Gold: $1167.00 up $3.70 (comex closing time)
Silver $15.90 up 8 cents
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 34 notices for 3400 ounces Silver saw 4 notices for 20,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.52 tonnes for a loss of 94 tonnes over that period.
In silver, the open interest rose by 2290 contracts as silver was unchanged cents on Friday. The total silver OI now rests at 169,611 contracts In ounces, the OI is still represented by .849 billion oz or 121% of annual global silver production (ex Russia ex China).
In silver we had 4 notices served upon for 20,000 oz.
In gold, the total comex gold OI rose by a considerable 2,290 to reach 169,611 contracts. We had 34 notices filed for 3400 oz today.
We had no change in gold inventory 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 2290 contracts up to 169,611 even though silver was unchanged with respect to Friday’s trading. The total OI for gold rose by a tiny 92 contracts to 467,868 contracts despite the fact that gold was down $3.30 on Friday.
2.Gold trading overnight, Goldcore
ii) Distillate storage space is “too full for comfort” according to Goldman Sachs( Goldman Sachs/zero hedge)
9 USA stories/Trading of equities NY
i)USA economy has not been this weak for so long
ii) Valeant stock plummets as criminal allegations are presented along with dubious connections with pharmaceutical alliances and channel stuffing
iii) Dallas Fed manufacturing index plummets again. It has not been this low since 2013.
(Dallas Fed/zero hedge)
iv) Small suppliers to Wal-Mart may go out of business. This may be the death certificate to Wal-Mart’s business model.
v) a) New home sales crash/median price rises bringing homes out of reach of many.
b) Dave Kranzler of IRD discusses the true number of home sales
(Dave Kranzler iRD
vi) Attorney General of NY to bring criminal case against Goldman for Fed leaks. Wall Street is totally in shock
10. Physical stories
i) the Chairman of Overstock Inc tells how he is preparing for the next crash. (hint: he has 10 million usa in gold coins)
ii) Bitcoin rises especially in China as capital controls loom there
iii) Whitewashing the Fed (New York Sun)
iv) Bill Murphy discusses the gold suppression scheme
v) Dan Popescu “where has the gold gone?”
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||34 contracts
|No of oz to be served (notices)||527 contract (52,700 oz)|
|Total monthly oz gold served (contracts) so far this month||487 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||461,565.301 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||606,454.511 oz (Brinks,Delaware)|
|No of oz served (contracts)||4 contract (20,000 oz)|
|No of oz to be served (notices)||7 contracts (35,000 oz)|
|Total monthly oz silver served (contracts)||85 contracts (425,000 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||9,911,931.4 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 606,454.511 oz
total withdrawals from customer: 461,565.301 oz
And now SLV
Oct 26/no change in silver inventory at the SLV/Inventory rests at 315.533 million oz/
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 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.
Overstock Holds 3 Months Of Food, $10 Million In Gold For Employees In Preparation For The Next Collapse
Overstock CEO Patrick Byrne’s crusade against naked short sellers in particular, and Wall Street and the Federal Reserve in general, has long been known and thoroughly documented (most recently with his push touse blockchain technology to revolutionize the multi-trillion repo market).
But little did we know that Overstock’s Chairman Jonathan Johnson is as vocal an opponent of the fiat system, and Wall Street’s tendency to create bubble after bubble, if not more than Byrne himself. That, and that his company actually puts its money where its gold-backed money is and in preparation for the next upcoming crash, has taken unprecedented steps to prepare for what comes next.
One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.
What did Johnson tell the UPMA? Here are some choice quotes:
We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.
So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.
We also happen to have three months of food supply for every employee that we can live on.
The contents of the rest of his speech are largely familiar to advocates of sound money: fiat paper has no value, solid gold – as both a currency and an asset – has tremendous value but is difficult to transport (and since a systemic collapse would certainly involve gold confiscation, portability would be an issue); gold-backed money may be the best option, and so on.
We are confident the echo-chamber of worthless econohacks and macrotourists, the same ones who were absolutely certain the great financial crisis will never happen, will be quick to mock “prepper” Johnson and Wall Street pariah Overstock. And they have every right to do so. We only hope that after the next crash, with central banks all in and when calls for another global bailout hit a fever pitch, that all those pundits who made fun of the Johnsons of the world, will keep their damn mouth shut.
Bitcoin Soars As China’s Creeping Capital Controls Loom
Since China devalued the Yuan and surprised the world’s carry traders (and central planners) by stirring up FX volatility, the demand for ‘paper’ gold has begun converging to the demand for physical precious metals. Gold prices are now up over $100 since August 10th, but it is another (easier to ‘transport’) alternative currency that has soared. Bitcoin has spike post-China-devaluation(since dipping on ‘governance’ concerns), accelerating from under $200 to almost $300 today, and up 25%since our September 2 explanation why China’s capital account crackdown is “great news” for bitcoin.
The demand for alternatives to fiat currencies appears to be soaring:
However, the last week or two suggest, perhaps more importantly, that China easing (and outflows implict from further devaluation) now appears to go straight to Bitcoin.
As Overstock’s Chairman noted previously: gold is great, but tough to transport; thus, forcing Chinese into Bitcoin as we previously explained:
As we concluded previously, while China is doing everything in its power to not give the impression that it is panicking, the truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which – as every Cypriot and Greek knows by now – is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out.
So what happens then: well, China’s propensity for gold is well-known. We would not be surprised to see a surge of gold imports into China, only instead of going to the traditional Commodity Financing Deals we have written extensively about before, where gold is merely a commodity used to fund domestic carry trades, it ends up in domestic households.
However, while gold has historically been the best store of value in history and has outlasted every currency known to man, it is problematic when it comes to transferring funds in and out of a nation – it tends to show up quite distinctly on X-rays.
Which is why we would not be surprised to see another push higher in the value of bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented “forking” with Bitcoin XT),however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.
New York Sun: Whitewashing the Fed
Submitted by cpowell on Sat, 2015-10-24 21:04. Section: Daily Dispatches
From the New York Sun
Saturday, October 24, 2015
“America’s Bank,” Roger Lowenstein’s new book about the “epic struggle to create the Federal Reserve,” is garnering wonderful blurbs. Ben Bernanke calls it a “highly engaging historical account.” David Nasaw, a biographer of Carnegie, calls it a “small miracle.” Alan Blinder, 15th vice chairman of the Fed, says it has “lessons even for today.” The Great Volcker says it “resonates today as we debate the conduct of monetary policy.” Historian Jon Meacham says it has “lessons for our own time.”
Blamed, though, if the blurbs aren’t missing the skeptics of our central bank. Nothing from, say, Richard Shelby, chairman of the Senate Banking Committee, or Jeb Hensarling, chairman of the House Financial Services Committee. Not a jot from Kevin Brady, proposer of the Centennial Monetary Commission that would launch a review of the Fed as it begins its second century. Nothing from the monetary sages Steve Forbes or Judy Shelton. Not even a peep from the ex-congressman from Texas, Ron Paul. …
The fact is that the worst fears of the contemporary critics of the Federal Reserve Act came to pass. The value of the dollar has plunged more than 98 percent, to less than an 1,100th of an ounce of gold from the 20.67th of an ounce it was valued at Fed was created. Americans have watched in horror as the Fed has ballooned its balance sheet by trillions while failing to curtail the Great Recession. It is now trapped in a zero interest rate policy that has locked the economy into neutral, with millions unemployed or withdrawn altogether from the labor market. …
… For the remainder of the commentary:
(courtesy Bill Murphy/GATA/Chris Powell)
GATA Chairman Murphy interviewed by Future Money Trends
Submitted by cpowell on Sun, 2015-10-25 22:29. Section: Daily Dispatches
6:25p ET Sunday, October 25, 2015
Dear Friend of GATA and Gold:
Interviewed by Dan Ameduri of Future Money Trends, GATA Chairman Bill Murphy discusses the patterns of price suppression in the gold and silver markets, cites the interest of central banks in keeping the monetary metals down to protect their currencies, and predicts that when the policy fails, prices will explode. The interview is 20 minutes long and can be heard at Future Money Trends here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Bloomberg marvels that hedge funds can’t beat central banks in rigged gold market
Submitted by cpowell on Sun, 2015-10-25 22:38. Section: Daily Dispatches
Hedge Funds Are Getting Their Gold Bets Wrong
By Megan Durisin
Sunday, October 25, 2015
Gold prices are befuddling hedge funds, which are posting a track record no better than a coin flip when it comes to betting on the metal.
The funds and other money managers have placed wrong-way wagers on gold in five of the past nine weeks, U.S. government data show. Last week speculators increased their net-bullish position to the highest since February just before the biggest price drop since August. The precious metal has fluctuated between year-to-date gains and losses more than a dozen times in 2015 as traders weigh a dimming global economic outlook against the prospect for higher U.S. borrowing costs. …
… For the remainder of the report:
(courtesy Dan Popescu/GATA/Chris Powell)
Goldbroker’s Dan Popescu: Where is all the gold going?
Submitted by cpowell on Mon, 2015-10-26 14:38. Section: Daily Dispatches
9:36a CT Monday, October 26, 2015
Dear Friend of GATA and Gold:
With the help of chartist Nick Laird, Goldbroker’s Dan Popescu today calculates that a lot of gold is on the move in the world and it’s not just from West to East but more from the United States to both Europe and Asia. And the gold on the move is surely greater than what Popescu reports today, for as gold researcher and GATA consultant Koos Jansen reported last month —
— monetary gold transferred to central banks is, under the rules of the International Monetary Fund, exempt from ordinary customs reporting. It can move across internatinal borders is complete secrecy.
Popescu’s analysis is headlined “Where Is All the Gold Going?” and it’s posted at Goldbroker’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Sovereign India has zero change to get citizens’ gold
(courtesy zero hedge)
Indians Urged To Give Up Their “Idle Gold” For The Good Of The Nation
One month ago, when reviewing India’s ploy to monetize the thousands of tons of gold held by the broader population through the issuance of “gold-backed bonds” (which would need to offer a rate of interest greater than inflation to be attractive but they won’t), we asked if this is “the start of India’s gold confiscation.”
As a reminder, as part of the plan, Indians would be allowed to “deposit their jewelry or bars with banks and earn interest, while the banks will be free to sell the gold to jewelers, thereby boosting supply. The deposits can be for a period of one year to 15 years with the interest on short-term commitments to be decided by the banks and those on long-term deposits by the government in consultation with the central bank.”
The sovereign gold bonds are aimed at people buying the precious metal as an investment. The securities may help shift a part of the estimated 300 metric tons a year investment demand, the government said in a separate statement. The bonds will be issued in denominations of 5 grams, 10 grams, 50 grams and 100 grams for a term of five years to seven years with a rate of interest to be calculated on the value of the metal at the time of investment, it said.
When stripped of its pompous rhetoric, what India is offering is simple: a gold-for-paper exchange, which however in a culture where gold has been the definition of money for centuries, would likely be a non-starter from the beginning. One look at the chart below showing Indian gold demands is sufficient to show just how ingrained in the Indian psyche gold hasbecome.
However, as we said a month ago, just because it is doomed from the beginning, at least in its current iteration, does not mean it won’t be tried (see: Abenomics)… or adjusted. Because this proposal was nothing short of the initial shot across the gold confiscation bow. Here is what else we said:
The one thing to watch for is a shift in the posture of the Indian government: for now participation in the gold monetization scheme is voluntary, and largely geared to the general public with the 500 gram/year limit. But if and when the Modi cabinet starts “urging” the population, and certainly when threats of fines and/or prison time emerge, that is when we will finally have confirmation that the second coming of Executive Order 6102 has arrived.
Fast forward to this weekend when while we still await the Indian government to unveil the “threats and fines” part, it started the “urging” when during an address on his monthly radio programme of “Mann Ki Baat”, Indian prime minister Modi “exhorted people to help convert gold to the nation’s economic strength by joining in various schemes to be launched soon” adding that “gold can be converted from dead money to an economic force.To leave gold lying as dead money is behaviour not in sync with the modern times,” he said.
We are grateful for this stark admission by India’s prime minister that in “modern times”, possession of a barbarous relic gold is a activity best relegated to barbarians – you see, “modern people” are all about lending, and rehypothecating their paper gold.
Still, Modi was at least truthful in noting that accumulating gold as a form of economic security is deeply rooted in India’s social tradition; as a result we expect the threats of fines and incarceration to follow shortly.
For those who are unfamiliar, the Khaleej Times remindsus of the details of India gold monetization plot:
Earlier in the week, the Reserve Bank of India issued norms for implementation of the gold monetisation scheme, under which customers can deposit their gold in banks and earn interest on it.
The minimum deposit required will be 30 grams of gold with fineness measuring 995. It could include raw gold in the forms of bars, coins and jewellery, excluding stones and other metals.
On maturity, the principal and interest will be linked to the prevailing price of gold at the time. The depositor will have the option to take gold or equivalent rupees.
The union cabinet approved the scheme last month.
As for the motives, we have covered them before, but here they are again: “the objective of the scheme is to mobilise gold, give a fillip to the gems and jewellery sector by making the metal available from banks on loan and reduce the reliance on imported gold.”
In other words, to take it away from the population.
And when this peaceful attempt at “remunerated” gold sequestration fails, the less “amicable” version of gold confiscation – usually involving threats of bodily harm and prison time – will emerge, as it always does when desperate economies scramble to force their population to stop saving (by buying gold), and start spending.
Bill Holter interview.
1 Chinese yuan vs USA dollar/yuan falls as expected with a rate cut, this time at 6.3588 Shanghai bourse: in the green, hang sang:red
2 Nikkei closed up 121.82 or 0.65%.
3. Europe stocks mostly in the red /USA dollar index down to 96.90/Euro up to 1.1029
3b Japan 10 year bond yield: rises to .313% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.97
3c Nikkei now just above 18,000
3d USA/Yen rate now above the important 120 barrier this morning
3e WTI: 44.82 and Brent: 48.16
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 rises to .512 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate rises to 7.70%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.56% (yield curve inverted)
3k Gold at $1167.75 /silver $15.93 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 4/100 in roubles/dollar) 62.33
3m oil into the 44 dollar handle for WTI and 48 handle for Brent/ China purchases huge supplies from Saudi Arabia
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9807 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0815 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 +.512%/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 2.88% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Fizzle, Europe Red As Markets Ask: “What Do Central Banks Do Now?”
In our Chinese stock market wrap following Friday’s unexpected rate cut, which saw the Shanghai Composite storm out of the gate, we said that “we would not be surprised to see China’s stocks sliding back into the red very shortly as “sell the news” concerns return, and as the increasingly more addicted “markets” demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs.” Sure enough, with just minutes to go before the close, the SHCOMP wiped out all its daily gains and was set for a red close had it not been for the “national team” miraculous last minute intervention which was inevitable after Friday’s PBOC rate cut, and which lifted the composite 0.5% into the green as the euphoria was rapidly evaporating.
That largely summarizes market sentiment across the board as stocks, having soared by a ridiculous amount in the past month on a progression of ever worse (and in China’s case, ever more fabricated) data, on a historic short squeeze, and on a surge in central bank jawboning, appear to have hit a plateau, and as of this moment both European stocks and US futures were trading slightly red on the day. Call it “central bank saturation”, call it markets confused just what central bankers, many of whom have again blown their wad, will do next.
Not helping sentiment was the latest confirmation from Japan that contrary to expectations, the BOJ will do absolutely nothing on Friday (as the Fed and ECB have already done its work for it), when overnight Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, told Reuters that Bank of Japan can “wait for a while” to conduct more monetary easing as long as Japan’s jobs-to-applicant ratio and unemployment rate show the labor market remains tight. Amusingly, Hamada said there is “speculation Fed may raise rates keeping yen weak, taking pressure off Kuroda to take action.” This follows a statement by Etsuro Honda, another adviser to Abe, who on Friday also admitted that additional easing wasn’t necessary, thereby assuring that anyone hoping for a Friday QQE boost by the BOJ will be disappointed.
