Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1163.30 down $3.30 (comex closing time)
Silver $15.82 unchanged.
In the access market 5:15 pm
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a very good delivery day, registering 45 notices for 4500 ounces Silver saw 0 notices for nil 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 94 tonnes over that period.
In silver, the open interest roe by 813 contracts as silver was up by 12 cents yesterday. The total silver OI now rests at 167,321 contracts In ounces, the OI is still represented by .836 billion oz or 120% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI rose to 467,776 for a gain of 3,419 contracts. We had 45 notices filed for 4500 oz today.
We had a rather large withdrawal of 1.78 tonnes of gold at the GLD / thus the inventory rests tonight at 695.54 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,no change in silver inventory / Inventory rests at 315.553 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rose by 813 contracts up to 167,321 as silver was up by 12 cents with respect to yesterday’s trading. The total OI for gold rose by a large 3,419 contracts to 467,776 contracts despite the fact that gold was down $1.00 yesterday.
No wonder we continue have raids on our precious metals as the OI for both silver and gold have been rising too fast for our criminal bankers.
2.Gold trading overnight, Goldcore
3. COT report/Massive increase in gold and silver commercial short positions as they supply unbacked paper/can only be construed as fraudulent misrepresentation.
iii) by the end of the day, the Euro plunges into the 1.09 handle briefly
we notice two potential problems:
- Multinational USA corporations and their CEO’s are not happy as earnings will fall again.
- The off shore yuan fell badly to 6.39 yuan to the dollar suggesting huge outflows of more dollars.
( zero hedge)
iv) The big question: how far will the ECB go towards monetization:
10 USA stories/Trading of equities NY
i) Good PMI numbers from the USA today. Problem: how did this occur with all 6 regional Fed showing big declines in Mfg
ii) Puerto Rico demanding a bailout: meaning bondholders being made hole and USA taxpayers suffering
iii) Bill Ackman’s Pershing square in trouble again with another holding suffering at the stock market.
iv) Dave Kranzler talks about two companies with sketchy accounting:
11. Physical stories
i) China’s Construction Bank becomes the second Chinese bank to enter the Gold fix in London
ii) The seven big lies on gold/Guy Chrisopher/Money Metals Exchange
iii) Museum of American Finance will have a gold exhibit in New York
iv) Alasdair Macleod’s commentary for this week is entitled:
“The decline of the dollar–the consequences”
v) Bill Holter’s huge commentary tonight is entitled:
“The Crime of the Century”
vi Another 54. tonnes of gold demand from China/Lawrie on Gold
Let us head over to the comex:
October contract month:
|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||nil|
|No of oz served (contracts) today||45 contracts
|No of oz to be served (notices)||561 contract (56,100 oz)|
|Total monthly oz gold served (contracts) so far this month||453 contracts
|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|
Total customer deposit nil oz
we had 1 adjustment:
October silver Initial standings
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||52,390.47 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served (contracts)||0 contract (nil oz)|
|No of oz to be served (notices)||12 contracts (60,000 oz)|
|Total monthly oz silver served (contracts)||81 contracts (405,000 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||9,450,366.0 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: nil oz
total withdrawals from customer: 52,390.47 oz
And now SLV
Oct 23./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz
Oct 22./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz
Oct 21:a we had a small addition in silver ETF inventory of 381,000 oz/inventory rests tonight at 315.533 million oz
Oct 20.2015/ no change in silver ETF/Inventory rests at 315.152 million oz
Oct 19.2016: no change in silver ETF/Inventory rests at 315.152 million oz
Oct 16/no change in silver ETF/inventory rests tonight at 315.152 million oz
Oct 15./no change in silver ETF inventory/rests tonight at 315.152
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
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 email@example.com.
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, October 20, 2015|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||143||119|
|Tuesday, October 20, 2015||© Silve|
Our small specs;
Those small specs that have been short in silver covered 1570 contracts from their short side.
Gold Q&A – How To Allocate, Dollar Cost Average, Rebalance and Store Where?
- Global Economic Outlook
- History and Role of Gold in Portfolios Today
- Asset Allocation – Higher Allocations to Gold Justified
- Dollar Cost Average – Need to Front End Financial Insurance
- An “ETF Is No Substitute for Physical Allocated Gold in the Vault”
- Switzerland, Singapore and London are Safest Places to Store Gold
Global Debt to GDP – New GFC and Currency Reset Likely
John Butler was interviewed by Mark O’Byrne about gold and the vitally important but little covered aspects of investing in gold such as – higher allocations, how to geometrically dollar cost average, re-balancing gold and of course geographic diversification and the safest locations to own gold.
Butler believes that since the end of the Bretton Woods monetary system, there is a strong case for having higher allocations to physical gold. He warns of the risk inherent in gold ETFs due to the levels of indemnification and legal indemnifications.
“If you read the prospectuses carefully” the gold ETFs are“subject to various forms of force majeures and unforeseen circumstances” and “the gold is not even fully insured.”
“They could be susceptible to fraud” and “there may be no recourse.”
Hence the importance of physical, allocated and segregated gold “outside the banking system”.
The webinar had the ever popular ‘question and answer’ section which is always well received and saw some interesting questions from the participants. Some of which included:
Q: How should an investor approach portfolio rebalancing and gold, should it ever be sold down?
Q: I am a 65 year old retiree. I have much of my pension in stocks and small amount in physical coins (2%), should I buy the Gold ETF and if so what is a good allocation?
Q: If rates start to rise in 2016, what will gold do?
Q: What do you see as the greatest threat to the world economy over the next 5 years, systematic, market, geo political?
Q: Where is the safest place to store metal?
The webinar is a must listen for anyone who owns gold or is considering allocating funds to gold.
John Butler is now a consultant for GoldCore and advising high net worth and family offices with regard to allocating funds to physical gold and institutions with regard to offering their clients precious metals services.
Butler has worked as a global investment strategist for more than 20 years and has advised many of the world’s largest institutional investors, sovereign wealth funds and central banks. He is giving the opening address at the Precious Metals Symposium in Sydney Australia on October 26th and 27th.
He is giving keynote addresses at the Mines and Money Conference in London and at the Gulf Financial Forum in December. He is available to meet to discuss optimal strategies to allocate funds to the gold market today.
Watch Video of the Webinar here
Today’s Gold Prices: USD 1171.55 , EUR 1052.84 and GBP 760.70 per ounce.
Yesterday’s Gold Prices: USD 1166.45 , EUR 1031.30 and GBP 753.94 per ounce.
Gold in USD – 1 Week
Gold fell by an even $1.00 yesterday to close at $1166.30. Silver fell by $0.13 to close at $15.84. Euro gold rose to about €1050, platinum gained $7 to $1008.
Gold climbed for the first time in three days after the European Central Bank signaled it will likely engage in more QE and may even move to negative interest rates. Draghi’s comments are gold bullish – particularly in euro terms.
Gold in EUR – 1 Week
Markets took ECB President Mario Draghi’s comments as a signal that additional easing was coming as soon as December. That weakened the euro against the dollar and gold. Gold in euros priced rose to the highest in three months.
Gold has risen about 5 percent this month as patchy economic data lessened expectations of a U.S. rate increase any time soon. Indeed, there are increasing noises suggesting negative interest rates may be coming in the U.S. and EU.
Gold is now just 0.2% lower for the week in dollar terms and is nearly 2% higher in euro terms. Gold is on track for its best monthly performance since January, with a rise of 5.5%.
Silver’s outperforming again today and is up 1% – it has broken above its 200-day simple moving average at $15.94/oz above the $16/oz level again at $16.08/oz.
Government-owned Chinese bank joins London gold price auction
Submitted by cpowell on Thu, 2015-10-22 15:47. Section: Daily Dispatches
The government of China is owns a majority of shares in China Construction Bank. Presumably the Chinese government now will be able to affect the London gold benchmark price directly, without having to act through Western intermediaries that can front-run Chinese buy and sell orders.
* * *
China Construction Bank Joins London Gold Price Auction
By Jan Harvey
Thursday, October 22, 2015
China Construction Bank will join the twice-daily electronic auction process to set the benchmark price of gold, its operator Intercontinental Exchange said in a statement on Thursday.
CCB on Wednesday confirmed it would be the second Chinese company to gain access to the 138-year old London Metal Exchange’s trading floor with the acquisition of a majority stake in UK metals trading firm Metdist Trading Ltd.
The gold auction, which takes place each day at 10:30 and 15″00 London time, sets the London Bullion Market Association Gold Price, a benchmark used by producers, traders and end-users globally in contracts and transactions. …
… For the remainder of the report:
(courtesy Guy Christopher/Money Metals Exchange/GATA)
Guy Christopher: The seven biggest lies told (and believed) about gold
Submitted by cpowell on Fri, 2015-10-23 01:18. Section: Daily Dispatches
9:15p ET Thursday, October 22, 2015
Dear Friend of GATA and Gold:
Writing for Money Metals Exchange, retired investigative journalist Guy Christopher itemizes and refutes what he calls the seven biggest lies about gold, starting with the lie that gold is a “barbarous relic,” something John Maynard Keynes never said, though it is commonly attributed to him. Christopher’s commentary is headlined “The Seven Biggest Lies Told (and Believed) about Gold” and it’s posted at the Money Metals Exchange Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
(courtesy CoinsWeekly/Lorrach Germany/GATA)
Museum of American Finance in New York City will open gold exhibition Nov. 19
Submitted by cpowell on Fri, 2015-10-23 01:38. Section: Daily Dispatches
From Coins Weekly
Thursday, October 22, 2015
On November 19 the Museum of American Finance in New York City will open “Worth Its Weight: Gold from the Ground Up,” an exhibit that will captivate visitors with the many spectacular and unexpected ways gold has influenced our lives — from science and technology to entertainment and pop culture to finance and economics. The exhibit will be featured in three galleries and the museum’s theater and will be on view through December 2016.
“We are excited to showcase more than 100 stunning gold objects from over a dozen public and private collections in this unique exhibit on Wall Street,” said David Cowen, the museum’s president. …
… For the remainder of the report:
Alasdair Macleod: The decline of the dollar — the consequences
Submitted by cpowell on Fri, 2015-10-23 01:56. Section: Daily Dispatches
By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Thursday, October 22, 2015
There are signs that the U.S. dollar, instead of consolidating the sharp rise that peaked last March, might be reversing its previously rising trend.
Certainly a weakening dollar fits with the Federal Reserve Board’s deferring attempts to raise interest rates from the zero bound, and reflects the growing chatter that negative rates cannot be ruled out. It should also interest us that there is evidence the Americans are beginning to take seriously the threats to the dollar’s hegemonic status, and this is no longer just seen as a speculative possibility. …
… For the remainder of the commentary:
(courtesy Lawrie Williams/Sharp Pixley)
LAWRIE WILLIAMS: Another 53.4 t gold withdrawn from SGE. YTD 2061.9 t
We are continuing to monitor Shanghai Gold Exchange withdrawals following the Golden Week holiday and they do seem to be a little down from their peak, but still remain at an impressive 53.4 tonnes delivered in the week ending October 16th – week 40 – the first full week after the holiday. The year to date figure is a fraction short of 2,062 tonnes.
Looking at past years, demand does tend to fall off by a little at this time, but then picks up again as the year-end nears and stocks are built up ahead of the Chinese New Year buying spree. Next year the Chinese New Year – a Monkey year under the Chinese zodiac – falls on Monday February 8th, suggesting strong gold demand in December and January In Chinese astrology, the Monkey is a symbol of health and wealth and those born under the influence of this sign are said to be intelligent, quick-witted and adventurous.
Already the UK’s Royal Mint and Australia’s Perth Mint, in expectation of Chinese gold coin demand, have announced limited edition ‘Monkey’ gold coin mintings aimed at Chinese gift givers.
On the figures to date, we stand by our prediction that Shanghai Gold exchange withdrawals for the full 2015 year will likely reach 2,600 tonnes or more – a huge new record, probably over 400 tonnes more that the previous record year of 2012 when 2,181 tonnes were withdrawn from the Exchange. The year to date figure will probably already surpass last year’s full year total of 2,102 tonnes by the time next week’s SGE figures are announced – and last year was the second highest year ever for SGE withdrawals. Chinese demand, as represented by SGE withdrawals thus remains enormous.
As we have noted before there is considerable disagreement over what actually constitutes Chinese gold demand, with figures calculated by mainstream analysts hugely lower than the SGE withdrawal figures might suggest. The big difference is that the mainstream analysts do not take into account the vast volumes of gold used in internal financial transactions mostly in gold leasing activities.
We recently put forward the viewpoint that a significant proportion of this may be being used by Chinese entities using gold as collateral for obtaining low cost dollar loans and utilising the money so borrowed to take advantage of significantly higher Chinese rates for interest bearing notes. However, according to a presentation at the recent LBMA meeting in Vienna by Jiang Shu, Chief Analyst of the Shandong Group, while this may be true of using iron ore and base metals as such collateral, it was not so true of gold due to export restrictions on bullion, but that huge amounts of gold were indeed tied up in internal gold leasing transactions – and quoted a figure of around 1,370 tonnes so employed. With the analysts not counting this as consumption, this would therefore almost wholly account for the differences between the analysts figures and those of the SGE.
Whichever way you look at this though, this all represents gold flows from West to East, despite which it remains the Comex gold futures market which is largely setting the gold price. But the more and more the Chinese become involved in the nitty-gritty of the gold pricing mechanism the more their influence will rise in determining the actual price given these massive gold flows. Perhaps we will just see the determination of the price by the big money-manipulated Comex futures market replaced by a gold price capable of being manipulated by the Chinese to their own benefit. Whether this would be positive or negative for the gold investor we do not know. However we would err on the side of the former given the huge amounts of gold held by the Chinese public and the moves by the Chinese to switch from an export dominated economy to one which relies on internal domestic demand, which will itself be determined by public wealth.
Bill Holter tackles something dear to my heart: the fraud inside the comex
(courtesy Bill Holter/Holter-Sinclair collaboration)
The Crime of the Century!
We will no doubt look back upon the current era as the “crime of the century” for so many different reasons. Actually, current times represent the worst financial crimes of ALL TIME! The various crimes and how they are operated are too numerous to list and would probably fill a three volume set of books, let’s concentrate on just one. Central to everything is the U.S. issuing the global reserve currency by fiat knowing full well it truly means “non payment”. The absolute cornerstone to the dollar retaining confidence and thus value has been the suppression of the price of gold.
Before getting to specifically what I’d like to point out, let’s look at a couple common sense points which beg questions. How is it China has been importing 2,400 tons of gold over the past two and a half years without any upward push to the gold price? This amount equals almost EXACTLY the TOTAL amount of gold mined annually around the world! How is it possible that ALL production has been purchased by China and yet the price goes down? The answer of course is quite simple unless you purposely close your eyes or disingenuously “apologize”.
