Oct 29.2015/Gold continues to leave comex/no gold again enters the comex/Liquidation continues in silver/Open interest in silver skyrockets to over 176,000/ Sovereign Japan now owns over 52% of ETF’s as they are running out of bonds to purchase/Deutsche bank has huge loss and are to fire 35,000 workers/Venezuela will no doubt be void of any of its gold by Dec 2015 as it liquidates gold to pay for goods/Valeant flashes crashes on news CVS is dumping their pharmacy partner/

Gold:  $1147.20 down $28.50   (comex closing time)

Silver $15.54  down 74 cents

In the access market 5:15 pm

Gold $1147.45

Silver:  $15.61


for the Comex gold and silver: OPTIONS EXPIRED  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 302 notices for 30,200 ounces and then another 12 notices very early this morning: total 314.  Silver saw 17 notices for 85,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.42 tonnes for a loss of 95 tonnes over that period.

In silver, the open interest rose by a whopping 6281 contracts as silver was up 43 cents in yesterday’s trading.  The total silver OI now rests at 176,038 contracts In ounces, the OI is still represented by .881 billion oz or 126% of annual global silver production (ex Russia ex China).

In silver we had 17 notices served upon for 85,000 oz.

In gold, the total comex gold OI rose by a considerable 3,743 to 470,523 contracts.  We had 314 notices filed for 31,400 oz today.

We had no change in gold inventory at the GLD / thus the inventory rests tonight at 694.34 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,a big withdrawal of 1.001 million oz in silver inventory   / Inventory rests at 314.533 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 an astounding 6281 contracts up to 176,038  as silver was up 43 cents with respect to Wednesday’s trading.   The total OI for gold rose by 3743 contracts to 470,523 contracts as gold was up $10.40 yesterday.

With huge OI increases no wonder we witnessed a massive raid by the bankers as they try and cover their non backed shorts.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)


 i) Last night, 9:30 pm WEDNESDAY night, THURSDAY morning Shanghai time.  Japan gains, Shanghai gains.
(zero hedge)
 ii)  Japan is continually buying bonds through QE but the bonds in number are declining.  They will run out by Dec 2016.
(zero hedge)
 i) Deutsche bank reports a massive loss and they will fire 35,000 poor souls
(zero hedge)
ii) German confidence has now fallen for 7 straight months and now even Italy’s confidence level is higher than Germany
(zero hedge)
iii) and iv) Bank of America has taken a thorough look at the huge number of negative bond yields in Europe totaling 2.6 trillion USA.  They also note that the huge QE is having the opposite desired effect, namely spreading deflation instead of the intended inflation.  Interestingly enough, Sweden and Denmark are seeing consumers hoarding euros instead of spending as savings rates increase dramatically:  again the opposite desired effect.  Thus QE is a failure.
(two commentaries/zero hedge)
v) In the invasion of Europe and what is looks like:
(zero hedge)
 i) Natural gas hits rock bottom in pricing
(zero hedge)
 i )NATO wishes to rattle the Russian nerves by stationing thousands of troops on the Russian border
(zero hedge)
 ii) Ron Paul disgusted that the USA is putting boots on the ground in Syria and Iraq
(Ron Paul)
 i) strangely crude trades higher today despite the lower GDP report for Q3
(zero hedge)
 The doorknob, Maduro President of Venezuela will have his entire stach of 367 tonnes of gold sold by December
(zero hedge)

9 USA stories/Trading of equities NY

i) Pending homes sales fall the most since 2013

(zero hedge)

ii) Dave Kranzler talks on the faltering pending home sales

(Dave Kranzler/IRD)

iii) Lawrie on gold:

will the uSA raise rates in December and what will be the effect on gold

(Lawrie on gold/Sharp’s Pixley)

iv) GDP misses expectations coming in at only 1.5%

(zero hedge)

v) jobless numbers just do not make sense

(zero hedge)

vi) Valeant flash crashes

(zero hedge)

vii) Bankers upset as they need higher amounts of collateral in derivatives

(London’s financial times)


10.  Physical stories

i)  Chris Powell on evidence of gold manipulation by the bankers

(Chris Powell/GATA)

ii)Fiat money update by Alasdair Macleod.  Alasdair illustrates the huge increase in Fiat and includes the huge increase in reverse repos which in essence is an increase to the bankers of badly needed collateral.

a must read

(Alasdair Macleod/Goldmoney.com)

iii) Lars Schall/GATA.  An Austrian bankers writes on secret gold intervention by central bankers.  However on questions as to how they are doing it:  they refuse to answer..go figure


(Lars Schall/GATA)




Let us head over to the comex:

The total gold comex open interest rose from 466,780 up to 470.523 for a gain of 3743 contracts as gold was up $10.80 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 stopped.  We are about to leave the active delivery month of October as the  contract is now off the board. The November contract went up by 17 contracts up to 438. The big December contract saw it’s OI rise by 3138 contracts from 308,827 up to 311,965. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 144,471 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 199,104 contracts.
Today we had 314 notices filed for 31,400 oz.
And now for the wild silver comex results. Silver OI fell by a massive 6,281  contracts from 169,757 up to 176,038 as the price of silver was up 43 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. The huge rise in silver OI necessitated a massive raid by the bankers as they had to cover their rather large shortfall.  We now enter the non active delivery month of November. The OI rose by 7 contracts up to 41.  The huge (and active) delivery month of December saw it’s OI rise by a massive 4446 contracts up to 114,593. The estimated volume for today (regular hours Comex) came in at an huge 58,564.  The confirmed volume yesterday (comex + globex) was an astounding 77,716.
We had 17 notices filed for 85,000 oz.

October contract month:

FINAL standings

Oct 29/2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  2989.95 oz



Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  nil
No of oz served (contracts) today 314 contracts

31,400 oz 

No of oz to be served (notices) 0
Total monthly oz gold served (contracts) so far this month 950 contracts

95,000 oz

Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 188,281.0  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 Scotia:  2989.95 oz
total customer withdrawal 2,989.95  oz
We had 0 customer deposits:

Total customer deposits nil  oz

we had 1 adjustment:

 i ) From the Scotia vault:  24,752.507 oz was adjusted out of the customer and this landed into the dealer account and no doubt will be used in the settling process.
 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 302 contracts of which 301 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 (950) x 100 oz  or 93,800 oz , to which we  add the difference between the open interest for the front month of Oct. (314 contracts) minus the number of notices served upon today (314) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the final standings for gold for the Oct. contract month:
No of notices served so far (950) x 100 oz  or ounces + {OI for the front month (314)– the number of  notices served upon today (314 x 100 oz which equals 95,000 oz  standing  in this month of Oct (2.9548 tonnes of gold).
We neither lost nor gained any gold ounces standing in this  active delivery month.
We thus have 2.9548 tonnes of gold standing and only 7.063 tonnes of registered gold (for sale gold/dealer gold) waiting to serve upon those standing.
Total dealer inventory 227,085.579 oz or 7.063 tonnes
Total gold inventory (dealer and customer) =6,700,779.364   or 208.42 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 208.42 tonnes for a loss of 95 tonnes over that period.
The comex resumes its liquidation of gold.
And now for silver

October silver FINAL standings

Oct 29/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 326,342.530 oz 


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil  oz
No of oz served (contracts) 17 contract  (85,000 oz)
No of oz to be served (notices) 0 contracts 


Total monthly oz silver served (contracts) 107 contracts (535,000 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 10,866,358.4 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit; nil oz

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

total customer deposits: nil oz

We had 2 customer withdrawals:
i) Out of Brinks:  308,808.210 oz
ii) out of Scotia; 25,534.320 oz

total withdrawals from customer: 326,342.530    oz

we had 2 adjustment
 i) Out of CNT:
280,289.600 oz was removed from the dealer and this landed into the customer account of Delaware
ii) Out of Brinks:
9512.000 oz ??? was removed from the dealer and this landed into the customer account of Brinks
Total dealer inventory: 43.153 million oz
Total of all silver inventory (dealer and customer) 162.098 million oz
The total number of notices filed today for the September contract month is represented by 17 contracts for 85,000 oz. To calculate the number of silver ounces that will stand for delivery in Oct., we take the total number of notices filed for the month so far at (107) x 5,000 oz  = 535,000 oz to which we add the difference between the open interest for the front month of September (17) and the number of notices served upon today (17) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the Oct. contract month:
107 (notices served so far)x 5000 oz +(17) { OI for front month of September ) -number of notices served upon today (17} x 5000 oz ,=535,000 oz of silver standing for the Oct. contract month.
This should finalize silver for the month of October.
we neither lost nor gained any silver ounces on this last day before first day notice.
the liquidation in the dealer silver and customer silver continue.


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 29/no change in gold inventory at the GLD.Inventory rests at 694.34 tonnes
Oct 28.2015: a huge withdrawal of 1.2 tonnes in gold inventory/rests tonight at 694.34
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 29/2015 GLD :694.34 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 29/a big withdrawal of 1.001 million oz from the SLV/Inventory rests at 314.532

Oct 28.2015: no change in silver inventory at the SLV//inventory rests at 315.533 million oz.

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 29/2015:  tonight inventory rests at 314.532 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 10.6 percent to NAV usa funds and Negative 10.7% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.4%
Percentage of fund in silver:38.4%
cash .2%( Oct 29/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+0.35%!!!! NAV (Oct 29/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV falls to – .65% to NAV Oct 29/2015)
Note: Sprott silver trust back  into positive territory at +0.35% Sprott physical gold trust is back into negative territory at -.65%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)

Global Property Bubble Set To Burst – UBS and Deutsche Warn

The London property market is being increasingly recognised as a bubble and now even leading international banks are warning that the bubble may be set to burst.

GoldCore: Global Property Bubble

Today, UBS has warned that London’s property market is “frothing” and last week Deutsche Bank were the property party pooper “calling time” on the London property “party.”  

According to a new UBS report, England’s capital is home to the most significantly overvalued housing market of any major city in the world – and that means there’s a risk the bubble is close to bursting.

“When inexpensive financing is combined with bullish expectations, real estate prices eventually uncouple from the real economy,” said UBS head of global real estate Claudio Saputelli.

“We have seen this in the current cycle, particularly in the world’s leading financial centers, where housing prices are now, in many cases, fundamentally unjustified. The risk of a real estate bubble in these cities has risen sharply. While it is not always possible to prove conclusively the existence of a bubble, it remains essential to identify the signs of one early on.”

Deutsche bank’s research as seen in the latest edition of its Konzept magazine last week warned that:

“The dinner-party perception that prices for prime London property have always gone up is potentially a reason to worry. That everyone strongly believes they will continue to go up further is a cause for anxiety. Still, timing any turn is hard and it has long been a losing battle to call an end to the froth in this market. But perhaps we are close to the turning point.”

Deutsche describes previous examples of house-price slumps, notably in Hong Kong and Japan:

There are multiple catalysts to suggest that 2015 is the turning point [for London]. The most significant are: impending higher interest rates, tighter macro-prudential policies and a deepening politicisation of the housing issue. Again, all that needs to happen is for investors to think price outcomes are asymmetric, with low upside and large downside.

There is growing political risk embedded in prime London housing. It is not that prices cannot rise further. It is that the more they rise the greater the chance of a political backlash against further gains.

What’s more…

Valuations are high relative to history, falling interest rates cannot provide further support, and given current affordability home ownership cannot rise materially. London’s property is unlikely to enjoy the next 30 years as it did the last.

