Oct 27/Still no gold entering the comex/China angry that USA ship entered its territorial waters in the south China seas/Troika not ready to advance 2 billion euros over to Greece/4th largest private bank in Switzerland,Hottinger bank goes belly up/USA ally bombs USA ally the Kurds in Syria/USA to put more boots on the ground in Iraq/

Gold:  $1166.80 down $0.20   (comex closing time)

Silver $15.86  down 4 cents

In the access market 5:15 pm

Gold $1166.80

Silver:  $15.87


for the Comex gold and silver: OPTIONS EXPIRE tonight Oct 27.

for the LBMA contracts: OPTIONS EXPIRE ON  Friday/Oct 30

for OTC contracts:OPTIONS EXPIRE ON  Friday Oct 30.

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

At the gold comex today,  we had a very good delivery day, registering 38 notices for 3800 ounces  Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.51 tonnes for a loss of 94 tonnes over that period.

In silver, the open interest rose by 268 contracts as silver was up 8 cents.  The total silver OI now rests at 169,879 contracts In ounces, the OI is still represented by .850 billion oz or 121% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by a considerable 1,229 to reach 469,097 contracts.  We had 38 notices filed for 3800 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 268 contracts up to 169,879  as silver was up 8 cents with respect to Monday’s trading.   The total OI for gold rose by 1229 contracts to 469,097 contracts as gold was up $3.70 yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

 i) Last night, 9:30 pm MONDAY night, TUESDAY morning Shanghai time.  Japan gains, Shanghai swoons only to be rescued in the last few minutes.  Copper is down again putting pressure on Glencore et al.  Also oil.  China buys oil to fill up its SPR/USA is about to sell 58 million barrels of oil
(zero hedge)
ii China angry that the USA entered its territorial water.  Calls in USA ambassador
(zero hedge)

iv) And this is probably what China will do with respect to the USA transgression according to newspaper China’s Global Times

(courtesy Global Times/China/zero hedge)
i Last week we reported on the fact that Copenhagen, Denmark had a huge housing bubble caused by negative interest rates.  Today we report on Sweden with the same problems.  Both countries are worried if the ECB again engages in more QE and also adopts NIRP as this would send their respective currencies northbound
(zero hedge)
ii)  Greece is at it again as they have only implemented 14 out of 48 austerity measures promised.  The troika will not release 2 billion euros out of the next tranche of 3 billion euros unless most of the above measures are implemented.  Fun and games again
(zero hedge)
 iii) 4th largest private bank in Switzerland is going bust: Hottinger
(Superstation 95.com)
 re Swedish debt vs all other sovereign debt:
wow!! this central banker is telling the truth:  all government debt can be risky!! Then they state “unless its Swedish debt and that is not risky!!”
we are not making this up!!:
(courtesy zero hedge)
 i)USA ally Turkey bombs USA ally the Kurds in Syria
the farce continues
(zero hedge)
 ii  USA to put more boots on the ground in Iraq
(zero hedge)

iii) An excellent scholar on Russian affairs, Marin Katusa writes that it is quite possible for a Russian default:  why?  a default will not hurt them but only hurt the west:

( Marin Katusa/Katusa Research.com)
 i) Oil falls in the 42 dollar range for WTI as supplies increase
(zero hedge)
ii) Natural Gas falls below $2.00
(zero hedge)

iii ) Oil jumps a bit at the end of the day despite higher ATI inventory build

(zero hedge)

Iran is now set to join the BRICS bank and seeks closer ties to Brazil.  It sure looks like it is the USA that is being isolated
(zero hedge)

9 USA stories/Trading of equities NY

i) Durable goods orders tumble for the 6th month in a row

(zero hedge)

ii) Case Shiller home prices remain stagnant for the past 6 months at 5% rise.  San Francisco continues to lead home prices higher.

(Case Shiller/zero hedge)

iii) USA service index falls the most since January 2015

(zero hedge)

iv)  USA consumer confidence drops to 3 month lows despite the higher stock market and  lower gas prices

(zero hedge)

v) Sam Zell sells 23,000 apartments in the USA or 25% of his portfolio indicating a top

(zero hedge)

vi  Rent a center stock plummeting:  If we are starting to witness trouble in the secondary smart phone sector, you know that the economy is falling into an abyss!!

(courtesy zero hedge)

vii  More troubles for Valeant as it was hit with a downgrade warning by S and P.  These guys did their acquisitions through debt and that debt totals 30 billion USA.  A downgrade will force them to delever exactly like Glencore.

(courtesy zero hedge)

 viii) Trannies falter:  does this forbear something sinister?
(zero hedge)
ix) late this afternoon, we find that IBM is tumbling after disclosing to the world that he SEC is investigating the company with respect to revenue recognition.
(zero hedge)

10.  Physical stories

i)  John Embry discusses gold and China’s huge banking problems together with huge amounts of accumulated debt (public and private)

(Kingworldnews/John Embry/Kingworldnews)

ii)  James Turk discusses how central banks destroy capital.  However due to the fragility in finances around the world, the uSA cannot raise rates.

(James Turk/Kingworldnews/GATA)

iii) Craig Hemke of TFMetals, reports that due to the high amount of net short position by the commercials expect a raid on our precious metals such that the bankers can cover.  Also expect subdued pricing on gold and silver due to options expiry this week

(Craig Hemke/TFMetals)

iv) Lars Schall and Chris Powell on how central bankers refuse to tell how they secretly intervene in the gold market

(Lars Schall/Chris Powell/GATA)


v) Bill Holter’s commentary for today is entitled:  “Respected Like a Banana Republic?


Let us head over to the comex:

The total gold comex open interest rose from 467,868 up to 469,097 for a gain of 1229 contracts as gold was up $3.70 with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter resumed this criminal activity.  The new active delivery month we enter is October and here the OI fell by 98 contracts down to 463. We had 34 notices filed yesterday so we  lost 65 gold contracts or 6500 oz will not  stand for delivery in this delivery month of October.  The November contract went down by 1 contract down to 252. The big December contract saw it’s OI fall by 2,221 contracts from 316,578 down to 314,357. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 101,150 which is poor. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was weak at 93,392 contracts.
Today we had 38 notices filed for 3800 oz.
And now for the wild silver comex results. Silver OI rose by 268 contracts from 169,611 up t0 169,879 as the price of silver was up 8 cents in price yesterday.  Since October is not an active month, we will not see a huge contraction in the OI standing for delivery. The bankers continue to pull their hair out trying to extricate themselves  from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena. We enter the October contract month which saw it’s OI fall by 3 contracts down to 8.  We had 0 contracts filed yesterday so we lost 3 silver contract or an additional 15,000 oz will not stand in this non active delivery month of October.  The November contract month saw it’s OI remain constant at 32.
The big December contract saw its OI fall by 517 contracts down to 111,607. The estimated volume today as to number of contracts sold is 25,616 contracts (regular business hours, 8 20 am to 1:30 pm) is poor as the bankers through everything but the kitchen sink at silver trying to contain the price around $16.00 yet they are afraid to commit more non backed paper.  The confirmed volume yesterday (regular plus access market) came in at 27,184 contracts which is excellent in volume.
We had 0 notices filed for 20,000 oz.

October contract month:

Initial standings

Oct 27/2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  300.245 oz


Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  nil
No of oz served (contracts) today 38 contracts

3800 oz 

No of oz to be served (notices) 425 contract (42,500  oz)
Total monthly oz gold served (contracts) so far this month 525 contracts

52,500 oz

Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 185,291.0  oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 1 customer withdrawal:
 i) out of Delaware:  300.245 oz
total customer withdrawal 300.245  oz
We had 0 customer deposit:

Total customer deposit nil  oz

we had 0 adjustment:

 JPMorgan has a total of 10,777.279 oz or.3352 tonnes in its dealer or registered account.
***JPMorgan now has 580,809.509 oz or 18.06 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 38 contracts of which 38 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the final total number of gold ounces standing for the Oct contract month, we take the total number of notices filed so far for the month (525) x 100 oz  or 52,500 oz , to which we  add the difference between the open interest for the front month of Oct. (463 contracts) minus the number of notices served upon today (38) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the Oct. contract month:
No of notices served so far (525) x 100 oz  or ounces + {OI for the front month (463)– the number of  notices served upon today (38 x 100 oz which equals 95,000 oz  standing  in this month of Oct (2.9548 tonnes of gold).
We lost 64 contracts or an additional 6400 oz will not sand for delivery. 
We thus have 2.9548 tonnes of gold standing and only 6.2934 tonnes of registered gold (for sale gold/dealer gold) waiting to serve upon those standing.
Total dealer inventory 202,333.07 oz or 6.2934 tonnes
Total gold inventory (dealer and customer) =6,703,769.599   or 208.51 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 208.51 tonnes for a loss of 94 tonnes over that period.
 a small liquidation from the customer side in gold today
And now for silver

October silver Initial standings

Oct 27/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 461,791.440 oz 


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil
No of oz served (contracts) 0 contract  (nil oz)
No of oz to be served (notices) 4 contracts (20,000 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 10,373,722.8 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit; nil oz

we had 0 dealer withdrawals:
total dealer withdrawal: nil  oz
We had 0 customer deposits:

total customer deposits: nil oz

We had 2 customer withdrawals:
i) Out of Delaware:  5,710.77 oz
ii) Out of Scotia:  456,080.72

total withdrawals from customer: 461,791.44    oz

we had 1 adjustment
 i) Out of Delaware:
62,019.255 oz was removed from the dealer and this landed into the customer account of Delaware
Total dealer inventory: 43.467 million oz
Total of all silver inventory (dealer and customer) 162.001 million oz
The total number of notices filed today for the September contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in Oct., we take the total number of notices filed for the month so far at (85) x 5,000 oz  = 425,000 oz to which we add the difference between the open interest for the front month of September (8) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the Oct. contract month:
85 (notices served so far)x 5000 oz +(8) { OI for front month of September ) -number of notices served upon today (0} x 5000 oz ,=445,000 oz of silver standing for the Oct. contract month.
 we lost 15,000 ounces of silver standing in this non active delivery month of October.
 the bank run on silver continues for the customer account and dealer account today.


The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China
And now the Gold inventory at the GLD:
Oct 27/no change in gold inventory/rests tonight at 695.54 tonnes
Oct 26.no change in gold inventory/rests tonight at 695.54 tonnes
Oct 23/ a huge withdrawal of 1.78 tonnes of gold at the GLD/Inventory rests at 695.54 tonnes
Oct 22./no change in gold inventory at the GLD/Inventory rests at 697.32 tonnes
Oct 21./we had no change in gold inventory at the GLD./Inventory rests at 697.32 tonnes.
Oct 20./no change in gold inventory at the GLD/Inventory rests at 693.75 tonnes/
Oct 19.2015: A huge increase of 3.57 tonnes into the GLD/Inventory rests at 697.32 tonnes.  Highly unusual to have 3 consecutive deposits and withdrawals in a row!!
Oct 16./we had a huge withdrawal of 6.25 tonnes/inventory 693.75 tonnes
Oct 15.2015: a huge increase of 5.06 tonnes/inventory rests at 700.00
Oct 14/a huge increase  in gold tonnage of 7.74 tonnes/inventory 694.94 tonnes
oct 13/no changes in gold inventory at the GLD/rest at  687.20 tonnes
Oct 12./2015:  no change in gold inventory at the GLD/rests at 687.20 tonnes
Oct 27/2015 GLD :695.54 tonnes*
* London is having a tough time sourcing gold. I believe that the last few days of additional GLD gold is a paper gold addition and not real physical. I sure looks like there is stress inside the GLD!!

And now SLV

Oct 27/no change in silver inventory at the SLV/Inventory rests at 315.533 million oz/

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 27/2015:  tonight inventory rests at 315.533 million oz***
 ** the jury is still out if the addition of silver is real or paper silver
especially with London in silver backwardation.
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 10.5 percent to NAV usa funds and Negative 10.5% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.8%
Percentage of fund in silver:38.0%
cash .2%( Oct 26/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to-0.19%!!!! NAV (Oct 27/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV falls to – .57% to NAV Oct 27/2015)
Note: Sprott silver trust back  into negative territory at -0.19% Sprott physical gold trust is back into negative territory at -.57%Central fund of Canada’s is still in jail.

Press Release OCT 6.2015

Sprott Increases Offer for Central GoldTrust and Silver Bullion Trust

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

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

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

Notice of Extension and Variation to be Filed Shortly

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

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

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

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

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

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

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

And now your overnight trading in gold and also physical stories that may interest you:
Trading in gold and silver overnight in Asia and Europe
(courtesy goldcore/Mark O’Byrne/Steve Flood)

EU Takes Countries To Court Over ‘Bail-In’ Laws

The European Commission is taking legal action against six European countries, including the Netherlands and Luxembourg, after they failed to implement rules that would allow for depositors to have their cash confiscated.

Six countries will be referred to the European Court of Justice (ECJ) for their continued failure to transpose the EU’s “bail-in” laws into national legislation, the European Commission said last Thursday according to The Telegraph.


Taxpayers bailed out banks in the first global financial crisis. Depositors will be in the firing line the next time. Photo: AFP

Most EU countries, UK, the U.S., Canada, Australia and New Zealand all have plans for bail-ins in the event of banks and other large financial institutions getting into difficulty. It is now the case that in the event of bank failure, personal and corporate deposits could be confiscated.

The referral comes after the EU issued a warning against Poland, the Netherlands, Luxembourg, Sweden, Romania and the Czech Republic for their non-compliance earlier this year.

The rules – known as the Bank Recovery and Resolution Directive (BRRD) – are designed to stop governments from having to foot the bill for saving banks from going bust by instead forcing savers and deposit holders to foot the bill in an attempt to further protect banks from insolvency.

Brussels will refer six countries to the European Court of Justice over their failure to apply the new, very radical “bail-in” rules. Deposits of less than €100,000 should be protected under the new regime but in reality these limits are arbitrary and would likely be reduced to lower levels in the event of banks being insolvent again in another European and global financial crisis.

In the event of a systemic European banking crisis, however, laws could be changed at the stroke of a pen and “bail-in” mechanisms could become fully operational. Also, the comforting guarantee of €100,000 ($100,000 or £80,000) would likely be reduced in such a crisis.

The era of depositor bail-ins is coming and preparations are in place by the international monetary and financial authorities for bank bail ins. Financial interests of banks are once again being placed over those of small and medium businesses and taxpayers in general. The majority of the public is unaware of these developments, the risks and ramifications, and how they can protect their money.


Download Guide – Protecting Your Savings In The Coming Bail-In Era (11 pages)

Download Guide – From Bail-Outs to Bail-Ins: Risks and Ramifications(51 pages)


Today’s Gold Prices: USD 1165.74, EUR 1054.55 and GBP 759.52 per ounce.
Yesterday’s Gold Prices: USD 1168.50, EUR 1058.86 and GBP 761.96 per ounce.