The argument from the apologists is that “traders” on COMEX and LBMA believe gold will go lower so they are sellers and this is where the downward pressure has come from. You as a reader already know that much of the “selling” is done at midnight (or off hours) in the U.S. which is the lunch break in Asia, China specifically. The massive selling (as much as total global production in less than two trading days) has usually taken place during off hours when the volume is lightest and price moves the most, especially with any significant volume. The result has been gold now trades at or very near the cost of production and silver well below production costs. None of this is new, only a refresher. The reaction in the actual physical markets is backwardation, premiums over spot prices and actual shortages. Put simply, low price has brought out additional physical demand.
To the point, the following is a snapshot of inventory movement (or the lack of) within the COMEX gold vaults this month:
|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||nil|
|No of oz served (contracts) today||13 contracts1300 oz|
|No of oz to be served (notices)||650 contract (65,000 oz)|
|Total monthly oz gold served (contracts) so far this month||364 contracts
|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|
1 Chinese yuan vs USA dollar/yuan rises a tiny bit, this time at 6.3490 Shanghai bourse: in the green, hang sang:green
2 Nikkei closed up 389.43 or 2.11%.
3. Europe stocks all in the green /USA dollar index down to 96.39/Euro up to 1.1095
3b Japan 10 year bond yield: falls to .305% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.73
3c Nikkei now just above 18,000
3d USA/Yen rate now above the important 120 barrier this morning
3e WTI: 45.56 and Brent: 48.44
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 up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .499 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate falls to 7.60%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.77% (yield curve flattening)
3k Gold at $1178.80 /silver $16.05 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 2/3 in roubles/dollar) 61.88
3m oil into the 45dollar handle for WTI and 48 handle for Brent/ China purchases huge supplies from Saudi Arabia
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9740 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0812 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 6 year German bund now in negative territory with the 10 year rising to +.499%/German 6 year rate negative%!!!
3s The ELA lowers to 82.4 billion euros,
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 2.07% 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 Surge On Global Draghi Euphoria, Tech Earnings
Yesterday morning, when previewing the day’s tumultuous events, we said that “Futures Are Firm On Hope Draghi Will Give Green Light To BTFD.” And boy did Draghi give a green light, that and then some, when his press conference unleashed one of the biggest one-day US equity rallies in 2015. However we also said that Draghi “faces the paradox of reflexivity“: how does he intervene and demonstrate he is readier than ever to set up stimulus, without panicking investors over euro area’s health because remember: more ECB intervention means Europe’s economy is once again far weaker than consensus admits.
We got the answer to that too when Draghi did absolutely nothing, but merely jawboned to a level unseen since his infamous “whatever it takes” speech in July 2012, sending the EURUSD down by 250 pips on the day on nothing but more cajoling and hints of both boosting or extending QE as well as hinting at NIRP.
And thanks to reflexivity, now that Draghi has achieved his FX goal of pushing EURUSD to the ECB’s stated Euro forecast ceiling of 1.10, he no longer even has to do anything, and most likely won’t in December when the market expects the ECB to unleash savers’ hell. Golf clap.
Confirming that central banks are far more eager to talk than to actually do anything, were comments overnight from that “other” country which is expected to boost QE, Japan, where Etsuro Honda, adviser to Japanese PM Shinzo Abe, said that “immediate additional easing by Bank of Japan is not necessary”, Kyodo reports, citing an interview. Honda says if BOJ carried out additional easing it could be to increase annual JGB purchases to 100t yen from 80t yen; says “next additional easing would be last one.” Of note was his claim that economic measures to aid low income workers was needed due to weak individual consumption; and that fiscal measures are more effective than monetary easing.
Indeed, with the USDJPY surging overnight to 121 on Draghi’s comments, if not actions, suddenly the BOJ too has far less of a reason to act. And, as expected, the USDJPY promptly tumbled down to 120.20 once it became clear that the BOJ, just like the ECB, was merely talking and has no intention to actually act.
Which is why we would not be at all surprised to see absolutely nothing from either the BOJ next Friday, or from the ECB on December 3 – after all the bulk of the FX intervention already took place, and the S&P500 has ramped to just shy of its all time highs once again.
And in fact, following overnight’s glowing PMI data out of Europe, we would also not be at all surprised if Draghi won’t back off entirely from his uber-bearish commentary at the next public statement opportunity he gets, launching a rocket under the EURUSD.
Overnight Marketi reported Euro area flash composite PMI which surprisingly rose 0.4pt to 54.0 in October. This was stronger than consensus expectations of a moderate decline to 53.4. The manufacturing sector PMI was flat at 52.0 (Cons. 51.7), while the services sector PMI increased 0.5pt to 54.2 (Cons. 53.5). At the country level, the German and the French composite PMI made similar robust gains.
The breakdown was mixed. Within the manufacturing PMI, new orders edged down 0.1pt, while stocks of finished goods rose 0.8pt, leading to a 1.0pt reduction in the order-stock difference. Among other subcomponents of the manufacturing PMI, output and employment fell (-0.2pt to 53.3 and -0.6pt to 50.9, respectively). More positively, in services, the forward-looking subcomponents (which are not part of the headline services PMI figure) showed ‘incoming new business’ rising from 53.6 to 54.1, while ‘business expectations’ fell from a high level (-1.2pt to 61.0).
The German composite PMI rose in a similar fashion to the area-wide improvement (+0.5pt to 54.5), reflecting an increase in the services PMI (+1.1pt to 55.2), while the manufacturing PMI fell (-0.6pt to 51.6). The French composite PMI showed similar developments in October (+0.4pt to 52.3), with gains both in the services PMI (+0.4pt to 52.3) and the manufacturing PMI, even if very moderate (+0.1pt to 50.7).
A quick walk through the markets reveals that Asian stocks traded higher in conjunction with gains seen in its global counterparts after ECB President Draghi’s dovish comments. Nikkei 225 (+2.1%) outperformed amid broad based gains with USD/JPY remaining near yesterday’s highs supporting exporters, while ASX 200 (+1.7%) was underpinned by mining names and large banks after NAB and ANZ followed both Westpac and Commonwealth Bank in raising mortgage rates. China’s Shanghai Comp. (+1.3%) benefitted from better property figures, margin debt reaching 6-week highs and reports that China is to increase the amount of funds available to local governments by 100% for infrastructure projects, as an improvement in the property sector is seen to dampen demand for stocks. JGBs tracked Bunds and USTs higher with the paper also supported by the BoJ entering the market to purchase JPY 1.2trl in 1-10yr bonds.
An interesting data point out of China was that September New Home Prices rose in 39 cities vs. 35 in August and in 12 cities Y/Y vs. 9 in August. This was the first time Chinese home prices rose in more than half of 70 major cities in 17 months, driven by mortgage restrictions easing and PBOC rate cuts.
It is very possible that now that China is once again reflating its housing bubble it may allow the stock bubble, which was merely an interim step to hold the economy over for a period of time, to fully burst.
The final European session of the week has kicked off with sentiment continuing on from yesterday as markets continue to digest the dovish press conference from ECB’s Draghi. As such equities (Euro Stoxx: +1.2%) bolstered this morning, while fixed income products experienced initial strength to see yields reach lows across Europe as Italian and Spanish 2y yields go negative for first time, joining German, French, Austrian,
Dutch and Finnish 2yr yields, before Bunds retraced their gains later in the session. While over in equity markets, price action has been bolstered through German automakers (Daimler: 2.0%), who have seen upside today on the back of the weaker EUR.
In FX, EUR/USD spent much of the overnight session trading around the 1.1100 handle after yesterday’s sharp losses, with EUR seeing modest gains ahead of the North American crossover to par some of yesterday’s losses , with sentiment supported by generally better than expected manufacturing and services PMI from France, Germany and the Eurozone (Eurozone Manufacturing PMI 52.0 vs. Exp. 51.). Elsewhere, USD-index (-0.3%) resides in negative territory, weighed on by JPY strength on the back of comments from Japan PM adviser Honda who stated that there is no need for additional easing by the BoJ at this stage.
Of note, as well as initial weakness in EUR, the dovish comments also saw a bout of carry trade and supported countries with higher yields with NZD/USD breaking above 0.6800, coinciding with AUD/NZD retreating below 1.0600. AUD/USD was stronger, although did see some mild paring after NAB and ANZ increased home loan rates, which put pressure for the RBA to act at the November meeting.
Gold prices saw mild support overnight following yesterday’s dovish ECB press conference, although gains were capped by USD strength, however the European morning saw gold move higher, breaking out of its overnight range and eyeing its 200DMA to the upside at USD 1174.59, benefitting from the aforementioned weaker USD. Elsewhere copper and iron ore prices saw mild weakness with the latter near 3-month lows and on course for a 5th weekly loss in 6 weeks, while aluminium prices extended on declines to print its weakest level since 2009. In the commodity complex. WTI and Brent futures both head into US hours modestly higher on the back of USD softness and amid relatively light nesflow.
Looking ahead, highlights include Canadian CPI and US manufacturing PMI. Following yesterday’s tech earnings barrage, today we get P&G, Altera, LyondellBasell Industries, State Street, VF and Ventas.
- S&P 500 futures up 0.2% to 2057
- Stoxx 600 up 1% to 374
- FTSE 100 up 0.8% to 6425
- DAX up 1.4% to 10639
- S&P GSCI Index up 0.5% to 361.7
- MSCI Asia Pacific up 1.7% to 136
- Nikkei 225 up 2.1% to 18825
- Hang Seng up 1.3% to 23152
- Shanghai Composite up 1.3% to 3412
- S&P/ASX 200 up 1.7% to 5352
- US 10-yr yield up 2bps to 2.05%
- Dollar Index down 0.2% to 96.18
- WTI Crude futures up 0.3% to $45.53
- Brent Futures up 0.7% to $48.41
- Gold spot up 0.6% to $1,173
- German 10Yr yield up 1bp to 0.51%
- Italian 10Yr yield up 2bps to 1.47%
- Spanish 10Yr yield up 2bps to 1.62%
Bulletin Headline Summary from Bloomberg and RanSquawk
- The final European session of the week has kicked off with sentiment continuing on from yesterday as markets continue to digest the dovish press conference from ECB’s Draghi
- USD-index resides in negative territory, weighed on by JPY strength on the back of comments from Japan PM adviser Honda who stated that there is no need for additional easing by the BoJ at this stage
- Looking ahead, highlights include Canadian CPI, US manufacturing PM! as well a host of US earnings including P&G, Altera and LyondellBasell Industries
- Falling Prices Meet Weakening Growth as ECB Prepares for Action: While a PMI for manufacturing and services unexpectedly rose to 54 in Oct. from 53.6 in Sept., forward- looking indicators point to a risk of a slowdown, Markit said
- Treasuries decline as global stocks and commodities extend rally sparked by prospect of more QE from the ECB.
- BOJ Said to See Output Data as Crucial Before Policy Meeting: Sept. industrial production data due a day before the policy board meets on Oct. 30 to consider adjusting monetary stimulus
- While Markit’s euro-area PMI increased to 54 in October from 53.6 the previous month, forward-looking indicators point to a risk of a slowdown, with service-sector expectations for the year ahead fell to a 10-month low
- Jack Dorsey Gives a Third of His Twitter Stock Back to Employees: Shares amount to 1% of the co., worth ~$200m
- A.P. Moeller-Maersk cut its 2015 profit forecast to ~$3.4b vs previous expectations for $4b, citing weaker container shipping market as the outlook for global growth becomes gloomier
- With oil prices still wobbling around $50, Norway is in danger of a recession that could drive its benchmark interest rates, already at a record low, to zero
- China’s home prices rose in September in more than half of the 70 major cities monitored by the government for the first time in 17 months, as home-purchase restrictions were loosened and interest rates cut
- The towns that became synonymous with Volkswagen AG’s rise to the pinnacle of the auto industry are feeling the pinch of the diesel-emissions scandal, freezing spending on projects such as playgrounds amid the carmaker’s abrupt fall from grace
- Merkel is signaling to Putin that she’ll stand firm on defending Ukraine, even at the risk of denying herself a possible ally in stemming Europe’s refugee crisis
- Sovereign 10Y bond yields mixed. Asian and European stocks gain, U.S. equity-index futures rise. Crude oil, copper and gold higher
DB’s Jim Reid completes the overnight recap
With the new James Bond film opening on Monday and continuing the film theme in the EMR this week I felt I had to share my own personal Bond anecdote. In 1998 I lived in Wapping and walked to work in Canary Wharf by a canal. One day I walked home to find a new small boat house installed alongside the canal with canoes in it and London Canoe Club painted on the entrance. I was quite excited and made a note that I was going to come back at the weekend to join the new club. Not that I had ever done it before but I was still at an age where trying new things once was still exciting! I didn’t go back past for a couple of days as I was travelling but on my return at the weekend the boats and clubhouse were completely gone with no trace they ever existed. Part of me thought I’d gone crazy and part of me wondered whether there wasn’t enough interest and they had decided against setting up there. I therefore regretted not joining immediately. I thought little of it for the next year and then I went to the cinema to see “The World is Not Enough”. Imagine my surprise when in the movie James Bond drove a speedboat at high speed into the London Canoe Club sending boats and the building scattered everywhere. Only then did I realise what had happened.
Yesterday Mario Draghi gave the financial community licence to be thrilled as he ended up shaking and stirring markets with the Stoxx 600 (+2.03%) closing at a 2-month high. It’s been pretty obvious to us that with inflation so low, the ECB and BoJ have plenty of excuse to give the plates another big spin and expand current monetary policy further and thus give assets another dose of supportive fairy dust. Whilst we didn’t expect action yesterday from the ECB its fair to say we got more certainty than we would have expected that the December 3rd meeting is set to yield more stimulus. As a result our economists have amended their QE extension call and included a small (10bps) further deposit rate cut into their forecasts. They think such a small cut might now risk market disappointment but this will be compensated by signalling that the lower bound has not yet been reached.
Digging deeper into Draghi’s comments. Concerns over growth prospects in emerging markets, as well as possible repercussions for the economy from developments in financial and commodity markets were well flagged as downside risks for the outlook for growth and inflation for the Euro area. On inflation, Draghi warned that ‘most notably, the strength and persistence of the factors that are currently slowing the return of inflation to levels below, but close to, 2% in the medium term require thorough analysis’.
