it steps up spending amid increasing competition. The company’s investments on behalf of customers have crimped profits but helped reverse a sales slump: Sales at U.S. stores open for at least a year rose 1.5% in the most recent quarter, the fourth quarterly increase after a long period of decline.

Yes, the company just slashed its 2017 earnings forecast by up to a whopping 12%… but at least the workers are happy, if not so much the market as WMT stock plunges the most since Lehman February 2000 September 1998, and has lost more market cap than Twitter.

 

Carnage:

 

The news spread quickly, in the process blowing up WMT’s bid/ask spread (chart courtesy of nanex)

Sending the dividend yield to record highs…

 

Dropping WMT below $200bn market cap (and AMZN now $56bn larger)…

 

We are sure these analysts will be explaining how the market has it all wrong…

 

Not even the company announcing a just as surprising $20 billion stock buyback is helping it.

Oh and speaking of “happy workers”, now that WMT has just become an activist target, and eliminate any growth CapEx for the next 4 years, expect the company to proceed with the logical next step after it hikes wages: massive layoffs.

Congratulations American workers: you lose again!

end

The FBI are now probing the Goldman Sachs transaction with Malaysia

(courtesy zero hedge)

FBI, DOJ Probe Goldman On Malaysia Prime Minister’s Slush Fund

Back in August, we brought you the story of 1MDB, the Malaysian development bank turned-Najib slush fund with deep ties to Goldman. We’ll recount the history of the fund here not only because it’s key to understand what’s taking place now, but because it quite frankly is quite amusing. Here’s how we summed it up two months ago in the wake of street protests calling for the prime minister’s ouster in connection with an investigation into the fund:

1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

You really cannot make this stuff up.

What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund.

So you can see why some folks are upset, especially considering Rosmah has a habit of having, how shall we say, rich people problems, like being gouged $400 for a home visit by a personal hairstylist.

In the nearly two months since, WSJ has kept the heat up, penning a series of articles that dive deep into the rabbit hole.

In one instance, the UAE went looking for a $1.4 billion collateral payment a subsidiary of an Abu Dhabi wealth fund supposedly received from 1MDB and couldn’t find it. This same subsidiary – whose manager was fired earlier this year –  guaranteed $2.3 billion in mystery money that 1MDB claimed was parked in the Cayman Islands in order to secure a sign-off from Deloitte after KPMG was dismissed as 1MDB’s auditor for asking too many questions. Subsequently, another $993 million turned up missing. Ultimately, the future of Najib’s political career will likely depend on how it all shakes out especially considering the now contentious relationship between Najib and influential former PM Mahathir Mohamad.

Late last month, the FBI announced an investigation into the fund after Malaysia arrested a former official who was trying to fly to New York to urge US authorities to look into the whole debacle.

Now, as WSJ reports, the FBI and DOJ are looking into Goldman’s role. Here’s more:

Goldman Sachs Group Inc.’s role as adviser to a politically connected Malaysia development fund resulted in years of lucrative business. It also brought exposure to an expanding scandal.

As part of a broad probe into allegations of money laundering and corruption, investigators at the Federal Bureau of Investigation and the Justice Department have begun examining Goldman Sachs’s role in a series of transactions at 1Malaysia Development Bhd., people familiar with the matter said.

A few years before the Malaysia deals, Goldman did a series of controversial transactions with the Libyan Investment Authority that also brought unwelcome attention. The Libyan sovereign-wealth fund claimed in a lawsuit filed in 2014 in London that the bank took advantage of its unsophisticated executives to sell them complicated and ultimately money-losing investments. Goldman has said the claims are without merit. A trial in the suit is scheduled to begin next year.

The bank earned $350 million for executing nine trades for Libya, according to the investment authority. It earned far more from the Malaysian fund. The bank was consulted during 1MDB’s inception, advised it on three acquisitions and arranged the sale of $6.5 billion in bonds that alone brought in close to $600 million in fees, according to people close to the bank.

Malaysia was an early area of success for Goldman, which had strong relationships in the country. Tim Leissner, Goldman’s top banker in Southeast Asia who was close to Mr. Najib, according to people familiar with the matter, and Roger Ng, a Malaysian sales executive who has since left the bank, did deals for the government and companies throughout the last decade.

In 2009, when the sultan of the state of Terengganu, also Malaysia’s king at the time, was launching a fund to invest its oil wealth, Mr. Leissner was called to the royal palace to pitch the king for the business, according to people close to the bank. Goldman won the bidding to advise the fund, which would soon be taken over by the national government and named 1Malaysia Development Bhd.

Enter Andrea Vella. The same Andrea Vella who made some $350 million for Goldman convincing Muammar Qaddafi to sink $1.2 billion of Libya’s sovereign wealth fund into derivatives deals that eventually went bust in the wake of the crisis. Back to the Journal:

A key arranger of the financing for 1MDB was Andrea Vella, an Italian-born senior Goldman banker, people familiar with the transactions said. He was also involved in structuring the Libyan deals, according to people familiar with the matter. This spring, Mr. Vella, 42 years old, was promoted to co-head of investment banking in Asia excluding Japan.

Vella apparently arranged the financing described at the outset wherein Goldman simply underwrote bond deals, bought the bonds for its own book at a discount, and then presumably sold them later, pocketing the difference.