What Hamada forgot to add is that the Fed (and ECB) taking action only pushes the Yen lower because it is the funding currency. If and when the market tumbles again, the Yen will soar, as it hinted at overnight, when it dipped 70 pips to an overnight low below 100.8.
On the macro front, perhaps the reason why stocks did not fly higher is because the only bad data was Germany’s IFO Current Assessment, which missed expectations of 113.5, and printed at 112.6 down from 114, while both IFO Business Climate and Expectations beat by a modest amount.
Back to markets, in Asia we saw stocks trade mostly higher in reaction to the PBoC cutting rates on Friday, although concerns of a weak Chinese economy resulted in the paring of some gains. Shanghai Comp. (+0.5%) was initially underpinned by the PBoC measures coupled with strength in financials following the removal of the deposit rate ceiling, however concerns surrounding the Chinese economy saw some of the gains trimmed. ASX 200 (-0.1%) failed to hold onto to early gains to close flat, while Nikkei 225 (+0.7%) traded in positive territory with the index lifted by positive earnings reports for Hitachi (+7.50%) and Panasonic (+7.30%). 10yr JGBs traded lower due to strength of Asian stock markets, while the BoJ also refrained from buying any bonds under its QQE program as expected.
The week kicked off with European equities in the red (Euro Stoxx: -0.2%) amid touted profit taking after last week’s gains and position squaring ahead of the key risk events later in the week, namely the BoJ and Fed meetings . In terms of company specific news, the notable movers today see Deutsche Bank (-2.1 %) underperform after reports that the US has stepped up probe into the bank’s Russian trades as well as WPP (-1.9%) after their earnings update, while Porsche (+1.6%) are among the best performers in the wake of reports that VW may have to spin-off the unit.
In terms of fixed income, Bunds kicked off the week in modest positive territory , supported by last week’s dovish ECB as well as month-end related flow and supportive cash flow, with around EUR 16.5bIn of supply this week and EUR 45b1n worth of coupons and redemptions. However the German benchmark came off its highs during the European morning to trade flat on the day, trending lower in the wake of the latest IFO release (Business Climate M/M 108.2 vs. Exp. 107.8, Current Assessment M/M 112.6 vs. Exp. 113.5), which was unfazed by the Volkswagen emissions scandal, citing IFO economists.
In FX markets the JPY has been the notable outperformer, with USD/JPY falling amid touted profit taking following last week’s gains, while earlier comments by BoJ adviser Hamada, who said the BoJ can refrain from further easing at this stage, have also weighed on the pair. Of note, USD/JPY now trades back below the key 200DMA line and the next major support level is seen at the 50DMA level, 120.33. While 1-month dated spreads vs realized vols indicate over-valuation (the shorter-dated 1-week spread is at its widest level since June 2013) and given a slew of major risk events suggests somewhat choppy price action by the underlying spot.
Commodity currencies including CAD and AUD have also seen notable upside this morning, benefiting from strength in the energy complex with WTI and Brent crude futures both residing firmly in positive territory, benefiting from the weaker USD, with the USD-index lower by 0.2% today.
BoE Governor Carney said that 4% of UK mortgage holders will be at risk of not being able to pay their mortgages if the BoE hike rates as expected and added that while there is no certainty rates will be hiked, it is the central expectation of the MPC.
Looking ahead, today is relatively light in terms of tier 1 data, with the notable highlight coming in the form of comments from ECB’s Mersch. Looking ahead, today’s notable US earnings include Hartford Financial Services, Broadcom and AvalonBay Communities.
- S&P 500 futures down 0.2% to 2061
- Stoxx 600 down 0.2% to 377
- MSCI Asia Pacific up 0.4% to 136
- US 10-yr yield down less than 1bp to 2.08%
- Dollar Index down 0.23% to 96.91
- WTI Crude futures up 0.6% to $44.88
- Brent Futures up 0.6% to $48.27
- Gold spot up less than 0.1% to $1,165
- Silver spot up 0.6% to $15.91
Key News Bulletin Headline Summary from Bloomberg and RanSquawk
- The week kicked off with European equities in the red amid touted profit taking after last week’s gains and position squaring ahead of the key risk events later in the week, namely the BoJ and Fed meetings
- Commodity currencies outperform, benefiting from strength in the energy complex while JPY sees strength amid touted profit taking and comments by BoJ adviser Hamada stating the BoJ can refrain from further easing at this stage
- Today’s highlights include comments from ECB’s Mersch and earnings from Hartford Financial Services, Broadcom and AvalonBay Communities
- China’s leaders gathering in Beijing this week to formulate the 13th five-year plan confront an era of sub-7% growth; manufacturing and residential construction are sputtering, and new areas like consumption, services and innovation aren’t picking up the slack quickly enough
- GM Reaches Tentative Agreement With UAW Workers, Avoiding Strike: Tentative four-year agreement that is expected to provide raises across the board
Valeant CEO’s Outsider Roots Spun Market Gold, Until They Didn’t: CEO Michael Pearson, facing heavy criticism from investors, analysts, will address concerns today
- BlueScope to Buy Cargill’s North Star Stake for $720m; BlueScope now has full ownership of North America’s most profitable mill
- EQR to Sell Apartments to Starwood Capital for $5.4b: WSJ: To deliver ~$3.8b of proceeds as div. in Jan. 2016
- Toyota Regains Global Sales Lead as VW’s Focus Shifts to Scandal: Toyota said Monday it sold 7.49m vehicles this year through September, topping the 7.43m that Volkswagen reported earlier this month
- Biden Says Opted Against White House Bid Because He Couldn’t Win: Biden concluded that, “so late in the game,” he couldn’t put together campaign to derail Democratic frontrunner Hillary Clinton
- Sony CEO Aims to Build on Recovery With Toshiba Sensor Deal: Sony in talks with Toshiba to acquire its image sensor for 20b yen ($165m)
- Standard Chartered Winding Down Equity Derivatives Business: Bank will phase out businesses after Jan exiting from institutional cash equities, equity research, equity capital markets
- ‘The Martian’ Retakes Box Office Lead as New Films Disappoint: Collected $15.9m in U.S. and Canadian theaters vs est. $12.5m
- German Business Confidence Falls as Global Risks Take Toll: Ifo institute’s business climate index declined to 108.2 from 108.5 in September. The median estimate was for a drop to 107.8
- Volkswagen AG lost the lead in global auto sales to Toyota Motor Corp. after claiming the No. 1 spot three months ago, as the German carmaker braces for consumer blowback from a widening emissions-cheating scandal
- European leaders clashed over how to manage the influx of hundreds of thousands of refugees forging through the region’s eastern flank as they warned that Europe is buckling under the strain of the crisis
- U.S. Gasoline Drops to $2.2386 a Gallon in Lundberg Survey
DB’s Jim Reid completes the overnight wrap
Well the monetary plates got spun pretty hard again last week as a dovish Draghi and a Chinese rate cut sparkled through financial markets on Thursday and Friday. This week there are further possibilities for more monetary policy fairy dust as the Fed (Wednesday) and BoJ (Friday) meet. We also have the very important Chinese Plenum (Monday-Thursday) which will have major implications to how much stimulus China needs to apply depending on the aggressiveness of their growth target over the next 5 years (more later).
Overall our view continues to be that while inflation is this low at a global level central banks will step on the gas again and elevate asset prices for the foreseeable future and continue to keep the gap wide between technicals and fundamentals in many countries. This leaves huge gap risk lower for financial markets but that’s more of a problem for when central banks are unable or unwilling to act. This could happen first when inflation looks more likely to consistently test the 2% level. This may occur at some point in 2016 in certain areas of the globe, dependant on activity levels and commodities but for now its party on.
Back to China, the PBoC cut benchmark interest rates by 25bp and the reserve requirement ratio (RRR) by 50bp on Friday – the former being a surprise to our economists who think it reinforces their view that economic growth will rebound in Q4 to 7.2% yoy from 6.9% in Q3. They expect 4 RRR cuts but no interest rate cut in 2016 as their baseline case. They also think the rate cut suggests that political pressure may be building up to achieve the 7% growth target. We’ll find out more after this week’s Plenum, especially with the latest (13th) 5-year growth plan although it may take some time for all the news to be official and filter through. It took 9 days after the Plenum for the details of the 5-year plan from 2010 to be released. Our guys think a 7% target would require notably looser policy than a 6.5% target. They think keeping the former is more likely.
After the PBoC rate cut on Friday, Chinese equity markets are off to a solid but unspectacular start with the Shanghai Comp (+0.91%) striking a two-month high and the CSI 300 and Shenzhen +0.95% and +0.89% respectively. There’s minimal change in the CNY, currently +0.01% after the PBoC strengthened the fix by 0.07% this morning. Meanwhile, equity market gains in Asia are being led out of Japan where the Nikkei is +1.11%. Elsewhere there are modest gains also for the Hang Seng (+0.14%) and Kospi (+0.18%). Asian credit is a couple of basis points tighter, although US S&P 500 futures (-0.2%) are pointing towards a slightly softer start.
Moving on. With market pricing for a Fed rate hike on Wednesday sitting a lowly 6% and with no Yellen press conference scheduled, the focus will be predominantly on the tone of the FOMC statement this week. Our US economists expect the FOMC to adopt a dovish tone in its statement which should decrease the probability of a December hike further. While they won’t have the Q3 GDP data, our colleagues believe that at their best guess the FOMC will be operating under the assumption that growth was only 2% at best last quarter, while the Fed’s preferred inflation metrics were still running well under 2%. Coupled with the highly uncertain outlook for overseas growth, they expect the Fed to mark down its assessment of the near-term economic outlook, in particular its labour market projections.
A closer call for a change in policy could be this Friday’s BoJ meeting. The most recent Bloomberg survey (run from September 29th to October 2nd) had 15 out of 36 economists (42%) forecasting for the BoJ to ease further through expanding purchases. This was up from 11 economists at the beginning of September. 4 expect the BoJ to go in January 2016 and 1 each in March and April next year, while 13 (or 36%) don’t expect any change to the current stimulus package. It’ll be interesting to see if we get any further surveys this week, particularly post the PBoC. Our economists in Japan maintain their view that an additional easing is unlikely. In their view economic data thus far has not deteriorated to a degree that would justify an additional easing and this week’s data in Japan is unlikely to affect the BoJ’s decision. They do however expect the BoJ to revise down its forecasts for GDP growth and inflation and defer its target date for achieving 2% for the latter from the current H1 FY16.
Along with this week’s central bank meetings, earnings season ramps up another gear this week with 167 S&P 500 companies due to report (30% of market cap) and 93 Stoxx 600 companies due to release their latest results. The highlights are at the end of this morning’s EMR, but following Friday’s releases its worth updating our latest beat/miss monitor. After a number of high profile reports on Thursday, just 10 S&P 500 companies were out with earnings on Friday, the highlight being a mixed Procter & Gamble report where despite a beat in earnings, sales trailed analyst estimates after the stronger USD was said to reduce sales by 9% during the quarter. Overall, the earnings reports we did get on Friday were fairly soft. Of the 10 S&P 500 members, 7 beat EPS projections but none beat revenue estimates. That means, with 173 companies having reported so far, 73% have beat earnings expectations but just 42% have beaten sales estimates (down from 75% and 45% respectively on Thursday). This is softer than what we saw in both Q2 (75% and 49%) and Q1 (73% and 48%) this year, with the weakness in revenues especially evident as we’ve seen signs of the stronger Dollar, slower global growth and weakness in commodity prices all impacting results to various degrees. The one notable sector outperforming at the top line is the tech sector, with 15 of 22 companies (68%) to have released their quarterly reports so far having beat estimates. It’ll be interesting to see if Apple, due to report on Tuesday, can continue the trend.
The earnings we got from bellwether tech names after the bell on Thursday (Amazon, Microsoft and Alphabet), along with the China move, helped support a strong day for risk assets on Friday. The S&P 500 closed +1.10% and in the process moved back into positive territory (+0.79%) YTD. The Nasdaq (+2.27%) was the relative outperformer while the Dow finished +0.90%. Credit had a strong session also with CDX IG finished nearly 3bps tighter.
There were similar moves for risk assets in Europe too. Crossover and Main rallied 17bps and 4bps tighter respectively, while in equity markets the Stoxx 600 surged 1.99% to extend its two and a bit month high. Taking a closer look at earnings season in Europe so far and with 101 companies having now reported in the Stoxx 600, just 54% have beat earnings expectations which is down on both Q1 (57%) and Q2 (61%) this year. The notable weakness however has been at the top line. Just 45% have beaten expectations so far this reporting period. That compares to 72% in Q1 and 66% in Q2 this year. So some notable deterioration in results this reporting period so far relative to what we saw in the previous two quarterly periods of the year.
Data on Friday was centered on the flash October PMI numbers which were generally supportive. In the US we saw the flash manufacturing print rise 0.9pts to 54.0 (vs. 52.7 expected) and to the highest since May. Meanwhile in Europe the Euro area composite print rose 0.4pts from September to 54.0 (vs. 53.4 expected). This was supported by a stronger services reading (+0.5pts to 54.2; 53.5 expected) while the manufacturing reading stayed stable at 52.0 (vs. 51.7 expected). Regionally, there were 0.4pts rises for the composite readings in both Germany (54.5 vs. 53.7 expected) and France (52.3 vs. 51.6 expected). Our colleagues in Europe believe that the latest data for the month supports the view of GDP growth of between +0.4% and +0.5% qoq in the Euro area, which is an upside risk to their +0.3% Q4 projection should we see no change in November of December.
Wrapping up Friday’s newsflow and back to China briefly, there was also plenty of chatter that the IMF is set to give the go ahead to include the Chinese Yuan in the fund’s basket of reserve currencies. A Reuters article from the weekend is suggesting three people briefed on the IMF discussions have said that a draft report from staff had reached a favourable conclusion. A formal date to confirm the decision in November is still yet to be announced.
Let us begin: China’s Shanghai composite opens 9:30 pm Sunday est night/Monday morning Shanghai time
Chinese Stocks Rise To 2 Month High Following PBOC’s Rate, RRR Cut But Copper, Crude Struggle
As largely expected, following Friday’s unexpected rate cut by the PBOC (which may have been mostly driven by 5th CCP Plenum considerations), and today’s drop in the onshore Yuan which traded down 0.13% vs the Dollar to 6.3554, China’s stocks opened solidly in the green, led by construction names, with recently troubled Vanke shares jumping 7.4% in early trading, the most since July 10, to their highest level since Aug. 11. Peers such as Longfor, CR Land and China Overseas Land, also jumped by 6.9%, 1.9% and 1.4%, respectively.
China’s indices were solidly green in early trading, with the Shanghai Composite +0.9%, Shenzhen Comp +0.8%, and CSI 300 +1.3%.
Hong Kong was likewise euphoric, with several key names standing out:
- Tencent +1.3%; biggest contribution to HSI’s gains
- Banks such as Agricultural Bank +0.6%, ICBC +0.8%, and Bank of China +0.8% were all stronger after China removed the deposit rate ceiling
- Citic Securities +2.3%; seeks bond payment from Baoding Tianwei
- China Reinsurance +2.2% on its debut
Elsewhere in the Asian region, early sentiment was also a broad, if somewhat tame, bullishness.