With this, Draghi said that ‘the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting’. Also ‘the Governing Council is willing and able to act by using all the instruments available within its mandate’ and that in particular ‘the asset purchase programme provides sufficient flexibility in terms of adjusting its size, composition and duration’. Interestingly and as highlighted by our European economists, Draghi also used his predecessor code word ‘vigilance’ that previously had used to signal imminent action.
European equity markets were up across the board. The DAX (+2.48%), CAC (+2.28%), IBEX (+2.05%) and FTSE MIB (+2.00%) all with gains of at least 2%. Unsurprisingly the Euro was heavy hit and finished down 2.03% against the Dollar, the lowest closing level since August 18th. Credit markets got a boost with Crossover and Main 14bps and 4bps tighter respectively. Meanwhile European sovereign bond yields marched lower. Peripherals were the relative outperformer with 10y yields in Italy, Spain and Portugal dropping 15.6bps, 15.6bps and 12.7bps respectively. 10y Bunds ended the session down 7.3bps at 0.494%, the lowest yield since May 29th. There were some decent moves at the shorter end of the curve too. Having declined over 6bps, 2y Bund yields finished down at -0.320% and the lowest level on record, while the Bund curve has moved back into negative territory again up to 6yrs in maturity.
Draghi’s comments helped boost equity markets across the pond too. The S&P 500 closed up +1.66% while the Dow and Nasdaq ended +1.87% and +1.65% despite some more weakness in the healthcare space after Valeant fell another 7%. Some productive earnings reports also helped much of the better tone in the US. After reporting post the closing bell on Wednesday, EBay surged 14% yesterday. Meanwhile, during the day investors were also buoyed by earnings beats for McDonalds (+8%), Dow Chemical (+5%) and 3M (+4%) during the session. Better news was to come after the close however with some material beats from a few bellwethers in the tech space. Microsoft shares surged to a 15-year high in extending trading after earnings came in above expectations, bouncing back strongly from one of its worst losses in history last quarter. Amazon shares jumped as much as 11% after the close, notching a beat in both earnings and sales for the quarter after some robust performance in its cloud-computing division. Finally Google parent company Alphabet was also up double digits in extended trading after beating profit expectations and announcing the group’s first share buyback.
Updating our beat/miss monitor then, yesterday saw 45 S&P 500 companies release results with 34 (76%) reporting a beat in earnings but just 19 (42%) beating at the top-line. While yesterday’s beat ratio in earnings was a touch better than what we’ve seen this earnings season so far (75%), the trend in beats for the top-line was slightly worse than the overall trend so far, currently sitting at 45%. It’s quite clear from the earnings season so far that revenues are struggling more than EPS relative to expectations. This has been the case for many quarters now but seems to be especially so this season.
Just staying on earnings, Caterpillar’s numbers are always worth keeping an eye on with regards to insights in global demand and commodity and investment cycles. Earnings came in a tad below expectations with revenue declines across construction and resources industries. Regionally the biggest declines were in Latin America and Asia Pacific, with mention of declining demand out of China. The company’s outlook was mixed. Profit guidance was revised down for 2015, while revenues are expected to decline 5%. The company did however suggest that they expect world economic growth to be up next year, from 2.4% this year to 2.8% in 2016 with growth in the US and Europe offsetting slower growth in China and Russia. They do however expect key commodity prices to remain largely unchanged.
The prospect of more ECB stimulus is supporting a decent session in Asia this morning. The Nikkei (+2.20%), Hang Seng (+1.34%), Kospi (+0.79%) and ASX (+1.67%) have all moved higher. Markets in Korea have also been buoyed by better than expected GDP data this morning. Credit markets have rallied strongly. Asia and Australia iTraxx indices are 5bps and 4.5bps tighter respectively. EM FX is off to a flyer too. In particular, currencies in Malaysia, Korea and Indonesia are up over a percent in early trading. Meanwhile, equity bourses in China are seemingly trading to their own beat. Both the Shanghai Comp (+0.02%) and CSI 300 (+0.00%) are little moved, but the Shenzhen (+0.93%) has seen a decent gain. September house price data in China showed prices were up in 39 cities last month (out of 70) versus August. This is the first time in 17 month prices have risen in more than half of Chinese cities. This compared to the previous two months when house prices rose in 35 cities in August and 31 cities in July. Elsewhere, S&P 500 (+0.2%) and Nasdaq (+0.4%) futures are pointing towards to decent start post last night’s earnings.
Just wrapping up yesterday, economic data was relatively mixed on the whole in the US. Initial jobless rose 3k to 259k (vs. 265k expected) last week. The Conference Board’s leading index was down a slightly softer than expected -0.2% mom (vs. -0.1% expected) last month. There was some improvement in the Kansas City Fed’s manufacturing activity index during October however, rising 7pts to -1 (vs. -9 expected) and to the highest level since February. The Chicago Fed’s national activity index was a touch below market (-0.37 vs. -0.29 expected), albeit more or less in line with last month. Meanwhile, on the housing front existing home sales were up a robust +4.7% mom (vs. +1.5% expected) in September, the annualized rate of 5.55m just below the 8-year high of July.
Prior to this in Europe, French business confidence rose 1pt to 101 (vs. 100 expected) in October, while an indicator of manufacturing confidence was a touch softer relative to last month. UK retail sales data was supportive. Excluding autos, retail sales rose +1.7% mom in September (vs. +0.4% expected) helping to lift the YoY rate to +5.9%.
Onto today’s calendar now. Economic data today is dominated by the release of the October flash PMI’s where we’ll get the manufacturing, services and composite readings for the Euro area, France and Germany and the manufacturing print in the US this afternoon. With no Fedspeak scheduled again today, corporate earnings will again be closely watched with 10 S&P 500 companies due to release results, including Procter & Gamble and American Airlines (both due before the open). 16 Stoxx 600 companies will report also, including Volvo and Ericsson.
Let us begin; 9;30 pm Thursday night/9;30 Friday am Shanghai time)
US Dollar Dumped Against Asian FX As Releveraging Chinese Send Margin-Debt To 6-Week Highs
Chinese stocks are not as exuberant as European, Japanese (which are rolling over), and US markets at the open as they cling to unchanged for the day and week(despite margin debt rising to a six-week high). The main event in AsiaPac trading appears to be a huge re-entry into the EUR-ANY-EM-FX carry trade as The USDollar gets pummeled against Asian FX (despite EUR weakness). PBOC weakened the Yuan fix by the most in 8 days to its lowest in 2 weeks.
Japanese stocks soared during the US session but are fading at the open…
Chinese stocks flat in the pre-open…
Even as Margin Debt hits a 6-week high...
As The Dollar gets pummeled against Asian FX...
and PBOC weakens the Yuan Fix…
With Offshore Yuan pushing to 1-month lows...
Finally, it’s almost as if China never shook up the world’s carry trading malarkey… only Chinese stocks are still feeling the pain…
Breaking: China Cuts Interest Rate By 25 bps, Cuts RRR by 50 bps; Futures Soar; Fed December Rate Hike Back In Play
Just two days ago, we noted that according to Citi’s Willem Buiter, there would be “Imminent Easing From Central Banks Of China, Australia, Japan And Europe.” Fast forward 48 hours when he is already half right – not only did Europe confirm it is about to cut, but moments ago none other than China joined the global easing orgy when in a completely unexpected development as it happened on a Friday (we are scouring various databases to find the last time, if ever this happened) China announced it has cut not only its 1 year lending rate and 1 year deposit rate by 25 bps, but also its reserve requirement ratio by 50 bps.
- CHINA CUTS BANKS’ RESERVE REQUIREMENT RATIO
- CHINA CUTS INTEREST RATES
- CHINA CUTS 1-YEAR LENDING RATE BY 0.25 PPT
- CHINA CUTS 1-YEAR DEPOSIT RATE BY 0.25 PPT
- CHINA REMOVES DEPOSIT RATE CEILING FOR BANKS
- CHINA CUTS RESERVE RATIO BY 0.5 PPT
- CHINA INTEREST RATE CUT EFFECTIVE FROM OCT. 24
The PBOC’s statement in its google-translated entirety:
People’s Bank of China, from October 24, 2015, down financial institutions RMB benchmark lending and deposit interest rates, in order to further reduce the social cost of financing. Among them, one-year benchmark lending rate by 0.25 percentage point to 4.35%; year benchmark deposit rate by 0.25 percentage point to 1.5%; adjusted for each other grade benchmark interest rate loans and deposits, the People’s Bank lending rates of financial institutions ; personal housing accumulation fund loan interest rates remain unchanged. Meanwhile, commercial banks and rural cooperative financial institutions are no longer set the upper limit of the floating interest rates on deposits, and pay close attention to improve the market-oriented interest rate formation and regulation mechanism, strengthen the central bank interest rate system of regulation and supervision, improve the efficiency of monetary policy transmission.
Since the same date, down financial institutions RMB deposit reserve ratio by 0.5 percentage points, in order to maintain reasonably adequate liquidity in the banking system, guide steady moderate growth of money and credit. Meanwhile, to increase financial support for the “three rural” and small businesses a positive incentive for additional standards-compliant financial institutions to reduce the deposit reserve ratio by 0.5 percentage points. (Finish)
S&P futures surge nearly 20 points on this latest scramble to ease, which is just the latest green light by central banks to take on more risk, and as a result fresh all-time highs in the S&P500 are now just a matter of time.
But the real take home message here is that both the ECB and the PBOC just confirmed a December Fed rate hike is suddenly in play once again, especially since this move by China should remove Yellen’s concerns about Chinese growth.
China Rate Cut Reaction – Bullion Best, Bonds Bruised, Exuberance Everywhere Else
For now, the biggest loser is Treasury bonds – which are up 2-4bps in yields post-China. As for everything else – buy it with both hands and feet. US equities are extending tech gains (Nasdaq up 3% post-cash close), Gold has surged back above its 200DMA, Commodities are all loving it and the USD is bid…
The last two days have been quite impresive…
US Equities are exuberant…
As VXX tumbles over 3% in the pre-market (heralding 13 handle VIX today)
But bonds are suffering as gold leads the reaction
With gold breaking back above its 200-day moving-average…
Europe is loving it too… DAX +300 today, +600 in 2 days
Credit markets are higher, but remain notably decoupled from equity exuberance…
Reactions To China Rate Cut Trickle In: “China Is Getting More And More Desperate”
To say that China, which a few days ago reported GDP of 6.9% which “beat” expectations and which a few hours ago reported Chinese home prices rose in more than half of tracked cities for the first time in 17 months, stunned everyone with its rate cut on Friday night, meant clearly for the benefit of US stocks, as well as the global commodity market, is an understatement: nobody expected this.
As a result strategists have been scrambling to put China’s 6th rate cut in the past year (one taking place just ahead of this weekend’s Fifth plenum) in context. Here are the first responses we have seen this morning.
First, from Vikas Gupta, executive vice president at Mumbai-based Arthveda Fund Management Pvt., who told Bloomberg that “China rate cut will spur fund flows to EMs.” He adds that “the move rules out U.S. rate increase this yr; Fed’s “hands are getting tied” concluding that “easing shows China is “getting more and more desperate” and that “things are really bad there.“
While there is no debate on just how bad things in China are, one can disagree that the Fed’s hands are tied – after all the Fed’s biggest “global” concern was China. The PBOC should have just taken that concern off the table.
The second reaction comes from Citi’s Richard Cochinos:
Bottom line: Impacts of China rate announcements on the G10 are falling. Investors remain cautious ahead of this weekend’s announcements, and what policy cuts imply for the region.
One day after a dovish ECB, China cuts interest rates by 25bp and RRR cut by 50bps.Accommodative policy begets accommodative policy it seems. Our economics team has been expecting further policy accommodation out of China, the issue was just a matter of timing. Unlike other major central banks, the PBOC doesn’t announce policy on a set schedule – but this doesn’t mean there isn’t a pattern to it. Before today, it had announced cuts to the RRR or interest rate six times in 2015 – the last being on 25 August. So today was a surprise in terms of action, but not completely unexpected. We prefer to see the easing can be seen in the larger picture of China adjusting to weaker growth in a systematic and controlled manner, rather than a reaction to a new economic shock.
This view helps explain the muted reaction in the G10. So far, AUDUSD (0.27%) and USDJPY (0.18%) have borne the bulk of price action, but we note price action so far is muted relative to April, June or August. Clearly stimulus is beneficial to both Japan and Australia – but we are cautious not to sound too optimistic.Today’s rate cut comes ahead of this weekend’s Fifth plenum, and previous ones haven’t been sufficient to reverse the economic slowdown. Additionally, this weekend it has been expected GDP targets for the next 5-years will be announced (currently at 7%, but broadly expected to fall), along with other fiscal plans and goals. Without knowing the full baseline of what China expects and is working towards, it is difficult to chase price action. The main drivers of EM Asia lower has been poor growth and trade in the region – hence we main cautious. Policy adjustments now could be a way to soften the impact of further weak economic growth.
And finally, from MarketNews:
The PBOC will cut its key one-year lending rate by 25 basis points to 4.35%, the bank said on its website, and make a similar reduction to its one-year deposit rate, taking it to 1.5%. Reserve ratio requirements for China’s domestic lenders were also trimmed by 50 basis points and the PBOC abolished a ceiling on banks’ deposit rates, the so-called final step of China’s interest rate reform.
The triple-set of moves provides a much better assessment of the impending weakness in China’s economy, it seems, than the various indicators scrutinized in Europe over the past few weeks, which continue to suggest minimal impact from the slowdown.
They may also better explain the surprisingly dovish stance articulated Thursday by ECB President Mario Draghi, who emphatically flung the door to further monetary easing measures wide open and suggested the Bank might even consider a re-think of its “lower bound” assessment on key interest rates.
And therein lies the question: just how bad are things in China (and Europe for that matter) for the PBOC to act (and the ECB to hint) with the urgency of a world hanging on the edge of a global recession. We’ll find out next Friday when the BOJ become the third bank to join the global easing train.
Commodities, Precious Metals Are Tumbling – Give Up China Rate-Cut “Hope” Gains & More
That’s not supposed to happen…
If rate cuts create “growth” and stocks are discounting that “growth” then why are “growth”-oriented commodities dumping?
Or did China just admit by action that its economy is much more screwed-er than its GDP data suggests…?
Crude even lower no – 2 month lows…
Then this: the market intervention lasts only 4 hours. The new equity owners of stock looked over their shoulder and saw bond yields falling and not rising which caused them to shiver!!
(courtesy zero hedge)
Peak Intervention? China Rate-Cut Stock Gains Erased In Under 4 Hours
Did the age of central bank omnipotence just come to an end?
After 3 USDJPY driven rescues, the China Cut gains are gone for the S&P 500…
Of course, from the close yesterday, markets are still holding gains…
Even as VXX surges back into the green
Maybe stock traders glanced at the un-exuberance in credit markets…
This story is a biggy!!