Gold closed at $1,163.70/oz yesterday, having lost a small 0.08% or $0.90. Silver was unchanged for the day, remaining at $15.86/oz.


Gold in EUR – 1 Year

Gold is 0.3% higher in euros, pounds and dollars this morning, snapping four straight days of losses that have pulled prices further from this month’s near four-month high.  This morning’s trading range has been narrow, with less than $5/oz between its lows and highs of the day so far.

Silver’s also 0.4% higher, but platinum and palladium are both down by more than 0.5%.  For the month of October, silver and platinum have outperformed, up 9.4% and 9.5% respectively. If it holds its ground until the end of the month, platinum will post its biggest monthly gain since January 2012.

GoldCore: Storing Gold in Singapore

Download Essential Guide To Storing Gold In Singapore

(courtesy John Embry/kingworldnews/Eric King/GATA)


In KWN interview, Embry covers China, insolvency, gold suppression


3:30p ET Monday, October 26, 2015

Dear Friend of GATA and Gold:

China’s official figures for economic growth are belied by power-consumption data, Sprott Asset Management’s John Embry tells King World News today, adding that central banks keep trying to paper over the insolvency of national economies with mere liquidity. Meanwhile, Embry adds, the central planners keep shorting gold to prevent its price from giving the game away, but he wonders whether the shortage of real metal will sustain this scheme much longer. An excerpt from the interview is posted at the KWN blog here:


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



(James Turk/Kingworldnews/Eric King)

Central banks destroy capital but Fed won’t raise rates, Turk tells KWN


3:50p CT Monday, October 26, 2015

Dear Friend of GATA and Gold:

GoldMoney founder and GATA consultant James Turk tells King World News today why he doesn’t think the Federal Reserve can raise interest rates even though central bank policy around the world is destroying capital and creating crazy outcomes, like two-year Italian bonds carrying negative rates. An excerpt from the interview is posted at the KWN blog here:


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


The boys will no doubt raid this week.  Here is why!!

(courtesy Craig Hemke/TFMetals Report)

TF Metals Report: Mental preparation


9:40p CT Monday, October 26, 2015

Dear Friend of GATA and Gold:

If trader positioning in gold and silver futures continues to determine the prices of the monetary metals, both are about to suffer another big smashing from the bullion banks, the TF Metals Report’s Turd Ferguson writes today, in perfect coordination with the Federal Reserve’s meetings this week. Ferguson’s commentary is headlined “Mental Preparation” and it’s posted at the TF Metals Report’s Internet site here:


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



An excellent report on Chinese demand for gold:

As Williams states, there are 6 ways gold enters China:

  1. through her own production
  2. SGE deliveries
  3. importation through Hong Kong
  4. importation through Switzerland creating kilobars
  5. importation from England and the rest of the world (e.g. USA)
  6. gold imported for financial transactions

courtesy Lawrie Williams/Sharp Pixley

LAWRIE WILLIAMS: New Hong Kong gold exports support record high China demand forecast


Lawrie Williams

Whatever the major mainstream analysts and the World Gold Council may say we would put Chinese domestic gold demand as running very high this year – almost certainly exceptionally so. Shanghai Gold Exchange (SGE) deliveries would certainly support this premise, running around 312 tonnes higher year to date than in China’s record 2013 consumption year at the same time as we have already reported (See:Another 53.4 t gold withdrawn from SGE. YTD 2061.9 t) and heading for an annual figure of probably well over 2,600 tonnes. Now we see reported net Hong Kong gold deliveries to the mainland at a 10 month high of a considerable 97.42 tonnes in September. Hong Kong remains one of the principal import routes for gold into mainland China but is no longer so dominant in those terms for its figures to be taken as a proxy for total Chinese gold imports.

So, Shanghai Gold Exchange deliveries, imports via Hong Kong, direct imports from Switzerland and the UK, direct imports from the rest of the world, the apparent build-up of Chinese Central Bank gold holdings, China’s own annual gold production, the amount of gold tied up in financial transactions etc. – all these are either known knowns or unknown knowns in trying to assess he true level of Chinese gold imports and demand. While some of this is reported by the countries exporting gold to China, the country does not itself quantify its imports. It is thus difficult, if not impossible, to assess what is the real nature and size of true Chinese gold demand, but all indications are that 2015 will indeed be a record year – and keep China comfortably ahead of India as the world’s top consumer whatever GFMS may say in its latest analysis report for the first three quarters of the year.

There are a number of professional analysts out there who earn a living out of their own researched assessments of what is going on – and are adamant that they are correct in their assumptions and calculations, but their figures often don’t seem to add up in the light of what seems to be overwhelming statistical evidence which may contradict their figures. We also feel that some of their assumptions are mostly speculative in trying to make sense of their sometimes contradictory figures.

The biggest fly in the ointment of the analytical assumptions is the enormous level of deliveries to the Chinese market out of the Shanghai Gold Exchange this year. Whatever the analysts say this has to be a strong indicator of overall demand, although perhaps not of consumption as they measure it. As we have pointed out before, the analysts do not include the use of gold in Chinese financial transactions as being part of their demand assessments. To us this is still gold being consumed in China – even if it does not meet the analysts’ strict interpretations of what is consumption. Yes, it can be returned to the markets when these transactions unwind, although it tends to be rolled over instead – but then other forms of traditionally-consumed gold may also find their way back to the market through gold for investment sales and scrap supplies. With extremely low mark-ups for most gold jewellery in China (and India too), the jewellery market is very different from that in the West.

What is perhaps only now coming to light is the enormous level of the ‘financial’ gold involved in Chinese transactions. Speaking at last week’s LBMA meeting in Vienna, Jiang Shu, Chief Analyst of the Shandong Group, noted that over 1,300 tonnes of gold is tied up in such transactions. This would account for much of the differential between SGE deliveries and analysts’ ‘gold consumption’ figures. Gold imports from known sources, plus China’s own gold production, plus scrap looks to be heading for the 2,000 tonne mark or more this year, while SGE deliveries have already exceeded this level. With India adding between 800 and 1,000 tonnes of imported gold to the equation this accounts for virtually all the world’s newly mined gold leaving the rest of the world (which according to the analysts consumes about as much gold as India and China together) to be supplied from the balance of global supply – notably from scrap – but given the relatively low gold price and thus falling scrap supply – this is insufficient to meet the balance of demand. This physical gold is coming from somewhere – if not from privately held vaulted gold, then perhaps from central bank holdings in the form of leased or swapped gold. But, leased and swapped gold remains in central bank accounts as though it is being held as physical metal – an obscurity which more than matches any Chinese obfuscation of its gold import and demand figures.

As an aside, much is made in the West of China’s supposedly collapsing economy – yet figures from Chinese online giant Alibaba out today would seem to belie this. Alibaba revenues to end-September have risen 32% year on year. While there may have been something of a slowdown in gross merchandise volumes it would seem that reports of a collapsing Chinese economy are somewhat overdone.




(courtesy Lars Schall/GATA)

Austrian central bank refuses questions about executive’s assertion of gold interventions

Submitted by cpowell on Tue, 2015-10-27 12:25. Section:

7:24a CT Tuesday, October 27, 2015

Dear Friend of GATA and Gold:

The German freelance financial journalist Lars Schall has done again what no mainstream financial journalist in the world dares to do: put critical questions about gold to a central bank.

This time Schall has directed his questions to Peter Mooslechner, executive director of the central bank of Austria, who a week ago let slip in an interview with Daniela Cambone of Kitco News that central banks are using their gold reserves for secret intervention in the gold and currency markets:


Seeming oblivious, Cambone did not pursue the relevation. Today Schall reports how he did pursue it with some very specific and critical questions and that Mooslechner and the Austrian central bank refused to respond to him.

Schall’s report is headlined “Again and Again: No Answers from Central Banks to Critical Questions about Gold” and it’s posted at his Internet site here:


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

2015-10-27 13:06 GMT+01:00 Lars Schall <larsschall@googlemail.com>:

friends, romans, countrymen!

oops!…i did it again:

Again and Again: No Answers from Central Banks to Critical Questions about Gold

Oktober 27th, 2015

So, how do central banks exactly intervene in the gold market? Well, you can ask central bankers this question and they won’t tell you – even those central bankers that do mention interventions in the gold market during superficial interviews. Recent example: Peter Mooslechner, executive director of Austria’s central bank.


all the best,
lars schall.
And now Bill Holter
(courtesy Bill Holter/Holter Sinclair collaboration)
Respected Like a Banana Republic?

Calling your attention to two recent stories, the debate over the debt limit 

  Looking at the debt ceiling first, we are yet again living the lunacy where the U.S. tells its people and the rest of the world “see, we are not broke”!  In a sense this is true because when all is said and done, the U.S. can incur any amount of debt required or desired because dollar bills (FRN’s) can be printed or issued to pay for the debt and its service.  From a practical point however, this is not true.  Should the ceiling be raised to $19.6 trillion and promptly funded to that amount, we will be poking our heads over the 110% debt to GDP level.
  Please don’t tell me I am nuts …because the true debt, unfunded liabilities and promises amount to more than $200 trillion …and the GDP number of close to $18 trillion “may” include a bit of “double counting”.  Just assuming the official numbers are real at 110% of debt to GDP poses a problem.  The problem is this, as previously mentioned 100% debt to GDP is the doorway to becoming a banana republic.  And yes, there are “worse” (particularly Japan over 300%) but, we are talking about the issuer of the world’s reserve currency.  How can they walk through the banana republic door and still expect any respect from the rest of the world?
  Moving on to the next story, a mere month after Russia began aid to Syria’s Assad, Afghanistan is now asking Moscow for aid …and they very well may receive it!  But why?  And why now?  First, “why” is simple, the U.S. has acted like a mob owned cop enforcing only what they wanted and actually stirring the pot so that calm and peace have had no chance in the Middle East.  Why now is also simple, the U.S. was scheduled to pull 9,000 of the remaining 10,000 troops put of Afghanistan over the next year.  This would have left a void the Afghani government could not fill.  This exodus  has since been called off, maybe “harvest” season came to mind?
  These two stories I do believe have some commonality.  They both illustrate “power” slipping from the grasp of the U.S..  The two big sticks, the dollar and military are being seen as weakening.  Can you imagine five years ago …or especially 10-20 years ago the Russians militarily entering the Middle East?  Or the Chinese importing the current tonnage of “blasphemous gold” or worse, setting up an alternative to the SWIFT clearing system? 
  I mention these two latest developments and ask you to look back in time because prior, it would be UNBELIEVABLE.  Yet now after being in a pot of heated water, we are being boiled while people don’t even question it.  It’s like business as usual and no one cares …in the U.S. that is.  I assure you many foreigners see this far differently than most Americans!  Many foreigners see exactly what is happening, why, how and how it will end.  We have gone morally, socially and financially broke slowly to this point …now we await the “then all at once” part. 
  To finish, the U.S. is being respected like a banana republic who issues hollow threats.  The most recent, and we still need to see the outcome are U.S. naval vessels being sent to the South Sea Islands.  China has already publicly said “what in the world can the Americans be thinking?”  Yesterday president Obama ordered the USS. Lassen to sail within the 12 mile international limit http://www.zerohedge.com/news/2015-10-27/furious-china-slams-obama-decision-threaten-peace-warship-challenge . 
  I hate to say the following but it is obvious.  China is the largest creditor to the U.S..  Should they become irritated and angry enough, they could simply sell Treasury securities and cripple our debt markets.  For those of you who will surely write me saying “China will never do this and even if they did, the Fed will just buy all the Treasuries sold”, I say this …and what if China sells just a relatively small amount of U.S. Treasuries …and uses that capital to bid for every ounce of gold the West has to offer?  Can the Fed “print” tonnage for delivery?  How much would this operation take?  $5 billion?  $10 billion?  Does it really matter as China can surely bid for every single Western ounce many times over with money to spare?  Do not laugh at this potential as I am sure it has crossed more than one Eastern mind years ago!
Standing watch.
Bill Holter/Holter Sinclair collaboration
And now your overnight TUESDAY morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan falls as expected with a rate cut, this  time at  6.3530 Shanghai bourse: in the green (manipulated), hang sang:red 

2 Nikkei closed down 170.08 or 0.90%.

3. Europe stocks mostly in the red   /USA dollar index down to 96.74/Euro up to 1.1055

3b Japan 10 year bond yield: falls to .305% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.33

3c Nikkei now just above 18,000

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

3e WTI: 43.34  and Brent:   47.24

3f Gold up  /Yen up

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to  .500 per cent. German bunds in negative yields from 6 years out

 Greece  sees its 2 year rate rises  to 8.03%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield rises to  : 7.66% (yield curve inverted)  

3k Gold at $1166.00 /silver $15.89 (8 am est)

3l USA vs Russian rouble; (Russian rouble down 1 & 1/5 in  roubles/dollar) 64.17

3m oil into the 43 dollar handle for WTI and 47 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 .9842 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0880 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 falling to  +.500%/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 2.05% early this morning. Thirty year rate below 3% at 2.85% / yield curve flatten/foreshadowing recession.

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

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

Futures Flat After Yen Carry Tremors As Fed Starts 2-Day Policy Meeting

Two biggest move overnight came from everyone’s favorite carry pair, the USDJPY, which may have finally read what we said yesterday, namely that with the Fed and ECB both doing its job, there is little need for the Bank of Japan to repeat its Halloween massacre for the second year in a row, and as a result will keep its QQE program unchanged. It promptly tumbled from its 121 tractor level, to just above 120.25, where BOJ bids were said to be found.

With the FOMC October meeting starting today, the other overnight catalyst was not surprisingly the latest Hilsenrath scribe in which he removed any uncertainty about a Wednesday hike, “leaving mid-December as the central bank’s last chance to raise rates this year.”

The timetable poses twin challenges for Fed Chairwoman Janet Yellen: Deciding whether the U.S. economy is ready for an interest-rate increase, and signaling central bank intentions without causing further market confusion.

The problem is that not even Hilsenrath’s Fed “source” has any idea what will happen in December. “The Fed’s uncertainty is contagious. A Wall Street Journal survey of market economists this month found that 64% believe the Fed will raise rates by December. Futures markets put the odds at 35%.” Who’s wrong? Well, the Fed’s model of the economy, and the “dot plot” are certainly accurate, so it has to be the economy’s fault for not complying with the central planners’ vision:

One cause of the confusion isn’t the fault of the central bank. The economy isn’t cooperating. With unemployment falling rapidly, Ms. Yellen and most of her colleagues began the year thinking the economy would be strong enough to lift rates.

One of these years the Fed will realize that the reason the “economy isn’t cooperating” is because of the Fed. But don’t hold your breath, we give it at least another 24-36 months before the S&P is at 3000 and Yellen is still “confused.”

In other news, there was the usual macro disappointment, when UK Q3 GDP printed at 0.5%, below the 0.6% expected, and down from 0.7% in Q2, driven by the weakest construction sector contribution to GDP in years. Are the Chinese no longer buying?