- MSCI AP Index +0.7% to 136.71; health care, consumer discretionary rise most
- Nikkei 225 +1.2%; Topix +1.1%; yen +0.3% to 121.17/USD
- Hang Seng Index +0.7%, HSCI +0.7%, HSCEI +1.1%
- Shanghai Composite +0.9%,
- ASX 200 +0.2%
- Kospi +0.3%
- Straits Times Index +1.0%
- KLCI -0.2%
- TWSE +0.7%
- Philippines Composite +1.6%
- Australian dollar +0.4% to $0.7242
- NZ dollar +0.1% to $0.6760
- Dollar Index -0.1% to 96.98
- Asia dollar index +0.1% to 108.57
As for China’s key index, the Shanghai Composite, it is up over 1%, or 40 points in early trading, to 3,450 – the highest level in 2 months, a gain which however is well below Friday’s pre-rate cut gain…
… and if prior rate cut history is any indication, not to mention the weak reaction by commodities on Friday (continuing into today, where WTI turned green by the smallest of margins just seconds ago…
… not to mention copper which is down for the second day in a row...
… we would not be surprised to see China’s stocks sliding back into the red very shortly as “sell the news” concerns return, and as the increasingly more addicted “markets” demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs.
Why are Chinese Malls empty? On line sales are certainly rising but it is the overbuilding of brick and mortar buildings which are causing problems.
(courtesy zero hedge)
Everyone Is Asking: “If Chinese Consumption Is Rising, Why Are Its Malls Empty?” – Here Is The Answer
With China’s official headline GDP number printing at decade lows, the positive spin on the increasingly negative data out of China has been that this is all a part of China’s transition from an export-oriented to a consumption economy. However, there is a problem with this narrative: malls and shopping centers in China have been, and remain, increasingly empty suggesting that the narrative of the resurgent Chinese consumer – especially in the aftermath of the biggest stock market bubble burst since 2008 – is greatly exaggerated.
Case in point: Reuters asks this morning “if why are malls closing if consumption is rising?”
Specifically, it looks at the Di Mei shopping center in downtown Shanghai which it finds “a surprisingly depressing place to shop.”
The underground mall is located in one of the most shopping-mad cities in China, and yet it is run down and starved of customers.”
“Sometimes I cannot sell even one dress in a day,” said dress shop owner Ms Xu, who rents a space in Di Mei.
Rising vacancy rates and plummeting rents are increasingly common in Chinese malls and department stores, despite official data showing a sharp rebound in retail sales that helped the world’s second-largest economy beat expectations in the third quarter.
It sure makes one wonder just how credible China’s retail sales “data” are, especially since the government is far less willing to provide official commercial vacancy rates: “As growth in retail sales slows because of the country’s lower GDP growth, and in cities where mall space is abundant, vacancy rates have risen substantially,” said Moody’s analyst Marie Lam in a research note.
One possible answer to this seeming conundrum is a well-known one: the transition to online shopping, but there is another twist: the government is goosing retail sales by acting as a direct end-purchaser:
The answer to that apparent contradiction lies in the rising competition from onlineshopping and government purchases possibly boosting retail statistics. Add poorly managed properties into the equation and the empty malls aren’t much of a surprise.
More importantly, the struggles of Chinese brick-and-mortar retailers amplify a policy conundrum; these malls, built to reap gains from rising consumption, are instead adding to China’s corporate debt problem, currently at 160 percent of GDP – twice as high as the United States.
Less foot traffic means cash flow of mall owners and developers are getting squeezed – a potential hazard for an economy growing at its slowest pace in decades.
Di Mei’s owners are trying to refurbish, but it’s unclear whether it will pay off, and others are just closing down. The Sunlight Store in Beijing, for example, is located in another prime pedestrian hub, but it closed its blinds this month, with manager Ni Guifang telling Reuters they are seeking greener pastures online.
“The sales were just OK, but the overall sales were on the downward trend,” Ni said.
* * *
On the other hand, e-commerce sites continue to post double-digit growth rates, even as some moderation is evident. E-commerce leader Alibaba (BABA.N) is expected to report that sales growth slowed sharply in the second quarter – albeit to around 27 percent on-year, still a ripping pace.
There is another, potentially benign explanation: overcapacity – after all China’s “ghost shopping malls” have been well-known for years.
China is currently the site of more than half the world’s shopping mall construction, according to CBRE, a real estate firm, even though it appears that many of these malls will not produce good returns for their investors. A joint report by the China Chain Store Association and Deloitte showed that by the end of this year, the total number of China’s new malls is projected to reach 4,000, a jump of over 40 percent from 2011.
This brings up two follow up problems: one is that this overcapacity will remain in place for years, leading to much less construction and expansion in the coming years: “Real estate analysts note that much of the surge in retail space construction came at the behest of local governments, who were rushing to push real estate development as part of attempts to stimulate the economy. The result has been malls built in haste and managed poorly.”
An even bigger problem is that sooner or later, all these bad debt that was used to fund this construction scramble and which currently generates no cash flow, will have to be reclassified as non-performing sooner or later: “If you build it and they’re not coming, that’s a non-performing loan,” said Tim Condon of ING.
As a reminder, China’s non-performing debt is the one elephant in the room which nobody dares to touch, yet which CLSA briefly touched upon two weeks ago when it calculated that the real bad debt ratio in China is not 1.5% as per official “data” but really 8.1%. Needless to say, on $30 trillion in bank assets, this is a big problem.
But the one explanation that had not been provided, also happens to be the simplest one: Chinese consumers are simply not consuming! Luckily, we have insight into that as well, courtesy of the FT’s Martin Sandbu:
As if on cue, the programmed slowdown in manufacturing, investment, and export growth is perfectly matched by a rise in domestic consumption, retail and services that leaves the total economy growth number just where the government said it would be. For example, industrial output is now reported to increase at 5.8 per cent, while the growth of the services share of GDP remains stable at 8.4 per cent.
The real sceptics go much further — and they have good arguments on their side which the optimists do not convincingly address. As the FT’s new EM Squared service pointed out last week, there are important holes in the shift-to-services story. One is that too much of the services growth is accounted for by finance, which is tricky to measure at the best of times, and whose reported robustness after the third-quarter market mayhem is outright unbelievable. Another is that income and wage growth, which presumably should be powering the supposed consumption and services boom, is slowing.
And the chart which hammers China’s hard landing home:
There is simply no way to spin the above data in a favorable light, which we hope also answers Reuters’ original question on China’s empty malls.
In fact, the only question after reading the above should be: “how long before China’s consumption dysfunction leads to empty malls in the middle of the United States itself?”
then late this afternoon, the reluctant Obama does this:
(courtesy zero hedge)
It’s On: Obama Sends Destroyer To Chinese Islands, China Vows Military Response
For anyone who might still be somehow unaware, the US is currently in a superpower staring match with both Russia and China. The conflict in Syria has put Moscow back on the geopolitical map (so to speak), creating an enormous amount of tension with Washington whose regional allies have been left to look on in horror as Russian airstrikes and an Iranian ground incursion dash hopes of ousting President Bashar al-Assad.
Meanwhile, in The South China Sea, Beijing has built 3,000 acres of new sovereign territory atop reefs in the Spratlys and although the reclamation effort itself isn’t unique, the scope of it most certainly is and Washington’s friends in the South Pacific are crying foul.
Beijing has continually insisted that it doesn’t intend to use the islands as military outposts, but the construction of runways and ports seems to tell a different story and so, Washington felt compelled to check things out over the summer by sending a Poseidon spy plane complete with a CNN crew to the area. Once the PLA spotted the plane the situation escalated quickly with the Chinese Navy telling US pilots to “Go Now!”
After that, an intense war of words developed with Defense Secretary Ash Carter insisting that the US would sail and fly anywhere it pleased and Beijing assuring the US that sailing within 12 nautical miles of the islands would prompt a harsh response from the PLA.
For weeks, the US was rumored to have been planning a freedom of navigation exercise in the Spratlys which, as we’ve pointed out several times this month, amounts to sailing by the islands just to see if China will shoot.
Now, according to CNN, Obama has given the green light and the ships may sail within 24 hours:
And more from FT:
The US navy is poised to start freedom of navigation operations in the South China Sea in a high-stakes effort to push back against Chinese territorial claims over artificial islands in the disputed waters.
In a move that will enrage Beijing, the USS Lassen, a guided-missile destroyer, will sail inside the 12-nautical mile zones of two man-made islands — Subi and Mischief reefs — that China has built in the contested Spratly Island chain. A senior US defence official said it would sail through the area in the early hours of Tuesday morning.
China has repeatedly warned that it would not tolerate any effort to violate what it considers its territory. Earlier this month, a senior Chinese naval officer said the People’s Liberation Army would hand a “head-on blow” to any foreign forces that violated Chinese sovereignty. His comments came after the Financial Times reported that the US was poised to launch its operations.
The manoeuvre will mark the first time since 2012 that the US navy has sailed through the 12-nautical mile zone surrounding any islands claimed by China. It is aimed at demonstrating that Washington does not recognise any territorial claims over artificial islands in the South China Sea.
It’s also worth noting that should the US manage to get away with this without sparking a shooting war with the Chinese, it now looks as though Washington is leaning toward making this a regular patrol. Here’s a bit ofcolor from Reuters out over the weekend:
A range of security experts said Washington’s so-called freedom of navigation patrols would have to be regular to be effective, given Chinese ambitions to project power deep into maritime Southeast Asia and beyond.
“This cannot be a one-off,” said Ian Storey, a South China Sea expert at Singapore’s Institute of Southeast Asian Studies.
“The U.S. navy will have to conduct these kinds of patrols on a regular basis to reinforce their message.”
But China would likely resist attempts to make such U.S. actions routine, some said, raising the political and military stakes. China’s navy could for example try to block or attempt to surround U.S. vessels, they said, risking an escalation.
Here are the latest visuals from Subi and Mischief (the two islands mentioned above):
Not to put too fine a point on it, but this borders on the insane. Here we have both Washington and Beijing risking an outright military confrontation over what amount to a couple of sandcastles and while there’s probably some truth to the contention that China has plans for the islands that go beyond growing plants, building lighthouses, and raising pigs, it’s not as though the PLA is going to invade The Philippines so at the end of the day, this looks like another example of what Vladimir Putin recently suggested is evidence that the world is losing its collective mind.
Japan on hold with QE which causes the USA/Yen cross to drop!
(courtesy zero hedge)
Bank of Japan Will Not Boost QE This Week, Abe Advisor Warns; Yen Jumps
Having soared 175 pips in two days, on the back of ECB and PBOC actions, USDJPY is rolling over this morning as a senior adviser to Japanese PM Shinzo Abe tells Reuters that The Bank of Japan “can wait a while” before easing more. This follows another adviser’s comments on Friday that “further easing wasn’t necessary.” With a trail of broken markets (bonds first and now stocks), and broken promises (only 25% of Japanese now believe Abenomics will boost the economy), Abe faces an uphill battle in winning the fight against the “deflationary mindset” that officials have been so adamant they have already won.
The Bank of Japan need not boost its massive monetary stimulus this week as the labor market remains tight, a key economic adviser to Prime Minister Shinzo Abe said on Monday.
Koichi Hamada, an emeritus professor of economics at Yale University, also told Reuters that the central bank does not have to rush into further easing but rather can monitor the prospects for an interest rate hike by the United States.
“As long as the jobs-to-applicant ratio and unemployment rate show the labor market remains tight, the BOJ can wait for a while,” Hamada said in an interview.
And once again the circular logic rolls back to The Fed…
He also said market speculation that the Federal Reserve may raise U.S. rates is taking some pressure off Japan’s central bank by keeping the yen soft.
The yen has hovered roughly between 119 yen and 121 yen per dollar JPY= since early September, having strengthened to around 116 yen late August as fear of China’s economic slowdown rattled market.
“As long as expectations for a U.S. interest rate hike keeps the yen weak, there is no need for BOJ Governor Kuroda to take action,” Hamada said.
This follows, Etsuro Honda, another adviser to Abe, saying Friday that additional easing wasn’t necessary, according to Kyodo News.
The result is a reality check on last week’s exuberance…
Policy-maker hope remains high, as MNI reports, BoJ officials believe a pickup in production in the October-December quarter is key for the economy to return to a steady recovery track.
The Bank of Japan board is set to revise down its growth and inflation forecasts for this year and next at its meeting Friday. However, it is unlikely to expand the pace of asset purchases because the underlying trend of prices has been edging up.
Given weak factory output, flat exports and sluggish consumer spending, the focus of policy debate is on whether the positive growth cycle – from greater profits to business investment and higher income to household spending – is still working and the path toward 2% inflation is intact.
The BOJ’s assessment of the two main drivers of inflation is unchanged: longer-term inflation expectations are rising and the negative output gap is unlikely to hurt the underlying price trend, which is backed by tight labor supply, because the GDP slump in April-June was mainly caused by an export drop.
The next key meeting for the BOJ is on Jan. 28-29, when the board will provide an update to its medium-term GDP and CPI forecasts. The BOJ has two more meetings this year on Nov. 18-19 and Dec. 17-18.
However, the situation at this point may not be as serious as in October last year, when the BOJ board decided in a tight 5-to-4 vote to expand its aggressive easing. At that time, the bank cited the risk that a plunge in crude oil prices would lower inflation expectations and derail the path toward stable 2% inflation.
On a slightly positive note, BOJ officials believe weak September trade data do not suggest a further worsening of exports. The BOJ’s real trade indexes, which have a close correlation with external demand in GDP, confirmed exports are flat, not falling sharply.
* * *
What is more problematic is that the people of Japan are beginning to lose faith (having now seen the cultish fervor of Abenomics disappear into the reality of a quintuple-dip recession) as only 25% believe Abenomics will boot the economy…
Japanese appear to have little faith that Prime Minister Shinzo Abe’s policies will improve the economy, with just a quarter of respondents to a weekend Nikkei Inc. poll thinking things will get better.
Nearly 60% do not believe Abenomics will help. This lack of confidence appears to be a factor in the cabinet approval rating’s decline in the latest poll.
What none of [Japan’s previous easing efforts] have amounted to is an actual and sustainable economic advance; NONE, no matter how you count them. In very simple fact, the idea that central banks “need” to keep doing them in continuous fashion is quite convincing that at the very least they don’t mean what central bankers think they mean, and perhaps worse that the more they are done and to greater extents the more harm that eventually befalls. It isn’t difficult to suggest and even directly observe that Japan’s economy has shrunk during the QE age, but that fact isn’t applicable to Japan alone (there are sure too many non-adjusted data points that uncomfortably assert the same for even the US). That would seem to at least offer a basis for a “deflationary mindset” no matter the actual economic effects.
[Last week’s face-ripping rally] is not so much investing or even finance as it is a cult (calling it a religion or even ideology is unjustifiably too charitable). That is the usefulness of “deflationary mindset” not so much as a matter of actual economic pathology but as a built-in, squishy appeal to “we’ll get it right next time.” And there is always, always a next time which doesn’t seem to count for much inside the cult when, in fact, it is everything.
EUROPEAN AFFAIRS + REFUGEE REPORTS
Unless they find a solution, the Slovenia minister states that the refugee crisis will lead to the end of the European union:
(courtesy zero hedge)
“If We Don’t Find A Solution Today, It’s The End Of The European Union” – Refugee Crisis Hits Tipping Point
After escalating for months, Europe’s refugee crisis hit its most serious tipping point yet, when when earlier today European Union leaders held a mini-summit on Sunday debating whether to send hundreds of guards to its borders with the western Balkans, as well as deploying more ships off Greece, as the bloc seeks to balance Germany’s welcome for refugees with tougher security measures.
So far, over 680,000 migrants and refugees have crossed to Europe by sea so far this year, fleeing war and poverty in the Middle East, Africa and Asia, according to the International Organization for Migration. Their goal has been Germany, which has promised sanctuary, however as a result of a populist backlash and concerns over the economy, Merkel’s popularity has taken a major hit,sliding to the lowest level in four years.