The IMF is seen as approving the yuan as a reserve currency.. The meeting is set for the first week of November.
As you can see, the offshore yuan is falling as dollars continue to vacate China
(courtesy zero hedge)
IMF Seen Approving Yuan As “Reserve Currency”
Just a few short weeks after The IMF appeared to snub China by delaying its decision on Yuan inclusion in the SDR basket, Bloomberg reports that Otaviano Canuto, executive director at the IMF for 11 countries including Brazil, said “prospects for approval seem to be favorable,” adding that the story “is going in the direction of the renminbi becoming a necessary component of the SDR.” China is taking that as a ‘yes’ and is preparing statements celebrating IMF SDR approval.
As Bloomberg reports,
International Monetary Fund representatives have told China that yuan is likely to join the fund’s basket of reserve currencies soon, according to Chinese officials with knowledge of the matter.
IMF has given Chinese officials strong signals in meetings that yuan is likely to win inclusion in current review of Special Drawing Rights, said three people who asked not to be identified because talks were private
Chinese officials are so confident of winning approval that they have begun preparing statements to celebrate the decision, according to two people
Board has requested that IMF staff members look into some operational challenges of including yuan in the basket, such as ability of fund’s 188 member nations to quickly convert SDRs into yuan, according to another person familiar with the matter.
“We realize that although we’ve done a lot, it’s really first up to the staff, and second up to the board, to make a final judgment,” Jin Zhongxia, China’s representative to the IMF executive board, said in interview Friday. “We have to fully respect their decision”
Of course, as one analyst notes, “I think a political decision has already been made,” said Domenico Lombardi, director of the global economy program at the Centre for International Governance Innovation in Waterloo, Ontario.
“The Chinese have invested considerable political capital. They’ve mobilized their intellectual and political resources to this purpose, and it’s a case that’s difficult to argue against.”
“The most probable outcome is the board will vote to include the renminbi in the SDR basket,” said Meg Lundsager, who served as the U.S. representative on the IMF’s executive board from 2007 to 2014. “I really haven’t heard any big opposition. If there were countries which had real problems with it, they would have been raising their concerns.”
The U.S. took a step toward backing China’s SDR bid last month, when it softened its insistence that the Chinese implement financial reforms to win support. The U.S. now says it will support inclusion of the yuan if it demonstrates it meets the IMF’s technical criteria.
“This is going to make it very hard for the Chinese to undo a lot of these reforms,”said Lundsager, now a public-policy fellow at the Woodrow Wilson International Center for Scholars in Washington. “Once you move into this group of major currencies, it becomes pretty much impossible to backslide.”
* * *
The bottom line is that this appears bearish for The Yuan… and likely means more outflows…
Several days ago, Citi announced that it “expects the upcoming IMF review (scheduled for early-November) will probably lead to China’s inclusion in the SDR basket from late-2016. But we expect that the CNY will over time weaken versus the USD either way — either because of a poor outcome from SDR review or (if China joins the SDR) because of gradual (and limited) FX liberalization.“
which is fascinating as China’s offshore Yuan has plunged to 1-month lows in the last few days…(and decoupled – for now – from the onshore market suggesting outflows are accelerating)
While it remains to be seen just how negative the impact on the CNY will be as a result of any possible SDR inclusion, and the definition of China’s currency as a reserve currency, it now appears virtually assured that the IMF will include the CNY in its SDR basket, “validating efforts by President Xi Jinping to push through policies aimed at making the world’s second-biggest economy more market oriented, boosting China’s prestige as it prepares to host Group of 20 gatherings next year.”
Draghi announced that NIRP was discussed in yesterday’s Euro area banking meeting. Once Europe plunges into negative rates, the Euro/Swiss Franc cross will plummet causing more havoc to the Swissy. Coupled with today’s announcement by the Chinese, the world is now in total turmoil and a race to the bottom
(courtesy zero hedge)
Why Europe Is About To Plunge Further Into The NIRP Twilight Zone, And What It Means For Depositors
In some respects, today’s ECB presser was a snoozer. Reporters asked the same old questions (some of which we’ve been asking for years) and, more importantly, there were no glitter attacks.
Our ears did perk up however, when Mario Draghi admitted that, unlike the governing council’s last meeting, cutting the depo rate further into negative territory was indeed discussed.
This is significant for a number of reasons. At the general level, it shows that DM central bankers are ready and willing to plunge the world further into the Keynesian Twilight Zone. As we outlined last month, this means the Riksbank and the SNB are now on watch. If the ECB cuts again, the Riksbank will be forced to act as well and as Barclays recently opined, the SNB may be compelled to go nuclear on depositors, as removing the negative rate exemption for domestic banks would force them to pass along the “cost” to customers:
“In contrast, a cut in the ECB’s deposit rate further into negative territory likely would have a significant impact on the EURCHF exchange rate and provoke a more immediate response from the SNB.Indeed, we expect that a cut in the ECB’s deposit rate may have a greater effect on EURCHF than on other EUR crosses. Switzerland applies its negative deposit rate to only a fraction of reserves, currently about 1/3rd of sight deposits by our calculation. In contrast, negative deposit rates apply to all reserves held at the ECB, Riksbank and Denmark’s Nationalbank. Consequently, a cut to the ECB’s deposit rate likely has a larger impact both on the economy and on the exchange rate than a proportionate cut by the SNB. An SNB response to an ECB deposit rate cut could take one of two forms: 1) a further cut in its deposit rate and CHF Libor target range; or 2) the ‘nuclear’ option, removing all exemptions from the negative deposit rate. We think the latter is more likely and would have major implications for EURCHF.” Most retail (private) depositors at domestic Swiss banks still do not face negative interest rates, but we would expect that to change if the SNB removed exemptions of domestic banks on sight deposits at the SNB. A removal of domestic banks’ exemption from negative deposit rates likely would force Swiss banks to pass on negative deposit rates as it would increase the proportion of assets charged negative rates to over 20%.
This is an important concept not only for what it says about the never-ending, tit-for-tat, beggar- thy-neighbor monetary policies that now pervade developed markets, but also for the degree to which it explains why NIRP has not yet led to a sharp increase in the demand for physical banknotes. Put simply: depositors haven’t yet felt the effects of the monetary insanity engendered by the global currency wars.
Deutsche Bank’s Abhishek Singhania and Oliver Harvey have taken a close look at the proliferation of NIRP at the Riksbank, the SNB, the Nationalbank, and the ECB on the way to positing that not only is zero not the lower bound, but in fact no one has hit the lower limit for rates as of yet.
First, there’s the obvious problem with negative rates. Namely, depositors will just take it to the mattresses (so to speak):
The main concern with further cuts to policy rates is the problem of the zero lower bound. In academic literature, the challenge for central banks operating near or at zero interest rates is that it is technically unfeasible to impose interest rates on cash. Depositors charged at negative rates can simply exchange electronic reserves into paper currency.
Of course because fractional reserve banking is nothing more than a giant ponzi scheme wherein banks are perpetually borrowing short to lend long, instituting a rate negative enough to trigger a run on deposits would have the exact opposite effect from what central banks intended. That is, banks would be forced to sell assets to meet the outflows:
As well as losing control over monetary policy, central banks would see financial conditions tighten as banks were forced to sell assets to meet depositor withdrawals. In extremis, the effect could be compared to a bank-run preceding capital controls or large scale currency devaluation. However, due to the more incremental nature of the impact of negative rates (e.g. 25bp charge on deposit holdings rather than a multi percent devaluation), interest rates would need to be slashed deeply negative for depositor withdrawals to resemble much more than a jog.
Obviously, if rates go negative enough to trigger a run that (literally) breaks the banks, then the lower limit will definitively have been reached, but at that point it will be too late. Back to Deutsche Bank:
So far, the experiences of the four European economies under negative interest rates, including the Eurozone, suggest that this theoretical constraint has not been reached. The demand for coins and notes has ticked up slightly in recent months, but remains at fairly muted levels.
Why the lower bound constraint has yet to be reached, and how much more room there is to maneuver, is obviously crucial for the ECB and the three other central banks imposing negative rates. The main reason is that banks have not passed on negative policy rates to depositors. In none of the four economies are household deposit rates in negative territory, either for outstanding balances or new business. Why have negative nominal rates not passed through to depositors?
Banks are of course hesitant to charge depositors for deposits for fear of damaging relationships. Or, in Deutsche Bank’s more condescending parlance, “banks are very reluctant to pass on negative rates to households [because] retail depositors [are] least likely to understand the wider monetary policy context behind such a decision.” Right, they aren’t likely to understand why they should have to pay the bank to lend out their money at a spread that nets the bank a profit and the reason they aren’t likely to understand it is because, frankly, it makes absolutely no sense.
But the bank has to preserve its margins. With long-end rates falling on the asset side thanks to unconventional monetary policy, you either have to pass that along by reducing the rate you pay on your liabilities (i.e. deposits) or else your margins are going to get pinched – unless you find some other way to make up the difference, that is.
The indirect cost of negative rates for banks is through margins. In theory, as unconventional monetary policy pushes down yields on the asset side of the balance sheet, banks need to cut rates on the liability side to preserve margins. As banks are reluctant to cut deposit rates into negative territory for the reasons above, their net interest margin may suffer.
Right. So what’s the solution if it’s not passing along NIRP to depositors?
The SNB have noted that the consequence of introducing negative rates earlier this year was rising, not falling, mortgage rates as banks sought to protect falling liability margins by raising long-end rates. In a similar vein, Danish banks appeared to raise administration fees on new mortgages after rates first turned negative back in 2012. An analysis of long-end mortgage rates offered by banks across Sweden, Denmark and Switzerland suggests that at the long-end, rates have actually risen since the introduction of negative interest rates.
Got that? NIRP is paradoxically causing mortgage rates to rise because banks fear a depositor backlash from negative rates. So, this is yet another example of the unintended consequences of unconventional monetary policy.
We saw something akin to this in Sweden back in July when the Riksbank had sucked up so much high quality collateral via QE that the liquidity premium demanded by investors ended up pushing yields on 10-year govieshigher in what amounted to the exact opposite of what the central bank intended.
Note once again that there’s no end to this. If the ECB cuts the depo rate further, then other NIRP countries will have to respond. If they don’t, their currencies will soar, threatening inflation targets. Case in point, from this morning:
This means going deeper into NIRP, which, in light of the above, means rising borrowing costs right up until the breaking point when the hit to margins can no longer be offset. At that juncture, NIRP will have to be passed on to depositors lest NIM should simply flatline.
What happens next is anyone’s guess but if depositors revolt and begin asking for their money back, banks’ maturity mismatched business model means there are only three available options, i) sell assets to meet withdrawals, ii) institute capital controls, or iii) ban cash. Welcome to the future.
The first nation to undergo NIRP was Denmark. Just take a look at its new huge housing bubble. Home prices have risen 60% in 3 years.
(courtesy zero hedge)
This Is What Happens After Three Years Of Negative Interest Rates
It may seem extraordinary that in the aftermath of the infamous Kocherlakota “dots” the Fed is actively contemplating negative interest rates, but some may have forgotten that Europe has had NIRP since last June. In fact, the reason for today’s global risk-on rally, was Draghi’s hint – remember: Draghi did absolutely nothing, just suggested he may do more – that in addition to extending the ECB’s QE program, the ECB may cut its deposit rate, already at -0.20%, to -0.30% or more.
But when it comes to negative rates, the ECB is merely a late adopter. For the real pioneer one has to look further north in Denmark, where the central bank first adopted negative rates in the middle of 2012 to defend the krone’s peg to the Euro. And, as documented here before, Denmark cut rates not once, not twice, but three times in early 2015 in anticipation of the EUR collapse, pushing its interest rate to a record negative -0.75%.
Denmark’s descent into NIRPdom is shown in the Bloomberg chart below.
So what happens after 3 years of NIRP?
Well, according to Bloomberg, you get the mother of all housing bubbles, one which makes even China blush:
“Property prices in Copenhagen have risen 40-60 percent since the middle of 2012, when the central bank first resorted to negative interest rates to defend the krone’s peg to the euro.”
This should come as no surprise: recall that there are documented cases where Danish borrowers are paid to take on debt and buy houses as we explained in January in “In Denmark You Are Now Paid To Take Out A Mortgage“, so between rewarding debtors and punishing savers, this outcome is hardly shocking. Yet it is the negative rates that have made this unprecedented surge in home prices feel relatively benign on broader price levels, since the source of housing funds is not savings but cash, usually cash belonging to the bank.
What is disturbing is that Denmark is reflating a gargantuan housing bubble less than 7 years since its last housing bubble popped:
Denmark’s most recent housing bubble burst in 2008, with the subsequent price slide rivaling that seen in the U.S. subprime crisis.Thanks to generous welfare benefits, Danish households suffered only negligible foreclosure rates, unlike their U.S. counterparts.
Some are starting to warn that the central bank’s primary strategy at keep the currency at bay is backfiring:
The Danish regulator this month warned Danske Bank against pursuing a growth strategy in Sweden as the housing market there shows signs of imbalances. Price developments are now “highly distressing,” Klas Danielsson, the chief executive officer of Sweden’s state mortgage bank, SBAB, said on Thursday.
He is not alone: “Denmark’s biggest mortgage bank says there’s a “real risk” Copenhagen is heading into a property bubble.” Though a collapse isn’t imminent, “the danger signals” mean that apartment prices in the Scandinavian city “could reach an unsustainable level relatively fast should the current pace of price gains continue,” said Joachim Borg Kristensen, a housing economist at Nykredit.
Yes, after a 60% increase in 3 years, that is a safe assessment.
However, following today’s tumble in the EUR, it is even safer to assume that Danish rates are about to go even more negative as the central bank scramble to defend its currency from even hotter money, and even more inflation. It also means that home prices are going to soar even more.
“Given the current prospects of urbanization, as well as the outlook for the economy and interest rates, housing prices look set to continue rising,” Kristensen said. But that will probably happen at a “slower pace than has been the case thus far.”
No, it won’t: PFA, Denmark’s biggest commercial pension fund, said on Thursday it will invest as much as 4 billion kroner ($607 million) in the country’s property market. It plans to treat the investment much like its bond portfolio, according to an e-mailed note. PFA is returning to the market after selling most of its property portfolio in 2006.
We may not have economic tenure at Harvard but even we know what will happen to property prices in this scenario.
And while the US may have had problems reflating its own housing bubble, Denmark has already achieved just that:
“The hefty growth in both prices and sales of building projects is a worry because it could be driven by an anticipation of continued housing price gains,” Kristensen said. “The question is whether potential home buyers have exaggerated expectations when it comes to future price developments.”