Speaking of Chinese buying, perhaps they were not too excited about stocks, but with the SHCOMP down most of the day, we were relieved to see the National team stage its usual last hour intervention, and drag the Chinese stock market from down -2% to close up 0.14% with the traditional furious last hour ramp to eliminate the bitter aftertaste from the latest drop in industrial profits which dropped -0.1% Y/Y, following a -8.8% drop in August.

One thing the Chinese were definitely not buying was natgas which overnight dropped continued their steep descent and dropped below $2.00 for the first time since 2012 and just the 4th time in the 21st century.

Elsewhere in Asian equity markets traded lower led by the slump in Chinese stocks as they shrugged off the recent easing measures by the PBoC , while subdued trade was also observed as participants await the FOMC and BoJ policy decisions. Shanghai Comp. (+0.1%) retreated from 2-month highs amid a continued decline in industrial profits (-0.10% vs. Prey. -8.80%), however, heading into the European open some losses have been pared. Nikkei 225 (-0.9%) was pressured by losses in the energy sector which also weighed on the ASX 200 (0.0%). JGBs traded higher as the lacklustre risk sentiment drove inflows into the safer asset, while a stronger than prior 40yr auction added support.

European equities kicked off the session firmly in negative territory before paring the losses throughout the morning (Euro Stoxx: -0.1%). Equities have been weighed on notably by healthcare and materials names in the wake of downbeat earnings from Novartis (-1.4%) and BASF (-4.1%). While fixed income markets have seen Bunds continue to be supported by softer stocks, with Dutch 4.0% 2019 and 2.5% 2033 Bonds (equiv to approx 20k Bund futures) seeing a relatively successful auction. Of note, there is a fair amount of supply today, with ESM expected to issue 5y syndication and Cyprus’ lOy syndication.

In FX, as noted above, markets saw JPY outperform once again, in line with yesterday’s move on the back of comments from the likes of Honda and Hamada out of Japan, suggesting that the BoJ do not need to increase QQE when they meet on Friday. Elsewhere, EUR underperforms the USD, with ECB’s Praet adding to the dampened sentiment for EUR this morning by suggesting the ECB is examining short-term rates and its asset-buying program as well as stating the inflation target could be delayed. GBP also underperforms against the USD, weakening heading into the release of the advanced Q3 GDP release out of the UK (Q/Q 0.50% vs. Exp. 0.60%).

In the commodity space, the energy complex remains soft, with WTI and Brent remaining in negative territory, although off their worst levels, while NatGas has fallen below USD 2.00/MMBTU for the first time since 2012 , as forecasts predicting warmer than average weather continue to weigh upon the commodity. Looking ahead, today sees the release of API crude oil inventories (Prey. 7100K).

Elsewhere, the metals complex has seen relatively muted price action overnight, with gold outperforming other precious metals underpinned by increased demand for safer assets as Chinese markets initially shrugged off last week’s PBoC rate cuts

Looking ahead, today sees durable goods orders, S&P/Case Shiller report and services PM! out of the US, as well as comments from ECB’s Nowotny and Coeure and BoE’s Shafik. It’s a busy day for corporate earnings too. In the US 43 S&P 500 companies are due to report with the highlights including Pfizer, Ford, UPS and Merck all before the open and then Apple’s numbers after the closing bell.

Market Wrap:

  • S&P 500 futures down 0.1% at 2060
  • Equities: Nikkei 225 (-0.9%), IBEX (-0.7%), Euro Stoxx 50 down 0.2%, FTSE 100 down 0.3%, DAX down 0.1%, CAC 40 down 0.3%, IBEX 35 down 0.7%, FTSE MIB little changed, SMI down 0.6%
  • Bonds: German 10Yr yield (-2.4%), French 10Yr yield (-1.4%)
  • Commodities: Natural Gas Futures (-2.7%), WTI Futures (-1.2%)
  • FX: Yen spot (+0.5%), EUR/CHF (+0.1%)
  • Vstoxx Index up 0.5% at 20.74
  • For a detailed market snapshot click here
  • U.S. consumer confidence, durable goods orders, capital goods orders, Markit U.S. composite PMI, Markit U.S. services PMI, due later

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Stocks in Europe opened lower, with DAX and SMI underperforming following weak earnings by BASF (BAS GY) and also Novartis (NOVN VX)
  • JPY continued to strengthen in a similar manner to the move seen yesterday with EUR/JPY and USD/JPY lower ahead of this week’s BoJ decision with figures such as Hamada and Honda downplaying the likelihood of additional imminent easing
  • Looking ahead, today sees durable goods orders, S&P/Case Shiller report and services PM! out of the US, as well as API crude oil inventories and comments from ECB’s Nowotny and Coeure and BoE’s Shafik
  • Treasuries steady before two-day FOMC meeting begins in Washington and before week’s auctions begin tomorrow with $29b 5Y, $15b 2Y FRN; 2Y notes sales scheduled for today was postponed.
  • The White House and top lawmakers from both parties reached a deal to avoid a debt default after Nov. 3, putting lawmakers on course to stave off a fiscal calamity
  • China said it will take “all necessary measures” to defend its territory after the U.S. sailed a warship through waters claimed by China in the disputed South China Sea, a move Beijing called a threat to peace and stability in Asia
  • The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties
  • Iran’s crude exports are likely to remain restricted until the first half of next year, when it’s “reasonable” to expect international sanctions against the OPEC producer to be lifted, according to a U.S. government official
  • U.S. natural gas traded below $2/mBTU for the first time since April 2012 as a glut of the power-plant and heating fuel expands toward a record
  • Some officials at Abe’s office and the finance ministry see no need now for the Bank of Japan to expand its monetary stimulus program amid concern it would harm consumers, according to people with knowledge of talks inside the government
  • China’s official 6.9% y/y print for 3Q GDP is at odds with models used by researchers at Bloomberg Intelligence and financial firms, Bloomberg economists Tom Orlik and Fielding Chen write
  • $7.1b IG priced yesterday, no HY. BofAML Corporate Master Index OAS narrows 1bp to +166, YTD range 180/129. High Yield Master II OAS widens 3bp to +600, YTD range 683/438
  • Sovereign 10Y bond yields lower. Asian and European stocks mostly lower, U.S. equity-index futures decline. Crude oil lower, gold and copper higher


DB’s Jim Reid completes the overnight summary

Looking now at the latest in Asia this morning. Any post-PBoC easing euphoria which supported an, albeit modest, rise in Chinese equities markets yesterday has come to a sudden halt this morning with falls across Chinese bourses. The Shanghai Comp is down -1.05%, while the CSI 300 and Shenzhen are -1.17% and -0.76% respectively. That’s actually despite a rebound in China industrial profits data this morning, with the September print improving to (a still however soft) -0.1% yoy from -8.8% in August. Meanwhile, it’s broadly weaker across much of the Asia region this morning. The Nikkei (-0.64%), Hang Seng (-0.48%) and Kospi (-0.38%) all taking a leg lower, while the ASX is the relative outperformer, down just -0.03%. Credit indices in Asia and Australia are generally 2bps wider this morning too.

A slide in commodity markets was the big story yesterday. After falling nearly 10% in the last two weeks, Brent (-0.94%) continued to march lower yesterday, closing at $47.54/bbl. It was a similar story for WTI (-1.39%) which closed back below $44 for the first time since August 26th and is now nearly $8 off the MTD highs reached just 17 days ago. Both markets are down another 1% in trading this morning too. Natural Gas was the big mover yesterday though after tumbling -9.80% and to the lowest since April 2012. While the continued concerns around record-high inventory levels are still front and centre, concern for a strong el Nino this winter is also weighing on the energy complex at the moment and being attributed for much of the latest leg lower.

Those moves kept energy stocks on the back foot yesterday with the likes of Chevron, Exxon Mobil, Shell, Total and ConocoPhillips down between 1% and 3%. That was enough to see equity markets run out of steam following the recent dovish CB relief rally. The Stoxx 600 finished -0.39% while in the US the S&P 500 finished down -0.19% and the Dow closed -0.13%. The Nasdaq continues to be the relative outperformer however with the index yesterday just about closing in positive territory (+0.06%), taking it to just 2% off the August highs prior to the huge sell-off mid-way through the month.

Apple was a notable drag for US equities yesterday too after falling 3% following some weak results out of the company’s semi-conductor supplier. Apple will be the attention of most analysts this evening when the tech giant is due to release its latest quarterly earnings report. Yesterday was in fact a fairly quiet day for earnings on the whole. Just 11 S&P 500 companies released their latest quarterly report, with 7 (64%) beating earnings expectations and 5 (45%) beating revenue estimates. That means with 185 companies having reported, 74% have beaten earnings expectations but just 42% beating top line estimates (73% and 42% respectively this time yesterday).

Treasury yields nudged lower yesterday, the benchmark 10y down 3bps to 2.057% and the US Dollar came under some pressure (Dollar index -0.27%) following a strong 3-day run after some fairly softish US economic data yesterday. New home sales for September were weak, falling -11.5% mom during the month (vs. -0.6% expected) after a downward revision to August and July, taking the annualized rate down to 468k and the lowest since November last year. Following this we got the latest Dallas Fed manufacturing activity index with the October print of -12.7 (vs. -6.5 expected) a 3.2pt fall from September. The index has in fact failed to print in positive territory this year, while there was more softness in the new orders component, down 3pts to -7.6pts.
Over in Europe the only data to note was out of Germany with the October IFO survey. The headline index reading fell (-0.3pts) less than expected to 108.2 (vs. 107.8 expected). The expectations print rose 0.5pts to 103.8 (vs. 102.4 expected) but the current assessment reading declined 1.4pts to 112.6 (vs. 113.5 expected). Our colleagues in Europe noted that the expectations print points to +0.6% qoq GDP growth in Q4 which compares to the composite PMI which points to +0.5% growth – both an upside risk to their +0.3% estimate currently for Q4.

Before we turn to today’s calendar, headlines on the wires are suggesting that we may be moving one step closer to a budget agreement in the US. According to the WSJ, the White House and congressional leaders were said to be nearing a two-year budget plan deal this week and ahead of the November 3rd deadline. The article suggests that the deal would suspend the debt limit into early 2017 while also establishing new spending levels through September 2017.

Turning now to today’s calendar. Data flow this morning in Europe kick starts with the latest Euro area money and credit aggregates. That’s before we get the advanced Q3 GDP reading in the UK with market expectations currently sitting at +0.6% qoq. This afternoon in the US we’ve got a bumper session for economic data. Capital and durable goods orders for September will warrant much of the attention, with the data helping to sharpen this Thursday’s Q3 GDP report. Shortly following this we’ll get the August S&P/Case Shiller house price index reading, before the October flash composite and services PMI’s. Later on we’ll then get the October consumer confidence print and Richmond Fed manufacturing survey. It’s a busy day for corporate earnings too. In the US 43 S&P 500 companies are due to report with the highlights including Pfizer, Ford, UPS and Merck all before the open and then Apple’s numbers after the closing bell. In Europe we’re due to hear from 13 Stoxx 600 names with BP looking like the notable highlight.

Last night, 9:30 pm MONDAY night, TUESDAY morning Shanghai time.
China buys oil /the uSA sells much of its SPR oil reserves:

As China ‘Buys Low’ To Build SPR, Washington Forced To Sell Strategic Crude To Meet Budget

The signs of regime change are everywhere. From embarrassment by Russia’s success in Syria to China’s creation of its own ‘World Bank’ and SWIFT alternative, the trend of de-empirization are growing, but tonight’s news that Washington will sell oil from its strategic reserve in order to meet budget constraints and avoid default (as China takes advantage of low prices to build its own reserves) is simply stunning in its analogy of the shifting world order.


As CNN reports,

Bipartisan congressional leaders and the White House struck a major fiscal deal in principle Monday that would raise the debt ceiling and lift budget caps on both defense and domestic programs, according to congressional sources familiar with the deal.



This deal would avoid a potential debt default on November 3, and it would reduce the chances of a government shutdown on December 11.



The deal includes $80 billion in increased defense and domestic spending over two years‎, a senior House source told CNN.



That new spending would be offset by sales from the strategic petroleum oil reserve, use of public airwaves for telecommunications companies and changes to the crop insurance program — among other measures. Moreover, the deal would spread out increases in Medicare premiums over time so beneficiaries don’t feel them acutely. It would also aim to preserve the Social Security disability trust fund, sources said.


Conservatives sharply panned the deal.


“It’s emblematic of five years of failed leadership,” said Rep. Justin Amash, R-Michigan.

So, to summarize, ‘Murica – the world’s reserve currency superpower and “cleanest dirty sheet in a brothel” economy is about to sell its “strategic” petroleum reserves at multi-year low prices in order to meet an ever-expanding welfare state’s needs…


As China “buys low” adding to its reserves amid the multi-year low prices…

*  *  *

Of course this move by The US is echoing what many Petrodollar States are being forced to do to (sell ‘reserves’ to meet social welfare needs); however, in this case, it is not some massively indebted banana republic, but The Unites States of America (oh wait!).

*  *  *

As we recently pointed out,there are two general schools of thought amongst noted contrarians and libertarians regarding China’s overriding objectives.

One school has it that China is very much a part of the One World Government philosophy and their primary goal is to acquire a more powerful seat at the IMF. Having done so, they will settle in and be content to be one of the leading jurisdictions that run the world collectively.


The other school suggests that China means to become the most powerful nation in the world – to replace the US in every way as the world’s dominant nation.

My own appraisal is a combination of the two. China’s behaviour – not only their public stance, but their massive economic infrastructural development efforts indicate to me that they intend to go full-bore with their new economic infrastructure, giving them powers that rival and even overtake the EU and US. At that point, they will be unconcerned as to whether they will be welcomed into the “club” that is presently dominated by the EU and US. They will be an unstoppable freight train passing through town. The western world can either get on board, or fall by the wayside. The Chinese will prefer the former, as it would be more profitable and would avoid conflicts (both military and economic), but they will not be deterred.

At this moment in time, we’re observing a part of that effort. The old structure is being slowly bulldozed and a new structure is underway. It’s very likely that, in order to assure its success, it will be a better one – one which offers its users greater freedom. We can be certain that, like all governmental constructs, it will eventually become corrupted and be just as oppressive as the one it hopes to replace. However, in its early years (and hopefully beyond that) the people of the world will enjoy a period of increased economic freedom.

Some time ago, when we first predicted that China would create such a system, it seemed almost a fairy tale – a highly unlikely development. Yet, China has gotten there even faster than I’d expected. Let’s hope that the day when its benefits trickle down to the street level, worldwide, will also arrive more quickly than we had expected.


Charts: Bloomberg


Then this happened~~
(courtesy zero hedge)

Something Just Snapped – Sudden Yen Strength Sends Crude, Copper & China, US Stocks Sliding

Catalysts are unclear for now whether it was stronger than expected industrial profits in China, tensions growing in the South China Sea, or more chatter of no imminent increased easing from BoJ – but broadly speaking, JPY strength (lower USDJPY) is weighing on risk assets across the world as US, Japanese, and Chinese stocks tumbles (US Treasuries bid) and crude and copper prices slump.