We clearly warned in December 2014, that the London property bubble looks set to burst. According to a host of different measures it appears overvalued and indeed severely overvalued.

Indeed, we were one of the few brokerages and advisers to warn regarding the global property bubble prior to the global financial crisis. Our analysis of property markets led to growing concerns in 2004 and 2005 about the very high levels of mortgage and total debt being seen in the UK, U.S. and internationally.

Our research clearly warned regarding property bubbles in the UK, Ireland and the U.S. and we warned readers and especially clients about the risks this would pose to the global financial system and economy and the risks of a global financial crisis.

Now is a good time to reduce allocations to overvalued property markets in many leading international cities such as New York, Hong Kong, Singapore, London and elsewhere and to diversify into physical gold.

A bursting of property bubbles in London and New York would be expected to have an impact on national economies and indeed on national property markets. Sentiment would be badly impacted.

Caution should be the order of the day.


Download Essential Guide To Storing Gold Offshore



Today’s Gold Prices: USD 1159.00, EUR 1057.38 and GBP 759.28 per ounce.
Yesterday’s Gold Prices: USD 1171.50, EUR 1058.98 and GBP 765.94 per ounce.

GoldCore: Gold in USD - 1 Month

Gold in USD – 1 Month

Gold lost $9.60 yesterday, closing at $1156.80.  Silver closed at $15.99, a gain of $0.11.  Platinum gained $14 to $998.

Gold has recovered some lost ground this morning, climbing 0.2% after they slid from two-week highs yesterday following a Fed statement that put a potential December rate hike back on the table … once again.

Interestingly silver, platinum and palladium held up very well yesterday and avoided the losses seen in gold, but are down slightly today.


GoldCore: 7 Key Gold Storage Must Haves

Download 7 Key Storage Must Haves

Mark O’Byrne
Bill Holter, zero hedge and now Alasdair Macleod have been pounding the table on the increase in reverse repos by the Fed.  In simple language the Fed is supplying badly needed collateral to the bankers as governments continually remove treasuries as they engage in QE.
Alasdair illustrates the potential problem facing the Fed and government:
(courtesy Alasdair Macleod)

Fiat Money Quantity Update

October 29, 2015

 after a few months of slower growth, FMQ has picked up again. FMQ is the sum of True Money Supply (as defined by the Austrian School of Economics), plus the banking system’s reserves and other banking-related liabilities on the Fed’s balance sheet. Account is taken of temporary adjustments that otherwise distort the picture, such as the Fed’s repurchase agreements and reverse repurchase agreements. See here for a fuller description of FMQ.

The intention is to quantify fiat money both issued into public circulation and also held in reserve within the federal banking system. Fiat currency was originally issued in return for gold deposited with the commercial banks in return for bank notes and deposits. This gold was then passed to the Fed in return for cash and reserves, subsequently handing it on to the US Treasury in return for a certificate, which appears on the Fed’s balance sheet to this day. FMQ quantifies the full reversal of this process.

The chart above shows that the growth in FMQ since 1960 followed an exponential path until the banking crisis in 2008. Subsequently, it has accelerated to the end-September 2015 level of $14.39 trillion, considerably above its long-term historic path, and reflects the monetary hyperinflation initiated by the Fed in its attempts to rescue the financial system from the last banking crisis, and then to revive the US economy.

Reverse Repos

The biggest jump in September was an increase in reverse repurchase agreements of $413 bn. While the trend in reverse repos is rising, it is a very volatile component of FMQ. In a reverse repo, the Fed temporarily borrows money from commercial banks for a fixed period, posting financial assets, such as US Treasuries, as collateral. So what are these reverse repos about?

There are two basic reasons for the Fed to enter into reverse repo transactions: either the Fed wants to mop up liquidity in the banking system, or it is alleviating a shortage of collateral in the wider financial system. In this case it would appear to be the latter, and is therefore a sign of financial stress. Put simply, there is an imbalance between too much fiat money and not enough collateral, which is creating operational problems.

One should bear in mind that the dollar is the world’s reserve currency; so as well as managing the US banking system, the Fed also has a responsibility for foreign-owned dollar liquidity. Aggressive quantitative easing by the ECB, through a demand for collateral, has driven 2-year government bonds in most European markets into negative yields. Financial engineering employing derivatives arbitrages this problem into dollars, and therefore increases banking demand for repos with the Fed in order to obtain collateral. This is the same as reverse repos from the Fed’s perspective; hence the Fed ends up supplying the dollar collateral required by the global banking system.

The moral of the story is that the Fed has to keep pumping out both money and collateral under all circumstances, QE or no QE. While there is variation in the monthly growth in FMQ, the accelerating trend is clear to see. It is no exaggeration to say that the dollar is undergoing a monetary hyperinflation that has become unstoppable without incurring serious economic dislocation. So long as the purchasing power of the dollar in terms of everyday goods is not undermined, there will be no restraint in the pace of money-creation.

The primary sources of demand for new fiat money are the financial system and the US Government. The financial system requires continuing injections of bank credit in order to stop asset prices from stalling, and the government continues to need funds to cover its budget deficit and to pay interest on earlier debt. As if to rub in this point, for the umpteenth time the debt ceiling will have to be raised next week to avoid a government default.

Meanwhile, non-financial private sector demand for money remains subdued. The lack of economic growth over recent years is a reflection of how little extra money is entering the “real” economy. Furthermore, depressed overseas markets have undermined commodity prices and created bad debts estimated in the trillions, payable in dollars both in the US and abroad. Sound businesses are reluctant to borrow, except for purely financial reasons, and banks are understandably reluctant to lend. Unsound businesses are the only eager borrowers, needing more credit to survive.

Inevitably, the solution to this problem from a central banker’s perspective is further monetary expansion, if only to offset a tendency for bank lending for non-financial purposes to contract. Even money-inflation moderates now accept that the quantity of money must be expanded, at an accelerating rate if necessary, to prevent the US economy from sliding into depression.

The Relevance To Gold

While the purpose of FMQ is to quantify the fiat money originally created through the acquisition of publicly owned gold, there is no point in trying to estimate a value for gold by reversing the process. The Fed no longer has the gold on its balance sheet. Instead it has a gold certificate valued at $11bn, issued by the US Treasury.

The gold certificate is just a piece of paper. The true quantity of gold held by the US Government is unknown, even though it is stated to be 8,134 tonnes. A subset in the Treasury, the Exchange Stabilisation Fund, was set up by a provision of the Gold Reserve Act of 1934, explicitly without legislative oversight, for the purpose of covertly managing the dollar gold price. It is likely that over the decades the majority of the Treasury’s gold has been sold or leased into the market through this fund.

Instead, we can only deflate the gold price by the increase in FMQ to arrive at a value in 1934’s dollars, at the time of the Gold Reserve Act. It is only fair to also deflate the gold price on the same basis, given the world’s above-ground stocks in 1934 were estimated to be 49,000 tonnes, against 165,000 tonnes today. The result is shown in the chart below.

Priced in dollars deflated by the increase in FMQ and global above-ground gold stocks since 1934, the price has fallen from $35 to only $3.42. The lowest it has been in these terms was $3.31 in April 1971, when heavy government intervention failed to suppress the price, only four months before President Nixon threw in the towel.

You can take one of two views: either gold is now only an historical curiosity and has no relevance to modern macroeconomics, or it is incredibly undervalued. Anyone taking the former stance will need to convincingly explain:

  • Why it is irrelevant that people all over the world are accumulating gold as the ultimate store of exchangeable value;
  • Why it is that monetary hyperinflation, in defiance of history, will not lead this time to an uncontrollable fall in the purchasing power of the dollar; and
  • Why ordinary people will not discard fiat currency for gold in the future.

In the absence of a convincing case for the status quo, FMQ indicates that a revival in the gold price of epic proportions is long overdue.


Alasdair Macleod | Head of Research GoldMoney.com



Chris Powell on gold manipulation:


(courtesy Chris Powell/GATA)

Chris Powell: Gold market manipulation update


By Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
Hilton New Orleans Riverside Hotel
Wednesday, October 28, 2015

Everything about the financial markets today must begin with two documents.

The first is the 2013 10-k filing with the U.S. Securities and Exchange Commission by CME Group, operator of the major futures exchanges in the United States. In August 2014 Eric Scott Hunsader, founder of the market data firm Nanex in Winnetka, Illinois, called attention to a telling paragraph in the filing. The telling paragraph discloses that the customers of CME Group include “governments and central banks.”


Also in August 2014 Hunsader called attention to another filing by CME Group, a letter sent in January 2014 to the U.S. Commodity Futures Trading Commission by CME Group’s managing director and chief regulatory counsel, Christopher Bowen.


The letter disclosed that CME Group futures exchanges offer volume trading discounts to central banks for all futures contracts, not just financial futures contracts but also futures contracts for the monetary metals and commodities, including agricultural products.

The CME Group letter to the CFTC justified secret futures market trading by central banks as a matter of providing the markets with “liquidity” that would benefit all traders.

But if governments and central banks, creators of infinite money, are secretly trading the markets, there ARE no markets anymore, just interventions, as a high school graduate told GATA’s conference in Washington in 2008 and as the British economist Peter Warburton suspected in his incisive 2001 essay, “The Debasement of World Currency — It Is Inflation, But Not as We Know It”:


If governments and central banks are secretly trading the markets, no fundamental or technical analysis of markets is worth much. If governments and central banks are secretly trading the markets, the only market information worth much is information about government and central bank trading.

GATA has continued to document that central bank trading and related maneuvers since we met here in New Orleans a year ago. Let’s review some of the new documentation.

— On September 21 this year gold researcher Koos Jansen reported that the rules of the International Monetary Fund exempt imports and exports of monetary gold from reporting by national customs agencies. That is, the purchase and sale of monetary gold by governments and central banks across international borders can be withheld from customs reporting, thereby facilitating secret intervention in the gold market:


— On September 16 this year gold researcher Ronan Manly disclosed that while the new daily London gold auction was established in the name of reducing the possibility of market manipulation, the auction’s operator, the Inter-Continental Exchange, has reported to the United Kingdom’s Financial Conduct Authority that spikes in Comex gold futures prices seem to have been undertaken to manipulate the afternoon gold auction in London:


— On August 6 this year Manly disclosed a policy study by the Bank of England written in 1988 that concluded that gold is the best money because it has no counterparty risk but that buying it risks insulting the U.S. dollar and the U.S. government:


— On June 9 this year Colorado securities lawyer Avery Goodman, who researches the gold market, called attention to the hugely disproportionate Comex futures contract gold deliveries being made by the investment bank JPMorganChase. The disproportion of the deliveries assigned to MorganChase, Goodman wrote, suggested strongly that the investment bank is administering the U.S. Federal Reserve’s gold swapping and leasing operations and that at least for the time being the U.S. government and U.S. gold reserve are guaranteeing Comex gold futures contracts:


— On May 3 this year gold researcher Manly called attention to the Internet site of the gold market consultancy started last year by the former Barclays Bank representative in the London Gold Market Fixing company, Jonathan Spall. Spall’s new company is called G Cubed Metals:


The G. Cubed Metals Internet site says: “All connected with G Cubed Metals are well aware of the need for confidentiality in all financial markets as well as the additional sensitivity that comes from transacting in precious metals — particularly when it involves the ‘official sector’ such as governments, central banks, and sovereign wealth funds.”