Finally, while we have no doubts how this latest housing bubble will end (in tears, for those wondering), one thing we find truly entertaining is Denmark’s inflation rate: as the following chart shows, the officially reported inflation in the northern European nation is a whopping… 0.5%
So let’s get this straight: Copenhagen home prices rising at 12% per year (or more) and yet the Danish central bank is operating on the assumption that headline inflation is half of 1%?
In retrospect, is it any wonder that when using such clearly ridiculous “data” on which to base decisions that have taken us beyond the zero-bound and into the Twilight Zone of monetary policy, that the world is now living inside the biggest asset bubble ever inflated…
by the end of the day, the Euro plunges into the 1.09 handle briefly
we notice two potential problems:
- Multinational USA corporations and their CEO’s are not happy as earnings will fall again.
- The off shore yuan fell badly to 6.39 yuan to the dollar suggesting huge outflows of more dollars.
(courtesy zero hedge)
EURUSD Plunges To 1.09 Handle – Lowest In 11 Weeks
With the biggest 2-day plunge in 9 months, EURUSD has broken back to a 1.09 handle this morning. It appears Mario Draghi has officially become US Corporate CEOs greatest nemesis (along with BoJ’s Kuroda) as The USD Index surges to 3-month highs…
350 pips… on Draghi’s words…
This will not please US CEOs…
Meanwhile, as we just noted, China’s offshore Yuan is plunging to 1-month lows…(and decoupling from the onshore market suggesting outflows are accelerating)
Is Mario Draghi About To Go Full-Kuroda? RBS Says ECB Could Buy Stocks
At Thursday’s presser, Mario Draghi telegraphed more easing from the ECB come December.
This wasn’t exactly a surprise. In fact, some observers had expected Draghi to expand PSPP at the September meeting and although the market was disappointed in that regard, the ECB did raise the issue limit from 25% to 33% effectively giving themselves more dry powder.
The question now, is what exactly the ECB will announce. That is, will Draghi cut the depo rate further into negative territory thus setting off a chain reaction for the Riksbank and the SNB and thus raising the spectre of NIRP for retail depositors?
How long into 2017 will PSPP be extended?
Given the scarcity of purchasable paper, will the ECB expand the universe of eligible assets and if so, will Draghi go full-Kuroda knowing full well that you never,ever go full-Kuroda?
All good questions, and ones we suspect many a sellside strategist will attempt to answer in the weeks ahead. For his part, RBS’ Alberto Gallo is out with a rundown of the ECB’s options and not only are non-financial corporate bonds on the list (something we predicted months ago), but so are (gasp) stocks, suggesting that the ECB may soon embark on a Japan-style effort to corner the equity market along with the government bond market.
First, Gallo notes the ECB’s mention of the SNB (another central bank which, like Japan, is sitting on a hundred billion dollar equity book):
Yesterday the ECB prepared the ground for more easing in December, as we expected. What was surprising was the post-meeting Q&A, which went into more detail on the possibilities for easing, and even made a direct comparison with the Swiss National Bank – currently the central bank with the largest balance sheet as % of GDP (90%) in developed markets.
Next, RBS suggests that we should take the ECB quite literally when they say that they are “open to a whole menu of monetary policy instruments”:
All options considered means non-financial credit, wholesale loans, subsovereigns, and even equities. We have already outlined that expanding purchases to other types of credit could theoretically double the pool of the ECB’s purchasable bonds, to almost €19tn.
Adding more utilities or state-backed corporates is a logical step, but it is not going to give the ECB much further room. The ECB could decide to go further into the pool of € non-financial corporate bonds (€893bn) rated BBB and above, including € bonds from non-Eurozone issuers (€687bn excluding non-Eurozone issuers).
Adding equities would be particularly aggressive, offering a further €7tn of purchasable assets.
Then there’s the possibility of buying muni bonds:
Sub-sovereign bonds are another option, adding €336bn of local government bonds to the pool of assets. Sub-sovereign bonds account for around 3% of Eurozone GDP (this is small compared with the US, where municipal bonds are 21% of GDP).
And finally, in what might be looked upon as an even more outlandish move than buying equities, the ECB could simply buy individual personal loans from banks because apparently, doing so indirectly via ABS purchases hasn’t worked:
One incentive for the ECB to launch the ABS purchase programme last year was likely to encourage securitisation, helping banks to deconsolidate their balance sheets and unlock new lending. But securitisation issuance hasn’t picked up (see SIFMA data). This is partly due to the lack of harmonisation of national-level rules, the harsh capital treatment even for simple securitisations and the lack of government support (no guarantees to mezzanine tranches, even though the ECB can now buy guaranteed mezzanine tranches through ABSPP). Given the stagnant developments in the securitisation market, the ECB could instead start to buy loans directly to better target easing at the real economy. There are practical hurdles to loan purchases – illiquidity, lack of transparency, long settlement periods.
Yes, “practical hurdles” like “illiquidity, lack of transparency, long settlement periods” … and let’s not forget “the public perception that the Gods must be crazy”, which is precisely what people would think once they learned that a developed market central bank had begun buying individual borrowers’ car loans from banks.
Just how large could this program ultimately get, you ask? Well, you’re in the pee wee league if you’re a central bank and your balance sheet doesn’t sum to a respectable percentage of GDP and on that measure, the ECB has a long way to go:
The SNB has a balance sheet equivalent to 90% of GDP, the highest amongst major developed economies (see chart above).Taken that as a theoretical ceiling, the ECB could further expand its balance sheet by another 70% of GDP, i.e. over three times what they have done so far.
Of course none of this is going to work. As we’ve seen in Japan, you can monetize assets until the cows come home (indeed, until you break the market), but virtually all of the evidence from the global, post-crisis experiment in unconventional monetary policy suggests that you will have i) little to no effect on inflation expectations, and ii) a muted effect at best on aggregate demand. In fact, one would think that the ECB would have learned something from the fact that they’ve been buying bonds since early March and the bloc is now back in deflation.
In the end, all that will happen is the EMU’s neighbors will be forced further into NIRP and the ECB will end up with a nightmarish balance sheet full of stocks, corporate credit, munis, and God only knows what kind of loans purchased from banks, and all of which will have been bought at or near the top. As Gallo notes, “the larger the balance sheet and the riskier the assets a central bank buys, the higher the potential for losses”.
Indeed, and that sets up the possibility that central banks could end up being forced to operate from a negative equity position. In other words: it sets up the possibility that they’ll technically go broke. As for what happens next, we’ll leave that for another post.
The Central Bankers’ Death Wish
This is getting just plain ridiculous. The robo-traders were raging to the tune of 300 Dow points Thursday after Mario Draghi confirmed that he actually is a complete monetary lunatic. And now that the People Printing Press of China has followed suit overnight, they are piling on for more.
In fact, Europe is stranded in economic stagnation because statist dirigisme and the massive crush of welfare state taxation and finance have ground enterprise and productivity to a halt. But Draghi says it’s all China’s fault, and that he will fix their dereliction with even more monetary madness:
In a news conference, Mr. Draghi stressed the “downside risks” to both economic growth and inflation arising from slowing growth in Chinaand other large developing economies, as well as weak commodity prices.
These are the words of a slow-witted man who was born yesterday. That is, they evince an economic model that says every single year, month and day of prior history is irrelevant; and that regardless of how we got to the present moment the answer is always more heavy-handed central bank intrusion in the financial system in order to achieve an utterly bogus 2% inflation target.
In fact, the so-called slowdown in China is the best thing that ever happened to Europe, as is the present spot of unusually low consumer inflation. And there is no mystery as to why these things are happening.
China and the rest of the world have just come through a mind-bending credit binge which took global debt from $40 trillion in 1994 to $225 trillion at present. China was in the forefront of that binge, sporting a 56X gain in outstanding credit during the same two decade period (from $500 billion in 1995 to $28 trillion at present).
The effect of that freakish $185 trillion debt eruption was a worldwide crack-up boom. It was initially manifested in a massive expansion of unsustainable debt financed consumption in the US and other DM economies and runaway fixed investment in China and the other EM economies which supply it.
Accordingly, much of the $40 trillion of global GDP growth shown in the chart reflected purchase money output, not sustainable organic gains in productivity and earned incomes.
Needless to say, purchase money GDP disappeared the instant that DM households could no longer tap their home ATM to spend borrowed money on restaurants and new kitchen countertops; and EM government and enterprises could no longer borrow to build uneconomic steel plants, empty luxury apartments or bridges that no one takes to anywhere.
What this crack-up boom cycle entailed then is a monumental, two-phase global deformation that lies at the heart of what Draghi was babbling about yesterday.
Initially, it led to a surge in global demand for energy, metals and other raw materials in excess of currently installed capacity, thereby fueling drastically higher commodity prices and periodic eruptions of consumer level inflation. Thus, oil went from $20 per barrel to a peak of $150 during the commodity inflation phase; and copper went from $1 to $4 per pound and iron ore from $30 per ton to $200.
Then, in the second phase of the global crack-up boom, drastic financial repression by the world’s central banks after the 2008 crisis led to massive over-investment and malinvestment in production capacity. This unprecedented CapEx boom ranged from the new iron ore mines of western Australia to the shale patches of the North Dakota Bakken to the excess steel and auto plants of China to the containership and bulk carrier capacities of the world’s shipping lines.
In fact, these massive additions of fixed capital and supply capacity throughout the global commodity/industrial complex are still coming on stream just as the leading age of the global credit Ponzi is coming to an abrupt halt in China. Accordingly, throughput volumes are faltering and are actually declining in many sectors, while the swelling availability of high fixed costs production facilities is leading to an unprecedented wave of wholesale price reduction.
The global crack-up boom cycle is evident in the Bloomberg commodity index, which has now plunged to below 2001 levels. Indeed, the area under the graph line tracks its two-phases almost perfectly—–with the deflation phase incepting in 2012.
This huge global impulse of commodity inflation at first and now payback time of commodity deflation is being relentlessly transmitted down the supply chain. In the case of US producer prices for all commodities and for manufactured goods, respectively, the global cycle is plainly evident in the graph below.
Between 1995 and the May 2014 peak, US wholesale prices for all commodities rose by 70% or by 3% per annum. Likewise, the PPI for manufactured goods rose by 27% through early 2015.
However, both are now rolling over as the world’s deflationary payback phase gathers momentum and transmits down the price chain. The US wholesale index for all commodities is down by 9% and manufacturing goods by 1% since their respective peaks.
Stated differently, the world has had its quota of consumer inflation and then some over the past two decades. Now it is payback time as the “excess supply” phase of the global crack-up boom supplants the “excess demand” phase.
In that context, eurozone consumers are not being deprived of what central bankers apparently believe to be their God-given right to CPI inflation and the continuous erosion of the purchasing power of their wages. In fact, the eurozone consumer price index at 118.7 in September reflected a 2.1% per annum rate of gain since 1996.
Do the mountebanks who run the ECB, along with the entire central bankers guild of the world, not believe that history has actually happened? Do they hold that NASA didn’t really land on the moon, as it were?
Do they think that there is some crank principle of economics that requires consumer inflation to be metered out in exactly 2.000% annualized rates every year, quarter, month and day?
Folks, Mario Draghi’s central banker view of consumer inflation is just brain dead ritual incantation. Self-evidently, the rate of change does not need to be smooth as the skin on a baby’s butt for optimum economic performance.
In fact, 2% inflation is a purely religious proposition that is unrelated to the prosperity of main street; it is no more relevant to gains in real wealth than the rite of full immersion baptism.
Indeed, the 2% inflation meme is so threadbare that it needs to be called out for what it is. It’s a convenient cover for the radical usurpation of power undertaken by the world’s central bankers during the last two decades. And it survives only because it serves the interest of Wall Street gamblers and the world’s politicians and fiscal authorities alike.
The latter get to run up endless public debt because the central bankers buy it up under QE and drive the carry cost virtually to the zero bound. Likewise, the top 1% of financial gamblers cannot get enough of the 2% inflation hoax because it means free carry trade money as far as the eye can see.
In short, Europe, the US, Japan, China and most of the rest of the world is in thrall to a tiny coterie of power-hungry central bankers. If you do not think they are driving the financial system to the mother of all bubble crashes, just ponder the following justification by a top ECB authority for depriving eurozone consumers of even a brief spot of zero inflation in their cost of living:
At Thursday’s news conference, ECB Vice President Vítor Constâncio ticked off a litany of reasons why prolonged weak inflation, or sustained falls in prices known as deflation, worries central bankers and justifies the massive stimulus many have undertaken. Falling prices may cause consumers to put off purchases if they expect that trend to continue, he noted. It also raises the cost of servicing debt. In addition, he noted that official consumer price measures may overstate the extent of inflation.
For deflation to take hold, consumers and businesses would have to expect price falls to continue. Central bankers want to persuade households and financial markets that, whatever its current reading, the inflation rate will be around their target over the medium term, in which case they describe inflation expectations as being “anchored.”
Mr. Draghi warned of a possible “de-anchoring” of expectations if the inflation rate remains low for a long time, and particularly if oil prices fall further. “These risks have gone up and we want to be vigilant,” he said.
This is just plain rubbish. These half-baked propositions would have received a falling grade in even a junior college introductory economics course just 20 years ago.
So there is no alternative except to take cover because the latest stock market rip is based on pure central bank hopium
Indeed, Mario Draghi has confirmed once again that the world’s central bankers have a monetary death wish. Unlike the gamblers who bought Cramer’s top 49 stock picks, the best course of action is to sell, sell, sell—–and do it now.
US Issues Childish Ultimatum To Iraq: “It’s Either Us, Or The Russians”
At this point, it’s become difficult to keep track of the myriad embarrassments Washington has suffered since the start of Russian airstrikes in Syria.
There’s the Russian Defense Ministry’s daily video series depicting strikes on “terrorist” targets which makes the US look incredibly inept given how little “coalition” bombing runs have accomplished over the course of more than a year.
There’s Iran’s overt involvement on the ground which is a slap in the face for Washington as it comes just a two months after the conclusion of the nuclear deal.
And let’s not forget about the fact that thanks to the terribly convoluted strategy Washington has attempted to implement whereby the US will i) provide behind the scenes support for Sunni extremist groups in Syria, ii) provide public support for Iran-backed Shiite militias fighting Sunni extremists in Iraq, iii) send weapons to Syrian rebels who are fighting the very same Shiite militias at Aleppo, America is literally trying to say that if you’re a Sunni extremist, you’re a friend if you’re in Syria but an enemy in Iraq and if you’re a Shiite militia, you’re a friend in Iraq but an enemy in Syria.