USDJPY broke back below 120.50 (erasing its post-PBOC move)…


And as goes JPY, so goes US equities… with the S&P giving up all its post-PBOC gains…


JPY strength (left) and a sudden safety bid to US Treasuries (right)


Sparking derisking in Japanese stocks (left), US equities (middle), and Crude (rightz-0


For now paper gold prices have yet to react but Bitcoin jumped notably…


Charts: Bloomberg



Then this morning this happened:


Furious China Summons U.S. Ambassador, Slams Obama Decision To “Threaten Peace” With Warship Challenge


Well, the USS Lassen sailed within 12-nautical miles of Subi Reef and surprisingly, World War III did not break out overnight.

(USS Lassen)

(Subi reef)

Nine months of tension between Washington and Beijing over the latter’s land reclamation efforts in The South China Sea culminated on Monday with President Obama’s decision to send a guided missile destroyer to China’s man-made military outposts on a “freedom of navigation” exercise. As we put it on Monday evening:

“The ball is now squarely in China’s court. The question now is whether Beijing will back down and concede that “sovereignty” somehow means something different with regard to the islands than it does with respect to the mainland or whether Xi will stick to his guns (no pun intended) and take a pot shot at a US destroyer.”

In short, some feared that based on recent rhetoric out of Beijing (e.g. the PLA will “stand up and use force”) that China might actually fire upon the US-flagged vessel or at least move to surround it in what might mark the first step on the road to war.

Ultimately, that didn’t happen as China apparently decided to take the high road for now and avoid an escalation that might have had far-reaching consequences.

That said, Beijing isn’t happy. Here’s more from Bloomberg:

China said it will take “all necessary measures” to defend its territory after the U.S. sailed a warship through waters claimed by China in the disputed South China Sea, a move the government in Beijing called a threat to peace and stability in Asia.


“The behavior of the U.S. warship threatened China’s sovereignty and national interest, endangered the safety of the island’s staff and facilities, and harmed the regional peace and stability,” Foreign Ministry spokesman Lu Kang said in a statement today. “The Chinese side expressed its strong discontent and firm opposition.”


The comments came hours after the USS Lassen passed within 12-nautical miles of Subi Reef, an island built by China as a platform to assert its claim to almost 80 percent of one of the world’s busiest waterways. By passing so close to the man-made island, the U.S. is showing it doesn’t recognize that the feature qualifies for a 12-nautical mile territorial zone under international law.


The patrol marks the most direct attempt by the U.S. to challenge China’s territorial claims and comes weeks after President Barack Obama told President Xi Jinping at a Washington summit that the U.S. would enforce freedom of navigation and that China should refrain from militarizing the waterway. 


In a strongly-worded statement, Lu said the USS Lassen had “illegally” entered Chinese waters and that “relevant Chinese departments monitored, shadowed and warned the U.S. ship.” China has “indisputable” sovereignty over the Spratly Islands and surrounding waters, Lu said.


“What the U.S. is doing now will only damage the stability in the South China Sea, and send the wrong message to neighboring nations such as the Philippines and encourage them to take some risky behavior,” said Xu Liping, a professor of Southeast Asian studies at the Chinese Academy of Social Sciences, a government-linked institute.

While it’s not entirely clear what professor Xu Liping means by “encourage the Philippines to take some risky behavior,” it’s worth noting that Washington’s provocation is in some respects explicity designed to embolden America’s regional allies. That is, this isn’t going on in Washington’s backyard. This is simply the US responding to calls from its friends in the South Pacific to counter what they view as Chinese aggression by letting Beijing know that Big Brother isn’t going to stand for any bullying from the PLA. That gambit appears to have paid off – for the time being.

As for what comes next, Malcolm Davis, an assistant professor in China-Western relations at Bond University on Australia’s Gold Coast tells Bloomberg China could move to set up a no-fly zone:

China may choose to respond without directly challenging U.S. ships with its Navy or coast guard. It could declare an Air Defense Identification Zone over the South China Sea, or speed up the militarization of the area by deploying extra forces, including combat aircraft, to the islands. 


“The ball would then be back in the U.S.’s court,” Davis said. “A Chinese attempt to enforce an ADIZ over the South China Sea would increase tensions with its neighbors, most notably Vietnam, the Philippines and Malaysia, and they would place increasing pressure on Washington not to back down.”

In other words, China doesn’t need to fire on a US destroyer to ratchet up the pressure. Beijing can simply continue to do what it’s done up until now; that is, militarize the region and essentially dare the US to take action beyond sailing by and waving. 

We suspect we’ll see plenty of new satellite images over the coming weeks and months which purport to show the extent to which the PLA is beefing up its defenses in the face of unnecessary (not to mention extremely petty) posturing on Washington’s part.

And this is probably what China will do with the USA transgression according to newspaper: China’s Global Times
(courtesy Global Times/China/zero hedge)

China Unleashes The Jingoist Rhetoric: “If U.S. Ships Stop, We Should Lock Them By Fire-Control Radar”

Now that the U.S. has sailed the guided missile destroyer USS Lassen within 12 miles of the disputed islands in the South China Sea as “an assertion of freedom of navigation and as a means to balance power in the region”, it was time for China to offer its “diplomatic” response.

And the best place to do that would be ultranationalistic Global Times, a newspaper described as “a Chinese tabloid under the auspices of the People’s Daily newspaper, focusing on international issues at a communist Chinese perspective. The Global Times differentiates itself from other Chinese newspapers in part through its more populist approach to journalism, coupled with a tendency to court controversy.”

Here is what the editors said in an agitated, jingoist Op-Ed published earlier today.

After the show, it’s time for US destroyer to leave

According to Reuters and the Wall Street Journal, the US Navy sent the guided-missile destroyer USS Lassen within 12 nautical miles of islands built by China in the South China Sea. US officials claimed that the action is aimed at safeguarding the freedom of navigation and did not target China. The patrols could also be conducted around features that Vietnam and the Philippines have built up in the South China Sea. According to the US side, the action has been approved by President Barack Obama, but with no notification for China.

Washington hinted long ago that it would send ships within 12 nautical miles of China’s islands, but it didn’t say explicitly what it would do. The US said the action would last several hours. According to Western media, Chinese navy ships are closely watching the Lassen. The Pentagon is obviously provoking China. It is time to test the wisdom and determination of the Chinese people.

We should stay calm. If we feel disgraced and utter some furious words, it will only make the US achieve its goal of irritating us.

We should analyze the actual condition of the US harassment. It seems that the US only wants to display its presence as it didn’t raise the imprudent demand that China stops island-building. It has no intention to launch a military clash with China. It is just the US’ political show. The UN Convention of the Law of the Sea provides three categories. The first is islands, which are naturally formed, habitable areas above water at high tide, and are therefore entitled to 12 nautical miles of territorial waters and a 200 nautical mile exclusive economic zones (EEZs). The second is reefs that have portions above water at low tide, and are uninhabitable, which have territorial waters but no EEZs. Finally, completely submerged “low tide elevations” have no territorial waters.

The islands and reefs in the Nansha Islands under the control of the Chinese mainland belong to the latter two categories. China did not elaborate whether it will expand its territorial seas after land construction. This is where the ambiguity of the international law. In addition, China hasn’t announced its territorial baseline in the South China Sea, making the legal meaning of Sino-US contention in the South China Sea vague.

China and the US have no conflicting views over the international law. Instead, the two are competing with each other over the rules and orders in the South China Sea. Beijing’s construction work in the area is completely legal, and there is nothing Washington can blame it for.Yet, from Washington’s perspective, the geopolitical situation in the area will be changed following China’s island reclamation. Beijing may seize the advantage to control the Nansha Islands and their adjacent seas. The US also conjectures that China will gain strategic pivots for power projection to the south in the future. Therefore, Washington, annoyed and anxious, has taken actions in order to balance Beijing’s clout and to consolidate its dominance in the South China Sea.

It has to be noticed that China has already carried out construction work in the area. This is the concrete achievements Beijing has gained. Completing building the islands still remains as a major task for China in the future. At present, no country, the US included, is able to obstruct Beijing’s island reclamation in the region.

In face of the US harassment, Beijing should deal with Washington tactfully and prepare for the worst. This can convince the White House that China, despite its unwillingness, is not frightened to fight a war with the US in the region, and is determined to safeguard its national interests and dignity.

Beijing ought to carry out anti-harassment operations. We should first track the US warships. If they, instead of passing by, stop for further actions, it is necessary for us to launch electronic interventions, and even send out warships, lock them by fire-control radar and fly over the US vessels.

Chinese should be aware that the US harassment is only a common challenge in China’s rise. We should regard it with calm and be confident of our government and troops.It is certain that the Chinese government, ordering the land reclamation, is able and determined to safeguard the islands. China is gradually recovering its justified rights in the South China Sea. China has not emphasized the “12 nautical miles.” It is the US that helps us to build and reinforce this concept. Then, it is fine for us to accept the “12 nautical miles” and we have no intention to accept 13 or more than 13 nautical miles.


Last week, we talked about the housing bubble in Copenhagen, Denmark caused by NIRP  (negative interest rate policy).  Today, Sweden is in the same camp as it too has negative interest rates and a housing bubble.  The threat of NIRP for Europe is causing a giant wave of Euros seeking refuge in Sweden and Denmark
(courtesy zero hedge)

“Giant Wave Of Money” Heads For Sweden, As Draghi Creates “Nightmare” For Riksbank

Early on September 3, we warned that the Riksbank was at risk of making a meaningful policy “error” by not cutting rates ahead of the ECB announcement expected later that morning.

It wasn’t that we were anxious to see Sweden plunge further into the Keynesian Twilight Zone by taking the repo rate further into negative territory. Indeed, we never recommend going full-Krugman as Sweden did starting late in 2011 after marking a sharp policy reversal. For its trouble, the Riksbank has been left with a massive housing bubble and successive rate cuts have had only a minimal effect on inflation expectations.

But alas, in a world that’s gone Keynesian crazy, it’s either ease or be eased upon (so to speak) and when the Riksbank decided not to cut at its September meeting, it set up the possibility that a dovish Mario Draghi would cause the krona to rise, further jeopardizing Sweden’s inflation target. In other words, the Riksbank was setting itself up to take a loss in the ongoing global currency wars.

Sure enough, Draghi raised the PSPP issue limit from 25% to 33% and then, last week, the ECB telegraphed more easing in December either in the form of a depo rate cut, an expansion of PSPP, or both.

As we discussed in “How Mario Draghi Can Force The Swiss National Bank To Go “Nuclear” On Depositors”, this puts the Riksbank and the SNB in a tough spot. Sweden’s policy options are limited. The repo rate is already deeply negative and the Riksbank is bumping up against the upper limit in terms of how many bonds it can buy without breaking the market. Meanwhile, thanks to the fact that the SNB only applies NIRP to a fraction of reserves, rate cuts by the ECB may have an outsized impact on the EURCHF cross, a decisively undesirable outcome for Switzerland.

Now, ahead of this week’s Riksbank policy announcement, Robert Bergqvist, chief economist at SEB in Stockholm is out warning that thanks to Mario Draghi, Sweden faces a veritable “nightmare.” Here’s more, via Bloomberg:

European Central Bank President Mario Draghi said boo last week and the krona jumped.

With the ECB signaling a new wave of stimulus to prop up the euro zone, the question is how Sweden’s central bank can fight the monetary expansion coming from the south with its own, much smaller toolbox as it tries to stop the krona appreciating.


“The nightmare for the Riksbank board is maybe something like this: they are gathered in the south of Sweden, looking out over the Baltic Sea, when they see a giant wave of money coming in from the euro zone and try to fight it with a hose,”Robert Bergqvist, chief economist at SEB in Stockholm and a former researcher at the Riksbank, said by phone.


The Riksbank is due to announce its next rate decision on Oct. 28. Most economists surveyed by Bloomberg see the bank keeping its repo rate at minus 0.35 percent, though there’s speculation policy makers will need to expand their quantitative easing program. Failure to do so would lead to the krona strengthening “markedly,” Nordea Bank says.


Draghi’s stimulus measures to date have already forced his Swedish counterpart, Stefan Ingves, to resort to unprecedented measures to drive up consumer prices in Scandinavia’s largest economy. He cut Sweden’s main rate below zero for the first time in February and started buying bonds, expanding the QE program several times since. Underlying price growth has stayed below the Riksbank’s 2 percent target since the beginning of 2011.

And so, we’re now beginning to see the results of the beggar-thy-neighbor monetary insanity that grips DM central banks. It’s a never-ending race to the bottom and now that everyone is moving further and further into NIRP, it’s not even clear that there is a bottom. After all, even if negative rates finally do make their way to household deposits causing rationale actors to simply withdraw their money, the monetary authorities can always just ban cash, which would effectively obliterate the idea of a “lower bound.”

In any event, perhaps the more pressing concern here is the combination of a massive housing bubble, NIRP, and a QE program that’s all but exhausted. As we noted last week when discussing Denmark, Copenhagen home prices are rising at 12% per year (or more) and yet the Danish central bank is operating on the assumption that headline inflation is half of 1%. Obviously that borders on the insane. Central banks are deliberately ignoring a sure sign of inflation on the way to citing disinflation as an excuse for doubling, tripling, and quadrupling down on the same policies that have driven housing prices into the stratosphere. The question then becomes this: when these housing bubbles burst (and they will), how do central banks in Denmark, Sweden, and Norway intend to fight the ensuing deep recessions now that they’ve exhausted their counter-cyclical capacity?

Greece is at it again as they only implement 14 out of 48 austerity measures.  The troika have now refused to make the next 2 billion euro payment to Greece out of a tranche of 3 billion euros.
(courtesy zero hedge)

Greek Creditors Refuse To Make Next Loan Payment – German Press

At first it was cute: when Greece got its first “dramatic” bailout in 2010 sending the global markets and the EUR first plunging then soaring, it was a melodrama of sorts – people still cared.

Then, by the time the second and third bailouts rolled around, especially in the aftermath of the most ridiculous referendum in modern history, where a majority of Greeks voted for one thing only to get the other, it became a tragicomedy in what everyone hoped would be its final, “German colonial” season.

It wasn’t.

Moments ago, Germany’s Suddeutsche Zeitung reported that just two (or is it three, this past summer is one big blur) months after Greece voted through its third bailout, one which will raise its debt/GDP to over 200% on a fleeting promise that someone, somewhere just may grant Greece a debt extension (which will do absolutely nothing about the nominal amount of debt), its creditors have already grown tired with the game and are refusing to pay the next Greek loan tranche of €2 billion.

Specifically, the payment of the first €2b tranche of €3b is now said to bedelayed because Greek Prime Minister Alexis Tsipras failed to implement reforms on schedule, Sueddeutsche Zeitung reports, citing unidentified senior EU official.