Why do governments and central banks need such confidentiality in their gold market operations unless they mean to do something they don’t want the market to know about?

— On April 6 this year gold researcher Manly disclosed a letter written on January 30 by the chief executive of the London Bullion Market Association, Ruth Crowell, to the Bank of England’s Fair and Effective Market Review Committee.


Crowell wrote: “The role of the central banks in the bullion market may preclude ‘total’ transparency, at least at public level.”

While Crowell wrote that the LBMA welcomes more transparency in the London gold market, particularly through what she called “post-trade reporting,” she also praised gold lending by central banks for providing “liquidity” to the market, asserting that “it is vital that the role of the liquidity provider is not diminished but in fact strengthened to make sure the markets remain fair and effective.”

The Bank of England’s review of the gold market, Crowell’s letter said, “should prioritize liquidity, as greater liquidity results in markets which are less easily manipulated, and consequently regulators should afford market participants the tools with which to foster liquidity.”

But if the foremost providers of “liquidity” in the gold market are central banks, their provision of “liquidity” is likely the primary mechanism of market manipulation, as central banks have not just access to effectively infinite financial resources but also the powerful motive to manipulate the markets in which their currencies and bonds trade.

Thus with its chief executive’s letter to the Bank of England, the LBMA made the same bogus and self-serving claim that was made by futures exchange operator CME Group in support of the volume trading discounts it gives to central banks for secretly trading the U.S. futures markets CME Group operates — the claim that secret trading by central banks deters market manipulation rather than constitutesit.

— On March 1 this year a GATA supporter discovered a Ramparts magazine article from May 1968 written just after the collapse of the London Gold Pool. The article was written by Michael Hudson, who then was an analyst for Chase Manhattan Bank and lately has been professor of economics at the University of Missouri at Kansas City:


Hudson wrote:

“America’s desire to see gold eliminated from the world’s monetary system is understandable. It had used gold as a lever with which to exercise world power, not only to purchase foreign businesses but also to finance its overseas Cold War operations. Gold, America perceived, was power; as long as gold was the basis of the world monetary system, power followed it. Therefore, when its gold stockpile was depleted, America naturally wanted to transform the monetary system in such a way as to phase gold out, thereby preventing any other nation from using the power it provides — especially in view of the fact that the major potential gold-bloc nations are the Soviet Union, South Africa, and France.”

— On February 28 this year gold researcher Manly located comments made by a high official of the Bank of England in a 2007 issue of the magazine Central Banking indicating that the Bank of England secretly traded gold in the 1980s to control its price and even made a profit doing so:


— In January this year the chief of market operations for the Banque de France, Alexandre Gautier, replied to an e-mail inquiry from GATA’s friend Fabrice Drouin Ristori, chief executive of Goldbroker.com in Malta. Gautier had told the London Bullion Market Association meeting in Rome in September 2013 that the Banque de France secretly trades gold “nearly every day” for its own account and for the accounts of other central banks:


Ristori asked Gautier to explain the purposes of the Banque de France’s gold trading. Gautier replied that the French central bank never explains its operations in the gold market.


But the only purpose of such daily trading by central banks is market manipulation.

— A week ago the executive director of Austria’s central bank, Peter Mooslechner, was interviewed by Daniela Cambone of Kitco News on the sidelines of the London Bullion Market Association conference in Vienna. Mooslechner volunteered to Cambone that Asian central banks are intervening surreptitiously in the gold market:


Cambone had asked Mooslechner to explain the role of central bank gold reserves.

Mooslechner replied: “I think for small countries it’s more or less this buffer role in the end. It’s quite different, I think, for central banks in Asia, for example, where they are increasing their reserves a lot and they are much more active in using also their reserves in trading in the market and intervening into the market.”

But Cambone seemed to fail to understand what she had just been told. She asked no follow-up questions about secret central bank interventions in the gold market.

GATA’s friend the German financial journalist Lars Schall noticed Cambone’s gross omission and understood its importance. So Schall sent his own follow-up questions to the Austrian central bank in the hope that Mooslechner would reply:


Schall asked Mooslechner the following questions:

— Can you elaborate on the trading of gold by central banks and their use of gold for market intervention?

— Exactly which central banks are doing this trading and intervention, what are its purposes, objectives, and results, and what markets are involved?

— Are this trading and intervention public and announced or are they secret and surreptitious?

— Are this trading and intervention undertaken directly by central banks or through intermediaries?

— If this trading and intervention are undertaken through intermediaries, who are they?

— Should markets and citizens generally have the right to know about this trading and intervention?

— And how do you know about it, Herr Mooslechner?

Today Schall reported that the Austrian central bank’s press office had just replied to him as follows: “Sorry, we are not going to answer your questions. We never comment on our investment strategy and trading”:


But Schall had not asked about the Austrian central bank’s investment strategy and trading. He had asked about the Austrian central banker’s comment on Asiancentral bank trading and secret market intervention.

Even so, Mooslechner’s lapse into candor about secret central bank intervention in the gold market was notable enough. Maybe Mooslechner is not available to answer Schall’s questions because he is floating face-down in the Danube.

— Of course Cambone’s job at Kitco News is not to commit journalism; it’s just to look pretty.

But a few days after Cambone flubbed her interview with the Austrian central banker, the star columnist of the Financial Times, Martin Wolf, did no better with his interview with former Fed Chairman Ben Bernanke over lunch at a restaurant in Chicago.


Amazingly, Wolf never asked Bernanke an inconvenient question. Wolf asked no questions about surreptitious interventions in the markets by the Fed, and no questions about the many documents involving market intervention that the Fed refuses to disclose.

For Wolf’s job at the Financial Times is not to commit journalism either. It’s just to shill for the government and ingratiate the newspaper with it.

* * *

The primary objective of these largely surreptitious interventions by central banks in the gold market has been to keep the gold price down and thereby destroy the natural inverse relationship of the gold price with interest rates and currency values — to prevent gold from serving its traditional function as a hedge against government mismanagement of currencies and markets, to prevent people from escaping the central bank system.

By any traditional market standard it is absurd that gold should be priced below the cost of its production when, as now, real interest rates and even nominalinterest rates are negative. Gold can be priced this way only because of massive intervention — constant, daily, even hourly intervention by central banks using derivatives, high-frequency trading, and dishoarding from central bank gold reserves.

If you rig the risk-free rate of return, the price of money from the government, and rig the price of the traditional safe-haven money, gold, you rig all prices, rig the price of all capital, labor, goods, and services in the world, and thereby destroy the market economy. Even some central bankers have been calling this policy “financial repression.”

In today’s environment of “financial repression,” any investment in gold and gold-mining companies is a bet on the restoration of a market economy — or a bet that, eventually, yielding to market pressures, central banks will choose to devalue currencies and debt by resetting the gold price much higher and resuming their gold price suppression scheme at a more sustainable level, a level with less offtake from their gold reserves. This would be the sort of thing central banks have done before, as in 1933 and 1934, 1968, and 1971.

I have no insight into exactly what will happen or when. I think the best that advocates of free and transparent markets can hope for is to drag “financial repression” fully into the open so that even mainstream financial news organizations like the Financial Times are forced to acknowledge it. Then the world can plainly decide between totalitarianism and democracy.

Much more documentation of the rigging of the gold market by central banks is posted in the “Documentation” file at GATA’s Internet site:


If you think GATA’s work is worth sustaining, please visit our Internet site at GATA.org and consider supporting us with a federally tax-deductible contribution. We’re a nonprofit educational and civil rights organization and more than ever could use your help now.

Thanks for your kind attention.




(courtesy Lars Schall/GATA)

Austrian central bank won’t answer questions about its exec’s remark on gold intervention


5:37p CT Wednesday, October 28, 2015

Dear Friend of GATA and Gold:

Freelance financial journalist Lars Schall reports today that the Austrian central bank has refused to answer his questions about the assertion last week by the bank’s executive director, Peter Mooslechner, that Asian central banks are using their gold reserves to intervene secretly in the gold and currency markets, an assertion reported to you here:


Schall writes that he received today the following reply from the head of the Austrian central bank’s press office, Christian Gutlederer: “Sorry, we are not going to answer your questions. We never comment on our investment strategy and trading.”

Schall’s updating on the issue is posted at his Internet site here:


Schall had sent these questions to Mooslechner:

— Can you elaborate on the trading of gold by central banks and their use of gold for market intervention?

— Exactly which central banks are doing this trading and intervention, what are its purposes, objectives, and results, and what markets are involved?

— Are this trading and intervention public and announced or are they secret and surreptitious?

— Are this trading and intervention undertaken directly by central banks or through intermediaries?

— If this trading and intervention are undertaken through intermediaries, who are they?

— Should markets and citizens generally have the right to know about this trading and intervention?

— And how do you know about it, Herr Mooslechner?

Schall did not ask the Austrian central bank to “comment on our investment strategy and trading.”

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




And now your overnight THURSDAY morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan rises , this  time at  6.3556 Shanghai bourse: in the green, hang sang:red 

2 Nikkei up  32.69 or .17%

3. Europe stocks all in the red   /USA dollar index down to 97.42/Euro up to 1.0960

3b Japan 10 year bond yield: rises to .308% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.85

3c Nikkei now just above 18,000

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

3e WTI: 45.31  and Brent:   48.27

3f Gold down  /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 dramatically to  .438 per cent. German bunds in negative yields from 6 years out

 Greece  sees its 2 year rate falls  to 8.47%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield rises to  : 7.88% (yield curve inverted)  

3k Gold at $1158.25 /silver $15.90 (7:30 am est)

3l USA vs Russian rouble; (Russian rouble down 1/2 in  roubles/dollar) 64.42

3m oil into the 45 dollar handle for WTI and 48 handle for Brent/ China purchases huge supplies from Saudi Arabia

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9897 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0857 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  +.443%/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 2.09% early this morning. Thirty year rate below 3% at 2.87% / yield curve flatten/foreshadowing recession.

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

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

Futures Fade As Hawkish Fed Deemed Not So Bullish After All

Based on the overnight market prints which are an oddly reddish shade of green, it took algos about 12 hours to realize that the reason they soared for most of October, namely hopes of an easier Fed which were launched with the terrible September jobs report and continued with increasingly worse US economic report in the past month,can not be the same reason they also soared yesterday after the announcement of a more hawkish than expected Fed statement which envisioned a stronger US economy and a removal of foreign considerations, which even more curiously took place on even worse data than the Fed’s far more dovish September statement.

As BNP put it “The Fed wants us to believe that it did not go in June and September, when the economy had a stronger pulse than it does now, but it is really seriously considering December. So much for data dependence.” 

It gets worse: “To us, this seems to compound the Fed’s recent communication challenges and also threatens to combine this with a serious policy mistake. We don’t believe Chair Yellen will go along with this in the end, but the probability of a mis-step seems to have risen, to roughly a 50% chance in the market’s eyes.” Which in the CCD “eyes”  of algos, is probably bullish too until it isn’t.

Realized concerns about a stronger Dollar promptly pressured emerging markets, led by Indonesia whose main stock index fell more than 2.5 percent on Thursday, to its lowest in around two weeks.

Perhaps serving as a good indicator of what will happen now that the rate hike is back on the table, the overall Indonesian stock market saw outflows of foreign funds this week, in line with most peers in the region, as investors also awaited earning results for indications of the outlook on corporate health.

So is the EM debt crisis/capital outflow back on the table? Unless the Fed finds a way to somehow telegraph it will both ease and hike, we may soon have a repeat of the summer of 2015 when everything started falling apart simply because nothing has changed.