Through it all, we’ve said that the ultimate humiliation would be for Russia to essentially kick the US out of Iraq. Make no mistake, the conditions are ripe for Moscow to simply muscle Washington out of the way in the country the US claims it “liberated” a little over a decade ago.
There are two main reasons why it will be easy for the Russians to move in, i) Baghdad sees that Moscow is serious about bombing ISIS and the US, for whatever reason, isn’t and ii) Iran essentially controls the Iraqi army and Iraqi politics.
In short, this would simply be a sequel to the Russian-Iranian military operation in Syria and the logistics are already in place as Iran’s militias have been battling Sunni extremists in Iraq for years alongside the Iraqi regulars. The newly established intelligence sharing cell set up in Baghdad and jointly staffed by Russia, Syria, Iran, and Iraq is a precursor to what one Iraqi official hopes will be a “full-blown military alliance.”
Needless to say, the US understands all of the above and the last straw apparently came with Iraqi PM Haider al-Abadi said he would welcome Russian airstrikes. This week, Marine Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff, showed up in Iraq to evaluate the situation and in what can only be described as a childish display, told al-Abadi that Iraq would have to choose between the US and Russia when it comes to countering ISIS. Here’s CBS (because to fully appreciate the pettiness, you have to hear it from the Western media):
The U.S. has told Iraq’s leaders they must choose between ongoing American support in the battle against militants of the Islamic State of Iraq and Syria (ISIS) and asking the Russians to intervene instead.
Marine Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff, said Tuesday that the Iraqis had promised they would not request any Russian airstrikes or support for the fight against ISIS.
Shortly after leaving Baghdad, Dunford told reporters traveling with him that he had laid out a choice when he met with Iraqi Prime Minister Haider al-Abadi and Defense Minister Khaled al-Obeidi earlier Tuesday.
“I said it would make it very difficult for us to be able to provide the kind of support you need if the Russians were here conducting operations as well,” Dunford said. “We can’t conduct operations if the Russians were operating in Iraq right now.”
He said there was “angst” in the U.S. when reports surfaced that al-Abadi had said he would welcome Russian airstrikes in Iraq. The U.S., Dunford said, “can’t have a relationship right now with Russia in the context of Iraq.”
The choice given to Abadi in Iraq by Dunford on Tuesday is a clear indication that the U.S. is not willing to compete with Russia for airspace over two neighboring countries deeply intertwined in the same convoluted war.
The U.S. and Russia put into practice new rules on Tuesday designed to minimize the risk of air collisions between military aircraft over Syria.
Reuters reports that the U.S. ultimatum to Iraq puts Abadi in a difficult position, as his own country’s ruling political alliance and some powerful Shiite groups have been pushing him to request Russian air support.
The news agency said a proposal to request Russian strikes had been put to Abadi last week, but that he was yet to respond.
“Abadi told the meeting parties that it wasn’t the right time to include the Russians in the fight because that would only complicate the situation with the Americans and could have undesired consequences even on long-term future relations with America,” Reuters quoted a senior Shiite politician close to Abadi as saying.
In other words…
So once again, it looks as though the US is in panic mode and is willing to pull out all the stops in a desperate attempt to keep the Russians from bombing ISIS in Iraq.
There are several theories as to why Washington is so intent on keeping Moscow out. The common sense theory that requires no conspiratorial ruminations says that the US is desperate to avoid ceding Baghdad to Russia and the Pentagon knows that with Iran already effectively in control of the army and the government, Russia would find a very receptive military and political environment in Iraq.
For those inclined to think that in addition to any initial support (i.e. funding and training prior to the official formation of ISIS), the US is still supporting Islamic State, well then the worry for Washington is that Russia simply wipes them out.
Whatever the case, the story is ultimately the same in Iraq as it is in Syria. The US knows that Russia is effective at decimating opposition forces and for whatever reason, Washington is not keen on being a part of it. In Iraq, that unwillingness has now manifested itself in a childish ultimatum from the Pentagon to Baghdad.
Draw your own conclusions.
I have seen everything!!
(courtesy zero hedge)
ISIS Tries To Blow Up Russian Bombers With Flying Condom Bombs
If you’re a black flag-waving, sword-wielding, desert bandit in white basketball shoes, you’ve got a lot of options when it comes to terrorizing the locals on the way to racking up territorial gains. After all, indiscriminately killing civilians and conducting brutal executions can exert a powerful psychological effect on non combatants and on poorly trained, ill-prepared army regulars for weak Mid-East states.
You don’t, however, have a lot of options when it comes to countering an all-out aerial bombardment by one of the most powerful militaries on the planet. Your options are even more limited if said aerial bombardment is backed by thousands of fearless militiamen belonging to a group that’s been fighting Mid-East proxy wars for more than three decades.
So, with Russia in the skies over Syria and Hezbollah on the ground, ISIS is in a tough spot. But you know what they say: when the going gets tough, the tough get going, which explains why Islamic State has devised an innovative strategy for countering Russian airstrikes.
What they’ll do, you see, is inflate condoms and attach a homemade mine to them. They’ll then float the condoms into the sky in an effort to create a kind of condom bomb sky minefield. That, ISIS figures, should deter Russian fighter jets.
Here’s Sputnik with some epic sarcasm:
Left with little recourse in the face of relentless Russian airstrikes, the self-proclaimed Islamic State terrorist group has apparently resorted to a fairly unique defensive strategy. According a video that surfaced online on Wednesday, the group has begun launching homemade condom bombs, hoping they’ll somehow veer into a Russian bomber.
While Sputnik cannot independently verify the authenticity of the video, it appears to show IS militants creating aerial mines out of condoms, which are then released into the skies over Idlib.
The entire arts-and-crafts project is shown, scored to look like some kind of bizarre extremist music video.
In a desperate move, the contraceptive contraptions are seemingly meant to drift into Russian bombers as they fly overhead. A clever – if fairly ineffective – strategy.
Yes, a “fairly ineffective strategy” indeed. Here’s the video:
As Sputnik goes on to note, “why IS prefers condoms to simple, run-of-the-mill balloons, is unclear, but if they think a bunch of exploding rubbers are going to scare off the military, they’ve clearly never been to Fleet Week.”
At least now we know why the US has had such a hard time achieving results with 13 months of airstrikes – the condom bombs must be disrupting the operation…
Look Out Saudi Arabia: Russia, Iran Forge Energy Partnerships, May Form New Bank To Fund Projects
One of the key things to understand about the war in Syria is that in many ways, it’s a perfect example of how the energy-geopolitics nexus has tremendous explanatory power when it comes to analyzing the events that shape the world and show up on the nightly news.
As we’ve been at pains to explain for quite some time, Bashar al-Assad’s decision not to sign off on the Qatar-Turkey natural gas pipeline and instead to support the proposed Iran-Iraq-Syria line, may very well have prompted Qatar and Assad’s other regional rivals to begin the process of fomenting discord within Syria’s borders. The strategy was familiar and indeed, it was spelled out in a leaked 2006 diplomatic cable from Washington’s then-acting Deputy Chief of Mission in Syria William Roebuck: play on the sectarian divide. Thus, Sunni extremists were emboldened to take up arms against the regime and the rest, as they say, is history.
Note that the difference between the two proposed pipelines mentioned above comes back to power politics. That is, Iran’s regional sphere of influence depends on preserving close ties between itself, Iraq, Syria, and Lebanon. The Islamic Line would run through all of those states. The last thing Saudi Arabia and Qatar want is for Iran to embark on a regional power grab and so, Syria became the swing state. Dethrone Assad and Tehran’s supply line to Hezbollah is broken – the door would then open up for Riyadh to essentially install a puppet government (with Washington’s help under the guise of promoting “democratic regime change”) that would be open to helping Qatar get its natural gas to Europe. That’s where the Russians come in. The more non-Gazprom supply that gets to Europe, so much the worse for the Kremlin in terms of the leverage Moscow has with the EU.
Again, it’s the quintessential example of how energy and geopolitics conspire to create the events that shape the course of history.
Of course the interesting thing about the above is that both the Qatar-Turkey line and the Islamic Line pipe gas from the same field and both lines aim at supplying Europe. The question then, is this: why should Moscow prefer one over the other?
One more time: it comes back to power politics.
Russia and Iran are allies and so, as we’ve said on a number of occasions since Moscow stepped up its involvement in Syria, there will undoubtedly be a number of deals between The Kremlin and Tehran that ensure Russia’s interests are protected once Iran’s regional power grab is complete and once economic sanctions are lifted.
Sure enough, we’re already beginning to see the beginnings of what will likely be a series of energy partnerships between the Russians and the Iranians. Here’s Reuters:
Russian Energy Minister Alexander Novak said on Friday Kremlin-controlled gas producer Gazprom has offered gas supplies to Iran under a swap arrangement, and similar oil deals were also under consideration.
Moscow has boosted efforts to foster political and economic ties with Tehran and increased its activity after a decision in July to lift international sanctions on Iran in principle. The ending of sanctions, related to Iran’s nuclear programme and including restrictions on oil exports, have yet to take effect.
Novak said Iran normally supplies gas to its northern regions from the south of the country and the proposed swap deals would help to cut its transportation costs.
“We could supply gas through to Iran’s north and receive gas from the south (of Iran) via swap deals in the form of liquefied natural gas or pipeline gas,” Novak told Russian state-run TV Rossiya-24.
“Similar swaps could be done with oil. This is a reduction of transportation costs. Our colleagues have given a positive response to the idea,” he added.
And a bit more from Sputnik:
Under the plan, Iran will receive Russian oil and gas through its northern terminals on the Caspian Sea and will sell its oil to Russian clients from its southern terminals. A similar mechanism of oil swaps is used by Iran in its bilateral trade with other Caspian states, including Azerbaijan, Kazakhstan and Turkmenistan.
During the visit, Moscow and Tehran signed a number of agreements. Novak said that the deals are worth a combined total of up to $40 billion.
Details regarding the purported $40 billion in new projects are sparse but consider the following bullets from Bloomberg out this morning (note the suggestion that Russia and Iran will set up what amounts to a joint development bank):
Russian oil cos. ready for competition w/ Iranian oil
Iran to hold road show on oil development deals soon
Russia considering projects of up to $40b in Iran
Russia, Iran agreed to consider setting up bank to fund projects
Russia may invest $2b in Iran power projects
Bushehr nuclear power unit may cost $11b
Zarubezhneft considering projects worth $6b in Iran
Notably, Iranian Oil Minister Bijan Namdar Zanganeh said last week that Tehran is seeking around $100 billion in oil and gas investments by 2021. What the above seems to suggest is that Russia is willing to bankroll nearly half of that amount.
Meanwhile, the Russians are putting on a brave face in the face of Riyadh’s attempt to essentially starve out the competition. Here’s Novak again:
“OPEC’s self-established quota of 30 million barrels per day (bpd) is fully used by OPEC countries. Subsequently, if a member exceeds its quota, OPEC should redistribute its production among other members.”
It’s very important whether OPEC will rebalance or if there will be extra output. There is a lot of uncertainty, but in general we are ready for it. And our oil companies are ready for this competition.”
And here’s what Zanganeh had to say on the same subject (via Bloomberg):
Iran’s oil minister sees no imminent change in OPEC’s output strategy even as he urged fellow members of the group to cut their collective production to buoy crude to a range of $70 to $80 a barrel.
Iran is preparing to ramp up its own output once world powers remove sanctions on its economy, regardless of any decisions by the Organization of Petroleum Exporting Countries, Oil Minister Bijan Namdar Zanganeh told reporters Monday at an industry conference in Tehran.
“No one is happy” with prices at current levels, he said. “OPEC should decide to manage the market by reducing the level of production,” Zanganeh said. “It seems that the atmosphere is not well for making a change in the market.”
No, the “atmosphere is not well,” because again, the Saudis are out to achieve “ancillary diplomatic benefits” (i.e. geopolitical advantages) by keeping crude prices low, and those benefits include squeezing the Russians and perhaps limiting the revenue Tehran can bring in when Iran returns to the market.
As you can see, all of this is inextricably linked and it looks as though Russia and Iran may be on the verge of attempting to challenge the Saudis for domination of the oil market (don’t forget Moscow surpassed Riyadh as the number one supplier to China for the second time this year in September).
Is a “new oil order” in the works? We shall see.
We could have a catastrophic cyclone hitting Mexico
(courtesy zero hedge)
Meet “Stunningly Catastrophic” Patricia, The World’s Strongest Storm Ever Is About To Hit Mexico
“Stunning, historic, mind-boggling, and catastrophic” is how Weather Underground’s Jeff Masters sums up Hurricane Patricia, which intensified to an incredible-strength Category 5 storm with 200 mph winds overnight as it approaches the Mexican coast. As The NY Times reports, The World Meteorological Organization warned that the hurricane’s strength was comparable to that of Typhoon Haiyan, which caused devastation in the Philippines in 2013, and so Mexico has declared a state of emergency for Puerto Vallarta (with officials warning that storm surges could cause waves of up to 39 feet) as she is forecast to hit the coast between 6 and 10pm ET.
At 2:46 am EDT October 23, 2015 an Air Force hurricane hunter aircraft measured a central pressure of 880 mb in Patricia,making it the most intense hurricane ever observed in the Western Hemisphere. The aircraft measured surface winds of 200 mph, which are thehighest reliably-measured surface winds on record for a tropical cyclone, anywhere on the Earth. The previous strongest Eastern Pacific hurricane was Hurricane Linda of 1997, with a pressure of 902 mb (estimated from satellite imagery.)
Patricia the fastest-intensifying Western Hemisphere hurricane on record
Patricia’s central pressure dropped an astonishing 100 mb in 24 hours, making it the fastest-intensifying hurricane ever observed in the Western Hemisphere. Patricia’s pressure at 5 am EDT Thursday, October 22, 2015 was 980 mb, and was 880 mb at 5 am EDT Friday. The previous record was a drop of 97 mb in 24 hours for Hurricane Wilma of 2005 (between 1200 UTC 18 October – 1200 UTC 19 October), according to the official NHC report for the storm.
Patricia’s intensification rate was very close to the WMO-recognized world record for fasting-intensifying tropical cyclone: 100 millibars in just under 24 hours by Super Typhoon Forrest in the Northwest Pacific in 1983.
Patricia’s 200 mph sustained winds make it the 3rd strongest tropical cyclone in world history (by 1-minute averaged wind speed.)
Officially, here are the strongest tropical cyclones in world history, according to the Joint Typhoon Warning Center and the National Hurricane Center (using 1-minute averaged sustained winds):
- Super Typhoon Nancy (1961), 215 mph winds, 882 mb. Made landfall as a Cat 2 in Japan, killing 191 people.