Taking place just two weeks after a full EU summit, the meeting was sought by German Chancellor Angela Merkel.According to Reuters,“many see it as an attempt by Juncker and Merkel to raise pressure on central and southeast European states to coordinate among themselves in managing the migration flow in a more humane way and end a series of unilateral actions.“
Central and eastern European leaders meeting in Brussels may agree to send 400 border guards and set up new checkpoints if the EU’s frontier states drop their policy of giving arrivals passage to other countries, according to a draft statement seen by Reuters that must still be agreed.
According to Reuters, the draft said that “we commit to immediately increase our efforts to manage our borders,” which, if formalized, would be a 16-point plan and the latest step in drawing up a common approach to dealing with the thousands of migrants streaming into the EU every day from the Middle East, North Africa and Afghanistan.
Jean-Claude Juncker, the EU’s chief executive, has called leaders of Austria, Bulgaria, Croatia, Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia, plus refugee organizations involved, to attend the meeting in Brussels.
Europe has been forced to tread lightly as Bulgaria, Serbia and Romania said they would close their borders if Germany or other countries shut the door on refugees, warning they would not let the Balkan region become a “buffer zone” for stranded migrants.
In recent week, the fate of the European “Schengen” Customs Union has been in doubt following Hungary’s decision to close its border with Serbia and Croatia which prompted others to follow, stranding tens of thousands in dire conditions as temperatures drop.
The traditional European response to another systemic risk has been the usual fallback: chaos, as the European Union has been so far unable to implement a coherent, credible response.
Rights group Amnesty International said the 28-country bloc could not afford to end another meeting without an agreed plan. “As winter looms, the sight of thousands of refugees sleeping rough as they make their way through Europe represents a damning indictment of the European Union’s failure to offer a coordinated response to the refugee crisis,” said John Dalhuisen, Amnesty’s director for Europe and Central Asia.
And while Europe dithers, the lack of a common policy is straining ties between European leaders, raising questions about the EU’s future.
It was just a few days ago that Hungary warned that Europe’s future is at stake, when it announced it would seal its border with Croatia. “This is the second-best option,” Hungarian foreign minister Szijjarto told reporters. “The best option, setting up an EU force to defend Greece’s external borders, was rejected in Brussels yesterday.”
Now others are joining in.
Yesterday, it was the turn of Austrian Chancellor Werner Faymann who told the Austrian Kronen Zeitung that “now the speech is about either a common Europe or about a quiet collapse of the European Union. One path is burdensome, difficult and supposedly long and the other one would lead to the chaos.”
Then moments ago, Slovenia Prime Minister was quoted by Reuters during his arrival at the latest mini-summit, as saying “if European leaders fail to agree a plan to counter the sudden inflows of refugees, it could mean the end of the European Union.”
“If we don’t find a solution today, if we don’t do everything we can today, then it is the end of the European Union as such,” Prime Minister Miro Cerar said. “If we don’t deliver concrete action, I believe Europe will start falling apart,” he told reporters.
Considering this is the same Europe, which five years after the first Greek default has been unable to find any solution to its economic troubles – or at least a solution that does not benefit only the top 1% – aside from kicking the can time and again and covering up record amounts of debt with even more debt, we are skeptical Europe will “deliver concrete action” today, or at any one point in the near and not so near future.
Which means more crises, more summits, more confusion, more human suffering and tragedy.
Which may be just what Europe wants.
Tecall the prophetic 2008 AIG report on “Empire Europe” which explained in 4 simple bullet points just what Europe wants:
AIG’s explanation: “To use global issues as excuses to extend its power”
- environmental issues: increase control over member countries; advance idea of global governance
- terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
- global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
- EMU: create a crisis to force introduction of “European economic government”
And there it is: in four simple bullet points laid out in a 7 year old presentation, a prediction which has come true time and again: from the endless Greek bailouts, to the austerity paradox, to European youth unemployment stubbornly flat at 50% for years in many “southern” European nations, to Europe’s QE creating the deflationary impulse it is said to be fighting against, and now – to the “refugee crisis”, it is all playing out as if according to some unseen script.
This is what Europe is facing with the influx of Muslims!!!
(courtesy zero hedge)
(courtesy Daniel Greenfield/FrontpageMag.com)
The Death Of Europe
How The Mohammed Retirement Plan Will Kill Europe
European leaders talk about two things these days;preserving European values by taking in Muslim migrants and integrating Muslim migrants into Europe by getting them to adopt European values.
It does not occur to them that their plan to save European values depends on killing European values.
The same European values that require Sweden, a country of less than 10 million, to take in 180,000 Muslim migrants in one year also expects the new “Swedes” to celebrate tolerance, feminism and gay marriage.Instead European values have filled the cities of Europe with Shariah patrols, unemployed angry men waving ISIS flags and the occasional public act of terror.
European countries that refuse to invest money in border security instead find themselves forced to invest money into counterterrorism forces. And those are bad for European values too.
But, as Central European countries are discovering, European values don’t have much to do with the preservation of viable functioning European states. Instead they are about the sort of static Socialism that Bernie Sanders admires from abroad. But even a Socialist welfare state requires people to work for a living. Maine’s generous welfare policies began collapsing once Somali Muslims swarmed in to take advantage of them. Denmark and the Dutch, among other of Bernie Sanders’ role models, have been sounding more like Reagan and less like Bernie Sanders or Elizabeth Warren.
Two years ago, the Dutch King declared that, “The classic welfare state of the second half of the 20th century in these areas in particular brought forth arrangements that are unsustainable in their current form.” That same year, the Danish Finance Minister called for the “modernization of the welfare state.”
But the problem isn’t one of modernization, it’s medievalization.
Critics pointed out in the past that a multicultural America can’t afford the welfare states that European countries have. Now that those same countries are turning multicultural, they can’t afford them either.
Europe invested in the values of its welfare state. The Muslim world invested in large families. Europe expects the Muslim world to bail out its shrinking birth rate by working and paying into the system so that its aging population can retire. The Muslim migrants however expect Europe to subsidize their large families with its welfare state while they deal some drugs and chop off some heads on the side.
Once again, European values are in conflict with European survival.
The European values that require Europe to commit suicide are about ideology, not language, culture or nationhood. But the incoming migrants don’t share that ideology. They have their own Islamic values.
Why should 23-year-old Mohammed work for four decades so that Hans or Fritz across the way can retire at 61 and lie on a beach in Mallorca? The idea that Mohammed would ever want to do such a thing out of love for Europe was a silly fantasy that European governments fed their worried citizens.
Mohammed doesn’t share European values. Nor are they likely to take hold of him no matter how often the aging teachers, who hope he gets a job and subsidizes their retirement, try to drill them into his head. Europeans expect Mohammed to become a Swede or a German as if he were some child they had adopted from an exotic country and raised as their own, and work to subsidize their European values.
The Muslim migrants are meant to be the retirement plan for an aging Europe. They’re supposed to keep its ramshackle collection of economic policies, its welfare states and social programs rolling along.
But they’re more like a final solution.
Mohammed is Fritz’s retirement plan. But Mohammed has a very different type of plan. Fritz is counting on Mohammed to work while he relaxes. Mohammed relaxes and expects Fritz to work. Fritz is not related to him and therefore Mohammed sees no reason why he should work to support him.
European social democracy reduces society to a giant insurance plan in which money is pooled together. But insurance is forbidden in Islam which considers it to be gambling. European social democracy expects him to bail it out, but to Mohammed, European values are a crime against Islam.
Mohammed’s Imam will tell him to work off the books because paying into the system is gambling. However taking money out of the system is just Jizya; the money non-Muslims are obligated to pay to Muslims. Under Islamic law, it’s better for Mohammed to sell drugs than to pay taxes.
That’s why drug dealing and petty crime are such popular occupations for Salafis in Europe. It’s preferable to steal from infidels than to participate in the great gamble of the European welfare state.
Mohammed isn’t staking his future on the shaky pensions of European socialism. He invests in what social scientists call social capital. He plans his retirement by having a dozen kids. If this lifestyle is subsidized by infidel social services, so much the better. And when social services collapse, those of his kids who aren’t in prison or in ISIS will be there to look after him in his golden years.
As retirement plans go, it’s older and better than the European model.
Mohammed doesn’t worry much about the future. Even if he doesn’t make it past six kids, by the time he’s ready to retire the European country he’s living in will probably be an Islamic State. And he is confident that whatever its arrangements are, they will be better and more just than the infidel system.
Sweden will take in 180,000 migrants this year. Germany may take in 1.5 million. Most of them will be young men following the Mohammed retirement plan.
Europeans are being assured that the Mohammeds will balance out the demographic disparity of an aging population with too many retirees and too few younger workers. But instead the Mohammeds will put even more pressure on the younger workers who not only have to subsidize their elders, but millions of Mohammeds, their multiple brides and their fourteen child Islamic retirement plans.
Retirement ages will go further up and social services for the elderly will be cut. The welfare state will collapse, but it will have to be kept running because the alternative will be major social unrest.
Among the triggers of the Arab Spring were rising wheat prices and cuts to food subsidies. Prices went up and governments fell as street riots turned into civil wars.Imagine a Sweden where 50 percent of the young male population is Muslim, mostly unemployed, turning into Syria when the economy collapses and the bill comes due. Imagine European Muslim street riots where the gangs have heavy artillery and each ghetto Caliph has his own Imams and Fatwas to back up his claims.
Europe is slowly killing itself in the name of European values. It’s trying to protect its economic setup by bankrupting it. European values have become a suicide pact. Its politicians deliver speeches explaining why European values require mass Muslim migration that make as little sense as a lunatic’s suicide note.
Islamic values are not compatible with European values. Not only free speech and religious freedom, but even the European welfare state is un-Islamic. Muslims have a high birth rate because their approach to the future is fundamentally different than the European one. Europeans have chosen to have few children and many government agencies to take care of them. Muslims choose to have many children and few government agencies. The European values so admired by American leftists have no future.
Europe is drinking rat poison to cure a cold. Instead of changing its values, it’s trying to maintain them by killing itself. The Mohammed retirement plan won’t save European Socialism. It will bury it.
This will bring chaos into Portugal as Silva supports minority Coelho and not the majority Costa to form a government.
(courtesy zero hedge)
Europe “Crosses Rubicon” As Portugal Usurps Democracy, Bans Leftist Government
On Thursday evening, we took a close look at how the political landscape has changed in Portugal following inconclusive elections held earlier this month.
For those unaware, the worry in Brussels has always been that either Spain, Portugal or, in a less likely scenario, Italy, would go the way of Greece by electing politicians that would seek to roll back austerity, shun fiscal rectitude, and demand debt relief.
As we’ve noted on any number of occasions over the past nine months, that’s why Berlin adopted such a hardline approach to negotiations with Alexis Tsipras and Yanis Varoufakis. There was never any hope of setting Athens on a “sustainable path.” It was always about deterring more “meaningful” states from going the Syriza route.
Well as it turns out, the troika’s efforts to subvert the democratic process in Greece by using the purse string to overthrow the government apparently did not deter the Portuguese leftists. Put differently, the ATM lines, empty shelves, and gas station queues Greece witnessed over the summer have not had their intended psychological effect in Portugal as Socialist leader Antonio Costa announced earlier in the week that he’s prepared to align with the Communists and with Left Bloc to form a government in defiance of the Right-wing coalition. The Left alliance would have an absolute majority in parliament and would likely adopt an anti-austerity, and perhaps even an anti-euro, platform.
In an effort to head off this eventuality, President Anibal Cavaco Silva appointed Pedro Passos Coelho to serve another term as PM on Thursday. That was a slap in the face for Costa, and as we noted just moments after the announcement, Silva’s decision is likely to leave Portugal mired in an intractable political stalemate which is just about the last thing Europe needs as Brussels attempts to put the Greek debacle in the rearview while confronting the worsening refugee crisis.
Sure enough, Costa is now threatening to topple the government on the heels of what is widely viewed as an usurpation of democracy. Here’s Reuters:
Portugal’s opposition Socialists pledged on Friday to topple the centre-right minority government with a no-confidence motion, saying the president had created “an unnecessary political crisis” by nominating Pedro Passos Coelho as prime minister.
The move could wreck Passos Coelho’s efforts to get his centre-right government’s programme passed in parliament in 10 days’ time, extending the political uncertainty hanging over the country since an inconclusive Oct. 4 election.
This set up a confrontation with the main opposition Socialists, who have been trying to form their own coalition government with the hard left Communists and Left Bloc, who all want to end the centre-right’s austerity policies.
“The president has created an unnecessary political crisis” by naming Passos Coelho as prime minister,” Socialist leader Antonio Costa said.
The Socialists and two leftist parties quickly showed that they control the most votes when parliament reopened on Friday, electing a Socialist speaker of the house and rejecting the centre-right candidate.
“This is the first institutional expression of the election results,” Costa said. “In this election of speaker, parliament showed unequivocally the majority will of the Portuguese for a change in our democracy.”
Antonio Barroso, senior vice president of the Teneo Intelligence consultancy in London, said Costa was likely to threaten any Socialist lawmaker with expulsion if they vote for the centre-right government’s programme.
“Therefore, the government is likely to fall, which will put the ball back on the president’s court,” Barroso said in a note.
And here’s more from The Telegraph on the effort to undercut the democratic process:
Portugal has entered dangerous political waters. For the first time since the creation of Europe’s monetary union, a member state has taken the explicit step of forbidding eurosceptic parties from taking office on the grounds of national interest.
Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika.
He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets.
Democracy must take second place to the higher imperative of euro rules and membership.
“In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,” said Mr Cavaco Silva.
“This is the worst moment for a radical change to the foundations of our democracy.
“After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,” he said.
Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels.
This is true, but he skipped over the other core message from the elections held three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc of the vote. Led by the Socialists, they control the Assembleia.
The Socialist leader, Antonio Costa, has reacted with fury, damning the president’s action as a “grave mistake” that threatens to engulf the country in a political firestorm.
“It is unacceptable to usurp the exclusive powers of parliament. The Socialists will not take lessons from professor Cavaco Silva on the defence of our democracy,” he said.
Mr Costa vowed to press ahead with his plans to form a triple-Left coalition, and warned that the Right-wing rump government will face an immediate vote of no confidence.
Note what’s happened here. The will of the people is now being characterized as a “false signal” to “financial institutions, investors, and markets.”
In other words, what voters want means nothing. This is about what “markets” and “financial instiutions” want. What the electorate wants is nothing more than a “false signal.”
This is precisely what we predicted would happen should the political situation in Portugal not unfold in a way that pleases Berlin and Brussels. Germany and, to a lesser extent, the IMF are now in complete control of the European political process. There’s no “democracy” left. It’s either get with the austerity program and stick with it, or face the consequences which, as we saw with Greece, could entail the closure of banks and the willful destruction of the economy.
We can however, take solace in the fact that Cavaco Silva’s attempts to appease financial markets will invariably backfire, because if there’s anything investors hate, it’s uncertainty and the move to reappoint Passos Coelho will only serve to bring about a protracted political conflict with the Left. Watch Portuguese bond yields next week for hints as to whether the President’s decision has achieved the stated goal of calming “investors” and “markets.”
We’ll close with the following quote from The Telegraph’s Ambrose Evans-Pritchard:
Mr Cavaco Silva is effectively using his office to impose a reactionary ideological agenda, in the interests of creditors and the EMU establishment, and dressing it up with remarkable Chutzpah as a defence of democracy.
The Portuguese Socialists and Communists have buried the hatchet on their bitter divisions for the first time since the Carnation Revolution and the overthrow of the Salazar dictatorship in the 1970s, yet they are being denied their parliamentary prerogative to form a majority government.
This is a dangerous demarche. The Portuguese conservatives and their media allies behave as if the Left has no legitimate right to take power, and must be held in check by any means.