Something that did change overnight were job prospects for Deutsche Bank bankers after their employer announced plans to cut 35,000 jobs over the next two years as part of a sweeping overhaul under new co-Chief Executive John Cryan. The move, which came as Germany’s largest lender reported a steep third-quarter net loss, comes as Mr. Cryan attempts to reshape the bank by slashing costs, reducing risk and simplifying its business after taking over in the summer.

The overall head count reduction includes 9,000 full-time jobs, 6,000 external contractors and 20,000 additional roles through the disposal of assets. The bank’s total head count is around 100,000.

The news follows last night’s announcement that DB is also halting its dividend until at least 2016. Surprisingly, DB stock – which usually loves mass layoff announcements – did not like the news.


Going back to the market, Asian stocks saw indecisive trade as they digested the Fed’s decision to keep rates unchanged but kept prospects of a 2015 rate hike on the table. Shanghai Comp. (+0.4%) fluctuated amid mixed comments from PBoC assistant governor Yin, who dismissed the inclusion of QE as part of PBoC policy but also added that the central bank is to utilize further monetary policy tools and that there is plenty of space regarding rates . Nikkei 225 (+0.2%) declined from its highs as the JPY strengthened, while ASX 200 (-1.3%) underperformed weighed on by Woolworths (-9.70%) after it cut its forecast. Of note, Samsung Electronics operating profit rose 82% Y/Y but it missed on its net income. JGBs tracked UST yields higher following the less dovish FOMC meeting and better than expected industrial production data (M/M 1.00% vs. Exp. -0.60%) dampening calls of further BoJ easing.

Chinese Premier Li is said to say that China requires 6.53% – not 6.52%, not 6.54%, but 6.53% – GDP growth in the next 5yrs. There were also reports that Premier Li and German Chancellor Merkel agreed that a feasibility study regarding China-EU free trade discussions should be set up ASAP with Merkel adding that she hopes a trade deal is signed next year.

Risk averse sentiment also dominated the price action in early European trade as market participants reacted to somewhat hawkish Fed statement yesterday and re-priced expectations for a hike in December. Short-term rate curves continued to steepen, with Short-Sterling under particular pressure given the policy divergence between the ECB and the BoE. As a result, despite the initial selling pressure and the supply from Italy (equivalent to around 30k Bund futures), Bunds quickly found support amid the growing expectation of further policy easing by the ECB and also month-end related flows.

Disappointing earnings from the likes of Barclays (-5.4%), Sanofi (-4.4%) and Shell (-1.5%) also played its part in weighed on equity indices (Euro Stoxx: -0.6%). However the move lower was led by materials, which remain particularly susceptible to expectations of rate hikes by the Fed and also lingering concerns over China. In turn, this meant that the commodity heavy FTSE-100 index (-1.0%) underperformed its EU peers.

In commodities, the energy complex has continued its downward trend following the hawkish interpretation of yesterday’s FOMC statement, with the metals complex also weighed upon by the recent USD strength amid relatively light commodity specific newsflow. In terms of looking ahead, today sees the EUR Natgas storage change, (Exp. 69, Prey. 81).

After the initial volatility following the announcement by the Fed, the price action by major FX pairs was largely locked to a range-bound pattern , in part due to a number of large expiring strikes on Friday. In particular, the focus is firmly on the upcoming BoJ rate decision.

Elsewhere, EUR/USD broke out of its tight overnight range midway through the European morning, supported by the upside in EUR/GBP amid touted month-end related flow as well as relatively upbeat data out of Germany, with regional CPIs coming in generally higher than expected . Of note, overnight saw the CNH experience gains as participants anticipate further intervention, with large Chinese banks selling USD in the offshore market according to trade sources as the PBoC continues to attempt to converge the two rates.

Going forward, market participants will get to digest the release of the advanced Q3 US GDP report, weekly jobs report, pending home sales report, as well as comments by Fed’s Lockhart.

Market Wrap

  • S&P 500 futures down 0.6% to 2073
  • Stoxx 600 down 0.3% to 375
  • MSCI Asia Pacific down 0.9% to 134
  • US 10-yr yield down 2bps to 2.08%
  • Dollar Index down 0.4% to 97.39
  • WTI Crude futures down 0.9% to $45.54
  • Brent Futures down 0.9% to $48.61
  • Gold spot up 0.4% to $1,161
  • Silver spot up less than 0.1% to $15.96

Main News

  • Deutsche Bank to Shrink Workforce by About 26,000 in Revamp: Will cut 9,000 net, others to leave by 2018 as part of asset sales
  • Marco Rubio Lands Punches at Republican Debate in Colorado: Showed a knack for parrying attacks to his benefit
  • China Signs $17 Billion Deal to Buy 130 Airbus Planes: Intensifies competition with Boeing in what’s projected to become the world’s biggest aircraft market
  • Shell Has Biggest Loss in More Than a Decade on Price Slump: Took $7.89b charge on lower oil-price expectations
  • Barclays Third-Quarter Profit Misses Estimates, Cuts 2016 Target: Shares fall more than 6%
  • Samsung Deploys Cash With $10 Billion Buyback, Capex Boost: Tapping its $50b cash pile to buy back shares and invest in its components business
  • Nokia to Return $4.4 Billion to Investors Amid Deal Savings: Also moved forward a target for the savings it expects to reap from the takeover of Alcatel-Lucent

Select Corporate News

  • Baxter Names Jose Almeida Chairman, CEO
  • Ackman’s Pershing Square Loses 15.9% YTD as Valeant Drops
  • Newmont 3Q Adj. EPS, Rev. Beats; Cuts Yr Capex View
  • PayPal Reaffirms 2015 Forecasts; 3Q Oper. Profit Misses
  • Amgen Raises ‘15 View Above Ests. as 3Q Beats
  • IMAX 3Q Rev. Tops Ests.; Boosts 2015 Global Installation View
  • Buffalo Wild Wings Cuts Yr EPS View After 3Q Misses Est.
  • Yelp Raises Yr Net Rev. Range, 3Q Rev. Beats; Shrs Gain 7.4%
  • GoPro 3Q Adj. EPS, Rev. Trail Ests.; Shares Fall
  • McGraw Hill Financial Working w/ Adviser on J.D. Power: Reuters

DB’s Jim Reid concludes the overnight wrap

If you’ve got a Christmas party on December 16th you might want to reschedule. However before we debate whether the Fed have cancelled Christmas, China is dominating the headlines this morning.

Premier Li Keqiang has said that the Chinese economy now needs growth of at least 6.53% over the next five years in order to achieve the government’s goal of a ‘moderately prosperous society’. We’re not sure whether something was lost in translation that explains why the second decimal is so important but that is a direct quote. The comments came at the end of the 5th Plenary Session of the Central Committee of the Communist Party of China today although according to Bloomberg the comments were said to have been made at an October 23rd speech to Communist Party members. While this doesn’t appear to be the new official target of the Chinese government, the comments are a big signal that China’s government look set to lower their growth target when we eventually hear the outcome from the four-day meeting.

As we’d highlighted previously our China Chief Economist had expected that the likelihood of keeping the 7% growth target was slightly higher than cutting it to 6.5% so the news has come as a slight surprise although a Bloomberg survey suggested the majority of participants expected the Chinese government to move closer to a 6.5% target. Market reaction has been minimal. Chinese equity markets have traded in a relatively tight range all morning and the Shanghai Comp (+0.46%) is a touch higher post the news. Markets are mixed across the rest of the Asia region however with gains for the Nikkei (+0.30%) but falls for the Hang Seng (-0.17%), Kospi (-0.28%) and ASX (-1.28%). US equity futures are down nearly half a percent while EM currencies have declined across the board, although much of this weakness coming before the China news and more related to the FOMC last night.

Although we didn’t think the Fed would take a December hike off the table, it was a surprise for them to warn the market so explicitly that a rate rise was a distinct possibility at their next meeting. A key line was the first part of the following sentence which was added this month – “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.” They also removed the following sentence that was in the September statement: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” So the Fed think financial conditions have calmed enough for them to try to prepare markets for their long desired hike. Whether this eventually causes the same cycle of risk-off again is the big question. It didn’t last night as the S&P closed +1.18%, having fallen -1% post statement before rallying all the way back at the close (more later).

Other parts of the statement didn’t really acknowledge recent weaker data. The Fed continues to see growth “expanding at a moderate pace” in spite of Q3 GDP estimated by most economists to have a 1-handle. They also said “Household and business fixed investment have been increasing at solid rates.” even though the latest retail sales or durable goods data both missed. Retail sales ex auto and gas was 0.0% mom in September missing expectations by three-tenths (and the lowest monthly reading since April) while the latest durable goods ex transportation data printed at -0.4% mom, a miss versus expectations by four-tenths and the second consecutive negative monthly print. Meanwhile with regards to employment the Fed’s assessment was downgraded, with “solid job gains” replaced with “The pace of job gains slowed.” which is appropriate given the last payroll print. Reading between the lines the old 200k unofficial payroll target for a hike may have been lowered.

Overall the criteria for whether they hike in December continues to be data and financial market dependant but they have given the market warning of where their biases lie. All year we’ve been pretty convinced they won’t hike in 2015 but last night’s statement definitely puts us at risk of being wrong at the final hurdle. The probability of a December hike has now bumped up to 46% from around 35% 24 hours ago after having been as low as 26% earlier this month. Unsurprisingly it was a strong day for the USD with the Dollar index up +0.90% while US Treasury yields climbed higher. The 10y finished the day up +6.4bps at 2.102% while at the shorter end of the curve 2y yields were up +8.2bps (to 0.705%) for the biggest daily move higher since March 6th. Some of those moves were also supported by the September advance goods trade balance reading yesterday, with the deficit shrinking to $58.6bn from $66.6bn last month and to a seven-month low after exports rose +3.1% in the month and imports declined -2.5%.

That data came ahead of today’s Q3 GDP print where market expectations are for a fall to +1.6%, with our US colleagues slightly below this at +1.4%. As has been the trend in recent quarters the Atlanta Fed is more bearish and has Q3 growth pegged at +1.1% post yesterday’s trade data (which helped lift it from +0.8% on Tuesday). The data is due out around 12.30pm London time.
Meanwhile it was a roundabout session for US credit markets yesterday also. CDX IG initially spiked a couple of basis points wider immediately following the FOMC from the day’s tights, but much like US equity markets then rallied into the close to finish 1bp tighter on the day. Much of the rebound for risk assets was led by a strong surge in bank stocks in particular, the financials component of the S&P 500 leading gains after rallying 2.4%. Energy stocks also played a large part after Oil markets spiked higher following a combination of the latest inventory data (as supplies rose less than expected) and a more technical-led rebound following the recent downturn in prices over the last couple of weeks. WTI finished the session up +6.34% and just shy of $46/bbl, while Brent rebounded +4.79% to settle back above $49/bbl.

It was another bumper session for US earnings yesterday with 45 S&P 500 companies reporting. In its first earnings report since separating from EBay, Paypal’s Q3 numbers were a bit of a mixed bag after beating profit expectations, but missing at the top line while investors latched onto some disappointing aspects in the details to send the stock down as much as 8% in extended trading. There were better numbers to come out of Amgen however, where the company reported beats at both levels and raised full year guidance. 35 (78%) companies notched a beat in earnings relative to guidance yesterday, slightly better than what we’ve seen so far (76% with 273 companies now having reported). It was actually a decent day for results all round, with 28 (62%) of yesterday’s reporters also notching a beat in revenue expectations which is well ahead of 47% run rate so far.