- Super Typhoon Violet (1961), 205 mph winds, 886 mb pressure. Made landfall in Japan as a tropical storm, killing 2 people.
- Super Typhoon Ida (1958), 200 mph winds, 877 mb pressure. Made landfall as a Cat 1 in Japan, killing 1269 people.
- Super Typhoon Haiyan (2013), 195 mph winds, 895 mb pressure. Made landfall in the Philippines at peak strength.
- Super Typhoon Kit (1966), 195 mph winds, 880 mb. Did not make landfall.
- Super Typhoon Sally (1964), 195 mph winds, 895 mb. Made landfall as a Cat 4 in the Philippines.
However, it is now recognized (Black 1992) that the maximum sustained winds estimated for typhoons during the 1940s to 1960s were too strong.
Some Mexican regions are at dire risk...
The city of Puerto Vallarta and some of Mexico’s most popular resorts are in the path of the storm. Flooding and landslides are expected near coastal areas…
Satellite loops early Friday afternoon showed that Patricia’s cloud tops had begun to warm, indicating weakening, and with wind shear now a moderate 10 – 20 knots and interaction with land beginning to occur, Patricia will likely weaken to 155 – 175 mph winds by landfall. The storm’s expected turn toward the northeast has begun, and the storm is beginning to accelerate toward the coast of the Mexican state of Colima.
At particular risk is the city of Manzaillo, a regional center that straddles the back of a bay spanning several miles. On its current track, it apperas that Patricia could make landfall sometime between 6:00 and 10:00 pm EDT just to the northwest of Manzanillo–a trajectory that raises the odds of a catastrophic storm surge in or near Manzanillo. Patricia’s strongest winds are confined to a relatively small area, with hurricane-force winds only spanning a range of 30 miles from Patricia’s center. Category 5 winds of 156+ mph cover an area 15 miles across. Wherever those winds are focused, we can expect gigantic waves atop a devastating surge.
An unnamed 1959 hurricane–the deadliest in Northeast Pacific history, with an estimated 1800 direct and indirect fatalities–struck near Manzanillo on October 27…
As the storm approached, posts on Instagram showed people trying to leave Puerto Vallarta. One user posted a photograph of a message from a nearby resort that warned people to return home for their safety. “If this is not possible, please wait for further instructions for a possible evacuation,” the notice read.
In the United States, only three Category 5 storms that made landfall have been recorded, Mr. Feltgen said: a 1935 hurricane that killed more than 400 people; Hurricane Camille, which hit Mississippi and killed 244 people in 1969; and Hurricane Andrew, which hit Florida in 1992, killing at least 10 people there and three in the Bahamas.
But Hurricane Patricia is “uncharted territory,” as The Weather Channel’s Jim Cantore summed it up ominously…
As Bloomberg concludes,
“We can’t underestimate the magnitude of this phenomenon,” Roberto Ramirez, chief of Mexico’s National Water Commission, said in a message streamed on the Internet Friday, urging residents to take precautions or evacuate. “A Category 5 hurricane could lift cars, destroy houses that aren’t built with steel, rebar and cement, and sweep people away.”
and the west wants to accept these migrants???
and special thanks to Robert H for sending this down to us!
UK Migrants TORCH tents and take SELFIES of carnage in protest at ONE DAY transfer wait
ANGRY migrants looking to reach Britain have SET FIRE to their own tents in protest at being made to wait just ONE DAY for transit papers, it emerged today.
Migrants burnt down their tents at a camp in Slovenia
Lawless migrants at a camp in Slovenia torched their own living quarters and took SELFIES of the carnage in a shockingly dangerous act of vandalism.
Hundreds of women and children fled the Brezice Camp in terror and plumes of smoke billowed into the sky as the ferocious blaze spread like wildfire between the closely-spaced tents.
A migrant makes a ‘V for Victory’ sign as he takes a selfie in front of a burning tent
The migrants torched their tents in protest at conditions
Witnesses said migrants were chanting ‘let us go’
Hundreds of women and children had to flee the camp as the blaze spread
Let us go! Let us go!
The camp was designed to hold 250 people, but has seen 4,000 pass through in 48 hours
Unprecedented numbers of migrants are entering Serbia
Euro/USA 1.1095 up .0014
USA/JAPAN YEN 120.73 down .165
GBP/USA 1.5402 up .0020
USA/CAN 1.3054 down .0053
Early this Thursday morning in Europe, the Euro rose slightly by 14 basis points, trading now well below the 1.11 level falling to 1.1094; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore,and now Nysmark and the Ukraine, along with rising peripheral bond yields, and the successful ramping of the USA/yen cross above the 120 yen/dollar mark. Last night the Chinese yuan rose in value (onshore). The USA/CNY rate at closing last night: 6.3490 down .0085 (yuan up)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a slight northbound trajectory as settled up again in Japan by 17 basis points and trading now just above the all important 120 level to 120.73 yen to the dollar.
The pound was up this morning by 20 basis points as it now trades just above the 1.54 level at 1.5402.
The Canadian dollar is now trading up 53 basis points to 1.3054 to the dollar.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this Friday morning: closed up 389.43 or 2.11%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses all in the green … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai in the green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the green/
Gold very early morning trading: $1178.00
Early Friday morning USA 10 year bond yield: 2.07% !!! up 6 in basis points from Wednesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.89 up 4 in basis points.
USA dollar index early Friday morning: 96.39 cents down 2 cents from Thursday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Friday morning
U.S. Shale Drillers Running Out Of Options, Fast
Much has been made about the impressive gains in efficiency and productivity in the shale patch, as new drilling techniques squeeze ever more oil and gas out of new wells. But the limits to such an approach are becoming increasingly visible. The U.S. shale revolution is running out of steam.
The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs.
However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article.
For evidence that the productivity gains have run their course, take a look at the latest Drilling Productivity Report from the EIA. Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian.
For oil companies to add new production at this point it would require hiring new workers and new rigs and simply expanding the drilling footprint. That is something that few companies are doing because of low prices. In fact, most exploration companies are doing the opposite – rig counts continue to decline and the layoffs continue to mount.
With productivity at the end of the road, and new drilling not taking place, absolute production levels are in decline. The EIA expects U.S. shale basins to lose 93,000 barrels per day between October and November, led by a 71,000 barrel-per-day loss from the Eagle Ford in South Texas.
The losses are occurring because of the huge drop off in shale production that new wells suffer from almost immediately after going into service. Take a look at the chart below that shows the “legacy” production from the Eagle Ford (i.e., old wells that are declining), which is overwhelming all the new production. The net result is a fall in oil output in South Texas.
As time goes on, that legacy figure will continue to swell, and the amount of oil flowing from new wells will decline. This is exactly why overall U.S. oil production is declining and will continue to decline through next year. The only way to turn things around is for drillers to drill new wells.
Refining Hurt Too
The fall in U.S. oil production is starting to affect the downstream sector. Refineries have performed well from the downturn in oil prices, as they use crude as an input to produce refined products such as gasoline, diesel, jet fuel, and more. Integrated oil companies, such as the oil majors, saw their losses shielded from an upturn in refining profits.
But now that oil production is falling – down from a peak of 9.6 million barrels per day to somewhere around 9.1 mb/d currently – refining margins are shrinking. Refineries benefited from a glut of crude sloshing around in the U.S., unable to be exported because of the export ban. WTI crude, a benchmark for U.S. oil, began trading at a discount relative to international benchmarks such as Brent. Refiners would buy cheap WTI and process it into refined products and sell them abroad at prices more closely correlated with Brent, pocketing a nice profit.
However, the fall in upstream production has trimmed some of that excess crude. As a result, the WTI-Brent discount has narrowed and so have refining margins. Bloomberg reported that profits from refining crude into gasoline recently hit its lowest level since 2010. Citigroup downgraded a series of refining stocks this week as the outlook for the downstream sector worsens.
For integrated oil companies, this development isn’t great either. Oil prices are still down, production is down, and now refining margins are down.
Slumping Crude Will Send Norway To ZIRP As Economy Careens Toward Recession
Late last month, the Norges Bank joined the global easing bonanza, surprising a slim majority of economists by cutting the overnight depo rate to a record low of 0.75%.
Norway, like Sweden and Denmark, is in a pickle. You can’t very well lean hawkish in a world of DM doves unless you plan on losing the global currency war and undercutting your inflation target, but then again, something has to arrest the inexorable rise in housing prices lest the risks to financial stability should outweigh any perceived benefits from keeping rates glued close to zero lower bound (or below).
If you’re Norway, the problem is complicated immeasurably by plunging crude prices.
Here’s what Goldman said after the Norges Bank’s latest rate cut:
Norges Bank adopted something close in line with our alternative scenario, whereby the fall in oil prices was seen as materially affecting the economic outlook (via weaker offshore oil investments) and the recent upside surprise to inflation was seen as more transitory, resulting in a cut and the adoption of a dovish policy rate path.
And here’s a bit from the Norges Bank itself on the housing bubble:
“[We’re] aware that lower rates could fuel the housing market.”
Put simply, it’s an impossible balancing act, and Thursday’s uber dovish Draghi presser didn’t do anything to help the situation.
While the slump in oil has pressured the krone and thus helped the country preserve some semblance of export competitiveness, the fact that i) everyone else is easing, and ii) global demand and trade are in the doldrums, serves as a kind of counterweight, leading directly to a situation wherein the currency, in Bloomberg’s words, “just can’t get weak enough.”
Now, Svenska Handelsbanken is out predicting that “lower for longer” crude will eventually force Norway to cut rates to zero.
Here’s more, via Bloomberg:
With oil prices still wobbling around $50, Norway is in danger of a recession that could drive its benchmark interest rates, already at a record low, to zero.
That’s what economists at Svenska Handelsbanken AB in Oslo say as they warn that “recessionary risks are significant.” The central bank in September cut rates to 0.75 percent and signaled more than a 50 percent chance for a third reduction since the drop in oil prices accelerated, about a year ago. Handelsbanken sees three cuts next year, bringing the benchmark to zero by the end of 2016.
“The Norwegian economy will now experience a deeper downturn than during the financial crisis, with output expected to stay below its potential for longer than it did last time,” Kari Due-Andresen and Knut Anton Mork, economists at Handelsbanken, wrote in their latest report.
Before the big oil price drop even got started, Norway was already battling a bigger-than-expected fall in investments. Now, with Brent crude lower still, investments by oil and gas companies operating in Norway are set to suffer.
As a reminder, Norway is now set to dip into its sovereign wealth fund for the first time. Earlier this month, budget estimates indicated that inflows from petroleum activities in 2016 will fall short of what the government plans to take out of the fund by nearly NKr4 billion. Here’s a graphic from RBS which illustrates the relative size of Norway’s SWF:
And while the asset allocation of SWFs varies meaningfully compared to official FX reserves, it’s worth noting that this is but one more example of “Great Accumulation” reversal dynamic outlined in thse pages last November and highlighted by Deutsche Bank in the wake of the China deval. That is, regardless of what’s being sold, it still represents a major turning point at which crude producers cease to be net exporters of capital.
Getting back to the Norges Bank, it’s also worth noting that just today, Governor Oeystein Olsen mentioned NIRP. As reagular readers are no doubt aware, there’s no surer sign that policymakers are in factconsidering something than when they say they aren’t considering it. The soundbite, from Bloomberg:
“We still have room to maneuver both ways. I hasten to stress that as prospects are now, we think it’s not likely in the near future that Norway will have negative rates. The board has not discussed moving into negative territory”
In the end, we suppose the real question is this: if the housing bubble that the Norges Bank has helped to inflate bursts, how does the central bank plan to deal with the fallout (which will be amplified by the economic drag from low oil prices) when it has exhausted its counter-cyclical capacity by cutting rates to zero?
Oil Hovers Near Crucial Technical Level As Rig Count Decline Slows, China Inventory Soars
Overnight weakness on the back of 8-month highs in Chinese crude inventory (combined with the recent plunge in super-tanker rates – i.e. China is no longer refilling its SPR) sent WTI Crude towards thecritical $44 level (which has acted as support for 2 months). The China rate cut weakened crude further as PBOC admitted it was needed because of the state of the economy. And then Baker Hughes reported a total rig count unchanged 787 (lowest since April 2002) and an oil rig count decline of just 1 to 594 (the 8th weekly drop in a row). WTI slipped on the news.
China is getting full…China September Crude Inventory Climbs to Eight-Month High
(Bloomberg) — Crude stockpile rose to 34.31m mt, accord. to Bloomberg calculation based on percentage-change data from Xinhua News Agency’s China Oil, Gas & Petrochemicals newsletter.
Sept. kerosene inventory at record high 1.92m mt, Sept. diesel stockpiles drop to 8-mo. low at 8.79m mt, Inventory data refers to commercial stockpiles excluding Strategic Petroleum Reserves
And the artificial SPR-refilling demand appears to have stopped…Benchmark Crude Oil Supertanker Rates Fall by Most This Year
(Bloomberg) — Charter rates on Saudi Arabia-Japan VLCC route fall 11% to 61.54 Worldscale pts, according to Baltic Exchange data.
Equates to daily return of $68,921, lowest since Sept. 16
Baltic Dirty Tanker Index falls 1.3% to 739 pts
U.S. Gulf-Northwest Europe 38kt clean tanker rates rise 3.2% to 91.43 Worldscale pts, biggest change for ships hauling refined products
And then China cuts rates and the PBOC says…
- PBOC ECONOMIST SAYS RATE, RRR CUTS REFLECT ECONOMIC SITUATION
Hardly suggesting growth or demand anything like what GDP suggests.
And add to that the fact that Iran pklans to double crude oil sales to Japan post-sanctions(via hellenicshippingnews.com)
“We have reached a general agreement with Japan to increase oil sales but for political reasons, the Japanese are waiting for the complete removal of sanctions,”Mohsen Ghamsari, NIOC’s director for international affairs, was quoted as saying by oil ministry news service Shana.
Iranian oil minister Bijan Zanganeh told reporters on Monday that the exports would increase by at least 500,000 b/d on the day sanctions were removed. Six to seven months later, another 500,000 barrels will be added to the figure, he said.
“At the moment the National Iranian Oil Company is in talks with Showa Shell, a big Japanese refiner, to determine the Asian [crude] price,” he said.
He added that he welcomed the agreement for Idemitsu Kosan to take a 33% stake in Showa Shell and said the move was good for Iran because of its good relations with the two companies.