In Malaysia, one of Goldman’s big assignments came in 2012, when it advised 1MDB on the acquisition of Malaysian conglomerate Genting Bhd.’s domestic power-generation business. The deal quickly turned into a loser for 1MDB, which paid 2.3 billion ringgit for the business, about $740 million at the time.

 

In its financial statements for the year, 1MDB booked an impairment charge of 1.2 billion ringgit, writing down part of the premium for the power assets it had bought from Genting and another Malaysian company.

 

Goldman also helped 1MDB raise $1.75 billion in bonds to finance the deal with Genting. The Malaysian fund wanted to move quickly with the issuance and decided to do a private placement, instead of a public offering, people familiar with the matter said.

 

Mr. Vella, who had moved to Asia in 2010 to help build the bank’s debt and structured-finance business in the region, arranged to do the financing via Goldman’s Principal Funding and Investment desk, a group that uses the bank’s own money to provide financing to clients. Goldman essentially wrote a check to 1MDB, took the bonds onto its balance sheet, hedged and sold over time for a profit, these people said.

The bank did the same thing with a subsequent deal in which some $3 billion in debt was issued.

Pretty clearly, between everything described above, 1MDB was, from the beginning, a vehicle wherein anyone and everyone involved simply skimmed money off the top on the way to financing dubious transactions of questionable value.

While it’s difficult to say if Goldman will ultimately be held accountable for its role, it is worth noting that the Libya fiasco involving Vella wound up in court. But perhaps the most important thing to remember here – as mentioned above – is that this could very well cost Najib his career (and his legacy) and while there’s certainly plenty of domestic support for his ouster, the market hates uncertainty, and as we’ve seen in Brazil, political turmoil breeds jittery investors.

 end
Illinois to delay pension payments.  Today they are out of money:\
(courtesy zero hedge)

Illinois To Delay Pension Payments Amid Budget Woes: “For All Intents And Purposes, We Are Out Of Money Now”

By now, Illinois’ budget problems are no secret.

Back in May, after the State Supreme Court struck down a pension reform bid, Moody’s move to downgrade the city of Chicago thrust the state’s financial woes into the national spotlight.

Since then, the situation hasn’t gotten any better and despite hiring an “all star” budget guru (for $30,000 a month no less), Bruce Rauner was unable to pass a budget in a timely fashion leading directly to all types of absurdities including everything from the possibility of shortened school years to lottery winners being paid in IOUs.

Now, as Bloomberg reports, pension payments are set to be delayed. Bond payments, apparently, will still be made.

Illinois will delay pension payments as a prolonged budget impasse causes a cash shortage, Comptroller Leslie Geissler Munger said.

 

The spending standoff between Republican Governor Bruce Rauner and Democratic legislative leaders has extended into its fourth month with no signs of ending. Munger said her office will postpone a $560 million retirement-fund payment next month, and may make the December contribution late.

 

“This decision is choosing the least of a number of bad options,” Munger told reporters in Chicago on Wednesday. “For all intents and purposes, we are out of money now.”

 

Munger said the pension systems will be paid in full by the end of the fiscal year in June. The state still is making bond payments, she said.

 

“We prioritize the bond payments above everything else,” Munger told reporters.

And from Reuters:

Illinois Comptroller Leslie Munger said on Wednesday a $560 million November pension payment will be delayed due to a cash crunch stemming from the state’s budget impasse.

 

Despite the delay, state pension funds will be paid in full by the end of fiscal 2016, Munger said at a news conference in Chicago.

Here’s some color (again via Reuters) from Tuesday’s preview:

Oct 13 Illinois’ budget impasse has reached a point where full and timely payments for big ticket items such as pensions could be in jeopardy, the state comptroller’s office indicated on Tuesday.

 

Comptroller Leslie Munger set a Wednesday press conference “to discuss the significant cash flow constraints the continuing budget impasse is placing on state finances and the challenges of making timely state payments in the months ahead,” according to an advisory from her office.

 

The battle between Republican Governor Bruce Rauner and Democrats who control the legislature has left Illinois without a budget for the fiscal year that began July 1. However, the state is required, even without a budget, to put aside money each month for pensions and debt service on bonds.

One wonders what these means for Chicago’s bankrupt school system, which, as we reported early last month, was depending upon nearly a half billion in funding from Springfield to plug a gaping budget hole. Further, this would seem to suggest that anyone who wins more than a few thousand in the Illinois lottery can go ahead and figure on getting a pieces of paper with Bruce Rauner’s picture rather than Ben Franklin’s for the foreseeable future.

We also encourage readers to review this piece by Reuters in full as it contains several of the most egregious examples of government waste and inefficiency you’ll ever come across  and goes on to say that reform simply isn’t an option, as the Illinois legislature is filled with lawmakers who have at one time or another themselves benefited from the state’s sprawling local bureaucracies. Reuters also says it has identified nearly a dozen instances where husbands employ wives, mothers employ daughters, and fathers hire sons,” suggesting nepotism weighs heavily on the already elephantine system.

Bear in mind that this is the same state whose court system refuses to allow efforts at pension reform to move forward, and while all of this may seem like a recipe for default disaster, just remember, PIMCO sees a lot of “long-term value” in Chicago’s debt.

Finally, a look at just how underfunded Illinois’ pension system truly is:

end
Sorry for the lack of detail as I  am out of commission for much of the day
I will resume my normal detailed commentary on Monday.
However I will do a small comex commentary on Thursday and Friday

well that about does it for tonight

I will see you tomorrow night\\h

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