Wait, you mean the Greeks (over)promised and never delivered? Who could have possibly seen this coming?

Not the unidentified EU official who blasts Athens as having implemented only a third of the required projects.

As a result, the transferprobably will only take place in November, if then, since only 14 of the 48 “milestones” linked to payments have been decided on.

The report goes on to tell us what we already knew: talks between the government in Athens and the Troika + the ESM (or Quadriga, or whatever it’s called) ended last week without success.

SZ goes into the unpleasant details, noting that there are inconsistencies in how the banks deal with bad loans, estimated that 320 000 apartment owners have mortgage payments in arrears, threatened with foreclosures, evictions, and so on.

In other words, the Greek holiday from being held accountable for anything which started in July and lasted until October is over.

* * *

Yet, there is still hope: in a separate report, Germany’s Bild tabloid cites Deutsche Bank analysts as anticipating a debt reduction for Greece of €200 billion by year-end, and amount which Bild conveniently calculates corresponds to €700 per inhabitant of the Eurozone.

It adds that, as noted above, Greek debt would total €340b by year-end, or 200% of Greek GDP, some 140% higher than allowed by European treaties.

It concludes by citing Lueder Gerken, Chairman of the Centre for European Policy, as saying that a Greek “haircut is economically inevitable, as well as a fourth rescue package.”

That much is known.

What is not known is why, out of the blue, the German press decided to remind the public of the Greek disaster story. After all, thanks to the refugee crisis and Volkswagen, Germany has a whole new set of problems to worry about. Or perhaps, it is time to find a diversion from those, and what better antagonist to focus on than the recently annexed Mediterranean colony which is the European ground zero of so many refugee adventures.

* * *

That said, the endless Greek default fiasco is no longer funny, or sad, or tragic, or exciting, or anything – the Greek people eagerly voted for their own doom; they only have themselves to blame this time.



(courtesy supersation95.com)


The Swiss Financial Market Supervisory Authority (FINMA) has initiated Bankruptcy proceedings against Hottinger because the bank is so utterly unsustainable.

Hottinger is the successor of the banking firm established in Paris by Hans-Konrad Hottinger (under the name of Banque Hottinguer).  it is the fourth largest private bank in Switzerland, behind:


Since its foundation in 1786 Banque Hottinguer has been very active in European economic life. For example, it took part in the creation of Compagnie Générale des Eaux, as well as that of the Insurance company Drouot (at the origin of the group AXA). Banque Hottinguer in France was sold to Credit Suisse in 1997. Banque Hottinger & Cie SA in Switzerland continued its activities independently.





 wow!! this central banker is telling the truth:  all government debt can be risky!! Then they state “unless its Swedish debt and that is no risky!!”
we are not making this up:
(courtesy zero hedge)

Sweden Warns That Government Debt Can Be Risky… Unless It’s Swedish Government Debt

On Wednesday, Sweden’s Riksbank will announce its decision on whether to cut the repo rate further into NIRP-dom and on whether to expand QE.

Who’s excited? 

Ok, so it may not sound as compelling as “US sails guided missile destroyer around man-made Chinese military outposts,” but tomorrow’s decision by Sweden’s central bank actually has serious implications for the global currency wars. 

As we explained on Monday (and on several prior occasions, here and here for instance) the Riksbank is in a tough spot. They’ve driven rates into negative territory and virtually exhausted the market’s capacity to absorb central bank purchases of government bonds and yet they’re still falling behind in the race to the bottom (i.e. incipient krona strength is still jeopardizing the inflation target).

An uber dovish Mario Draghi and the attendant threat of an ECB depo rate cut in December isn’t helping matters.

And so, the Riksbank’s decision on Wednesday will be watched closely to see if Sweden will once again take a wait and see approach to the ECB or attempt to get out ahead by either cutting the repo rate or expanding the country’s already broken QE.

This is well worn territory and we’re sure we’ll be revisiting it tomorrow, so we won’t delve further into it here other than to say that if the Riksbank does expand QE, they’d better revise the list of eligible paper lest the lack of market depth for government bonds should once again cause investors to reconsider the trade off between liquidity and the benefits of frontrunning central bank asset purchases on the way to sending yields in the wrong direction.

So while we await Stefan Ingves’ decision, we thought it worthwhile to draw your attention to a particularly amusing contradiction in policy recommendations. Consider first this from Bloomberg:

Sweden has told its banks to stop pretending all government bonds are safe.


With Greece on the verge of bankruptcy numerous times over the past five years, the cat’s out of the bag: it is possible to lose money on sovereign debt. That means banks should no longer be free to operate as though that weren’t the case, according to Sweden’s Financial Supervisory Authority.


Though European regulators have been trying to address this issue, Sweden didn’t want to wait for a region-wide decision before acting, Uldis Cerps, executive director of banking at the FSA in Stockholm, said in an interview.


It makes little sense that while “sovereign risk is being priced in markets on a daily basis,” banks “would be, by the regulatory framework, allowed not to take this into account in their capital planning,” he said.


Sweden has told its four biggest banks that they can’t adopt the standardized models, which would allow them to use risk weights as low as zero on sovereign debt. Instead, they must come up with internal ratings systems and assign realistic loss probabilities to the assets. The models also need to apply to municipal debt, Cerps said.

Got that? Sweden doesn’t think banks should stick to an across-the-board policy of assigning a zero risk weighting to the sovereign debt they hold on their books because as it turns out, governments can and do default. 

No argument there.

The punchline however, comes from Swedbank whose chief credit strategist notes that while banks shouldn’t always assign a 0% risk weighting to sovereign debt, when they do, they should make that debt Swedish. Again, via Bloomberg:

  • 0% Risk Weight Likely for Swedish Govt Debt Post-FSA Rule: Bank
  • Risk weight models for sovereign debt that Swedish FSA has required of biggest banks probably will give Swedish government bonds and rated municipal debt a 0% risk weight,Linus Thand, chief credit strategist at Swedbank, says in note.
  • Says all rated municipalities currently rated AAA or AA+ with a strong implicit government backing so that even if risk weighted higher than zero, “they are still considered Level 1 from an LCR perspective and we maintain that they are attractive in such a portfolio”

So, although Sweden admits that sovereign debt is in factnot risk-free, it’s nonetheless likely to contend its own debt is without risk and not only that, the FSA will “probably” deem Swedish muni debt riskless too.

That’s extremely convenient for the Riksbank considering i) they’re targeting SEK135 billion in government bond purchases, and ii) they’ve considered expanding the list of eligible assets to muni bonds.

In other words, Sweden thinks sovereign debt can be risky – only not Swedish sovereign debt – because that would be bad – especially if you’re the Swedish central bank – and you’re buying close to the top…

The farce continues…
(courtesy zero hedge)

Washington’s Syria “Strategy” In Complete Disarray As “Ally” Turkey Bombs US-Armed Rebels

A little over a week ago in “Full Metal Retard: US Launches ‘Performance-Based’ Ammo Paradrop Program For Make-Believe ‘Syrian Arabs’” we outlined what is perhaps the most hilarious Pentagon scheme designed to arm rebels in Syria to date (and that’s saying something). 

Following the comical demise of the latest “train and equip” program, the US is out of options for supporting the opposition in Syria and so Washington decided to go back to Old Faithful: the Kurds. 

But that presents a problem.

The US is now flying sorties from Incirlik and Turkish autocrat President Recep Tayyip Erdogan hates the Kurds and has gone out of his way to make it clear that Ankara doesn’t distinguish between the PKK and the YPG. For the uninitiated, here’s the problem broken down in bullet points:

  • The US is flying from a Turkish airbase
  • Access to that airbase came with NATO’s tacit approval of Erdogan’s move to crack down on the Kurdish PKK operating in Turkey (that crackdown is designed to bolster support for the government ahead of elections next month)
  • Both the US and Turkey designate PKK as a “terrorist” group 
  • BUT while Ankara equates the PKK with the Kurdish rebels battling ISIS in Syria, Washington actually supports those same rebels, setting up a conflict of interest

Now clearly, this is beyond absurd. That is, Turkey only got NATOs support for the politically motivated crackdown on the PKK because Ankara agreed to bundle said crackdown with a military campaign against  ISIS. But the Syrian Kurds are the most effective ground force of them all when it comes to combating Islamic State.  Because those Syrian Kurds are aligned with the PKK, Turkey is effectively trying to say its army is fighting ISIS, the PKK, and YPG all at once even as both the PKK and the YPG are also fighting ISIS.

And so, in an unbelievably silly attempt to keep from angering Erdogan, the US effectively created a fictional group of “Syrain Arabs” and then claimed that YPG had formed an alliance with the made-up army. Next, Washington dropped 50 tons of ammo into the desert (literally) and claimed that the “Syrian Arab Coalition” had retrieved it. Of course it was the Kurds who actually picked it up, the Pentagon just needed a cover story to feed to Ankara in case Erdogan lost his mind. Which he did. 

As noted above, all of this comes in the context of what is supposed to be a cooperative effort between the US and Turkey to fight ISIS.

When the deal was struck a few months back (following a suspect suicide bombing in Suruc that served as the pretense for Erdogan’s “war on terror”), the two countries agreed to establish an “ISIS-free zone” near Aleppo. Here’s the map:


Note that when the US-Turkey alliance was formally established, the Kurds were set to squeeze ISIS from the east and west, meaning that if Washington and Ankara had just left the YPG to their business, the “ISIS-free zone” would have probably been rid of Islamic State in a matter of months. But alas, Turkey convinced the US to tell the YPG to halt their advance and the ensuing awkwardness put Washington in a tough spot, as the US had previously backed the Kurds with airstrikes.

Well now, just days ahead of elections in Turkey which Erdogan is banking on to restore AKP’s absolute majority at the expense of popular support for the pro-Kurdish HDP, the Turkish army has now attacked the very same Kurdish fighters that the US just supplied with 50 tons of ammo two weeks ago. Here’s The New York Times:

Turkey has confirmed that it struck positions in Syria held by Kurdish militias that over the last year have become the most important allies within Syria of the American-led coalition fighting the Islamic State.


The confirmation of the strikes, which the Kurds said took place over the weekend, adds a new level of complexity to the United States’ struggle to put together a coherent strategy to fight the Islamic State in Syria. It also increases tensions between the United States and Turkey, which are nominally allies in the battle against the militant group, but whose interests diverge substantially.


In an interview on a Turkish news channel Monday night, Prime Minister Ahmet Davutoglu of Turkey did not specify when the strikes had taken place, but he said they came after Ankara warned Kurdish fighters not to move west of the Euphrates River.


“We struck them twice,” Mr. Davutoglu said.


The Turkish strikes were in Tal Abyad, a largely Arab border town that the Kurds captured from the Islamic State over the summer. The strikes appear to have been limited — they were said to involve machine-gun fire from across the border and did not seem to cause much damage —but they could suggest a new determination by Turkey to expand military operations against the American-allied group.

More, from NPR:

Prime Minister Ahmet Davutoglu told Turkish television that Ankara had warned the Syrian Kurds known as the PYD that they should not cross west of the Euphrates River — and after the group did so, Turkish jets struck twice at PYD targets.


“U.S. officials have supported the Kurdish efforts to battle ISIS in northern Syria, though it has tried to be sensitive to Turkish concerns about the group, which has ties to Kurdish militants in Turkey who are considered terrorists by both Ankara and Washington.


“Turkey is worried that Syrian Kurds will expand and consolidate their area of control near Turkey’s border while fighting ISIS.”

So just to drive the point home, US ally Turkey is now firing on a group that the US just handed 50 tons of ammo and weapons to earlier this month and that same group has traditionally proven to be exceptionally effective at fighting ISIS.

Needless to say, this is incoherent to the point of absolute absurdity. Washington is spending millions if not billions in taxpayer dollars to both i) fly sorties from a Turkish airbase ostensibly with the aim of hitting Islamic State, and ii) supply Syrian Kurds with hundreds of tons of weapons and ammo even as “ally” Turkey shoots at those same Kurds.

This has become so convoluted and self-defeating that one wonders how long it will be before someone in Congress decides it’s time to take a look at exactly what’s going on here and why it seems like this entire debacle is simply too bad to be true.

Then the USA does this:  getting more bizarre by the day:
(courtesy zero hedge)

Proxy War Paradox: US To Put More Boots On Ground In Iraq As Baghdad Looks To Moscow

When analyzing geopolitics it’s important to try and skate ahead of the puck, so to speak. That is, while it’s useful to understand what’s going on now, it’s even more imperative to analyze the situation in an attempt to understand how the situation is likely to evolve going forward.

As it relates to the Mid-East, that means looking past Syria and on to Iraq. As we’ve outlined in great detail of late, there’s every reason to suspect that Russia will expand its airstrikes across the Syrian border and indeed, Baghdad has reportedly given Moscow the go-ahead to hit ISIS convoys fleeing Syria into Iraqi territory. This is in direct contradiction to what PM  Haider al-Abadi told Gen. Joseph Dunford last week and suggests that Baghdad is about to pivot East, after becoming frustrated with a lack of results stemming from more than a year of US airstrikes against Islamic State targets.

It’s critical to note that Iran (via the IRGC and, more specifically, the Quds Force) controls Iraqi politics and the Iraqi armed forces. This means that Russia will find an extremely receptive environment when it comes to expanding the air campaign beyond Syria. We won’t get into the details here, but we do encourage you to review the whole story as detailed in “Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan” and “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies.

Over the weekend we brought you helmet cam footage which purported to depict a US/Peshmerga raid on an ISIS prison. The operation allegedly freed some 70 hostages whose graves Islamic State had (literally) already dug. For those who missed it, here’s the video:

And here was our assessment:

Now obviously, there’s no telling what actually went on here, nor is there any telling what 30 members of Delta Force were doing running around with the Peshmerga in northern Iraq, but one thing is for sure: the US media seems to be trying to counter the Russian propaganda blitz by holding up the Huwija raid and the death of Master Sgt. Joshua L. Wheeler as proof that Washington is serious about battling ISIS. We are of course not attempting to trivialize the death of Joshua Wheeler by writing this off as some kind of publicity stunt aimed at countering the Russian media blitz. In fact, the opposite is true. If the US is now set to ramp up the frequency with which the Pentagon puts American lives at stake by inserting spec ops in ground operations just so Washington can prove to the world that America is just as serious as Russia is about fighting ISIS, well then that’s a crying shame for US servicemen; especially considering the role the US and its regional allies had in creating the groups that Delta Force and other units are now tasked with countering.

Sure enough, others are now beginning to ask questions about the timing of the raid and subsequent release of battlefield footage. Here’s Sputnik, citing China’s CCTV:

Russian-led counterterrorism efforts are so successful that they are “unnerving” Washington, CCTV reported. As a result, last week US leadership decided to act so as to prevent Iraq from fostering ties with Moscow.