Which sent Crude to the edge of darkness at $44…
Citi’s technical analysis team says there’s a huge level coming up right here in NYMEX crude. A daily close below USD44.00/bbl is very bearish
And then Baker Hughes reported a rig count
- *U.S. OIL RIG COUNT DOWN 1 TO 594, BAKER HUGHES SAYS
- *U.S. TOTAL RIG COUNT 787 , BAKER HUGHES SAYS
Oil’s immediate reaction…
And notably Oil ETF and Oil Vol are recoupling…
USA/Chinese Yuan: 6.3488 down .0087 (Chinese yuan up)
New York equity performances for today:
Crude Crashes & Stocks Soar As Global Central Bankers Hit Panic Button
Distraction time….because quite frankly buying into this central bank-driven mania confirms most investors are from another planet bereft of common sense…
From the China rate cut, stocks spiked then retraced it all before a mysterious buyer of first resort lift everything back to the highs of the day (to ‘prove’ everything is awesome)…
But Nasdaq was soaring on the back of GOOG, AMZN, FB, and MSFT…
AMZN, MSFT, GOOG – bwuahahaha
On the day, Nasdaq was the biggest winner with Trannies lagging but everything higher…
On the week, Nasdaq was again the big winner as Small Caps scrmabled back to the unchanged line (and S&P back to unch year-to-date)
The cash Nasdaq Composite closed above 5000 for the first time since 8/18. Dow & S&P closed above its 200DMA, And The S&P 500 Tech sector closed at its highest since September 2000… (the 5% gain this week is the biggest since Dec 2011)…
VIX notably decoupled from stocks today…
Of course – it wasn’t just US equities. Japanese stocks were insane – NKY rose over 1100 points this week tick for tick with USDJPY’s surge…
Treasury yields rose in sympathy with equity exuberance today with the belly underperforming the long-end on the week(decoupling today after China)
But TSYs and stocks remain decoupled on the week…
The US Dollar soared against the majors this week… (the best week in 4 months to 3-month highs) – the last 2 days are the biggest rise in The USD Index since Oct 2011
And had its best wek against Asian FX in a month.. (amid very significant volatility)
Commodities all lost ground on the week against the stronger USD – Gold’s worst week in the last 6, Silver’s worst in the last 8, but crude was wost… not exactly the picture of rate-cut driven growth expectations…
Gold was waterfalled after spiking on China rate cut news…
This was Crude’s worst week in 3 months… (down 10% in the last 2 weeks)
* * *
Finally, all regions saw rate-hike timing rise (extend) with Europe now assuming no rate hike for at least 3 years!!
Bonus Chart: And Here’s Why You Were Buying This Week!!!
PMI’s are rising!!! (yet all six Fed mfg indices fall????)
Dec Rate Hike Looms: Despite Job Cuts, Survey Collapses, US Manufacturing PMI Surges To May Highs
Having stabilized at 2-year lows in September, October’s preliminary US Manufacturing PMI printed 54.0 (smashing expectations of a small drop to 52.7). Despite collapse regional Fed surveys, and widespread job cuts across the manufacturing sector, Markit claims US Manufacturing is the strongest since May. Both output and new orders surged as input costs fell, as Markit notes, despite cycle high inventory levels, today’s data “indicated a robust and accelerated expansion of production levels across the manufacturing sector.” December rate-hike odds are risisng…
October data indicated a robust and accelerated expansion of production levels across the manufacturing sector. The latest rise in output was the fastest since March, which brought the pace of expansion back in line with the post-crisis average. Survey respondents mainly cited improving demand from domestic markets and competitive pricing strategies. At the same time, global economic uncertainty and lower energy sector capex were reportedly factors acting as a brake on manufacturing growth in October.
Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:
“October’s flash PMI survey brought welcome signs of stronger manufacturing growth at the start of the fourth quarter.
“The positive start to the fourth quarter suggests the economy may be picking up speed again after slowing in the third quarter, for which the PMI surveys pointed to annualised GDP growth of 2.2%.”
“Production growth rebounded in October to the fastest since March, in line with its post-recession average, as order book growth revived amid improved demand from both home and abroad.
“However, worries about the dollar’s strength, export weakness and the recent downturn in the energy sector mean that business optimism and employment gains remain weaker than seen earlier in the year.”
Well with great data like this and markets exuberant – theres going to be plenty more strong dollar to worry about soon.
Treasury Warns Of “Humanitarian Crisis” In Puerto Rico If Congress Does Not Agree To Bailout
“Puerto Rico is not Greece“… but it increasingly looks like it will be in a few weeks, thanks to US taxpayers who are about to foot the bill for yet another creditor bailout.
As we reported last night, creditors of the insolvent commonwealth, hoping to get a bailout and the highest possible return on their bond investment courtesy of the US taxpayer, have been pushing to portray the fiscal situation in Puerto Rico as beyond repair, hoping to force the administration and Congress to act. As The NY Times reported, on Wednesday, Puerto Rico took the unusual step of announcing that talks over restructuring about $750 million of the island’s debt had broken off, a move that some creditors saw as posturing to Washington for help.
Then, all day today, Puerto Rico’s leadership, realizing its interests are suddenly alligned with those of its creditors as a bailout is in everyone’s best interest, took the rhetoric up a notch when the island’s Governor Alejandro Garcia Padilla said in written testimony for Senate Energy Committee that Puerto Rico will have negative cash balance of $29.8 million in November 2015, and then added that the Puerto Rico Government Development Bank may be unable to make its $355 million debt service. “These GDB bonds are supported by a guarantee from the Commonwealth, and the GDB, which faces its own liquidity crisis, is not expected to be able to make the payment on its own based on current information.”
Others quickly chimed in: Puerto Rico Senate President Eduardo Bhatia said he would be in favor of “including everything” in a broad, comprehensive restructuring of the debt.
In short: bail us out now or face the consequences of a domino effect of defaults which puts not only the creditors, but the island itself, in dire straits.
The gambit is working. As we reported yesterday citing Bloomberg, “Obama is pressing for Congress to give Puerto Rico sweeping powers to reduce its $73 billion debt burden through bankruptcy, escalating administration involvement as the Caribbean island’s access to cash dries up.”
Puerto Rico would be provided with a form of bankruptcy protection not now available to American territories. Administration officials also called for lawmakers on Wednesday to increase health-care funding for Puerto Rico, extend tax credits to the poor and put independent oversight in place to monitor the government’s budget.
While Republican opposition to a broad bailout has been the base case, even that has been melting away in recent days: Bloomberg adds that the Republican leadership would be willing to grant Puerto Rico access to the bankruptcy courts only on a limited basis, and only with strings attached like the imposition of a federal “control board” to oversee the island’s finances.
Control boards have been used in cases of severe municipal distress to take the power to spend public money out of the hands of elected officials. They do not generally have the powers that bankruptcy judges do to abrogate contracts, such as labor contracts and promises to repay debt.
Or largely a technicality, one which would make Puerto Rico a comp to Greece, a “sovereign state” which is nowde facto controlled out of Frankfurt and Brussels. Only in the case of Puerto Rico it would be the US taxpayers that are on the hook.
So with the framework for the bailout largely in place, there is just one thing missing: the trigger that will push the last holdouts to agree.
Luckily one already exist: the same one used to force the bailout of the banking system in 2008: an appeal to emotions, and a threat of dire consequences, unless a few conflicted parties get their way.
This is precisely what happened today when as Reuters reports Treasury Secretary counselor Antonio Weiss warned that Puerto Rico faces a humanitarian crisis without federal action, as he appealed to Congress to help the debt-ridden U.S. territory, in comments to a Senate committee hearing on Thursday.
In other words, bail out Puerto Rico or watch the island go up in a cloud or violent riots. But please, whatever you do, don’t call it a bailout: “Weiss said that without action by Congress, Puerto Rico’s crisis would escalate and reiterated that the Obama administration’s policies were “not a bailout” for the island.“
Which, naturally, is the spin that the holdout Republicans should use to justify their action before their voters: bail Puerto Rico out… just don’t call it a bailout.
The rest is already known: he repeated the key points of a plan released by the Treasury on Wednesday, saying Congress should provide tools for Puerto Rico to restructure its liabilities, increase Medicaid support and boost economic growth through tax credits. Again: it’s “not a bailout.”
A key element of Treasury’s proposal is its endorsement of extending bankruptcy protections not only to Puerto Rico’s public agencies, but to the island’s government itself – a notion championed by some Puerto Rican leaders but seen as too radical to be politically practical.
Cities, towns and municipal agencies can file for under the U.S. Chapter 9 bankruptcy code, while states cannot. Puerto Rico is exempt from Chapter 9 because it is a commonwealth.
And just in case it was lost, here it is again: “Bankruptcy is not a bailout,” Weiss said, according to testimony released ahead of his remarks. “Allowing Puerto Rico to resolve its liabilities under the supervision of a bankruptcy court involves no federal financial assistance whatsoever. Instead, bankruptcy requires shared sacrifice from both Puerto Rico and its creditors.”
What he forgot to add is that with both Puerto Rico and its creditors being made whole on their bonds, and getting a backstop from the government, nothing will change, and the only sacrifice, very much unshared, will be by the usual patsy – US taxpayers.
Another Ackman Casualty: PAH Tumbles After CEO Retirement
It’s been a tough week for Pershing Square and Bill Ackman. First, Valeant gets eviscerated; and now, another major holding – Platform Specialty Products – plunged as much as 15% on news that the CEO is retiring.
Platform Specialty Products Corporation (PAH) (“Platform”), a global specialty chemicals company, announced today that Daniel H. Leever, Chief Executive Officer of the company, has indicated his intention to retire from the company once a suitable successor has been hired. Until such appointment, the Company’s senior management, including Benjamin H. Gliklich, Chief Operating Officer, and Sanjiv Khattri, Chief Financial Officer, will report to the Office of the Chairman, comprised of Martin E. Franklin, Platform’s Founder and Chairman, and Mr. Leever.
Daniel H. Leever added, “It is with very mixed feelings that I reached the decision that this is the best time for the business and me personally to retire from the responsibilities involved with day to day operations. I believe in Martin’s vision for Platform and am proud that I have been able to contribute to its past success and help lay a strong foundation for its continued success. While I’ll surely miss the day to day interactions with the incredible employees who lay the foundation for all of Platform’s success, I strongly believe that it is the right time for a new person to take over the reins of day to day operations and to be able to set out a clear execution strategy for the next years of consistent, profitable growth.”
The good news, if only for the outgoing CEO, is that the stock tumbles on his departure. Usually CEO exits (coghballmercough) lead to surging stock prices.
Ironically, we had warned that this may happen, even if for all the wrong reasons, when two days ago we previewed PAH as one of the companies that may plunge next, should Ackman be forced to liquidate holdings to satisfy Valeant margin calls.
Ackman’s total holdings in the name: 42.7 million shares.
Perhaps most emblematic of this complete fraud and corruption that has engulfed our system is the spectacle of Hillary Clinton’s candidacy for President. She is clearly the front-running candidate for the Democrats and likely would win a head-to-head against any of the Republicans. How is this sanely possible?
Anyone who bothered to pick up a newspaper just a few times per year since 1991, when Bill was first running for President, knows that Hillary is probably the most corrupt attorney and politician in the history of the country. Whitewater and her “successful” foray in cattle futures (anyone remember those?) don’t even garner scrutiny anymore because her list of dirty laundry is so long and filthy. Needless to say, Hillary Clinton should be in front of a firing squad – not in front of Congress justifying her role in Benghazi and the likely next President of the U.S.
Anyone who supports her candidacy is either woefully ignorant, mildly retrarded or insanely naive.
Amazon.com: I just did quick glance at AMZN’s latest earnings report. The stock is up 10% to an all-time high on what is exceptionally misleading “headline” earnings numbers. Yes, it “beat” its EPS and revenue “bogeys” but the entire stock market seems to be giving Amazon a mulligan on the truth.
One again the Company’s business operations failed to generate cash flow. Directly from its 10-Q’s state of cash flows, the only reason AMZN’s operations produced a positive cash inflow is due to the fact that the Company significantly stretched out its payables – this is despite the fact that its receivables declined – and the Company took in $1.7 billion in Prime and gift card deposits. We know Bezos ran two separate heavy Prime promotions during Q3, including one that incorporated a big discount to the “membership” fee. AMZN has admitted that it loses at least $2 billion per year on Prime.
Furthermore, included in AMZN’s numbers is only about half of the amount that it pays out stock-based salary compensation. I discuss this aspect in-depth in my report. If AMZN were forced to expense up front for GAAP purposes the entire cost of its stock-based salary payments, it would wipe out completely AMZN’s reported operating income of $409 million and turn the GAAP-based “good” news into a loss.
Amazon’s stock “aura” is the stock market equivalent of Hillary Clinton’s Presidency: Complete unfettered fraud and deception. By the way, insiders took advantage of the price of the stock and literally dumped shares during Q3, mostly during August.
The September existing home sales report: I’ll have more to say on this soon, but the National Association of Realtors statistical Houdini’s managed to convert a steep 6% “unadjusted” drop in monthly home sales from August to September into a “magical” seasonally adjusted 5% annualized rate increase.
On average and in general, this is almost impossible because going back to 2005, existing home sales have declined from August to September every single year except 2013. The NAR refuses to disclose its seasonal adjustment calculations as I have emailed them several times asking for clarification. It can therefore only be considered a completely corrupted metric.
The stock market appears to headed for all-time highs again, this is despite that the fact that just about every single non-Government produced macro economic indicator which shows that the economy is already in a recession. The Government debt limit is about to be raised close to $20 trillion. Based on Gallup surveys, the average consumer has a negative outlook for the economy and plans on reducing their monthly household discretionary spending.
McDonald’s stock has bounced 17% since September 1st, despite the fact that its revenues are in terminal decline and the franchisees have expressed a gloomy prediction for the fast food chain’s future: LINK. The Company reported a “beat” of the expected earnings but this was achieved through stock buybacks and a 42-cent charge for tax reserves taken in Q3 2014, both factors of which presented the illusion that MCD had earnings growth this quarter. But its revenues, like every other big American company, are declining. Without the GAAP gimmicks, MCD’s EPS would have dropped 15%. Yet, the stock is at an all-time high.
The U.S. financial system is the biggest, most fraudulent Ponzi scheme in history. When you peel back the layers of lies, deception and fraud, the U.S. is a crumbling empire. Go back and rewatch some of the footage of Hillary Clinton’s facial expressions while she’s being “grilled” by Congress. It’s hard for me to even look at the modern Madusa’s face without turning away – all I can see are venous snakes coming out of her skull in place of what should be hair. Hillary Clinton is pure evil incarnate.
For me Hillary Clinton represents just how far down the road to doom the United States has traveled.
Let us wrap up with week, with Greg Hunter’s recap
(courtesy Greg Hunter/USAWatchdog