Prior to the FOMC and subsequent sharp moves across the pond yesterday, it was a relatively decent day for European equity markets with the Stoxx 600, DAX, CAC and peripheral bourses finishing with gains of around 1%. It’s the European sovereign bond market which is generating much interest at the moment however with a number of fresh record low yields being struck. Yesterday it was comments from the ECB’s Constancio which added to the dovish tone of late. The ECB Vice-President was noted in particular as saying that the bank’s main policy rates will stay low for a prolonged period of time and that the asset purchase program will keep the ECB’s balance sheet expanding until we see a sustained adjustment in the path of inflation. Importantly, Constancio also highlighted that ‘downside risks to the global economy have increased’ and that ‘the ECB is closely monitoring these developments and stands ready to act with all available instruments’.

Helped also by more easing out of Sweden yesterday after the Riksbank expanded its bond purchase plan for the fourth time this year (but kept the repo rate on hold at -0.35%), 2y bond yields in France, Finland and Belgium all struck record lows yesterday at -0.291%, -0.327% and -0.295% respectively. In fact with yields in both Spain and Slovenia nudging back into negative territory again yesterday, there are now 14 European countries with 2y yields trading below 0%, while 10 countries are below zero at the 5y bucket. Yesterday’s 10y Bund auction also drew the lowest yield since April this year (0.44% compared to the 0.62% yield at a 10y auction earlier this month) although it still has some way to go to match April’s auction where 10y Bunds priced at just 13bps.

Turning over to today’s calendar now. In Europe Germany’s preliminary CPI report will be closely watched with the market expecting the YoY rate to nudge up a couple of tenths to +0.2%. German unemployment data is also due and in Spain we’ll also get the latest CPI data along with retail sales. Euro area consumer confidence is expected while the latest UK credit aggregates and mortgage approvals numbers for September are due. In the US this afternoon it’s all eyes on the Q3 GDP read, while we’ll also get the latest quarterly core PCE data, along with initial jobless claims and September pending home sales. The Fed’s Lockhart is expected to make some comments today around lunchtime while it’s another busy day for earnings with 49 S&P 500 companies due to report with the highlights including ConocoPhillips and Time Warner (both prior to the US open). In Europe 33 Stoxx 600 companies are expected to report earnings also, with Total, Royal Dutch Shell, Barclays Bank, Danske Bank and Banco Santander just some of the highlights


Last night, 9:30 pm WEDNESDAY night, THURSDAY 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

Japanese Stocks, USDJPY Tumble On ‘Good’ Data As China’s Offshore Yuan Strengthens

The surge in the USDollar today after The FOMC’s ‘hawkish’ statement has prompted strength in the Offshore Yuan, narrowing once again the spread to Onshore Yuan. Another CNY10 billion cash injection hasn’t done much for Chinese stocks or liquidity markets however. After better than expected Japanese industrial production however USDJPY plunged (i.e. no imminent BoJ easing) and that dragged Nikkei 225 over 200 points lower (erasing all the FOMC gains).


Offshore Yuan strengthened notably (despite the USD strength against the majors) narrowing the spread to onshore yuan…


As The Dollar is losing steam quickly against Asian/EM FX...


In another sign of China’s pullback, Aussie new home sales crashed 4.0% MoM – the largest drop since July 2014.

And Aussie Miners have been tumbling all week…


But it is Japan that got interesting…

Japanese markets opened with a disappointingly better than expected print for industrial production…


Which immediately knocked 30 pips off USDJPY



And Japanese stocks have tumbled – giving up all the FOMC Statement gains…


Good news is super bad news in Japan.


Charts: Bloomberg




Wow!! the Bank of Japan now owns 52% of the entire Japanese ETF market.  They will soon run out of anything to buy by late 2016. However they still need Postbank’s huge hoard of treasuries:


(courtesy zero hedge)


The BoJ Owns 52% Of The Entire Japanese ETF Market , And Now It Wants More

Way back in March, after the BoJ’s equity plunge protection had been exposed for all the world to see, we brought you a hilarious set of proclamations from Haruhiko Kuroda who, you’re reminded, is known for surreal soundbites regarding both the effectiveness of unconventional monetary policy and the omnipotence of central banks.

The BoJ’s $90 billion equity portfolio is actually “not large”, Kuroda explained, before adding this amusing bit of color: “stocks aren’t being lifted by the BoJ’s ETF purchases.” You can evaluate the veracity of that statement for yourself using the following chart from WSJ:

Kuroda’s comments came on the heels of a Nikkei piece which contained the following rather eye-opening passages:

The central bank’s portfolio has a book value of around 5.7 trillion yen. But soaring share prices have lifted its market value past the 10 trillion yen mark — nearly 2% of the tally for all Tokyo Stock Exchange shares.


The figure makes the BOJ second only to the Government Pension Investment Fund, whose portfolio boasted a market value of 27 trillion yen as of December’s end.


Although the central bank does not disclose details of share-buying operations, it frequently steps into the market and buys 30 billion yen to 40 billion yen worth of stocks when equity prices falter in the morning. Its purchases Tuesday reached 35.2 billion yen, underpinning a market that showed signs of a morning struggle. The bank has carried out 20 such operations so far this year.


The stock portfolio’s impact on the BOJ’s financial health can no longer be ignored.


The bank’s net worth is 2.8 trillion yen, while its stock portfolio is worth twice that in book value, or 250% more in market value. Japanese megabank Mitsubishi UFJ Financial Group has a net worth of 14 trillion yen, with its stock portfolio amounting to only 5 trillion yen in market value.


The central bank must book losses when stock prices suffer extraordinarily sharp drops, since its financial health could hurt confidence in the Japanese currency.

Right. In other words: you can’t mark your equity book “held to maturity.”

The problem for the BoJ is that it’s running out of bonds to buy. Literally. Recall our assessment from last month in which we highlighted comments from BofAML and from the IMF, both of which indicate that Kuroda will soon find that the central bank has hit its limit in terms of finding willing sellers and in terms of how far the BoJ can push the QE envelope. 

As we said in September, in 6-9 months, following the next major market swoon when everyone is demanding more action from the BOJ, “suddenly” pundits will have discovered the biggest glitch in the ongoing QE monetization regime, namely that the BOJ simply can not continue its current QE program, let along boost QE as many are increasingly demanding, unless it finds willing sellers, and having already bought everything the single biggest holder of JGBs, the GPIF, had to sell, the BOJ will next shakedown the Post Bank, whose sales of JPY45 trillion in JGBs are critical to keep Japan’s QQE going.

Indeed, the IMF notes that in Japan, where there is a limited securitization market, the only “high quality collateral” assets are JGBs, and as a result of the large scale JGB purchases by the JGB, “a supply-demand imbalance can emerge, which could limit the central bank’s ability to achieve its monetary base targets. Such limits may already be reflected in exceptionally low (and sometimes negative) yields on JGBs, amid a large negative term premium, and signs of reduced JGB market liquidity.”

For those surprised by the IMF’s stark warning and curious how it is possible that the BOJ could have put itself in such a position, here is the explanation:

So far, the BoJ’s share of the government bond market is similar to those of the Federal Reserve and still below the Bank of England (BOE) at the height of their QE programs. Indeed, the BoE held close to 40 percent of the conventional gilt market at one point without causing significant market impairment. Japan is not there yet, as the BoJ held about a quarter of the market at end-2014. But, at the current pace, it will hold about 40 percent of the market by end-2016 and close to 60 percent by end-2018. In other words, beyond 2016, the BoJ’s dominant position in the government bond market will be unprecedented among major advanced economies.

So with the list of willing sellers dwindling and market liquidity evaporating (and you don’t want that because it sets the stage for harrowing VaR shocks which, if you’re holding a massive book of bonds, can lead to outsized losses – on paper anyway), the BoJ will need to turn increasingly to stocks, and as Bloomberg reports, owning half the ETF market may no longer be enough for Kuroda. Here’s more: 

Japan’s central bank already owns more than half of the nation’s market for exchange-traded stock funds, and that might just be the start.


The Bank of Japan will boost stimulus on Friday, according to 16 of 36 economists in Bloomberg’s latest survey, with 12 saying it would do so by increasing its annual ETF-buying budget. With 3 trillion yen ($25 billion) a year in existing firepower, the BOJ has accumulated an ETF stash that accounted for 52 percent of the entire market at the end of September, figures from Tokyo’s stock exchange show.


The Topix index is up 21 percent since the central bank unexpectedly tripled its ETF budget almost a year ago, and Citigroup Global Markets Japan Inc.’s Tsutomu Fujita says there’s room for them to triple it again. For Amundi Japan Ltd., expanding the program would do more harm than good.


“At a fundamental level, I don’t support the idea of central banks buying ETFs or equities,” said Masaru Hamasaki, head of the investment information department at Amundi Japan. “Unlike bonds, equities never redeem. That means they will have to be sold at some point, which creates market risk.”

Right. Once again, you can’t mark your equity book “held to maturity” and as an aside, it’s not clear how the BoJ intends to exit these positions without precipitating a crash. In any event, Kuroda’s protestations notwithstanding, the BoJ is certainly propping up the equity market…

The BOJ tends to enter the market on days where stocks decline in the morning, and has spent more than 80 percent of its allowance for this year.


“The BOJ’s ETF buying has an impact on investor psychology,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute Inc. and a former central-bank official, who expects policy makers to announce an increase in purchases of ETFs, sovereign debt and real-estate investment trusts on Friday.

…and because the central bank has literally cornered the JGB market, expanding the ETF portfolio is the only option…


“Buying bonds is no longer possible, but they still have plenty of scope to increase ETFs purchases to, say, 10 trillion yen from the current 3 trillion yen,” said Fujita, the vice chairman of Citigroup Global Markets Japan, who expects the central bank to ease by January.

unless of course the central bank breaks down and starts buying individual stocks…

Similar to 2002, “they could also buy the underlying stocks too.”

As Bloomberg goes on to note, buying individual issues would allow the BoJ to effectively control corporate management teams on the way to dictating decisions about wage hikes and capex. In other words, when Abenomics fails, the BoJ will simply take over the boardroom and mandate higher pay in an effort to fix this:

Or, as Izumi Devalier, HSBC’s Hong Kong-based economist puts it, “if the macro didn’t work, maybe you do it on a super micro level.”

Yes, “maybe” you do, but this amounts to an all-out effort to centrally plan the economy and like all such efforts, it will end in tears and the extent of the sorrow will be directly proportionate to how far the state has gone in terms of trying to dictate macro outcomes via micromanagement.

At some point, this charade has to end. There will be no more monetizable assets and unless the government intends to simply issue one liability (a bond) and buy it with another liability that they also print (fiat money) for the sheer sake of keeping the ponzi scheme alive (i.e. issuing debt for the sole purpose of perpetuating QE), “failed state” status is right around the corner.

We close with two quotes and one searing image.

Paul Krugman: “Why does the tide finally seem to be turning? Partly, I think, it’s just a matter of time; after six years it’s becoming hard not to notice that the anti-Keynesians have been wrong about everything. And the refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous.”


Haruhiko Kuroda“I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.” 