The Chinese media outlet believes that the operation to free hostages in Northern Iraq followed this new logic.Last Thursday, US and Kurdish forces managed to free 70 people from a prison located to the west of Kirkuk. The operation saw the United States lose its first soldier in combat since Obama launched the campaign to degrade and ultimately destroy Islamic State. 


This mission raised questions over Washington’s plans in Iraq. On Friday, US Defense Secretary Ashton Carter tried to dispel fears of the possible  mission creep by saying that the US was not “assuming a combat role” and the operation was “a continuation of our advise-and-assist mission.”


However, Carter stated that similar missions, which redefine assistance if not blur the line between combat and training, could be conducted in the future.


CCTV believes that the US-led hostage rescue operation was a show of force aimed at Iraq’s leadership. The mission was meant to send a clear message to Baghdad, which is rumored to be planning to ask Moscow for greater assistance in its fight against Islamic State.

Of course we need to consider the sources here (i.e. this is Russian media quoting Chinese media) but nevertheless, this is precisely consistent with the assessment we offered immediately after the helmet cam footage was released.

In short, it seems entirely possible that the presence of Delta Force in the ISIS prison raid might well have been premeditated by the Pentagon. The official line is that 30 US commandos where present in an advise and assist role to the Peshmerga and once the Kurds started to take losses, Delta Force decided to intervene.

But is that the real story, or did Washington deliberately send spec ops into a battle the US knew they would win so that The White House could trot the “successful” operation out to Baghdad as evidence of why Iraq shouldn’t turn to Moscow for help?

We’ll let readers decide that for themselves and simply close with the following bit from Reuters which pretty clearly indicates that suddenly, the US has had a change of heart about putting boots on the ground in Iraq…

The top U.S. military officer said on Tuesday he would consider recommending putting U.S. forces with Iraqi troops to fight Islamic State if that would improve the chances of defeating the militants.


“If it had an operational or strategic impact and we could reinforce success, that would be the basic framework within which I’d make a recommendation for additional forces to be co-located with Iraqi units,” Marine General Joseph Dunford told a Senate hearing.


Dunford, the chairman of the Joint Chiefs of Staff, outlined four reasons it might be useful to put U.S. troops with Iraqi forces: increasing the coherence of the military campaign, ensuring logistics effectiveness, boosting intelligence awareness and improving combined arms delivery.

An excellent scholar on Russian affairs, Marin Katusa writes that it is quite possible for a Russian default:  why?  a default will not hurt them but only hurt the west:
(courtesy Marin Katusa/Katusa Research.com)

Why A Russian Default Is A Very Real Scenario In 2016

Submitted by Marin Katusa via KatusaResearch.com,


Everyone understands it pretty well when it comes to their personal finances. You borrow money, you have to pay it back. If you can’t, your creditor hounds you until you either come up with the cash or restructure your repayment schedule. Or, worst case, you eventually file for bankruptcy, thereby defaulting on your debt. Simple.

Yet people, especially in the West, seem blithely unaware that the same basic principles apply to countries, as well. Most of us tend to think that nations can’t or won’t default on their debt. Well … maybe Greece will. But surely not a big country.

Why we believe this is partly due to an ignorance of history, which features literally countless defaults, among nations great and small. Even the US has done it. More than once. It happened right at the beginning, in 1779, when the fledgling US nation defaulted on its first currency, the Continental (which led to widespread use of an early American pejorative phrase: “not worth a Continental.”) And a very recent example was when Nixon severed the tie between gold and the dollar in 1971; that was a default on the precious metal debt the country owed to France and others.

It’s also partly due to the current financial behavior of the American government, which acts as if the cure for a debt problem is more debt (do not try this at home, by the way).  As Congress raises the federal debt ceiling, and the Federal Reserve creates ever more currency units out of thin air, it creates the illusion of stability. All it’s really doing, though, is just kicking the can down the road.  The US has placed itself firmly on this path. But that doesn’t ensure that the rest of the world’s nations can or will follow the same one.

Particularly Russia.

In 2014, I published The Colder War, which became a New York Times Bestseller.  Vladimir Putin, Russia, oil and energy were all dissected in my book, which today is every bit as timely as it was when I wrote it in 2013.  Because of the decade I spent researching the book, I have a very unique Westerner’s perspective on Russia.

Here’s one of the things I learned: Russia is completely unafraid of a default on its debt.

Russia was a basket case in the 1990’s.  The first war in Chechnya was a disaster, both economically and psychologically for the Russians.  Russia not only lost that war, it had a disaster of an economy, ran a huge governmental budget deficit, and was stuck with a very unfavorable fixed exchange rate between the ruble and the currencies of all its trading partners. The country was barely staying afloat.

Then, on top of all that, came the two additional straws that finally broke the Bear’s back: the Asian financial crisis and a crash in oil prices.

But the West totally mis-guessed the eventual outcome. The World Bank and the IMF arrogantly assumed the Russians would continue to play by their rules.  In fact, years later it was leaked that billions in IMF relief funds had headed east, where they were “misplaced.” Or, in laymen’s terms, stolen before they even hit the Russian bank accounts.

On August 17, 1998, the so-called “Russian flu” infected world markets. Moscow announced that a moratorium would be placed on payments to foreign creditors. In addition, the ruble was devalued by 33% (from 7.1RUR/USD to 9.5RUR/USD).  Within a few months, the government allowed the ruble to float freely and the currency devalued by another 120% to 21RUR/USD.  There were bank closures, political fall guys and rabid inflation.

The Russian oligarchs, many of them ruthless criminals, made their moves—and consolidated their wealth at levels that would make the American robber barons blush.

Into this chaos, in 1999, entered Vladimir Putin—one of the most mischaracterized politicians on the planet. An archetypal Russian strong man, he brutally squashed the Chechen revolt and moved decisively to bring the oligarchs under state control, which meant killing or imprisoning them, or driving them into exile. Most importantly, he committed massive resources to reviving an energy sector that had fallen into disrepair, and made it quasi-public with companies headed up by his buddies and inner circle. As prices moved upwards, Russian crude oil output expanded like crazy to become #1 in the world and the economy boomed, as did Putin’s global agenda.

Through a series of deft political maneuverings, Putin still controls Russia 16 years later.  During that time, he has stayed enormously popular among his countrymen despite policies that Westerners (and some dissenting Russians) find reprehensible. His prolonged supremacy is quite a feat, given how the byzantine nature of Russian politics laid low any number of his predecessors.  But he’s done it by persuading the mass of the people that he always acts in what he sees as the best way to push Mother Russia to the head of the table among nations, and that in that pursuit he’s willing to let all manner of chips fall where they may.

Today, Russia is in crisis again, having been hit with the double whammy of plummeting energy prices and heavy sanctions laid on by the West over Putin’s foreign policy. Given the country’s struggling economy, it’s puzzling why the world is ignoring the risk of Russia defaulting on its debt. Again. And why it may be underestimating Putin. Again.

Why a Russian Default is a very real scenario in 2016

The IMF is loaning billions to Ukraine.  In addition, NATO is spending billions in Ukraine on a war that has lasted longer than any US or NATO official expected.  The West, led by the US, has put national sanctions on Russia, and personal ones on many of Putin’s associates—despite a clear historical record that shows sanctions almost never achieve their stated ends.

To understand how misguided this is, you just have to ask one question: Who holds the majority of the debt that would be at risk in a Russian default? Not China.  Not Iran.  Not Syria.  No, it’s the exact same nations, and banks and funds within those nations, that are applying the sanctions against Russia.

So, if Russia does default, what does it mean in terms of its political relationship with the West?


But what does it mean to its creditors?


They’re the ones who will take the hit. And by the way, to anyone who thinks they will be able to enforce their nation’s debt laws on the Russian government or any Russian companies, I have this to say: I wish you the best of luck.

Don’t buy my story?

Here is a chart of Brent Oil pricing verses the 10-year Russian credit default swaps (CDS).

The market is completely mispricing the Russian CDS, by totally ignoring the potential for a Russian Default.

For comparison purposes, in the oil crash of late 2008 early 2009, Russian CDS popped 600% to over 7%. (The CDS market can be a bit complicated, but in general terms, the higher the rate, the more perceived risk is being priced into the market.)

Even earlier this year, with the Brent price of oil trading higher than it does now, the CDS were 100% more expensive. But they’ve since fallen to around 3%, which is absurd, as oil is lower now than when the CDS were at 100% higher rate—therefore if the market was paying attention, CDS should have a “higher” rate now than earlier this year.

The market is assuming that Putin will play by the western bankers’ rules; therefore there is no fear that the Russians might default on their debt.

Otherwise, there’s no reason Russian CDS would be 50% lower than earlier this year, given the fall in the price of oil, which is critical to their economy.

Has something else changed?

Are we in some better place globally now? I highly doubt it for many reasons, but how about I just mention one horrific fact: the world has never seen more displaced persons—ever— than we currently have at over 60 million.

Or has Putin merely distracted the Western world by diverting its interest to Ukraine and Syria?

Those are relatively small items on Russia’s policy agenda. Putin’s real focus is on strengthening his country’s economy by ramping up business with China and the emerging markets. That is where the future lies. If Putin can’t entirely eliminate all dependence on the West, he’s certainly moving forcefully to greatly diminish its influence.

The $400 billion natural gas deal he signed with China in 2014 is just one powerful indicator.

In a few words, if Putin believes that the benefits of a default outweigh the consequences to his country, he won’t hesitate to do it, no matter the international ruckus it might raise.

So … my advice is that if you are invested in any funds or banks that are exposed to debt in Russia, I would rethink your investment thesis. The rules of the game are apt to change quickly, and not to the foreign debt holders’ benefit.

And, if you like ironic coincidences, I’ll close with this one.

Donald Trump is the current leader for the Republican presidential nomination. During his business career, he’s helmed four companies that filed for Chapter 11. Which just happens to be the same number of Russian bankruptcies that have occurred during ‘The Donald’s’ lifetime.

Who knows, ‘The Donald’ and Putin might end up the best of friends…


It sure looks like the world is trying to isolate the USA:  Iran is set to join the BRICS bank as it intends to strengthen ties with Brazil:
(courtesy zero hedge)

Who’s Really Isolated? Iran Set To Join BRICS Bank, Strengthen Ties With Brazil

As US hegemony wanes in the face of dysfunctional domestic politics, foreign policy confusion, and a “lead from behind” mentality, the world has begun to transition towards a kind of new world order both politically and economically.

On the geopolitical front, we’ve seen a resurgent Russia take charge in Syria after the situation spiraled out of control, leaving hundreds of thousands dead and creating the worst migrant crisis in Europe’s history.

On the economic front, the BRICS nations have embarked on a series of projects designed to supplant the US-led multinational institutions that have dominated the post-war world.

In what has become one of the bigger stories of the year, China has established its own development bank (the AIIB) and after the UK broke with Washington to support the new venture back in March, the floodgates opened with US ally after US ally jumping on the bandwagon. Although Beijing has promised it doesn’t intend to use the bank as an instrument of foreign policy or as a means of promoting yuan hegemony, the renminbi is set to play a prominent role in loans issued by the bank and there’s little question that development lending will bolster China’s attempt to establish a kind of Sino-Monroe Doctrine. Beijing has similar ambitions with the Silk Road Fund (see our full breakdown here), although part of the story there looks to revolve around an effort to provide a kind of pressure valve for the country’s excess industrial capacity.

And then there is of course the BRICS bank, which officially launched along with a reserve currency pool back in July. The following chart does a nice job of demonstrating why the bank matters:

Much like the AIIB, the BRICS bank is in many respects a response to what the emerging world views as an abject failure on the part of existing multilateral institutions to provide representation that’s commensurate with the growing clout of influential emerging economies.

Given this, and given what we know about the extent to which the current situation in the Mid-East has served to strengthen ties between Moscow and Tehran, it should come as no surprise that Iran is now set to join the BRICS bank. Here’s RT:

Tehran intends to participate in the BRICS New Development Bank, the Iranian Tasnim news agency reported on Monday, citing an Iranian official.


The Iranian Deputy Minister of Economic Development Mohammad Khazaee said at a meeting of a joint Iran-Brazil economic council that the country is aiming to join the BRICS bank.

More, from PressTV:

Iranian officials said on Monday that the country plans to join an independent bank established by BRICS member states.


The announcement was made by Mohammad Khazaei, Iran’s deputy economy minister for development affairs, at conference on Iran-Brazil economic cooperation.


The agreement to establish the BRICS New Development Bank (NDB), with an initial capitalization of $100 billion, was signed by the BRICS member states — Brazil, Russia, India, China and South Africa — during the group’s 6th summit in Fortaleza, Brazil, in July 2014.


The bank is meant to act as an alternative to the existing American and European-dominated financial institutions such as the World Bank and International Monetary Fund.


It was officially launched at the last BRICS summit in the Russian city of Ufa earlier this year.


Khazaei said Iran’s joining the NDB will help the expansion of economic relations with all BRICS states, specifically Brazil. 

And while now might not be a particularly opportune time to be aligning with Brazil economically, the following (again from state affiliate PressTV) underscores the extent to which Tehran is quickly shedding the pariah state label and marking a swift return to the world stage:

Iran’s Foreign Minister Mohammad Javad Zarif has stressed the importance of improving relations with Brazil given the country’s special position in Latin America and in the BRICS group of major emerging economies.


“This country (Brazil) has always been among priorities of the Islamic Republic of Iran’s foreign policy,” Zarif said in a meeting with Brazilian Minister of Development, Industry and Trade Armando Monteiro in Tehran on Monday.


He added that Iran has great potentialities to open new markets and can help Brazil’s access to the Central Asian region.


Zarif said Tehran and Brasilia are seeking a new roadmap to develop common interests, adding that the two sides’ enterprises and banking and economic institutes can play an important role in this regard.


He noted that Iran and Brazil enjoy great opportunities for strengthening cooperation in different fields such as technology, biotechnology, energy and gas.


The Iranian minister expressed his country’s readiness to remove obstacles in the way of banking cooperation with Brazil through constant consultation.

Yet again, we see further evidence that the “isolation” line being pushed by the West with regard to Moscow and Tehran bears little resemblance to reality.

Admittedly, the nuclear deal shows that Washington has to a certain extent come to terms with the fact that attempting to bankrupt a geopolitically imporant state as “punishment” for that state’s legitimate attempt to develop the same deterrent capabilities as its sworn enemy is a fool’s errand. That is, whatever you want to say about the P5+1 accord, and the Ayattolah’s ranting notwithstanding, the deal was at least a step towards recognizing that Washington’s foreign policy towards Tehran has been a miserable failure and isn’t at all sustainable going forward.

Now, with sanctions set to be lifted and Iranian crude exports set to get a boost in Q1 or Q2 2016 at the latest, Tehran is marking a dramatic comeback both with its involvement in Syria and with efforts to prove that it is not, as the West would have you believe, completely “isolated.” Time will tell if this is ultimately a positive development. We’ll leave it to readers to make their own predictions in that regard.