These reflexes are familiar – and chilling – to anybody familiar with 20th century Iberian history, or indeed Latin America. That it is being done in the name of the euro is entirely to be expected.
Barcelona Threatens To Print Parallel Currency, Madrid Seethes
Socialist mayor to fulfill campaign promises by “printing” money.
Over the next six months, Barcelona’s left-wing city council plans to roll out a cash-less local currency that has the potential to become the largest of its kind in the world. The main goal of the project, according to a council spokesperson, is to boost economic opportunities for local businesses and traders.
The idea is for local stores and residents to be able to exchange euros for the new currency at a one-to-one parity, and use it to purchase products and services at a discount or with other kinds of incentives. But it doesn’t end there: the new parallel currency may also be used to pay certain subsidies, taxes and local services such as public transport, reports El País. Municipal workers could also receive part of their salary in the new money.
Barcelona will not be the first European city to launch such a scheme. Local currencies are all the rage these days. There could be as many as 3,000 forms of local money in use around the globe, says Community Currencies in Action, a global partnership promoting such schemes that is part-funded by the European Union’s Regional Development Fund. Which begs the question…
Why’s the EU promoting parallel local currencies around the world?
According to the official blurb, it is to support local small and medium-size enterprises (SME) as well as offer new tools for social inclusion and environmental protection. This comes from an organization that has so far shown scant regard for SMEs [read… Small Businesses Dread the Wrath of US-EU “Free Trade” Deal], social inclusion and environmental protection (read this and this).
Perhaps there are somewhat less altruistic motives behind the EU’s agenda — motives such as encouraging people to embrace cashless currencies. As I warned in The War on Cash in 10 Spine-Chilling Quotes, the war on cash has moved from one of words to actions. As such, is it pure coincidence that most of the local community currencies that have been launched so far are in purely digital format, as would Barcelona’s?
Perhaps that explains why local currencies have captured the interest and support of organizations like the Long Finance Group, whose sponsors include the City of London Corporation, and which recently echoed the Bank of England’s calls for the UK government to adopt a purely digital currency in order to save the national economy (no, seriously).
The EU could also have another hidden motive in promoting community currencies: strengthening regional identity, at the obvious expense of national identity. Strong regional identity certainly helps with uptake, which is why you often find the most successful community currencies taking root in regions with a proud traditional heritage. Europe’s biggest experiments with local currency to date include the Chiemgauer in the German state of Bavaria (total amount in circulation: €521,000), the Eusko in France’s Basque region (€370,000 euros), the WIR in Switzerland, and the Brixton Pound in South London (€150,000).
The Chiemgauer, like many local parallel currencies, has a built-in “value loss” of 8% per year – a sort of automatic inflation – to induce people to spend this money as fast as possible before it corrodes away. That’s why it’s sometimes called the “rusting money.” It’s a heck of a lot worse than the negative deposit rates at some German banks (the hated “punishment interest“). Convert this money into euros to avoid this loss? No problem, just pay a penalty fee of 5%. So users – consumers and SMEs – get screwed, but they’re submitting to it voluntarily and can’t bitch about it.
“Direct Assault on Global Trade”
The biggest inspiration for Barcelona’s community currency is an experiment launched three years ago in Bristol, a medium-sized city in the South West of England. Under the scheme, people can purchase Bristol Pounds, either in cash or digital format, at a one-to-one rate with sterling and spend it with one of roughly 800 businesses. After three years in operation, the currency is now the UK’s largest alternative to sterling.
At the time of its launch in 2012, the BBC called it a “direct assault on global trade,” a statement so loaded with hyperbole as to be risible. Since its inception only £1 million has been issued in the Bristol Pound. Not one to be outdone in the hyperbole department the UK Guardian recently ran a piece headlined (I kid you not), “The Bristol Pound Gives Sterling a Run for Its Money” – all £1 million of it.
But the Bristol Pound has survived for three years, which is a heck of a lot longer than most of these schemes. Indeed, so popular has the Bristol Pound become that a large supermarket chain, a number of high street retailers and a budget airline have asked to be included in the scheme, according tothe currency’s co-founder, Ciaran Mundy. They were turned down on the grounds that they were either not based in the area or were quoted on the stock exchange.
A Whole Different Magnitude
While the Bristol Pound experiment has been a big success on a tiny scale, Barcelona’s move toward adopting its own currency is a proposition of a whole different magnitude. With a metropolitan population of 3.2 million people, Barcelona would be far and away the largest city council in the West to trial such a scheme. The council is also proposing using the currency to pay some salaries, social benefits and public services, which could propel the amount in circulation well into the millions, if not billions of euros.
Predictably,the opposition to the scheme in Madrid is fierce. In June, the Bank of Spain’s deputy governor Fernando Restoy delivered a shot across the bow by warning that the scheme proposed by Barcelona’s activist mayor, Ada Colau, was “impossible” as well as “undesirable.”
To launch its own currency Barcelona City Council would have to go directly against the wishes of both national regulators and the central government. It would hardly be the first time in history that it had. Indeed, many of the leading figures of Catalonia’s pro-independence movement, including the region’s premier, Artur Mas, have already called for mass civil disobedience of Madrid. And there are few more potent acts of disobedience than the creation of one’s own currency.
Which begs the question: could Barcelona’s local city currency serve as a springboard to a region-wide parallel currency? After all, if Catalonia’s leaders are genuinely serious about breaking away from Madrid and creating a new nation-state (still a sizable”IF”), they will need to dramatically reduce Catalonia’s financial dependence on the central government’s treasury, the Bank of Spain and by extension, the European Central Bank. The only way to do that is to launch its own currency. As Greece’s Syriza party learnt the hard way, it’s no good threatening to go your own way without first having a parallel currency in place.
Granted, this is the granddaddy of all nuclear options. It is far more likely that Colau’s primary motive in launching a community currency on this scale is somewhat more mundane: i.e. increase local government spending. It’s what she pledged to do before the municipal elections. And there’s no easier way of increasing government spending than printing your own money and then using it to pay salaries, benefits and public services!
The big challenge will be getting local people and local businesses to trust the new form of money, as well as finding a local financial institution willing to back it up with euros. Without that, the currency could lose credibility. Without credibility and trust, fiat money loses value very quickly. And that’s when seemingly easy solutions give way to excruciating pain.
Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan
Once it became clear that Moscow and Tehran had jointly planned the incursion in Syria with Russia promising full air support and Iran pledging ground troops from Hezbollah, its various Shiite militias, and the IRGC, we immediately suggested that Iraq was next on the agenda after the Assad regime is restored.
For those unfamiliar with the situation on the ground, we encourage you to read “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies,” in which we outline the extent to which Tehran effectively controls both the Iraqi military and the politicians in Baghdad.
The US allows this because i) there’s really not much Washington can do about it, and ii) even if there was, it would mean first trying to root out Iranian influence on the political process and second attempting to separate the Shiite militias from the Iraqi regulars, which would only serve to weaken the country’s ability to resist Sunni extremists like ISIS. The other important thing to understand about Iran’s proxy armies in Iraq is that they are the very same militias fighting alongside the Russians in Syria (we mean “very same” in the most literal sense possible as they were called over the border by Quds commander Qassem Soleimani himself). This means they are Washington’s allies in Iraq but as soon as they cross the border into Syria, they become the targets of US-supported and supplied rebels battling at Aleppo. Obviously, that makes absolutely no sense and is emblematic of just how schizophrenic Washington’s Mid-East strategy has become. It’s also worth noting that these are the same Shiite militias who, with Tehran’s blessing, attacked US troops in Iraq after George Bush destroyed the US-Iran post-9/11 alliance by putting the country in his infamous “Axis Of Evil” (see here for more).
Here’s a picture that should give you an idea about why Iran’s proxy armies have proven particularly effective at bullying the ISIS bully, so to speak:
Meanwhile, flying missions over Iraq is the logical next step for The Kremlin in Russia’s bid to supplant the US as Mid-East superpower puppet master. One would be hard pressed to come up with a more humiliating scenario for Washington than for the US to be effectively kicked out of the country it “liberated” over a decade ago by Vladimir Putin on the excuse that try as they may (or may “not”, depending on how prone you are to conspiracy theories), the Americans are apparently not very good at fighting terror.
Just like in Syria, Russian airstrikes would be supported by Iran-backed fighters on the ground, and thanks to the IRGC’s grip over Iraqi politics, Moscow would find Baghdad very receptive to Russia’s presence in the country.
The US knows all of this of course and in an effort to get out ahead of the situation, Washington sent Gen. Joseph Dunford (chairman of the Joint Chiefs of Staff) to Iraq this week to issue what can only be described as a petulant, childish ultimatum to PM Haider al-Abadi. “It’s either us, or the Russians,” Abadi was told, although not specifically in those terms. Here’s what Dunford actually said:
“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. We can’t conduct operations if the Russians were operating in Iraq right now.“
(Iraqi PM Haider al-Abadi)
Although the PM purportedly pledged not to request Russian assistance, anyone who’s followed the story knows Dunford’s trip was far too little, far too late.
ISIS has been running amok in Iraq for more than a year and the US appears powerless to stop them. As we noted, 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. 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, Iraq has apparently had just about enough of it and indeed, one of the reasons Dunford made the trip was that last week, Abadi said he would “welcome Russian airstrikes.” Throw in the brand new intelligence sharing center in Baghdad jointly staffed by Russia, Iran, and Syria and it’s pretty clear that despite what Abadi might have told Dunford to reassure the Pentagon, the “red” coats (if you will) are indeed coming.
Sure enough, according to Turkey’s state run Anadolu Agency, Russia has now received permission from Iraq to target ISIS convoys coming from Syria.Here’s more:
The Iraqi government authorized Russia to target Daesh convoys coming from Syria, a senior Iraqi official said.
The authorization for Russia to target Daesh inside Iraq comes amid security coordination between Iraq, Russia, Iran and Syria.
Hakem al-Zamli, chief of the Iraqi parliament’s security and defense committee, told Anadolu Agency on Friday that the measure contributed to weakening Daesh by cutting off its supply routes.
That will be just the beginning. We assume the whole “convoys from Syria” language is an effort on Baghdad’s part to make it sound like this isn’t a green light for Russia to take over the skies above Iraq but one certainly wonders how Washington intends to respond given that Abadi just told Dunford Iraq wouldn’t allow this to happen.
And that’s not all.
Russia has now created yet another intelligence sharing cell in the Mid-East, this time in Jordan as Moscow and Amman are set to work together to rout ISIS. Here’sRT:
Russia and Jordan agreed to create a coordination center in Amman, which will be used by the two countries to share information on the counter-terrorism operations, Russian Foreign Minister Sergey Lavrov said.
Russia is already in touch with Iran, Iraq and Syria through a Baghdad-based center used for the same purpose.
Lavrov said Jordan would play a positive part in finding a political solution to the Syrian conflict through negotiations between Damascus and opposition forces, an outcome that Russia itself is pursuing.
“Under an agreement between His Majesty King Abdullah II and Russia’s President Vladimir Putin, the militaries of the two countries have agreed to coordinate their actions, including military aircraft missions over the Syrian territory,”Lavrov said. His Jordanian counterpart Nasser Judeh said the center would serve as an efficient communication tool for the militaries of the two nations.
As you might recall, Jordan’s King Abdullah wasn’t exactly pleased after ISIS released a video showing a Jordanian pilot being burned alive. Here’s the visual message he sent to the group after the video surfaced:
Once again, it’s important to understand that this is all made possible by the fact that the US, Saudi Arabia, Qatar, and Turkey decided to use extremist groups as their weapon of choice to destabilize Assad. That gives Moscow all the political and PR cover it needs to not only make a pure power play in Syria, but to establish closer diplomatic and political ties in Iraq and now Jordan. Thanks to the fact that the Western media has held up ISIS as the devil incarnate, The Kremlin has a foolproof cover story for what is quite clearly becoming a sweeping attempt to establish Russian influence across the region.
Finally, don’t forget that with each move Russia makes towards replacing the US as Mid-East superpower puppet master, Iran gets that much closer to supplanting Saudi Arabia as regional power broker. The Kremlin’s alliance with Jordan plays right into that dynamic as the Moscow-Tehran nexus is literally encircling Riyadh, Doha, and the UAE…
Russia’s Mid-East Takeover Continues As Afghanistan Requests Military Assistance From Moscow
Earlier this month, in what amounted to a dramatic shift in strategy, the Obama administration announcedthat the US would not be pulling all of its troops out of Afghanistan after all. Under Obama’s previous plan, Washington would withdraw most of the 9,800 troops operating in the country by the end of next year, leaving a force of just 1,000. Now, all 9,800 troops will remain for “most” of next year and 5,500 troops will remain in 2017.
The apparent change of heart comes as some “experts” remain concerned about the security situation amid recent territorial gains by the Taliban. According to the United Nations, insurgents now control more territory than at any other time since 2001 (so… “mission accomplished”?).
(Taliban presence in Afghanistan via NY Times)
Ultimately, the move is symptomatic of what tends to happen when world powers get the bright idea to intervene in Mid-East affairs. It almost always goes awry in one way or another and by the time everyone comes to their senses a decade has gone by and no one can remember what the “plan” was in the first place. The White House contends that this same dynamic will eventually plague Russia’s involvement in Syria and while that’s certainly possible, it’s worth noting that using Hezbollah and Shiite militias to fight the ground war decreases the odds of Moscow getting mired in asymmetric warfare with an enemy they don’t fully understand.
As we said when Obama announced that nearly 10,000 US troops would not in fact be coming home from Afghanistan, the timing of the strategy shift seems terribly convenient. That is, one certainly wonders if the move to keep a US troop presence in the Mid-East has something to do with Russia and Iran’s stepped up role in Syria. Furthermore, it seems entirely possible that Washington is anticipating a Russian push into Iraq and so the Pentagon wants to ensure that at the very least, there are American troops in close proximity.
To be sure, this entire story is riddled with irony and all sides have exhibited a penchant for Einsteinian insantiy.
Recall that the Russians also got bogged down in Afghanistan in the Soviet-Afghan war during which Washington backed the fighters who would eventually become al-Qaeda. Now, Washington’s regional allies are providing support to al-Qaeda in Syria (via al-Nusra), and the Sunni extremists fighting for control of the country have declared a jihad against Moscow. So essentially, this is just a rerun of what happened in the 80s, only this time it’s going on in Syria.
Meanwhile, the US is still hanging around in the very same Afghanistan where the Russians fought in the 80s and the whole reason Washington is there in the first place is because the very same al-Qaeda who America supported in the Soviet-Afghan war ended up flying 747s into American buildings a decade later. And because the US never, ever learns anything when it comes to foreign policy, the Pentagon and CIA are now indirectly supporting al-Qaeda in Syria.
For better or worse, The Kremlin has apparently decided to try its hand at cleaning this mess up once and for all, and as we noted in “Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan,” Moscow looks set to effectively underwrite the expansion of Iranian regional influence on the way to establishing a presence in Syria, Iraq, and even Sunni Jordan.
That marks a disastrous turn of events for Washington who’s now been effectively kicked out of the playground that the US has sought to control for decades.
Now, in what might fairly be described as the final insult in a list that recently includes Iraq greenlighting Russian airstrikes just days after PM Haider al-Abadi promised Gen. Joseph Dunford that Baghdad wouldn’t request direct military intervention from Moscow, Afghanistan has asked for assistance from The Kremlin. Here’s WSJ with more:
Afghanistan, battered by worsening security, is reaching out to an old ally and patron—Russia—just as the Kremlin is seeking to reassert its position as a heavyweight on the world stage.
President Ashraf Ghani has asked Moscow for artillery, small arms and Mi-35 helicopter gunships for his country’s struggling military, Afghan and Russian officials say, after the U.S. and its allies pulled most of their troops from Afghanistan and reduced financial aid.