As I stated yesterday, business conditions must be rosy in Europe + 10 countries +_ the problems at Hypo bank are not going away:
(courtesy zero hedge)

Deutsche Bank Reports Massive Loss, Will Cut 35,000 Jobs, Exit 10 Countries In Sweeping Overhaul

As we put it a few days ago while mocking Saudi Arabia’s attitude toward “collateral damage” from its bombing runs in Yemen, “you can’t make an omelette without breaking a few eggs.” Well, over at Deutsche Bank, John Cryan has been busy crushing whole cartons worth. 

From sweeping job cuts, to reorganizations, to eliminating the dividend, Cryan has been a veritable wrecking ball since taking the helm from co-CEOs Anshu Jain (who is gone) and Jürgen Fitschen (who is leaving). 

Just yesterday, Europe’s largest bank announced that the dividend would be scrapped as part of “Strategy 2020.” Here are some other key points from Cryan’s “plan”:

  • CET 1 ratio: at least 12.5% from the end of 2018
  • Leverage ratio: at least 4.5% at the end of 2018 and at least 5.0% at the end of 2020
  • Return on Tangible Equity (RoTE): greater than 10% by 2018
  • Adjusted Costs (total noninterest expenses excluding restructuring and severance, litigation, impairment of goodwill and intangibles and policyholder benefits and claims) of less than EUR 22.0 billion by 2018
  • Cost/income ratio (CIR) of approximately 70% in 2018 and of approximately 65% in 2020
  • Risk Weighted Assets (RWA) (excluding regulatory inflation following regulatory changes expected to be at least EUR 100 billion by 2019/2020) of approximately EUR 320 billion at the end of 2018 and of approximately EUR 310 billion at the end of 2020.

Well, the hits just kept coming on Thursday as Deutsche Bank made good on a promise to write down billions in assets in its investment bank and retail- and private-banking operations. The Q3 loss: €6 billion.

 That’s a record, and Cryan understandably described it as “highly disappointing.” The pain was largely attributable to “impairments of goodwill and other intangibles,” or, put differently, “marking things to reality.’” As a reminder, here’s what DB said earlier this month:

An impairment of all goodwill and certain intangibles in Corporate Banking & Securities (CB&S) and Private & Business Clients (PBC) of approximately EUR 5.8 billion. This is largely driven by the impact of expected higher regulatory capital requirements on the measurement of the value of these segments as well as current expectations regarding the disposal of Postbank.

And here’s what the writedown looks like in the context of previous quarterly results:

So yeah, nothing good about that. Other highlights from the report: investment banking revenues were marginally higher Y/Y with fixed income holding up. Overall revenues were down 7%. Here are Goldman’s summary bullets:

  • FX moves aside, (i) FICC down -25% q/q and up +20% y/y – the y/y results falls from +20% to +5% y/y if we adjust for CVA gains, CVA methodology changes and FVA impact; (ii) equities fell 20% y/y (and 40% q/q); (iii) advisory -8% y/y. All-in, this is a solid result y/y, compared to reported averages thus far helped by (1) the weak Euro and (2) low base effect. We await company clarification on the composition of the FICC result.
  • IB revenues up +3% y/y, with the US$ strength (~+14% vs € y/y) contributing substantially.
  • Divisional PBT, on an underlying basis: (1) CB&S –45% y/y; (2) GTB +15% y/y; (3) PBC: 53%y/y ; (4) AWM:-15% y/y (5) non-core unit lost €278 mn headline
  • B3 CET1 ratio up 10bps to 11.5%, this contrasts to the 11% the company expected as of October 7. This discrepancy is driven by the reversal of previous dividend accruals in line with the announced elimination of the dividend.
  • Stated TBVPS fell 1%, to €38.99 putting the stock on 0.7x P/TB.

And now for the fun stuff. As part of the “new” strategy (which Morgan Stanley thinks looks a lot like the “old” strategy), the bank will exit 10 countries including Mexico, Norway and New Zealand, and move trading operations from Brazil to global and regional hubs.

Additionally, Cryan will cut a total of 35,000 jobs. As WSJ notes, “the overall head count reduction includes 9,000 full-time jobs, 6,000 external contractors and 20,000 additional roles through the disposal of assets.” Deutsche will also dump a host of assets including its Postbank retail unit.

But don’t worry, because as John Cryan said, “Deutsche Bank does not have a strategy problem.” 

That’s probably true. It’s hard to have a strategy “problem” when you have no strategy at all.

*  *  *

Bonus humor for those who know something about Austrian black swans (via Bloomberg):

  • Deutsche Bank wrote up Heta Asset Resolution claim by EU24m
  • Doesn’t give reason for write-up


This is interesting!!  German confidence has now fallen for 7 consecutive months.  Having seen Deutsche Bank’s balance sheet, no wonder confidence is wallowing.
(courtesy zero hedge)

Italians More Confident Than Germans For The First Time Since 2009

The latest batch of European consumer confidence data is a very mixed bag. On the weak side, the French continue to be miserable, notable outliers to the rest of the majors, and German confidence has now fallen for 7 straight months. However, Italians have not been this confident since 2002 and for the first time since 2009, both Italian and Spanish consumer confidence is higher than Germany’s.


Charts: Bloomberg

Of course, if everyone is so very “confident”, why does Draghi continue do this:

The Bank of America takes a look at Europe’s record number of negative yielding debt:  in total 2.6 trillion euros worth of bonds.  As you will see below this causes a sea of deflation to circle the globe, exactly opposite to what was suppose to happen.  The other finding was that Sweden and Denmark had increases in savings with negative rates as citizens hoarded cash due to feelings that something is wrong in the economy and they do not spend…
(courtesy Bank of America/zero hedge)

BofA Looks At Europe’s Record €2.6 Trillion In Negative-Yielding Debt, Is Shocked At What It Finds

Yesterday we reported something that has never happened before in Europe: more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields.


As we further noted, this brought back memories of a post we did back in January when JPM was shocked to find that “in the aftermath of the ECB’s NIRP policy, and subsequently QE, an unprecedented €1.4 trillion in European debt with a maturity of more than 1 year traded down to subzero, as in negative, yields.”

Overnight BofA’s Barnaby Martin decided to break down the most recent total and found something staggering: that €1.4 trillion number is a long gone memory and has been replaced with a “negative-yielding wonderland.” To wit:


The easing bias of central banks in Europe over the last week has exacerbated the shortage of positive-yielding assets. Negative-yielding government debt in the Eurozone has jumped from €2tr to €2.6tr over the last week and now stands at a record high. The previous peak in negative-yielding government debt was €2.4tr, reached in April this year prior to the “Bundshock”. 

Visually Europe’s monetary twilight zone looks as follows:

This was the be expected, as now every single activist central-bank is exporting deflation with a passion. The result is that negative yields have led to even more… deflation.

The problem of low inflation remains evident. Swiss inflation has collapsed into very negative territory, albeit precipitated by the SNB abandoning their currency peg earlier in the year. While Danish inflation has moved away from zero post big rate cuts in 2015, it is still hovering at just 0.5%. And Swedish inflation has been stuck around zero since early 2013.

So while everyone is gradually realizing that unconventional monetary policy using the bank reserve pathway simply does not work to increase broad inflation (however it does miracles for asset-price, i.e., stock market, inflation) which in a world drowning under $200 trillion in debt is the only goal, and will ultimately be replaced with the hyperinflationary endgame of simple monetary paradrops, also known as central-bank funded fiscal stimulus or “helicopter money”, for now the hope is that doing more of the same which is clearly not working will finally work, and lead to the much desired jump in inflation.

Alas, it won’t, because as we have stated for years, and where Bank of America finally “gets it”, frontrunning central banks purchases of government bonds, which pushes yields to zero and in Europe’s case, well below, is in itself the most deflationary signal possible.

Recall that the thinking behind NIRP was simple: to force people out of their savings and to invest their rapidly devaluing cash in either the stock market or the real economy. However, since as shown above, everyone is merely frontrunning the ECB’s future purchases, yields continue sliding signalling a tsunami of deflation

… which in turn makes the money in the bank even more valuable.

And this is where BofA admits something that, at least to its own conventional sensibilities, is quite amazing: NIRP is achieving the opposite of what it was meant to achieve.

The problem of low inflation remains evident. Swiss inflation has collapsed into very negative territory, albeit precipitated by the SNB abandoning their currency peg earlier in the year. While Danish inflation has moved away from zero post big rate cuts in 2015, it is still hovering at just 0.5%. And Swedish inflation has been stuck around zero since early 2013.

And the stunner:

Yet, household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.

The evidence:

By the way, “perversely” is the term economists use when reality not only does not comply with their models but does precisely the opposite of what was intended.

BofA concludes:

For now, negative rates as a policy tool remain a “work in progress”, judging by the current inflation levels across Europe. But the rise in household savings rates amid so much central bank support is paradoxical to us, and mimics what we highlighted in the credit market earlier this year. Companies in Europe are deleveraging, not releveraging, and are buying back bonds not stock.


Despite NIRP, therefore, “animal spirits” across companies and consumers in Europe have yet to be stirred.

And that is how, in a very polite way, you admit Europe’s monetary policy has failed.

But fear not: when even “moar” QE and NIRP do not work, and the economists of the ECB admit the “monetary twilight zone” was a disaster, there is one last “tool” they can and will use – helicopters.

Because when it comes to printing money, whether in digital reserve format, or physical paper format, there is literally no limit how much can and will be created to achieve what is the endgame of the current monetary dead end: the total destruction of fiat as a store of wealth in order to preserve the global equity tranche while wiping away a few hundred trillion in debt.

A very important read…
We find that QE is not working because we witness deposit rates in the negative for Denmark, Sweden and now Germany.  This causes deflation and this deflation circles the globe.
Also note the huge saving rates.  Normally with negative deposit rates, consumers loathe to pay money to store their money in a bank.  But lo and behold savings rate rose in Sweden and Denmark despite NIRP. Thus QE is a recipe for failure
(courtesy zero hedge)

Here Is Goldman’s “Exhibit A” Why The ECB’s Monetary Policy Has Been A Failure

Earlier today we noted something long overdue: the big banks are slowly admitting that QE, especially in its extended NIRP version, is not working. To wit:

The problem of low inflation remains evident. Swiss inflation has collapsed into very negative territory, albeit precipitated by the SNB abandoning their currency peg earlier in the year. While Danish inflation has moved away from zero post big rate cuts in 2015, it is still hovering at just 0.5%. And Swedish inflation has been stuck around zero since early 2013.


Yet, household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.


For now, negative rates as a policy tool remain a “work in progress”, judging by the current inflation levels across Europe. But the rise in household savings rates amid so much central bank support is paradoxical to us, and mimics what we highlighted in the credit market earlier this year. Companies in Europe are deleveraging, not releveraging, and are buying back bonds not stock.

BofA showed this chart of soaring European interest rates coupled with surging savings rates: precisely the opposite of what the ECB’s tacti intention.


Then, to our surprise, none other than Mario Draghi’s former employer, Goldman Sachs, came out with a report which essentially doubled down on BofA’s skepticism, by practically admitting that what the ECB is doing in a monetarily interconnected world, where every central bank is now an activist exporter of its own deflation (and concurrently importing others’ deflation) is not going to work.

The subdued and increasingly persistent inflation dynamics that have prevailed in recent years may have eroded central banks’ best line of defence in the face of adverse disinflationary shocks. The energy-price-driven decline in Euro area inflation from 2012 to 2015 has thrown this possibility into even sharper relief.