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/Tuesday morning  7:30 am

Euro/USA 1.1055 down .0004

USA/JAPAN YEN 120.33 down .634

GBP/USA 1.5339 down .0012

USA/CAN 1.3191 up .0034

Early this Tuesday morning in Europe, the Euro fell slightly by 4 basis points, trading now well below the 1.11 level falling to 1.1055; 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 to just above the 120 yen/dollar mark causing European bourses to fall.  Last night the Chinese yuan fell in value (onshore).  The USA/CNY rate at closing last night:  6.3530 up .0015  (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 63 basis points and trading now just above the all important 120 level to 120.33 yen to the dollar.

The pound was down this morning by 12 basis points as it now trades just below the 1.54 level at 1.5339.

The Canadian dollar is now trading down 34 basis points to 1.3191 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 TUESday morning: closed down 170.08 or 0.90%

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

2/ Asian bourses mostly in the red   … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green* manipulated last few minutes up (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/

Gold very early morning trading: $1166.40


Early Tuesday morning USA 10 year bond yield: 2.05% !!! down 1 in basis points from Monday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield falls to  2.85 down 2 in basis points.

USA dollar index early Tuesday morning: 96.82 cents down 26 cents from Monday’s close. (Resistance will be at a DXY of 100)

This ends early morning numbers Tuesday morning


NatGas Tanks Under $2, Crude Pushes 2-Month Lows After US SPR Decision & BP, Saudi Comments

The overnight tumble lows in most ‘risk’ assets is being revisited by oil and gas prices following unhelpful comments from Genel’s Tony Hayward that “the next 6-12 months will become challenging” for many in the industry, more details emerging with regard US selling SPR crude to cover budget needs, and finally OPEC’s Saudi officials proclaiming that crude prices should be set by the market. NatGas (Nov contract) tumbled under $2 and WTI (Dec) cracks to fresh 2-month lows, erasing well more than half of the August month-end panic-buying surge…

Genel’s Hayward Says Some Oil Companies Won’t Survive Next Yr

  • Next 6-12 mos. will “become challenging” for many in industry, Chairman Tony Hayward says at conference in Cape Town.
  • Capital mkts closed for many participants
  • Mkt oversupplied by 2m-3m b/d
  • Shale oil “completely overwhelmed” underlying demand
  • Saudi production strategy “is working;” U.S. rig counts, output dropping
  • Mkt will need 18-30 mos. to clear w/o intervention
  • Supply-side “wild cards” include Iran, Libya: both could ramp up
  • Oil prices will recover; $50 won’t sustain industry

Congressional leaders proposed to sell 58 million barrels of oil from U.S. emergency reservesover six years starting in fiscal 2018 to help pay for a budget deal that ends mandatory spending cuts, according to a copy of the bill posted to a congressional website.


Led to an ugly last 24 hours…


dragging crude to 2-month lows…


Charts: Bloomberg


US Equities Give Up China Rate Cut Gains As Crude Plunges To $42 Handle

Then at the end of the day crude jumps despite inventory build:

Crude Jumps Despite API Reporting 5th Consecutive Weekly Inventory Build

While lower than last week’s levels, API reported a still considerable 4.1 million barrel crude inventory buildlast week. This is the 5th consecutive inventory build. However, despite the size of the overall build, crude prices are rising (extending gains off NYMEX Close ramp) which may be related to a 748k draw on crude stocks at Cushing.

5th week in a row…


And the reaction… hhmmm


Charts: Bloomberg


And now for your closing numbers for Monday night: 3:00 pm
Closing Portuguese 10 year bond yield: 2.47% up 2 in basis points from Monday
Japanese 10 year bond yield: .308% !! down 2 basis points from Monday but still extremely low
Your closing Spanish 10 year government bond, Tuesday down 4 in basis points.
Spanish 10 year bond yield: 1.59% !!!!!!
Your Monday closing Italian 10 year bond yield: 1.45% down 4  in basis points on the day: Tuesday/ trading 14 basis points lower than Spain.
Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  3:00 pm
 Euro/USA: 1.1042 down .0017 (Euro down 17 basis points)
USA/Japan: 120.34 down 0.624 (Yen up 62 basis points)
Great Britain/USA: 1.5302 down .0050 (Pound down 50 basis points
USA/Canada: 1.3268 up .0112 (Canadian dollar down 112 basis points)

USA/Chinese Yuan:  6.3515 flat on the day

This afternoon, the Euro fell by 17 basis points to trade at 1.1042.  The Yen rose to 120.34 for a gain of 62 basis points. The pound was down 50 basis points, trading at 1.5302. The Canadian dollar fell 112 basis points to 1.3268. The USA/Yuan closed at 6.3515
Your closing 10 yr USA bond yield: down 4 in basis points from Friday at 2.02%// ( trading below the resistance level of 2.27-2.32%)
USA 30 yr bond yield: 2.85 down 1 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
The low yields means that the bond market is not buying the rallies on bourses.
 Your closing USA dollar index: 96.93 up 10 cents on the day .
European and Dow Jones stock index closes:
London:  down 51.75 points or 0.81%
German Dax:  down 109.15 points or 1.01%
Paris Cac down 50.06 points or 1.02%
Spain IBEX: down 155.90 points or 1.49 %
Italian MIB: down 259.72 points or 1.15%
The Dow: down 41.62 or 0.24%
The Nasdaq: down 5.25 or 0.10%
WTI Oil price;  43.15
Brent OIl:  46.84
USA dollar vs Russian rouble dollar index:  64.94  down 2 roubles per dollar
This ends the stock indices, oil price, currency crosses and interest rate closes for today.
And now for USA stories:


New York equity performances for today:

Pre-Fed Jitters Spark Bond Bid, Stock Skid Amid Crude Carnage

Will they? Or won’t they?


And it’s gone…Enjoy the ride!! Just follow everyone else’s tracks, they can’t all be wrong, right?(Forward to 35 seconds and enjoy the quiet solitude)


Despite various ramps to VWAP (enabling institutional sellers)


The Nasdaq clung to unchanged on the day as Trannies were the biggest laggard…


The Dow seemed to find constant bid support at the PBOC rate cut level while the S&P broke below…


Trannies majorly underperformed today, and converged to crude… just as we said…


Is this the next convergence?

*  *  *

Individual Stocks were the biggest news today..

Ferrari crashed…


Valeant turned red…


Twitter melted up into earnings…


And AAPL tumbled into earnings…


Rite-Aid had quite a day on the Walgreens chatter…


And finally IBM on SEC probing accounting…


Quite a day for “stocks”.

*  *  *

Treasury yields tumbled, but as 10Y approached 2.00%, a mysterious seller came in (as they so often do ahead of FOMC meetings)…


But stocks remain notably decoupled post-ECB…


The US Dollar drifted higher on the day (though remains lower on the week) against the majors (with JPY strength offsetting Swissy and CAD weakness)


The drift higher in the dollar did nothing to slow gold, silver, and copper gains…


But crude continued to collapse to fresh 2-month lows…


As Vol is rising along with tumbling crude once again post-decoupling…


Charts: Bloomberg



Durable good orders tumble for 6 months in a row:

(zero hedge)

Durable Goods Orders Tumble For 6th Consecutive Month As Core Capex Plunges Most Since 2009

After a significant downward revsision to August’s data (to -2.3% MoM), September Durable Goods New Orders dropped 1.2% (better than the expected 1.5% drop only due to historical revisions) for the 5th monthly drop this year. Year-over-Year, Durable Goods orders tumbled 3.6%, accelerating weakness from August amid major revisions. This is the 6th consecutive YoY drop, something not experienced outside a recession. Under the covers it was just as ugly with Non-defense, ex-aircraft orders dropping 0.3% (notably missing expectations) after a huge downward revision for August. What is most worrisome, however, is the collapse in Core Capex YoY down 7.9% NSA – the worst since 2009.


Chart: Bloomberg


As Core Capex (NSA) collapses…

Chart: Bloomberg


And even after the magical seasonal adjustments, Core Capex is the worst since 2009:


Not a pretty picture to hike rates into: simply put, we’re gonna need “moar” war, because The US is either in or entering a recesssion.

Basically for 6 months in a row, home prices across the USA is stagnant at 5%. San Francisco, my favourite city, leads the pack at a 10.7% price appreciation.
(courtesy Case Shiller/zero hedge

Case-Shiller Home Price Appreciation ‘Stable’ At Around 5% YoY

For the first time since April, Case Shiller Home Prices rose month-over-month (though barely at +0.11%). However, this very modestly better than expected print was all thanks to downward revisions of previous data. San Francisco continues to lead the 20-city index with a 10.7% YoY gain. This is the 6th month in a row in which year-over-year gains are basically stagnant at +5%

The first MoM gain in 3 months, thanks to downward revisions…


Leaving YoY gains basically flat for 6 months…



The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 4.7% annual increase in August 2015 versus a 4.6% increase in July 2015. The 10-City Composite increased 4.7% in the year to August compared to 4.5% in the prior month. The 20-City Composite’s year-over-year gain was 5.1% versus 4.9% in the year to July.Before seasonal adjustment, the National Index posted a gain of 0.3% month-over-month in August. The 10-City Composite and 20-City Composite both reported gains of 0.3% and 0.4% month-over-month respectively. After seasonal adjustment, the National Index posted a gain of 0.4%, while the 10-City and 20-City Composites both increased 0.1% month-over-month. Eighteen of 20 cities reported increases in August before seasonal adjustment; after seasonal adjustment, five were down, 11 were up, and four were unchanged.

San Francisco, Denver and Portland reported the highest year-over-year gains among the 20 cities with price increases of 10.7%, 10.7%, and 9.4%, respectively. Fifteen cities reported greater price increases in the year ending August 2015 versus the year ending July 2015. San Francisco and Denver are the only cities with double digit increases, and Phoenix had the longest streak of year-over-year increases. Phoenix reported an increase of 4.9% in August 2015, the ninth consecutive increase in annual price gains. Portland posted a 9.4% annual increase, up from 8.5% in July 2015; this is the biggest jump in year-over-year gains this month.

“Home prices continue to climb at a 4% to 5% annual rate across the country,” says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices.
Most other recent housing indicators also show strength. Housing starts topped an annual rate of 1.2 million units in the latest report with continuing strength in both single family homes and apartments. The National Association of Home Builders sentiment survey, reflecting current strength, reached the highest level since 2005, before the housing collapse. Sales of existing homes are running about 5.5 million units annually with inventories of about five months of sales. However, September new home sales took an unexpected and sharp drop as low inventories were cited as a possible cause. 
Charts: Bloomberg
The service industry dominates the USA and responsible for greater than 70% of the USA GDP.  It reported very weak numbers as it tumbled to the weakest level since January:
 (courtesy zero hedge)

US Services Economy Tumbles To Weakest Since Weather-Crushed January

In January when Markit Services PMI printed 54.2, the weakness was blamed on weather (and port strikes). Now it is sunny October, following the warmest September ever on Earth, and Services PMI has plunged to 54.4 – its lowest in 9 months (handily missing the 55.5 bounce expectation). This flash data shows the weakest payroll numbers since February and business confidence remains just marginally higher than the three-year lows of July. As Markit warns this weakness “will add to calls for policymakers to delay hiking interest rates until the economy finds a firmer footing.”



Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:

“The flash services PMI came in below market expectations in October, indicating a steeper than anticipated slowing of the economy as it entered the fourth quarter.Combined with the manufacturing results released last week, the services PMI survey indicates that the pace of economic growth slowed in October to the weakest since January, when business was hit by extreme weather.


“The surveys suggest the economy started the fourth quarter expanding at an annualized rate of 1.8%, down from the 2.2% pace signalled for the third quarter.


“The warning lights are also flashing brighter in relation to the outlook. Business optimism slipped to one of the lowest seen since the global financial crisis, and employment growth fell markedly in October.


“With the survey also finding price pressures to have remained subdued, especially in terms of wages, the sharper than expected slowdown in October will add to calls for policymakers to delay hiking interest rates until the economy finds a firmer footing.”

Charts: Bloomberg

Consumer confidence is what drives the economy.  The index has now tumbled to 3 month lows even though the stock market is higher and lower gas prices.
(courtesy zero hedge/Consumer confidence index)

Consumer Confidence Tumbles To 3-Month Lows Despite Soaring Stocks & Low Gas Prices

Despite ongoing low gas prices, a recovery in stocks, and the nationally-advertised unemployment rate remaining low, Consumer Confidence tumbled in October from eight-year highs to three-month lows. Worse still, “hope” slid to its lowest in 3 months as “jobs plentiful” slid notably with fewer jobs and decreasing income.



As Gallup noted yesterday,

Though Americans’ confidence in the economy remains negative, it has also not gotten worse after recovering from the year’s low point of -17 in August.


October has brought some positive news as the Dow recovers, with gas prices and the national unemployment rate remaining relatively low. But amid these encouraging signs, major U.S. corporations are reporting a dip in sales and profits, and have signaled a slowing of production that could continue into 2016. None of these factors appears to have been enough to cause Americans to readjust their economic outlook in recent weeks.


For their part, Americans are not as optimistic as they were at the start of 2015,when the consistent decline in gas prices that began late last year helped make them more positive about the economy. Gas prices remain low relative to where they were in the summer of 2014, but Americans may be accustomed to the lower prices now and this may not have as much impact on their views of the U.S. economy’s health as it did in late 2014 and early 2015. Other factors, like the struggles of the stock market for much of this year, may be more top-of-mind now. And while their confidence in the economy’s current health is only slightly negative, their sense of the direction in which the economy is heading is even less rosy.

Charts: Bloomberg

Sam Zell is one smart cookie in the real estate sector.  When he decides to sell, then you know something is up
(courtesy zero hedge/)

Peak Housing 2.0: Sam Zell Dumps 23,000 Apartments In 2007 Deja Vu

If you’ve been apartment shopping in the US lately, you might have noticed that rents are becoming more and more unaffordable seemingly by the month.

We’ve documented the inexorable rise in the cost of renting on too many occasions to count, but for those who need a refresher, we recommend rereading one of our more lengthy treatments in “The Mystery Of The ‘Missing Inflation’ Solved, And Why The US Housing Crisis Is About To Get Much Worse”, published late last month. In it, we explained why riotous laughter invariably ensues every time the Fed tells Americans that inflation is negligible.

In short, the collapse of the housing bubble transformed America into a nation of renters as the following chart of the homeownership rate makes abundantly clear:

That means that when Janet Yellen talks about low inflation, she’s talking to a nation which is struggling to cope with the following reality on a day to day basis:

When looking at the above, and when considering that, aswe reported over the summer, in no state can a minimum wage worker afford a 1-bedroom apartment, one might be tempted to suggest that the top is in.

But not so fast.

It’s also possible that between crippling student debt and demographic shifts, the homeownership rate will continue to plunge.