The outreach has created another opening for the Kremlin, stepping up the potential for confrontation with Washington. East-West relations are already strained over such issues as Ukraine and Middle Eastern policy.
“Russia is seizing the opportunity,” a U.S. official said.
The Kremlin’s muscular new foreign policy has raised hopes among Afghan politicians that Russia will come back to their country as a friendlier ally in the wake of the Western drawdown, which has seen the U.S. troop level drop to about 10,000 this year, from a peak of about 100,000 in 2010-11.
The last Red Army troops withdrew from Afghanistan in 1989. That war was a national trauma on both sides, ending in defeat for Moscow and the eventual collapse of Afghanistan’s communist government.
Because of that history, direct intervention in Afghanistan would be a very hard sell for the Russian public.
Alexander Mantytskiy, Russia’s ambassador to Afghanistan, said his government is considering the Afghan requests for military assistance, which he said have increased this year following the withdrawal of most U.S. and allied North Atlantic Treaty Organization forces.
“We will provide some assistance, but it doesn’t mean that any soldier from the Russian Federation will be here on Afghan soil,” he said. “Why should we carry the burden of a problem that was not solved by the Americans and NATO countries?”
Well, that’s a good question, but one could also ask it vis-a-vis Syria, and the answer (for Putin anyway), seems to be this: “because by acting decisively to accomplish what the US and NATO apparently cannot, Russia gets to project its military prowess to the rest of the world and The Kremlin gets to supplant The White House as Mid-East superpower puppet master at a time when relations between Moscow and the West are the worst since the Cold War.” Back to WSJ:
Abdul Rashid Dostum, Afghanistan’s first vice president, has been at the forefront of efforts to reach out to Russia directly.
An ethnic Uzbek who rose to prominence as a military commander in Afghanistan’s pro-Soviet government, Mr. Dostum met with Russian Defense Minister Sergei Shoigu and other defense officials in Moscow this month to discuss possible assistance.
“Gen. Dostum wanted Russia to pay attention to the situation in Afghanistan,” said his spokesman, Sultan Faizy, who described Russia’s response to the request as positive.
So here again we see that US influence is waning in the face of what it is either an abject strategic failure or else a lackluster effort on the part of the Pentagon when it comes to battling extremism (of coursedropping bombs on hospitals doesn’t do much to help relations either).
Countries in the region are now taking a hard look at what’s taking place in Syria and asking whether it might not be better to just have the Russians step in rather than spend another ten years wondering what exactly the US is doing and whether ulterior motives are leading the Pentagon to adopt strategies that aren’t necessarily in the best interests of the host country.
The obvious question now, is whether Russia will be content to supply the Afghan government with weapons or whether the next step after Iraq is a move to eradicate insurgents in Afghanistan. Don’t forget, Iran despises the Taliban and not only did Soleimaini help the US locate insurgent targets in Afghanistan after 9/11, the General actually spent years fighting the group personally in the 90s.
Needless to say, if the Russians and Iranians end up in Afghanistan, the stakes will be even higher than they are in Syria because unlike Syria, there’s a sizeable contingent of US ground troops operating at Kandahar and elsewhere.
We’ll close with the following rather ominous quote from Ramzan Kadyrov, the pro-Kremlin leader of Russia’s Chechen Republic:
“Kabul needs the support of Russia, just like Syria.”
Einsteinian Insanity: US, Saudi Arabia Pledge To Provide More Guns, Ammo To Syrian Proxy Armies
You have to hand it to Washington. When it comes to foreign policy blunders, the US certainly isn’t afraid to double and triple down.
As a leaked diplomatic cable from 2006 definitively shows, the US has actively sought to stoke sectarian violence in Syria for at least the last ten years and part of that effort has involved coordinating with Saudi Arabia, Qatar, and Turkey to support Sunni extremists.
That support led directly to what has to be considered the most absurd foreign policy outcome in the history of modern statecraft and we never tire of calling it out: Washington, Ankara, Riyadh, and Doha trained and equipped a group of fighters, told them to go and destabilize the Assad regime, and somewhere along the way, that group of fighters went rogue and metamorphosed into a insane band of black flag-waving, sword-wielding, white Nike-wearing, desert bandits hell bent on establishing a medieval caliphate.
Whether or not ISIS is still getting support now that they have gone completely native we’ll never know for sure, but what we do know is that despite the sheer ridiculousness of that “train and equip” exercise, the US and its regional allies went on to arm and fund still more Sunni extremists hoping against hope that they might manage to find the rebel Goldilocks zone and finally back a group that is all at once effective at fighting to overthrow the regime and not prone to going absolutely nuts in the process.
And if the original efforts to arm and train Syrian “freedom fighters” ended in tears of sorrow, more recent efforts have ended in tears of laughter. The Pentagon’s latest foray into building a Syrian proxy army began back in May with a completely ridiculous press release thatattempted to explain the rebel “vetting” process. By the time summer rolled around, the US had only managed to field around 60 fighters. In July they were ambushed by al-Qaeda who kidnapped the group’s commander and deputy. By September, US Central Command Gen. Lloyd Austin admitted to Congress that only “four or five” fighters were still active on the ground. The rest had either been killed, captured, had defected to ISIS, or were lost in the desert.
Now that Russia is in the process of obliterating anything that even looks like a rebel and now that Hezbollah, the IRGC, and Tehran’s various Shiite militias are busy marching over anything that even looks like a Sunni extremist, Washington has resorted to resupplying America’s proxy armies. That is absurd for two reasons, i) it amounts to the US giving weapons to soldiers who are trying to kill the Russians and the Iranians, meaning Washington is literally waging a war against Moscow and Tehran with one degree of separation, and ii) the US is giving the Free Syrian Army anti-tank weapons to use against the very same Shiite militias who Washington supports in Iraq (i.e. they’re “allies” in Iraq, and enemies in Syria).
The effort to rearm the rebels is now more urgent than ever thanks to the fact that Russia and Iran are advancing on Aleppo. If Aleppo falls to the regime, it’s game over. Assad will effectively be restored and Putin and Soleimaini will turn their eyes west to ISIS and then, once Raqqa falls, they’ll march and fly right on into Iraq. Amusingly, Moscow even offered to provide air cover for the Free Syrian Army if the US would be so kind as to point Russia to the group’s “patriots” who are defending the country against extremists. The FSA declined to accept help from The Kremlin.
Make no mistake, Washington and Riyadh understand all of the above.
Well, maybe not all of it.
They clearly haven’t learned much from the myriad failures that have accompanied the whole “train and equip Sunni extremists” strategy because now, the US and Saudi Arabia are set to step up support for the rebels fighting Russia and Iran in an astonishing (if characteristic) display of Einsteinian insanity. As always, the excuse is “fighting ISIS.” Here’s WSJ:
Secretary of State John Kerry and Saudi King Salman agreed to increase support for Syrian forces fighting Islamic State militants while backing international diplomatic efforts to begin a political transition in Damascus, U.S. and Saudi officials said.
The U.S. diplomat and Saudi monarch also coordinated on their countries’ joint efforts to fight the Islamic State terrorist organization that has gained control over large sections of Syrian and Iraqi territory in recent months.
“The secretary thanked the king for Saudi Arabia’s support to multilateral efforts to pursue a political transition in Syria…and reaffirmed our mutual goal of achieving a unified, pluralistic and stable country for all Syrians,” State Department spokesman John Kirby said after Mr. Kerry’s meeting on Saturday night with the Saudi monarch.
Note the hypocrisy there. In fact, allow us to spell it out. Compare and contrast:
- Secretary of State John Kerry and Saudi King Salman agreed to increase support for Syrian forces.
- “The secretary thanked the king for Saudi Arabia’ssupport to multilateral efforts to pursue a political transition.”
So on the one hand, Kerry and Salman are paradropping more guns and ammo into Syria, and on the other, they’re patting themselves on the back for pursuing “a political transition.”
In any event, back to WSJ:
The U.S. and Saudi Arabia provide arms and training to rebel armies fighting in Syria.Washington, though, has refrained from backing insurgents who are directly fighting President Bashar al-Assad’s regime.
That’s an interesting assessment, because we could swear that the Free Syrian Army has been the target of Russian (i.e. pro-regime) airstrikes, and we could also swear that the US provided them with more weapons just last week.
The American media can’t even keep Washington’s lies straight anymore.
Here’s a bit more from Reuters:
The United States and Saudi Arabia agreed to increase support to Syria’s moderate opposition while seeking a political resolution of the four-year conflict, the U.S. State Department said after Secretary of State John Kerry met King Salman on Saturday.
Kerry was in Riyadh for meetings with the Saudi monarch, crown prince, deputy crown prince and foreign minister – the last stop in a trip that also included Vienna, where he met counterparts from Saudi Arabia, Turkey and Russia.
“They pledged to continue and intensify support to the moderate Syrian opposition while the political track is being pursued,” the State Department statement said after Kerry’s meetings in Saudi Arabia. It did not spell out what kind of support would be offered.
Rebels have appealed for more military support from foreign backers, including Saudi Arabia, to confront major Syrian army offensives. Those offensives are backed by Lebanese Hezbollah and Iranian fighters and Russian air strikes.
The United States and Saudi Arabia, together with other states opposed to Assad, already provides some military support to Syrian rebels. That includes training by the Central Intelligence Agency and anti-tank missiles.
So, coming full circle, Washington is once again doubling down on a strategy that has not only been a demonstrable failure, but has i) served to propel the rise of brutal terrorist organizations, ii) fomented discord on the way to sparking a civil war that’s cost hundreds of thousands of lives and left millions displaced, and iii) now threatens to ignite a world war, as the US and its regional allies are effectively encouraging the rebels to kill Iranian soldiers battling under cover of Russian air support.
Need we say more?
Ukraine PM says won’t repay Russian debt if no restructuring deal – paper
Ukraine will not pay off its debt to Russia if Moscow does not agree to join in a restructuring deal involving other creditors, Ukrainian Prime Minister Arseny Yatseniuk told German business daily Handelsblatt.
“We cannot treat Russia differently from other international creditors,” Yatseniuk told the paper, adding if Russia does not agree to the terms offered by Kiev, “then we will impose a debt moratorium and not service the credit.” (Harvey: good luck to them)
Ukraine has agreed a debt exchange with creditors to plug a $15 billion funding gap under an International Monetary Fund-led $40 billion bailout program.
But Russia, which holds a $3 billion Eurobond included in the 14 sovereign and sovereign-guaranteed bonds earmarked for restructuring, has repeatedly said it will not participate in the process.
It argues the debt has the status of an official loan as opposed to a commercial one.
Moscow bought the bond from Kiev in Dec. 2013 as part of a plan to rescue the then pro-Russian president Viktor Yanukovich in the face of street opposition to his rule. He fled two months later as protests widened, opening a rift between Moscow and the new pro-European leaders who followed.
The debt relief deal plays a key part in Ukraine’s plans to shore up its war-torn economy which has been brought close to bankruptcy by the separatist conflict in its eastern provinces after years of corruption and economic mismanagement.
Euro/USA 1.1029 up .0013
USA/JAPAN YEN 120.97 down .477
GBP/USA 1.5343 up .0034
USA/CAN 1.3133 down .0030
Early this Monday morning in Europe, the Euro rose slightly by 13 basis points, trading now well below the 1.11 level rising to 1.1029; 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 unsuccessful ramping of the USA/yen cross above the 120 yen/dollar mark causing European bourses to fall. Last night the Chinese yuan rose in value (onshore). The USA/CNY rate at closing last night: 6.3538 down .0085 (yuan down)
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 48 basis points and trading now just above the all important 120 level to 120.97 yen to the dollar.
The pound was up this morning by 34 basis points as it now trades just below the 1.54 level at 1.5343.
The Canadian dollar is now trading up 30 basis points to 1.3133 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 Monday morning: closed up 121.82 or 0.65%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red/
Gold very early morning trading: $1166.90
Early Monday morning USA 10 year bond yield: 2.07% !!! down 1 in basis points from Friday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.88 down 2 in basis points.
USA dollar index early Monday morning: 96.82 cents down 26 cents from Friday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Monday morning
WTI Crude Contango Collapsed To 5-Month Lows Amid Growing “Over-Supply” Concerns
At $44.21 (fro the Dec contract), WTI is trading at its lowest level since August 28th (in the middle of the month-end massacre).
The WTI-Brent spread is at its widest in over 2 weeks “stressing the need for U.S. output to drop to get rid of the oversupply,” warns Commerzbank commodity strategist Carsten Fritsch. Even more worrisome (for future hope), is the plunge in prompt contango (1st month – 2nd month) which has collapsed to 5-month lows.
This does not suggest good news on the horizon, as Fritsch warns, “unless we get news on U.S. production we should remain at these levels.”
Distillate storage space is “too full for comfort” according to Goldman Sachs
(courtesy Goldman Sachs/zero hedge)
Operational & Financial Stress Unavoidable For Energy Names, Goldman Warns Distillate Storage “Too Full For Comfort”
Distillate storage utilization in the US and Europe is nearing historically high levels, following near record refinery utilization, only modest demand growth (especially relative to gasoline), and increased imports from the East on refinery expansion and Chinese exports. As Goldman warns, this raises the spectre of 1998/2009 when distillate storage hit capacity, pushing runs and crude oil prices sharply lower. This also raises the question of whether today’s oil market can rebalance through financial stress – prices remaining near their current low level through 2016 – or if operational stress– breaching storage capacity and forcing prices below cash costs – is unavoidable.
As Goldman details, the build in Atlantic distillate inventories this year has been large, following near-record refinery utilization in both the US and Europe, only modest demand growth, especially relative to gasoline, and increased imports from the East on refinery expansion and rising Chinese exports.
As a result, and despite a cold winter in both Europe and the US last year, European and US distillate storage utilization is reaching historically elevated levels, driving a sharp weakening in heating oil and gasoil time spreads.
Such high distillate storage utilization has two precedents, leading in both cases to storage capacity running out in the springs of 1998 and 2009, pushing runs and crude oil prices and timespreads sharply lower. This raises the question of whether today’s oil market oversupply can rebalance simply through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity constraints and forcing prices below cash costs like in 1998 and 2009 – is ineluctable. While our distillate balances suggest that stocks will fall short of capacity, the margins of error are small and the risks highs, leaving risks to current crude oil prices and timespreads as skewed to the downside through next spring.
Tank tops not our base case, but too close for comfort
Our EU and US distillate balances do not currently lead us to expect reaching storage capacity at current 4Q15-1Q16 forward margins. The storage buffers are limited, however, at 200 kb/d in the US and 160 kb/d in Europe.
This is too close for comfort as it would take 50 fewer HDDs than normal in Europe to fill that storage – a probability of 15% to 30% each winter month. We also see risks to our forecast for European imports from the East as skewed to the upside, given strong Chinese gasoil exports, lackluster Asian diesel demand, and the potential for sustained exports from new distillate geared refineries in the Middle East. The US outlook is more sensitive to industrial activity which has disappointed lately.This holds for Canada and Russia as well – where recessions could support exports to the US – and Latin America, the key market for US exports.
Financial rather than operational stress to rebalance market
As we forecast additional distillate builds into year-end, we expect heating oil and gasoil timespreads to remain weak, currently nearly incentivizing floating storage.
A modestly larger distillate surplus than we forecast would need to push margins lower with run cuts spilling over into weaker crude timespreads and prices. For example, should EU storage capacity be reached, EU distillate production would need to be cut by 160 kb/d, requiring margins to drop by $3/bbl for runs to decline by 550 kb/d. As a result, while we reiterate our forecast that financial stress remains the likely forcing mechanism to rebalance the global oil market, with prices near current low levels required through 2016, the risks of having to balance the market through operational stress instead are non negligible.