By embarking on unprecedented balance sheet operations and forward guidance, central banks in Europe have sought to ring-fence domestic inflation expectations and signal their intention to maintain monetary conditions easy for a protracted period of time. Mario Draghi himself described the ECB’s asset purchase programme as a way of ensuring that very low (and, at times, negative) inflation does not lead wage- and price-setters to adjust their behaviour to a perceived lower steady-state rate of inflation. However, judging from market-based implied measures of longer-term inflation expectations, the effectiveness of the ECB’s announcements has proved limited so far.

And once again, just like in the BofA case, this is the most diplomatic way Goldman could find to say that Europe’s NIRP (and QE) are not working.

Its Exhibit A: the following chart showing the “history” of Europe’s current and future inflation.  It is self-evident that Europe’s inflationary expectations have never been lower.

Why the sudden attack against unconventional monetary policy?

Perhaps the same reason just one month ago banks such as Citi and Macquarie came out and said outright monetary financing is just a matter of time.

Perhaps BofA, and now Goldman, are setting the stage for the next iteration: after all any rational person by now realizes that just by doing more of what has failed, will fail, and lead to even more spectacular volatility and bigger crashes.

However, that does not give the banks an option of simply giving up. As a result, while the market is currently in a euphoric mood – unknown for how much longer: after all the same dynamics that unleashed the EM crisis in the summer just came back with a vengeance with a Fed once again jawboning for a December rate hike and promoting a stronger dollar hinting at an even more violent EM upheaval in the months ahead –  the large banks are quietly positioning their support for the “policy recommendation” that will follow the next deflationary surge.

For the answer whether it will finally be the inevitable helicopter money, find out after the next 5-10% market “crash.”


The invasion of Europe
take a good look
(courtesy zero hedge)

This Is What The “Invasion Of Europe” Looks Like

On Monday, we brought you a series of still shots along with a video which depicted the scope of Europe’s migrant crisis via drone footage.

The point in highlighting the imagery was to demonstrate just how futile the EU’s effort to establish a series of refugee “holding camps” along the Balkan route to Germany is likely to be.

As a reminder, Jean-Claude Juncker and Angela Merkel are attempting to convince recalcitrant states to support efforts to place hundreds of thousands of asylum seekers, but a mandatory quota system only served to enrage the likes of Hungary which quickly moved to close off its borders with Serbia and Croatia and that, in turn, set off a Balkan border battle.

Now, Brussels is looking to provide shelter for the migrants as they make their way to Germany but as we noted earlier this week, these way stations will swiftly become overcrowded, unsafe refugee internment camps and they’ll likely be easy targets for vociferous anti-migrant protests or worse. 

If you needed further evidence of the extent to which any attempt to shelter the flood of asylum seekers with makeshift camps is likely to prove not only futile, but dangerous, consider the following video which vividly demonstrates just how acute the crisis has become:

As you can see, the situation is quickly spiraling out of control and it isn’t at all clear that Europe can cope with the people flows even if it wanted to. This is nothing short of an epochal demographic shift and as we’ve documented on a number of occasions (see here and herefor instance), it’s not at all clear that Europeans are prepared for it.

Caution: xenophobia ahead.


Natural Gas prices dive again
(courtesy zero hedge)

NatGas Nosedives To New Cycle Lows

Once the algos had their way with stop-running to yesterday’s highs (following a smaller than expected build in stocks for the second week in a row), NatGas has collapsed back to new cycle lows…



“unequivocally good” right?

(courtesy zero hedge)

NATO Looks To Station Thousands Of Troops On Border With Russia

Russia’s dramatic intervention in Syria has served to push the conflict in Ukraine (a country that is now partially governed by Star Wars characters) to the back of the world’s collective mind. After all, separatists exchanging fire with government forces and/or far-right “volunteer” battalions every couple of days against a dreary backdrop of rundown Eastern European towns isn’t nearly as exciting as Sukhois dropping bombs on sword-waving desert bandits and so, Ukraine’s crisis has gradually receded into the background.

That said, it’s important to remember that one of the principal reasons for deteriorating relations between Moscow and the West is the conflict in Ukraine. 

Indeed, Russian “aggression” in the region has triggered a series of snap drills on NATO’s part, the most amusing of which involved a set of war games centered around the capture of a fictional Ukrainian separatist leader called “Birdman” who lived in a shack in the forest. But all humor aside, NATO has also moved to beef up its capabilities near Russia’s border, as the US prepares to place heavy weapons in Poland and the Pentagon runs simulations to determine who would win a Balkan battle.

Now, with tensions running higher than ever thanks to the escalating situation in the Mid-East, NATO is set to bolster its Eastern flank to guard against what the West imagines is an imminent Russian invasion. Here’s WSJ with more:

NATO countries are discussing increasing the number of troops stationed in members bordering Russia and putting them under formal alliance command, part of a new effort to deter aggression from Moscow, according to diplomats and military officers.


Under one plan, the North Atlantic Treaty Organization would have a battalion in Poland and each of the three Baltic states—roughly 800 to 1,000 soldiers in each unit. A more modest version would have a single NATO battalion in the area.

While that sounds great to Washington’s war hawks, the Germans aren’t entirely sure that casting The Kremlin as the real world equivalent of the Death Star is a particularly sound idea when it comes to effective long-term foreign policy objectives:

While the U.S. and other allies are supportive, German officials in particular have expressed reservations, telling the allies in private discussions that they don’t want to treat Moscow as a permanent enemy or lock it out of Europe, despite the frictions over Ukraine and other provocations.


NATO officials say Berlin is unlikely to back the biggest deployment, but could support the more modest increase.

Of course even a “modest increase” will likely be viewed by Moscow as yet another escalation:

Some allies argue even a small buildup could have the unintended consequence of making a conflict with Russia more likely if mishaps or miscalculations by Mr. Putin accidentally trigger a wider clash.

Yes, “miscalculations by Mr. Putin.” Like the kind of “miscalculations” that can occur when a world leader sees enemy troops massing at his/her borders for no reason whatsoever.

But WSJ wants you to know that this isn’t an offensive move. Much like calls for regular warship patrols near China’s islands in the South Pacific, this is all about “deterrence”:

Senior allied officials say there is a growing agreement that more needs to be done to show Russia that NATO is committed to defend its territory. “There is a sense if we are going to have a long-term defense and deterrence strategy we need to discuss what more we need to do beyond our readiness action plan,” said Alexander Vershbow, the NATO deputy secretary-general.

And because the best defense is everywhere and always a good offense, multiple countries are ready to put troops under NATO command:

U.S. officials have said they are willing put the 150 U.S. soldiers currently in each of the Baltic states and in Poland under NATO command, and are open to rotating in additional troops from the U.S.


The plan would also require other countries that have deployed troops there to agree to a NATO command. The U.K. has about 150 troops there and Germany is deploying up to 200 soldiers.


Senior NATO officials say they believe they will be able to get troop contributions from member nations now, as more come to the conclusion that they face a long-term strategic competition with Russia. “The prospects are good that allies will contribute their fair share,” said a NATO official.

In a sure sign that this is in fact just another example of NATO sabre rattling and, at the risk of employing hyperbole, “warmongering”, US defense officials swear they’re not “picking a fight” (remember, the surest sign that something is probably true is when the official denials start to roll in):

“We are not picking a fight; we aren’t trying to provoke him,” said a senior U.S. defense official.

We’ll leave you with the following comments from The Kremlin’s ambassador to NATO Alexander Grushko:

“NATO military planning generates confrontational approaches to security issues that in our view should belong to the past. The creeping increase in NATO’s military presence on our frontiers [is] testing [our] patience.”



Ron Paul is totally against the USA in engaging in Iraq and Syria

(courtesy Ron Paul)

Ron Paul Rages “We Must Oppose Obama’s Escalation In Syria & Iraq!”

Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Ealier this week, Secretary of Defense Ashton Carter appeared before the Senate Armed Services Committee to outline a new US military strategy for the Middle East.The Secretary admitted the failure of the US “train and equip” program for rebels in Syria, but instead of taking the appropriate lessons from that failure and get out of the “regime change” business, he announced the opposite. The US would not only escalate its “train and equip” program by removing the requirement that fighters be vetted for extremist ideology, but according to the Secretary the US military would for the first time become directly and overtly involved in combat in Syria and Iraq.

As Secretary Carter put it, the US would begin “supporting capable partners in opportunistic attacks against ISIL (ISIS), or conducting such missions directly, whether by strikes from the air or direct action on the ground.”

“Direct action on the ground” means US boots on the ground, even though President Obama supposedly ruled out that possibility when he launched air strikes against Iraq and Syria last year. Did anyone think he would keep his word?

President Obama claims his current authority to conduct war in Iraq and Syria comes from the 2001 authorization for the use of force against those who attacked the US on 9/11, or from the 2002 authorization for the use of force against Saddam Hussein. Neither of these claims makes any sense. The 2002 authorization said nothing about ISIS because at the time there was no ISIS, and likewise the 2001 authorization pertained to an al-Qaeda that did not exist in Iraq or Syria at the time.

Additionally, the president’s year-long bombing campaign against Syrian territory is a violation of that country’s sovereignty and is illegal according to international law.

Congress is not even consulted these days when the president decides to start another war or to send US ground troops into an air war that is not going as planned. There might be notice given after the fact, as in Secretary Carter’s testimony today, but the president has (correctly) concluded that Congress has allowed itself to become completely irrelevant when it comes to such grave matters as war and peace.

I cannot condemn in strong enough terms this ill-advised US military escalation in the Middle East. Whoever concluded that it is a good idea to send US troops into an area already being bombed by Russian military forces should really be relieved of duty.

The fact is, the neocons who run US foreign policy are so determined to pull off their regime change in Syria that they will risk the lives of untold US soldiers and even risk a major war in the region — or even beyond – to escalate a failed policy. Russian strikes against ISIS and al-Qaeda must be resisted, they claim, because they are seen as helping the Assad government remain in power, and the US administration is determined that “Assad must go.”

This is not our war. US interventionism has already done enough damage in Iraq and Syria, not to mention Libya. It is time to come home. It is time for the American people to rise up and demand that the Obama Administration bring our military home from this increasingly dangerous no-win confrontation. We must speak out now, before it is too late!



a very important read..
Now I now where the gold has come from to first raid and then placate China.  Answer Venezuela.
Venezuela has 15 billion USA of liquid assets or which 11 billion is in gold. They owe by the end of the year bond notes totaling 12 billion usa.
The total number of gold oz, in tonnes that Venezuela had at the end of 2014 was 367 tonnes.
 (courtesy zero hedge)

Venezuela Sells Billions In Gold To Repay Its Debt

Just under a year ago in the aftermath of the “OPEC Thanksgiving Massacre” of 2014 which sent oil crashing when Saudi Arabia effectively ended the oil cartel, we predicted that Venezuela (with its CDS trading at 2300 bps back then) would become the first casualty of the “crude carnage.” Since then not only has Venezuela, which relies on crude oil for 95% of its export revenue, suffered a dramatic episode of hyperinflation (which is only accelerating) coupled with total economic collapse, but its CDS has, as expected, blown out to reflect a default of probability at 96% over the next five years as shown below.


Yet while everyone promptly jumped on the “Venezuela will default bandwagon” it has so far avoided bankruptcy.

How can this country with a massive debt load and a paralyzed economy have avoided default so far?