As things stand today, household formation is being delayed as new graduates cope with i) a jobs market that churns out waiters and bartenders rather than breadwinner jobs, and ii) a student debt burden that averages $35,000 but is in many cases far higher. Meanwhile, a shift in the population to include more Hispanic Americans is also putting pressure on the the percentage of Americans who own a home. These factors could provide a tailwind for the market for the foreseeable future and that, in turn, means rents will only rise further.

One person who’s betting that we may have hit peak-rent is billionaire Sam Zell who just dumped a quarter of the apartments held by his real estate company for some $5.4 billion. Here’s more via WSJ:

Sam Zell has agreed to sell more than 23,000 apartments controlled by his real-estate company, Equity Residential, for $5.4 billion to Starwood Capital Group, the companies said.


The transaction, announced Monday, represents about a quarter of the units in Equity Residential’s portfolio of apartments and would be one of the largest since the recession. It also comes on the heels of Blackstone Group LP’s announcement on Tuesday that it is buying Stuyvesant Town and Peter Cooper Village in Manhattan for $5.3 billion.


Across the commercial-property sector, which includes office, retail and apartment buildings, growing numbers of investors have begun to question how long good times can last after a steep run-up in prices since the downturn.


Record values for offices and hotels in the U.S. and Europe, fueled in part by central banks’ multiyear efforts to keep interest rates near record lows, have prompted some big investors to reassess the market.Apartments have been especially hot, with average U.S. rents climbing 20% over the past five years, according to research firm REIS Inc.


The transaction brings together two savvy deal makers on opposite sides of the trade, Mr. Zell and Starwood Capital Chairman and Chief Executive Barry Sternlicht.

Why is the deal particularly notable? Because Zell has traditionally had a very keen nose about such things as “market peaks”: the 74 years old is credited with calling the top of the real-estate market in 2007, when he sold another of his companies, Equity Office Properties Trust, to Blackstone for $23 billion. Soon after, the commercial-property market crashed as prices fell and debt defaults surged.

As for the current cycle, this deal merely marks the latest liquidation by Mr. Zell’s since 2012. Back then, Equity Residential was a buyer. The firm teamed with AvalonBay Communities to purchase apartment giant Archstone for $6.5 billion, not including about $9.5 billion in debt.

But Equity Residential has become “less aggressive as buyers of assets” in recent years, Mr. Zell said in an interview late Friday. Instead, it is getting out of suburban markets and into downtown urban centers, where young people are moving and where it is more difficult to build, he said.


Most of the 23,300 apartment units in the deal, roughly a quarter of Equity Residential’s total, are low-rise and mid-rise units in suburban markets in and around southern Florida, Denver, Seattle, Washington, D.C., and Southern California. Analysts expect a significant amount of new supply to be concentrated in those markets in coming years.


For Mr. Sternlicht, who made his name in the hotel industry, the move represents a big wager on apartments. His Greenwich, Conn., company has bought or put under contract 67,800 apartment units over the past year, including the Equity Residential deal.


“This is the healthiest U.S. apartment market in my lifetime,” Mr. Sternlicht said in an interview Friday. “We don’t see that trend reversing.”

Maybe not, but on the other hand, it’s only a matter of time before renters are simply priced out of the market. Because while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last month, real income is now back at 1989 levels!

As Harvard’s Center for Housing Studies noted in a recent report, the cost burden on renter is rising at a remarkable pace:

This would seem to suggest that Zell – who also called the top prior to the collapse of the housing bubble – may end up looking like the smart money before it’s all said and done.

As for what happens to cash strapped renters if Sternlicht is correct… well, there’s always the basement…

We close with Zell’s warning from last year: “This is the first time I ever remember where having cash isn’t such a terrible thing, despite the fact that interest rates are as low as they are,”

Looks like a tentative deal has been struck to avoid default.  The new debt ceiling is 19.6 trillion uSA
(courtesy zero hedge)

Boehner On Debt Ceiling Deal: Process “Stinks” But Alternative Was Default

When we presented America’s new debt ceiling of $19.6 trillion lasting through March 2017 last week…


some took offense saying a debt ceiling deal is nowhere near done, and that the conservatives would at least put up a token fight. A few days later, the deal is virtually complete, the Freedom Caucus has been isolated, Paul Ryan never even got his hands dirty, and Boehner has caved one last time corporate/democratic prerogatives, precisely as we said would happen.

Yes, the republicans will pretend to demand concessions, such as a balanced budet and other “sound money” conditions but they won’t get them because the corporations pulling the strings of every D.C. politicians are the biggest beneficiaries from US debt-funded largesse, especially if one throws in the occasional contained or not so contained war.


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.


Which means 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.

Today, as expected, we got the deal under precisely the conditions we envisioned. The WSJ reported:

The White House and congressional leaders reached a tentative deal Monday on a two-year budget plan that also would raise the federal debt limit.


If approved by Congress, the broad pact would allow House Speaker John Boehner (R., Ohio) to resolve two of the thorniest fiscal hurdles before he resigns later this week. If it fails, it could leave the U.S. government a week away from potentially being unable to pay all its bills.


The plan is designed to remove the risk that the government might default and diminish the prospect of a partial government shutdown in December. It would suspend the debt limit through mid-March 2017 and boost spending by $80 billion through September 2017.Lawmakers still would need to pass detailed spending bills by December, likely in one combined measure.


For it to pass the House, the pact will need to quickly win backing from most Democrats and at least a few dozen Republicans who have frequently balked at spending and debt-ceiling bills they say don’t do enough to shrink the budget deficit.

In other words, a “deal” that the majority of the GOP will likely reject, and one which Boehner will ram down the public of the republican party just because.

The deal, which further includes the selling of 58 million barrels of oil from the US SPR for no clear reason – such a sale will only generate $2.5 billion in proceeds – will pass. After all, Congress’ personal financial backers, US corporations and Wall Street demand it.

Which leaves us only with the post-mortem soundbites, such as this one moments from from John Boehner.


And as Boehner’s last act, he now has the honor of telling the US public that its latest and greatest debt target has just been increased to just shy of $20 trillion, a number that will be reached in about 14-16 months (depending on how many more wars the US will start in the interim). Because when it comes to spending like drunken sailors, there really is zero difference between republicans and democrats.


If we are starting to witness trouble in the secondary smart phone sector, you know that the economy is falling into an abyss

(courtesy zero hedge)

Rent-A-Center Stock Plummets For A Very Surprising Reason

Rent-A-Center is best known among the lower/middle class segment of the U.S. population as the place one goes to if one can’t afford (or doesn’t want to) buy furniture or the latest, and not so latest, electronic gadget and would rather rent it out. This morning it is also known as one of the worst performing stocks on the Nasdaq, plunging over 27% to a price not seen since early 2010.


What happened?

First, there was the usual flurry of negative business considerations which accompany every economy that slides into a recession, such as Q4 forecasts below analysts’ estimates while cutting its full-year profit forecast as Q3 sales in United States fell due to higher sales of low-margin merchandise and company closed about 100 underperforming stores.

The CFO added some much needed color adding “we are challenged by (sales of) computers which are down double digits, similar to the industry at large, and we have seen some headwinds in oil industry affected markets, such as parts of Texas,” CFO Guy Constant says on conference call.

This was just the latest confirmation that the US consumer is struggling, not only with regular purchases, but even discretionary rentals.

But the biggest surprise was the following announcement in the press release:

Smartphone Write-Down:


During the third quarter, we determined that it was necessary to adjust our smartphone inventory primarily through the write-down of older generation phones, and via the acceleration of secondary market dispositions of excess phone inventory. Upon standing up the category a year ago, we purchased inventory to support new and older technology, and older generation phones fell short of our expectations while newer generation phones exceeded our expectations, resulting in excess phones. In connection with this decision, the company has recorded a $34.7 million pre-tax inventory write-down in cost of sales for the third quarter to account for these actions. Management is currently refining its approach to this profitable product category based upon our initial year of experience in this area.

This is surprising because lack of interest for “older technology” smartphones was never a reason for trouble, or writedowns, at RCII in the past, and while the company’s and consumers’ focus on the “latest and greatest” is understandable, these account for a sliver of profits in the smartphone segment for RCII.

More importantly, older technology is simply a way to say “cheaper” rentals, which basically targeted an even poorer segment of the lower/middle class.

That there has been such a profound drop off in demand for smartphone rentals begs the following two questions:

  1. just how really cash-strapped is the U.S. consumer, especially that segment that is not in the upwardly mobile, top decile of incomes, and
  2. is America’s infatuation with smartphone gadgets finally coming to an end?

If the answer is two (or even one), then the world’s most valuable stock set to report after the close today, is due for some very difficult times ahead as the magic spell hold of the iPhone on the average consumer may be finally dying. We hope to get some more color on end-demand when Apple reports earnings later today.


More troubles for Valeant as it was hit with a downgrade warning by S and P.  These guys did their acquisitions through debt and that debt totals 30 billion USA.  A downgrade will force them to delever exactly like Glencore.

(courtesy zero hedge)

Valeant Hit With Downgrade Warning By S&P Which Sees “Reputational, Legal, And Regulatory Risks”

While the negative hits to Valeant over the past month have occurred in the equity space, slamming its stock by 50% in the past month, the biggest threat may not be in the equity space at all, but from the bond market.

As a reminder, Valeant – because it is a debt-funded equity rollup – has debt. Lots of debt: over $30 billion at last check on more than 5x less EBITDA. It is also a junk rated company, in fact it is the third largest junk-bond issuer with over $18 billion in sub investment grade securities outstanding.

As such, far more than its debtless biotech peers, it is that much more sensitive to how the market views not only its equity prospects, but also its debt. And, as we first pointed out a month ago, judging by its CDS, the market was getting very concerned even before the recent revelations involving Philidor.

Since then it has only gotten worse, and currently, VRX’ CDS is trading at a spread of 650bps, implying a 43% probability of default.


Moments ago, the BB- rated Valeant debt “story” went from bad to worse, when S&P just revised its outlook to negative citing “Risks To Growth” adding that its “negative rating outlook reflects risks to our base case expectation that Valeant can sustainably grow revenue and EBITDA, given the potential reputational, legal, and regulatory risks the company is facing.

And now that there is an incremental risk of another downgrade, ostensibly pushing Valeant into the single B category, it will make it that much more complicated for Valeant to pursue its rollups strategy.

In fact, just like Glencore, the upcoming downgrade from S&P now means that the next strategic move from Valeant will not be an acquisition, but most likely some deleveraging divestment to shore up capital, because if and when the downgrade series begins, the company’s debt funding pathway will be promptly closed, leaving only suddenly very risky cash flow as a source of capital.

* * *

Full S&P warning below:

Valeant Pharmaceuticals International Inc. Outlook Revised To Negative On Risks To Growth

  • Valeant Pharmaceuticals International Inc. disclosed more details about  its financial relationship with specialty pharmacy network Philidor RX Services. Valeant has also announced another change to elements of its strategy, and does not plan to divest its Neuro business in the near term or to permanently slow its pace of acquisitions. This is the second announced strategic change in two weeks.
  • We view the Philidor relationship and marketing strategy as unconventional and very aggressive, and we expect payers  to increasingly
    push back on reimbursement, potentially reducing the viability of this channel.
  • In our view, the negative attention the company has attracted due to drug price increases and its aggressive marketing tactic increase potential legal, regulatory, and reputational risks to the company.
  • We continue to view the recent market speculation about channel stuffing and accounting fraud as unfounded.
  • We are revising our rating outlook to negative from stable and are affirming our ‘BB-‘ corporate credit rating.
  • The negative outlook reflects heightened uncertainty relating to the financial impact from reputational, legal, and regulatory risks associated with the company’s aggressive marketing and drug pricing strategies, as well as potential legal and credibility issues stemming from the lack of earlier disclosure about its relationship with Philador.

NEW YORK (Standard & Poor’s) Oct. 27, 2015–Standard & Poor’s Ratings Services affirmed its ratings on Valeant Pharmaceuticals International Inc., including its ‘BB-‘ corporate credit rating, and revised the rating outlook to negative.

The negative rating outlook follows Valeant’s increased disclosure about its financial and operating relationship with Philidor, a network of specialty pharmacies that distributes some of its products. Valeant said this channel represents 5.9% of revenues for the first nine months of 2015, and 6.8% of third-quarter revenues,” said credit analyst David Kaplan. “We estimate this channel represents a higher proportion of the U.S. Branded segment’s script volumes than revenues (as cash pay products are reimbursed at lower levels, or unreimbursed in this channel, as part of patient assistance programs to increase access). As such, we estimate that this strategy likely had a meaningful impact on Valeant’s reported volume growth rates on a year-to-date basis.”

Our negative rating outlook reflects risks to our base case expectation that Valeant can sustainably grow revenue and EBITDA, given the potential reputational, legal, and regulatory risks the company is facing. Our base case expectations also incorporate our view that the company will manage its acquisition-driven growth strategy such that leverage will decline to 4x-5x (after adjusting for acquired EBITDA).

We could lower our rating if Valeant increases the pace of acquisitions, or experiences material operational headwinds, such that we expect adjusted leverage to be sustained materially above 5x. We could also lower our rating if we believe that ongoing investigations are likely to imperil the company’s ability to maintain organic revenue growth and strong levels of cash flow, which could indicate more serious issues surrounding the sustainability of the businesses.

We could revise the outlook to stable if we gain more confidence that ongoing investigations are unlikely to harm Valeant’s business. Under this scenario, we would expect to have greater confidence that the company would maintain adjusted debt leverage of about 5x or lower, consistent with historical levels.

This great prognosticator does not forbear well for USA markets:

Trannies… Surprise!!

The Dow Transports is down almost 3% today – its biggest drop in two months… who could have seen that coming?






Charts: Bloomberg


late this afternoon, we find that IBM is tumbling after disclosing to the world that he SEC is investigating the company with respect to revenue recognition:



(courtesy zero hedge)

IBM Tumbles After Disclosing SEC Investigation Into Its Revenue Recognition

Earlier today, ahead of the filing of its 10-Q, IBM provided what it thought would be an unexpected if welcome present to shareholders when it announced that the board authorized $4 billion in additional funds for use in the company’s stock repurchase program. “This amount is in addition to approximately $2.4 billion remaining at the end of September 2015 from a prior authorization. With this new authorization, IBM will have approximately $6.4 billion for its stock repurchase program.”

Oddly enough, the stock not only did not rise, it fell, making some wonder if there was some Easter egg about to be announced in the company’s 10-Q.

There was, and it was the following:

In August 2015, IBM learned that the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., U.K. and Ireland. The company is cooperating with the SEC in this matter.

While hardly suggesting another valeant has emerged, having a regulator focus on a company which has run out of buyback dry powder and whose revenues are the lowest they have been in over a decade, was hardly what the shareholders expected.

The stock, now well below Warren Buffet’s cost basis, did not like it and promptly tumbled once it hit the wires.

The good news, for IBM, is that now it has an even lower price at which to execute its buybacks – the stock has tumbled to levels not seen since October 2010.

And is breaking a key support level back to 1999…

Well that about does it for tonight
I will see you tomorrow night

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