USA/Chinese Yuan: 6.3515 up .0027 (Chinese yuan down)
New York equity performances for today:
Traders Confused By Lack Of Central Planner Direction: Pump Bonds & VIX, Dump Oil & Gas
Overheard inside The Eccles Building today…
Stocks were the least exciting asset class of the day…A narrow overnight range tested down to the pre-China rate cut spike and bounced…
S&P 500 Futures spent the glued to VWAP…
From Friday’s close, Nasdaq managed to cling to a tiny green close (even as AAPL plunged). Small Caps were weakest…
AAPL was oddly ugly, giving back a lot of last week’s late surge...worst day in almost 2 months and notably breaking back below its 100-day moving-average
VIX and Stocks have notably decoupled since the central bank revelations…
With VXX closing it its highs today…
Treasuries and Stocks remain decoupled from last week’s manic central bank elevations…
Treasuries were well bid today (2Y flat but longer-end down 3-4bps)…
As the Yield Curve fell to its 50DMA…
The US Dollar slipped notably against The Majors with a plunge in Swissy offset by strength in EUR and AUD…
And The Dollar slipped modestly lower against Asian FX…
Commodities were generally quiet driftinmg lower of overnight gains…
But Crude was ugly, testing back to 2 month lows…
Breaking out of its channel…
Oil & Oil Vol recoupling quickly…
However, today’s crash chart is NatGas which was hammered to over 3 year lows amid surging inventories and warmer weather expectations…
USA economic data has never been this weak for so long. QE as be have told you on several occasions never works. It only benefits the bankers.
(courtesy zero hedge)
US Economic Data Has Never Been This Weak For This Long
Despite the ongoing propaganda reinforcing America’s “cleanest sheets in a brothel” economic growth, the fact is, there is a reason why The Fed folded, why Draghi doubled-down, why China cut, and why Kuroda will likely unleash moar QQE this week. It appears the ‘trap’ that central planners have set for themselves – by enabling massive financial asset inflation in the face of what is now the longest streak of economic weakness and data disappointment on record – now looks set to prove their impotence and/or Enisteinian insanity.
As Ice Farm Capital notes,
a year ago were looking at 5yr inflation breakevens around 1.5%. They have since deteriorated to 1.15% (by way of 1%) andthis week we are expecting a Q3 GDP print more like 1.5% — a deceleration of a full 240bps.
Corporate profit margins have taken a sharp hit and corporate profits for the S&P are now down 3% yoy despite continued share buybacks.
Through this entire period, markets have continually expected happy days to be just around the corner.
As a result, we have seen economic surprises for the US negative for the longest stretch in the history of the data series:
2015 has been weak from the start
To make it a little clearer, this period of economic weakness and disappointment is not just the longest on record, but it is entirely unprecedented…
Hike rates into that!! (Is it any wonder, the market’s odds of a Dec rate hike remain at 34%, despite all the talk from The Sell-Side and The Fed that it is a live meeting)
Charts: Bloomberg and Ice Farm Capital
As More Facts Emerge, Valeant Stock Plummets Again Ahead Of “Defense” Conference Call
If Valeant had hoped today’s previously announced 8:00 am conference call, which is supposed to explain its relationship with Philidor and its network of pharmacies in general or, as the company put it, “to lay out the facts including allegations made against our company regarding our relationship with Philidor and R&O, our accounting practices, and channel stuffing that contain numerous errors, unsupported speculation and incorrect interpretations of facts and circumstances”, would come and go and the price of VRX stock would promptly surge right back to $200, it was due for a very rude awakening when not one but two pieces came out once again slamming the company’s business practices, and leading to even more questions about potential fraud at the increasingly more Tyco-esque roll-up.
But while the topic of Philidor ownership, one which Valeant has not addressed directly yet and which is at the heart of the issue of potential criminal impropriety, will clearly be a sticking point in today’s call, a just as relevant topic is how much of Valeant’s “organic” revenue is a result of Valeant’s “ghost” pharmacy network.
Last night, the Southern Investigative Reporting Foundation (or SIRF), whose previous reporting served as the basis for Citron’s latest research report, released a follow up piece in which it calculated just how relevant to Valeant’s top (and bottom) line is the Philidor specialty Pharma channel. In a word: very. From SIRF:
In the second quarter, Valeant’s 8-K reported “organic” sales growth of 19%, with revenue growing $691 million, to $2.73 billion from $2.04 billion. Of this $691 million, however, at least $392 million was attributable to acquisitions, with the $299 million balance organic revenue.
The Kaufman declaration’s release of the Philidor/Valeant invoices to R&O imply a prospective quarterly sales run-rate of about $55 million (an average $4.6 million weekly shipment multiplied by 12 weeks.) This would have accounted for 18.5% of Valeant’s total organic growth in the second quarter. From there, it’s a sure bet that given the prominence of West Wilshire to Philidor’s billing unit, its sales volume would easily surpass R&O.
Notionally, organic growth equal to 40% or more of that $299 million could have come from two pharmacies that even the most gimlet-eyed Valeant sleuth didn’t suspect existed.
It also becomes much easier to understand why Valeant’s management didn’t immediately sever the relationship with Philidor.
And then there was an article released overnight by the WSJ, which looks at the already shady cross-relationships not only at the corporate level, but at the individual level as well:
Around the Phoenix-area offices of mail-order pharmacy Philidor Rx Services LLC, employees said they often ran into a friendly colleague named Bijal Patel who tracked prescriptions. But when the employees got an email from the colleague, they say he used a different name: Peter Parker, the alter ego of Spider-Man. As late as Sunday afternoon, the LinkedIn page for a man named Bijal Patel identified him as manager of access solutions at Valeant in Scottsdale, Ariz. Mr. Patel didn’t respond to requests for comment.
The Valeant employees were placed at Philidor while the pharmacy was in its infancy, to provide help on “structures and processes,” said a Philidor spokeswoman. She said in a statement that the Valeant employees set up separate Philidor email accounts, under “clearly distinguishable names,” to keep “their internal Philidor communications separate from the Valeant communications, primarily to reduce the risk of incorrectly sharing either company’s proprietary information.”
The use of alternative names by workers at Philidor is one of a number of new details emerging about the relationship between Valeant and the network of specialty pharmacies it uses to distribute drugs. The relationship is at the center of questions that investors have raised about the strength of the drug company’s operations and the disclosures of its business ties.
There is much more in this ongoing story, but the general theme of Valeant desperately trying to cover up its relationship with a specialty pharma network, one which should have been an independent prescriber of medications but clearly had at least some conflict of interests, will virtually assure regulatory scrutiny and government oversight. However, this is par for the course for any aggressive acquisition roll-up, which since the days of Tyco hopes (and usually gets away with) confusing its analyst coverage as to what is taking place in the organic business, thanks to the constant smoke and mirrors of its aggressive acquisition strategy, further assisted by its soaring stock price as the company’s growth becomes its own self-sustaining Ponzi scheme… until something like this happens and pops the bubble.
One thing is certain: VRX will not be using its overvalued stock price as M&A currency for a long time, and with its debt already trading at 50% probability of default levels, the next step for Valeant, if any, will be liquidating assets.
Finally, this appears to be dawning on management too, which after days of denying everything, in a shocking development announced this morning that it would establish an “ad hoc committee of the board to review allegations related to the company’s business relationship with Philidor and related matters.” Which, for all intents and purposes, if either admittion of guilt, or admission that the company was unaware of everything happening under its roof, both just as bad. From the release:
Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) announced today that its Audit and Risk Committee and the full Board of Directors have reviewed the company’s accounting for its Philidor arrangement and have confirmed the appropriateness of the company’s related revenue recognition and accounting treatment.
Based on its review conducted to date, Valeant also believes that the company is in compliance with applicable law. In light of the recent allegations made regarding Philidor, however, the Board of Directors has decided to establish an ad hoc committee of the board to review allegations related to the company’s business relationship with Philidor and related matters. The committee will be chaired by Robert Ingram, the company’s lead outside director. Other members will include Norma Provencio, chairman of the audit and risk committee; Colleen Goggins; and Mason Morfit, who has been appointed to the Board as an independent director.
“As we have said previously, our accounting with respect to the Company’s Philidor arrangements is fully compliant with the law,” J. Michael Pearson, Chairman of the Board and Chief Executive Officer of Valeant said. “However, other issues have been raised publicly about Philidor’s business practices, and it is appropriate that they be fully reviewed. This decision to create an ad hoc committee of the board, which I fully support, will help free management to focus on continuing to serve doctors and patients and run our business.”
“We operate our business based on the highest standard of ethics, and we are committed to transparency. These values are at the core of our business model, and if we find violations we will take appropriate action,” Pearson said.
“The board has complete confidence in Mike Pearson’s performance as CEO and has fully supported the company’s specialty pharmacy strategy. Mike operates with the highest degree of ethics, and we believe it is important that he and the management team be allowed to focus their efforts on continuing to serve patients and doctors and create long term value for our thousands of individual and institutional shareholders,” Ingram said.
And with that, all eyes, or rather ears, turn to Valeant’s conference call this morning at 8:00 am which can be accessed as follows:
- Dial-in number (877) 876-8393, confirmation code 67537440.
- International dial in number (973) 200-3961, confirmation code 67537440.
Good luck, Valeant – judging by Valeant’s stock price which is now down 14$ and back under $100, you will need it.
Below is the full 90 page slidedeck (golf clap Bill) Valeant just released ahead of its conference call
“Smaller Suppliers Will Go Out Of Business”: Hail Mary Time For Wal-Mart, As Vendors Pushed To Brink
Just last week, we revisited the Wal-Mart vs. vendors saga, noting that in the wake of the retail behemoth’s rather dramatic guidance cut, suppliers finally woke up to what’s going on.
“Now we know why they have been pushing so hard,”one executive at a major consumer goods supplier told Reuters.
The reference there is to Wal-Mart’s move to squeeze the supply chain for every last penny of savings following the company’s (possibly misguided) decision to implement an across-the-board wage hike for its lowest-paid employees. Paying those who used to make $9/hour $10/hour going forward is set to cost Wal-Mart some $1.5 billion and as we’ve said too many times to count, the commitment to “everyday low prices” means passing rising labor costs on to customers simply isn’t a viable option. But someone has to pay the bill, and that means either i) hours will need to be cut and employees higher up in the food chain will need to be fired, ii) suppliers will have to absorb the cost, or iii) both.
The assault on the supply chain began with a push to force vendors to plow dollars they would have spent on marketing into savings. Next, Wal-Mart moved to implement new storage fees and finally, the retailer implored its suppliers to make sure and pass along any savings from yuan devaluation.
At a certain level, this is just econ 101. Massive, sweeping wage hikes don’t occur in a vacuum and as we put it when we first reported that cuts were likely in Bentonville, “one thing that should have been abundantly clear from the start is that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it’s Wal-Mart.”
Still, some of this seems to have caught the market and the media off guard, which is fine with us because we now get to watch everyone play catch-up which means more coverage, more quotes from suppliers, and more evidence that Wal-Mart may have signed its own death certificate with the wage hike. Here’sWSJ with the latest:
At the U.S. chief’s direction, the retail behemoth has already removed about 15% of store displays over the past year, and the average Wal-Mart supercenter—home to around 120,000 products—has about 2,500 fewer items than a year ago.
Some of the changes have put Wal-Mart at loggerheads with vendors who worry they will result in tens of millions of dollars in lost sales. But fixing U.S. stores is becoming ever more crucial. Earlier this month, Wal-Mart Stores Inc. surprised investors by predicting that profits would drop as much as 12% next year as it spends heavily to raise wages, boost online sales and overhaul inventory systems. In the wake of the announcement, the retailer’s stock fell 10% in a single day and is on pace for its worst year since 1973.
Through fiscal 2017, Wal-Mart will spend $2.7 billion to boost pay for store employees and another $2 billion on e-commerce investments as it attempts to shift from a slow-growing behemoth losing market share to Amazon.comInc. and others into an online powerhouse.
Vendors hope Wal-Mart’s big investment in stores and online sales can make the company stronger in the long term. But news of next year’s lower profits sent shudders through the supplier community, where there are concerns that there will be “increased pressure on suppliers to fund their problems,” said one Arkansas-based executive at a large consumer-goods company.
Such fears aren’t without basis. In June, for instance, Wal-Mart asked vendors to pay a fee for passing products through Wal-Mart’s warehouses and accept longer payment windows.
Several large suppliers have told Wal-Mart flat-out that they can’t agree to the terms—saying the new contracts will increase the cost of doing business and force them to raise prices, according to email correspondence between suppliers and Wal-Mart viewed by The Wall Street Journal.
“All of the changes we are asking suppliers to make are to be true to our business model and everyday low prices,” says Deisha Barnett, a spokeswoman for Wal-Mart. “Change isn’t always easy.”
A big part of the retread, set by Mr. Foran and Mr. McMillon, involves culling inventory from backrooms, and dropping some products altogether. In a key move that will change the look of the chain’s stores, Mr. Foran is more than doubling the width of aisles—to 10 feet from 4 feet, making it more navigable for multiple carts.
According to suppliers and consultants, Wal-Mart has aggressively pruned the stores’ promotional-sales space—the bins, cardboard pallets and stands that sit alongside regular shelves and have long been believed to compel impulse purchases like cookies, soda or a new beauty product. Remaining bins are becoming lower, smaller and more uniform, say Wal-Mart executives.
“It’s a lot of pressure on my business because a lot of inventory has come off the floor,” says an executive at a large food company. To make up for lost sales from promotional areas, the company is trying to stock more profitable package types and foods selling well in the refrigerated section of the store, says this executive.
Wal-Mart is experimenting with lowering shelves near checkout areas by about one foot to make it easier for shoppers to see around the store. The seemingly subtle change, if rolled out across Wal-Mart’s 4,600 U.S. locations, would wipe out hundreds of millions of dollars in annual sales of gum, candy and magazines, say people familiar with Wal-Mart’s sales models.
The store changes may be particularly hard to absorb for companies that sell in a single area of the store. Popcorn Indiana, a privately held company, counts on display space for at least 50% of its Wal-Mart sales, say people familiar with the matter.
Over the last year the company has become more dependent on shoppers walking down the regular snack aisle to find its red, tractor adorned bags. The company’s sales will likely fall 15% to $96 million this year, after growing each year since 2009, according to an estimate from Euromonitor International.
Behind the scenes, Wal-Mart is also aggressively pressuring suppliers to spend more money to earn a spot on shelves. In June the retailer started mailing out around 10,000 contract renegotiation letters to suppliers asking many to pay additional fees to store their products in warehouses, as well as give the retailer more time to pay for the goods, according to letters reviewed by the Journal.
“Smaller suppliers will tell me if they push this out we will go out of business. We can’t afford to give them these allowances” and sell at low prices, says Boyd Evert, a former consultant to Wal-Mart who now owns Harvest Revenue Group, a firm that represents many suppliers in negotiations with Wal-Mart.
So essentially, Wal-Mart is set to push some of its vendors over the edge with the relentless pursuit of savings. Who could have seen this coming, you ask? Here’s what we said in February:
The irony is that while WMT (or MCD or GAP or Target) boosts the living standards of its employees by the smallest of fractions, it cripples the cost and wage structure of the entire ecosystem of vendors that feed into it, and what takes place is a veritable avalanche effect where a few cent increase for the lowest paid megacorp employees results in a tidal wave of layoffs for said megacorp’s vendors.
Now that each of WalMart’s suppliers is forced by WMT management to cut their costs and to be “price competitive”, they will either reduce wages of its own workers or, comparably, force their own suppliers to reduce pricing, and so on, until ultimatly the entire economy is gripped in wage deflation.
And while that dynamic is almost certainly playing out across the supply chain, we might have been too optimistic. That is, besides putting pressure on vendors to layoff employees or otherwise cut costs, Wal-Mart is actually in the process of driving some of its suppliers out of business altogether.
Make no mistake, Wal-Mart may be teetering on the precipice of a terminal decline. As CEO Doug McMillon put it earlier this month, “this is an important time in our history—requiring all of us to think critically about our business.”
And while it’s far too early to write the obituary, we would note that when we peered into our crystal ball, we saw this…
New home sales crash the most since 2013 as the median price of a home soars causing many homes to be out of reach of many potential buyers.
(courtesy zero hedge)
Housing Recovery Horror: New Home Sales Crash Most Since 2013 As Median Price Soars
Homebuilders were exuberant, The Fed was confident, and stock markets have recovered… so why didNew Home Sales collapse 11.5% in September (missing a 0.6% drop expectation by a proverbial mile)? This is the largest MoM drop since July 2013. Worst still, the excitement of July and August data has been notably revised lower to press the current New Home Sales SAAR to 468k – its lowest since November 2014. At the same time, median home prices surged to $296,900 – the highest in 2015.Time to hike rates?
Biggest MoM drop since July 2013… (and weakest YoY growth +2.0% since Nov 2014)
It seems Homebuilders really don’t know anything after all…
One possible culprit: the raging housing bubble, as the median new home sales price rises to the highest in 2015 and just why of its all time high at $296,900.
Dragging the SAAR to its lowest since Nov 2014…
Who could have seen that coming? Home Sales collapse as the ongoing bubble push to drive asset prices higher crushes affordability.
The stock market remains a real insult to human intelligence. – John Embry
I’m right about the housing market and I’m right about Amazon.com. The only factor I can’t control is the amount of fraud and corruption that is being engineered by Wall Street in conjunction with the Government in order to try and make it look like the reality that analysts like me report is wrong.
August new home sales were reported originally at a 552k annualized rate. The “annualized rate” format is important to understand because it magnifies any estimation and “adjustment” (i.e. manipulative) errors by a factor of twelve (12x). Here is the original Wall St. Journal headline announcing the “good” news from August: “U.S. New-Home Sales Up 5.7% in August – Single-family home sales rise to new post recession high.” Don’t forget, the market trades off of this headline.
This morning the Census Bureau reported that September’s seasonally adjusted, annualized rate of sales had plummeted to 468k, or nearly 100k from the original August report. But the CB decided that it’s original estimate for August was off by 22k, or 4%. Thus, the media is reporting an 11.5% drop in home sales from August for September. However, the September report is 15% below the original estimate for August – the number which the market originally incorporated into its trading models. The 468k missed Wall Street’s consensus estimate of 549k.
Regardless of what the propaganda laced media is reporting, the housing market is starting to drop quickly. Price does not reflect supply/demand, it reflects rampant inflation that is being manifest in insane degrees of debt-financing which enable homebuilders to raise prices because the amount someone pays who is dumb enough to buy a new home is now a function of how much monthly payment they can afford.
This is why we are now seeing this:
That sign is not the the type of promotion you would see in a market in which supply is limited and demand is strong. That is the unmistakable indicator of a homebuilder desperate to unload inventory.
The homebuilders are insanely overvalued relative to their underlying fundamentals, especially debt and inventory levels, which are higher now relative to sales than they were at the peak of the housing bubble. Furthermore, all of these homebuilders are generating highly negative cash flow from their operations because they are overbuilding inventory to an extreme degree.
I just published a new report on a homebuilder (Homebuilder Reports) that is loaded with red flags, including an ongoing audit by the IRS. The drop in this homebuilder is just getting started. In fact, it will soon have a graph that will look like this, which is another homebuilder that I recommended shorting when it was in the low $20’s about a year ago:
This is what the graphs of almost all of the homebuilders will look like, only they will not
experience the temporary price recovery you see in the graph of this stock. The price recovery 100% a function of the Fed’s interminable support of the S&P 500. With Thanksgiving around the corner, a lot of these homebuilders will soon have graphs that look like “turkey shoots.”
Another Recession Alarm After Dallas Fed Outlook Deteriorates For 10th Consecutive Month
For the 10th month in a row, Dallas Fed’s Manufacturing Outlook printed a deteriorating negative signal. At -12.7 (against expectations of a modest rise from September’s -9.5 to -6.5) it appears ex-Dallas Fed head Fisher was dead wrong as recession warnings loom large. Below the already ugly headline, the components were a disaster. While production and employment rose (somehow), New orders plunged, Prices Received continued to fall, and Average employee workweek fell for the 9thg time in the last 10 months. Perhaps worst was the drop in hope amid falling workweek and wage growth expectations.
This has never happened outside of a recession… and i snot helped by 12 months of consistent weakness in the New Order growth rates.
Wall Street Shocked As Feds Bring Criminal Case Against Goldman Banker Over Fed Leaks
Perhaps it was the public shaming of Iceland’s diametrically opposite approach to ‘dealing’ with its bankers, or perhaps Janet Yellen needs a distraction from her own ‘Fed Leak’ problems, or finally perhapsCarmen Segarra’s 2013 whistleblowing over the cozy relationship between Goldman and The New York Fedwas just too conspicuous to brush under the carpet. Despite Bill Dudley’s insistence that The New York Fed is not a subsidiary of Goldman, The NY Times reports, federal prosecutors are preparing to announce a criminal case this week against a former Goldman banker suspected of taking confidential documents from a source inside the government.
As we previously detailed, this is what happened in July 2014:
From his desk in Lower Manhattan, a banker at Goldman Sachs thumbed through confidential documents — courtesy of a source inside the United States government.
The banker came to Goldman through the so-called revolving door, the symbolic portal that connects financial regulators to Wall Street. He joined in July after spending seven years as a regulator at the Federal Reserve Bank of New York, the government’s front line in overseeing the financial industry. He received the confidential information, lawyers briefed on the matter suspect, from a former colleague who was still working at the New York Fed.
As a reminder, the NY Fed is also the world’s biggest hegde fund, as it is the place where, at Liberty 33, the Fed’s market moving operations are executed. It is also where the legendary PPT is located. Continuing:
The previously unreported leak, recounted in interviews with the lawyers briefed on the matter who spoke anonymously because the episode is not public, illustrates the blurred lines between Wall Street and the government — and the potential conflicts of interest that can result. When Goldman hired the former New York Fed regulator, who is 29, it assigned him to advise the same type of banks that he once policed. And the banker obtained confidential information, along with several publicly available facts, in the course of assignments from his bosses at Goldman, the lawyers said.
What exactly data was one current NY Fed staffer leaking to a former NY Fed staffer, currently working at Goldman?
The information provided Goldman a window into the New York Fed’s private insights, the lawyers said, including details about at least one of Goldman’s clients, a midsize bank regulated by the Fed. Although it is unclear how Goldman bankers used the information, if at all, the confidential details could have helped them advise the client.
And the biggest irony is that Bansal’s illegal abuse of confidential NY Fed data only was noticed for the first time… when Carmen Segarra’s allegations hit the public for the second time on September 26 as noted above:
At the request of his bosses, Mr. Bansal gathered information about how regulators might view various issues facing Goldman’s banking clients, the lawyers briefed on the matter said. Much of what Mr. Bansal learned, the lawyers said, was fair game.
But in an email to his supervisor, Joseph Jiampietro, Mr. Bansal shared some potentially confidential supervisory information about a Goldman banking client. Mr. Jiampietro — a managing director at Goldman who was once a senior adviser to Sheila Bair, the former F.D.I.C. head — has since told colleagues he had no idea the information was subject to regulatory restrictions.
“Mr. Jiampietro never knowingly or improperly reviewed or misused” confidential supervisory information, his lawyer, Adam Ford, said in a statement. “He should not have been terminated. Any compliance failings regarding Mr. Bansal had nothing to do with Mr. Jiampietro.”
It was not until the morning of Sept. 26 that Goldman executives objected to some of Mr. Bansal’s information, the lawyers briefed on the matter said. During a conference call with Mr. Jiampietro and two higher-ranking Goldman executives, Mr. Bansal circulated an email with a spreadsheet attached. The email apparently set off alarms within Goldman. Within hours, the bank opened an internal investigation and alerted the New York Fed.
Goldman determined that the spreadsheet contained confidential bank supervisory information. Federal and state rules classify certain records, including those generated during bank exams, as confidential. Unless the Federal Reserve provides special approval, it can be a federal crime to share them outside the Fed.
Of course, had the Segarra story not resurfaced, Bansal would still be at Goldman.
As for the leaker at the NY Fed, we know this: “Some of Mr. Bansal’s information, the lawyers said, may have come from Jason Gross, who worked at the New York Fed at the time.”
* * *
And now, a year after Carmen Segarra’s whistleblowing over The New York Fed’s regulatory capture by Goldman Sachs – amid 47.5 hours of secretly recorded tapes, a rare criminal action on Wall Street appears imminent,as The New York Times reports, against a former Goldman Sachs banker suspected of taking confidential documents from a source inside the government…
The banker and his source, who at the time of the leak was an employee at the Federal Reserve Bank of New York, one of Goldman’s regulators, might plead guilty to misdemeanor theft charges rather than fight the case at trial, according to lawyers briefed on the matter who were not authorized to discuss private deliberations. The men, who were both fired in the wake of the leak, would face up to a year in prison if they accept the plea deals.
In a statement, a Goldman spokesman emphasized that the banker worked for the firm for less than three months, and that the bank “immediately began an investigation and notified the appropriate regulators” once it detected the leak. Nonetheless, the bank is expected to pay a significant price for the leak.
Under a tentative deal with New York State’s financial regulator, the lawyers said, Goldman would pay a fine of $50 million and face new restrictions on how it handled delicate regulatory information. The settlement would also force Goldman to take the rare step of acknowledging that it failed to adequately supervise the former banker – thrusting the bank back into the spotlight just as it was shedding a popular image as a firm willing to cut corners to turn a profit.
For Goldman and the New York Fed, the charges will give new life to an embarrassing episode that illustrated the blurred lines between their institutions. Perhaps more than any other bank, Goldman swaps employees with the government, earning it the nickname “Government Sachs.”
If the plea is accepted, Goldman Sachs would face new restrictions on handling regulatory information and would acknowledge failure to supervise staff adequately…
In addition to the fine, and the admission that it failed to supervise Mr. Bansal, Goldman will accept a three-year suspension from conducting certain consulting deals with banks in New York State. The prohibition denies Goldman a special privilege — legally accessing confidential information about a banking client with permission from regulators. Goldman, though, has rarely if ever done consulting deals that require such information, one of the lawyers briefed on the matter said, so that aspect of the deal is unlikely to dent the bank’s business.
As The New York Times concludes,
In a statement, the Goldman spokesman, Michael DuVally, said that the bank had “reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust.”
Bruce Barket, a lawyer for Mr. Gross, said, “We have a meritorious legal argument that my client did not violate federal law,” and added that even if prosecutors disagreed, “it would be a relatively minor infraction by a young man who we think would be a deserving candidate of a nonprosecution agreement.”
Scott Morvillo, a lawyer for Mr. Bansal, declined to comment.
Finally, as one ponders this action in light of the 74 years in jail given to Icelandic bankers, it is rare that a Wall Street banker faces criminal charges. After the financial crisis, not one Wall Street chief executive was charged, and prosecutors have charged bankers or traders in only a handful of investigations.
* * *
As we previously noted, Bill Dudley (President of The New York Fed)’s defense (not denial) so far:
Mr. Dudley in 2013 unnerved some Wall Street executives when he said he saw “evidence of deep-seated cultural and ethical failures at many large financial institutions.”
“We understand the risks of doing our job poorly and of becoming too close to the firms we supervise. Of course, we are not perfect. We sometimes make mistakes.”
But how are we to believe in the central planners’ omnipotence if they keep ‘making mistakes’?
Here is William Dudley, formerly of Goldman Sachs and president of the New York Fed, saying “I don’t think anyone should question our motives.” It may have been an order.
19.6 Trillion Debt Ceiling: Done Deal?
Last week, when reviewing the next steps in the 2015 version of the debt ceiling “drama” we said that “that the only certain outcome from the melodramatic debt ceiling fight over the next several days, is the following: the US is about to have a brand spanking new debt ceiling, one that should last it until March of 2017: $19,600,000,000,000.”
Sure enough, with just days left until the November 3rd D-Day when the Treasury runs out of emergency cash and is forced to prioritize debt repayments over government spending, moments ago Politico reported that “congressional leaders and the White House are working toward a two-year agreement. A debt ceiling measure is on a parallel track.”
House and Senate leaders are working toward a two-year budget agreement that would boost defense and domestic spending by tens of billions of dollars, according to sources familiar with the talks.
Top House and Senate leadership aides are huddling with Obama administration officials to try to hash out a deal. There are parallel talks on a measure to lift the debt ceiling, which needs to happen by Nov. 3 to avoid a default. The debt ceiling legislation would be separate from a budget agreement, however.
As we further expected, the new House speaker, John Ryan will not even get his hands dirty and instead the “negotiator” will be outgoing majority leader John Boehner, who will work alongside Democrats, and for whom at this point it doesn’t matter if he concedes one last time: after all, he is out. As we said: “this means another victory for the Demorats who have required a “clean” debt raise. This is precisely what they will get, and why it will have to take place under John Boehner as Paul Ryan would surely tarnish his reputation with the Freedom Caucus if his first act is one seen as submission to the left.”
Politico confirms this: “Rep. Paul Ryan (R-Wis.), the presumptive House speaker, is not part of the talks. Speaker John Boehner (R-Ohio), however, has said he would like to clear the legislative decks for the next speaker. Boehner leaves Congress Thursday afternoon.”
And with the big picture deal in place, it is just a matter of time before the specifics are also agreed upon:
Democrats are pushing hard to force revisions of a 2011 budget accord. Spending bills have backed up in Congress, and government funding runs out in mid-December. Senate Democrats have bottled up spending bills, and President Barack Obama vetoed a defense authorization bill last week.
Negotiators have pegged a deal as costing about $80 billion a year for more defense and discretionary spending. That’s a difficult target to meet through spending cuts, fees and other revenue-raisers that do not constitute tax increases.
If a deal comes together, it would have to pass the House with overwhelmingly Democratic support, as conservative Republicans are unlikely to support an agreement. It would also be difficult for Senate Majority Leader Mitch McConnell to marshal a majority of GOP senators to support such an accord.
The winner, in addition to Democrats of course who will be assured smooth sailing through Hillary election in November 2016, is also Paul Ryan: “Any deal would be a boon to Ryan as he moves toward the speakership. An accord would remove the threat of a government shutdown through the 2016 election.”
And courtesy of Stone McCathy, this is what the final package deal will look like:
We’re starting to see more and more reports saying that a big budget agreement between Congressional leaders and the White House could be announced later today. According to several accounts, negotiators are putting together a package that would 1) increase the debt limit, 2) increase discretionary spending levels, 3) extend funding for highways, set to expire at the end of the month, and 4) reauthorize the Export-Import Bank.
The deal would reportedly set spending levels for two years, and therefore 1) avert a government shutdown and 2) avoid a repeat of the current stalemate right before the election. Outgoing House Speaker John Boehner would clearly like to get action on the debt limit and some of these other issues out of the way before Paul Ryan assumes the job of Speaker later this week, assuming all goes according to schedule. Boehner will need to rely heavily on Democrats to get the kind of package being described passed. It would be hard for Ryan to do the same, especially in the early days of his job as Speaker. He’s reportedly pledged to abide by the so-called “Hastert rule,” which says the House leadership doesn’t advance legislation without a the support of the majority of the majority party.
The bottom line: just as we previewed it last week, it is now just a matter of time before the U.S. debt ceiling rises from $18.1 trillion to $19.6 trillion, providing enough capacity to fund the US through March 2017.