For one thing, it has been drawing down on its FX reserves at an unprecedented pace. Venezuela’s international reserves are hovering near a 12-year low of $15.2 billion.

According to Barclays economist Alejandro Arreaza, the latest figures support estimates that Venezuela had about $42 billion of total assets, including off-budget funds, at the end of the third quarter, of which $15 billion was liquid. He said liquid assets will fall to about $8 billion by year end. The country and its state oil company have $12 billion in bond payments coming due next year.   (Harvey:  of the 15 billion in liquid assets over 11 billion usa is in gold)

But before we get to next year, there are still two more months left in 2015, as well as two immediate bond payments due this week and next, amounting to $3.5 billion.

Where did Venezuela obtain the funds needed to make these debt payments?

The answer: it has been dumping its gold, which its former ruler Chavez worked hard in 2011 to repatriate from London, and which its current president Maduro, just four short years later, is busy sending back to its creditors.

According to Bloomberg, “in a sign of how Venezuela is growing increasingly desperate to acquire hard currency, a report released this week showed the country has been stepping up its sales of gold.”


The value of the central bank’s bullion holdings fell 28 percent at the end of May from a year earlier, while the spot price for the metal declined just 12 percent. The figures, while reflecting transactions that took place five months ago, underscore the efforts the government is taking to raise the cash to repay creditors and fund imports amid a punishing recession, inflation exceeding 100 percent and a collapse in the price of its main export, oil.

Reuters adds that just in 2015, Caracas has parted with 19% of its gold holdings: “Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May.  At the strongest official exchange rate of 6.3 bolivars per U.S. dollar, which the bank uses for its financial statements, that decline would be equivalent to $2.74 billion.”*

(Harvey  74.1 tonnes)

Reuters in March reported that the central bank was in talks with Wall Street to monetize about $1.5 billion of gold in reserves, an operation the bank did not confirm at the time.  The central bank declined to comment.

The good news is that as of May, gold comprised roughly 58% of Venezuela’s international reserves, or about $11.8 billion according to Bloomberg calculations. It is unclear how much more gold Venezuela has sold in the past 5 months.

The bad news is that this gold will also be gone soon: with $12 billion in debt due in 2016, it is likely that the Latin American nation will run out of liquid reserves in the next 12 months.

Barclays analysts said in a research note on Wednesday that they expect Venezuela will use gold reserves to gain liquidity to ensure bond payments through at least the first quarter of 2016.

After that, barring a miraculous surge in the price of oil, Caracas is on its own.

But the worst news, if only for Ben Bernanke, is that Venezuela has once again proven, without a doubt, that when it comes to Venezuela’s all too sophisticated Wall Street-based creditors, gold is perfectly equivalent to money.

As for Venezuela, after it runs out of gold in its inexplicable quest to placate creditors and postpone a default which at this point is unavoidable, at least it will have toilet paper.

Actually, no it won‘t.


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

Euro/USA 1.0960 up .0037

USA/JAPAN YEN 120.85 down .024

GBP/USA 1.5260 down .0008

USA/CAN 1.3218 up .0021

Early this Wednesday morning in Europe, the Euro rose slightly by 37 basis points, trading now just below the 1.11 level rising to 1.1072; 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 dollar/yen cross. Last night the Chinese yuan rise in value (onshore).  The USA/CNY rate at closing last night:  6.3556 up .0079  (yuan up)

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a slight northbound trajectory  as settled up again in Japan by 2 basis points and trading now just above the all important 120 level to 120.85 yen to the dollar.

The pound was down this morning by 8 basis points as it now trades just below the 1.53 level at 1.5260.

The Canadian dollar is now trading down 47 basis points to 1.3218 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 Thursday morning: closed up 32/69 or .17%

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 (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red/

Gold very early morning trading: $1159.10


Early Thursday morning USA 10 year bond yield: 2.09% !!! par in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield falls to  2.87 up 1 in basis points.

USA dollar index early Thursday morning: 97.42 cents down 21 cents from Tuesday’s close. (Resistance will be at a DXY of 100)

This ends early morning numbers Thursday morning

crude trades higher despite disappointing GDP numbers
And now for your closing numbers for Thursday night: 3:00 pm
Closing Portuguese 10 year bond yield: 2.50% up 13 in basis points from Wednesday
Japanese 10 year bond yield: .300% !! down a full 2 basis points from Wednesday and extremely low
Your closing Spanish 10 year government bond, Thursday up 9 in basis points.
Spanish 10 year bond yield: 1.65% !!!!!!
Your Wednesday closing Italian 10 year bond yield: 1.48% up 7  in basis points on the day: Thursday/ trading 17 basis points lower than Spain.
Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond:  3:00 pm
 Euro/USA: 1.0968 up .0045 (Euro up 45 basis points)
USA/Japan: 121.14 up 0.267 (Yen down 27 basis points)
Great Britain/USA: 1.5310 up .0041 (Pound up 41 basis points
USA/Canada: 1.3169 down .0026 (Canadian dollar up 26 basis points)

USA/Chinese Yuan:  6.3552 down .0051 on the day (yuan up)

This afternoon, the Euro rose by 45 basis points to trade at 1.0968 as Yellen went hawkish again yesterday.  The Yen fell to 121.14 for a loss of 27 basis points. The pound was up 41 basis points, trading at 1.5310. The Canadian dollar rose 26 basis points to 1.3169. The USA/Yuan closed at 6.3552
Your closing 10 yr USA bond yield: up 8 in basis points from Wednesday at 2.17%// ( trading below the resistance level of 2.27-2.32%)
USA 30 yr bond yield: 2.96 up 10 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 97.31 down 31 cents on the day .
European and Dow Jones stock index closes:
London:  down 42.00 points or 0.65%
German Dax: down 31.12 points or 0.29%
Paris Cac down 4.76 points or 0.10%
Spain IBEX: down 24.70 points or 0.24 %
Italian MIB:down 243.55 points or 1.07%
The Dow:up 198. 09 or 1.13%
The Nasdaq: up 62.45 or 1.24%
WTI Oil price;  46.09
Brent OIl:  48.81
USA dollar vs Russian rouble dollar index:  64.26 up 1/3 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:

Yellen’s Hawkish Hangover Leaves Bonds & Bullion Bruised & Stocks Steady

this won’t end well…


*  *  *

First things first, The Fed managed to convince the market – despite the collapse of fundamentals – that it will hike in December…December odds the highest they have ever been…


Having dumped the post-FOMC gains early on, stocks bounced modestly… then accelerated in the last 20 minutes before last minute selling…


All thanks to a VIX-crushing…


But bonds, gold, and crude are all red post-FOMC


And on the week…Small Caps unch, Trannies biggest losers…


Trannies outperformed (and did it again against crude)…pushing up to the 100DMA


Financials continue to bounce (but credit remains ominously weak)…


But Camera-on-a-stick crashed to record lows…


And Valeant had another tough day…


Credit markets decoupled from equities today…


With VXX trading in a very narrow range today…


But Treasury yields played catch up to stocks…


As the entire curve shot up today (with the long-end underperforming 2Y +2bps, 30Y +8bps)


The USDollar gave back some of its hawkish Fed gains…AUD continues to get slammed as EUR rallied back somewhat…


And The Dollar slipped back against Asian FX also (but remains notably stronger post FOMC)


Commodities were very mixed today…


With crude dump and pumping (run stops) and dumping…


And Nattie making new cycle lows…


Charts: Bloomberg


Bonus Chart: “Data-Dependent” Fed…

Bonus Bonus Chart: The Bulls Are Back In Town…


another indicator showing the weakness in the USA economy:  pending home sales tumble the most since 2013:


(courtesy zero hedge)

Pending Home Sales Tumble Most Since 2013 Amid “Signs Of A Slowing US Economy”

Following the carnage in new home sales in September, amid sliding mortgage apps and despite soaring homebuilder sentiment, pending home sales in September also plunged – dropping 2.3% MoM (missing expectations of a 1.0% rise) and worse still from a downwardly revised history. This is the biggest MoM drop since Dec 2013 and the second lowest level of pending home sales this year. While there is plenty of blame for this, NAR’s Larry Yun, rather ominously warns, “signs of a slowing U.S. economy may be causing some prospective buyers to take a wait–and–see approach.”

Worst MoM drop since Dec 2013…


as the rate of sales growth continues to lag…


Will homebuilders lose faith now?


Only The West region saw increased sales…

The PHSI in the Northeast fell 4.0 percent to 89.6 in September, but is still 3.9 percent above a year ago. In the Midwest the index declined 2.5 percent to 104.7 in September, but remains 4.3 percent above September 2014.


Pending home sales in the South decreased 2.6 percent to an index of 118.3 in September and are now 0.1 percent below last September. The index in the West inched back 0.2 percent in September to 104.4, but is still 6.6 percent above a year ago.


With last month’s decline, the index is now at its second lowest level of the year (103.7 in January), but has still increased year–over–year for 13 straight months.

As NAR’s Lawrence Yun explains…

a combination of factors likely led to September’s dip in contract signings. “There continues to be a dearth of available listings in the lower end of the market for first–time buyers, and Realtors® in many areas are reporting stronger competition than what’s normal this time of year because of stubbornly–low inventory conditions,” he said. “Additionally, the rockiness in the financial markets at the end of the summer and signs of a slowing U.S. economy may be causing some prospective buyers to take a wait–and–see approach.”

Charts: Bloomberg




Dave Kranzler’s thoughts on pending home sales:


(courtesy Dave Kranzler/IRD)

Bloodbath In Pending Home Sales

The fork-tongued chief sales pimp for the real estate industry, National Association of Reators’ Larry Yun, had this to say:  “Signs of a slowing U.S. economy may be causing some prospective buyers to take a wait–and–see approach.”   Yet, this statement stands in direct contrast to his statement about the bogus existing home sales report from last week:  “The housing market has made great strides this year, backed by an increasing share of pent–up sellers realizing the increased equity they’ve gained from rising home prices and using it towards trading up or moving into a smaller home.”

I wrote a detailed report which showed why the NAR’s existing home sales report was highly inaccurate – Highly Questionable Existing Home Sales Report.   This is the second month in  a row that pending home sales took a dump.  Today’s report supports my analysis that existing home sales likely dropped in September.

What say you, Larry?  Where is all that pent-up demand from people selling their homes and “trading up?”  I will have an in-depth analysis of the pending home sales report later this week.

The markets did not like this:  First estimates for Q3 GDP is only 1.6% brought down by lower inventory levels.  If the economy continues to falter, the inventory levels have a long way to go.





(courtesy Lawrie on Gold)


Will the Fed really now raise interest rates in December?

New York closed at $1,156.80 at the close on Wednesday but then rose to $1,162 in Asia overnight. London then lowered it back to $1,159.60. The LBMA price setting fixed it at $1,159.00. The dollar Index has risen and now stands at 97.37 and remains well below its peak of over 100. The dollar was trading against the euro at $1.0931 reflecting the dollar’s strength.  In the euro the fixing was €1,056.52.  At New York’s opening gold was trading in the euro at €1,056.75 and at $1,156.70 but has slipped back below $1150 as the day progresses.

The silver price closed at $15.99 on Wednesday. At New York’s opening, silver was trading at $15.85.

The Fed’s statement was read after keeping interests rates at current levels. The market is now reading a December rate hike as a near certainty, although only on a minute change in language from the FOMC.

References to the global economy were taken out of the statement, giving some the impression that the Fed is now less concerned about global consequences of a rate hike. We find that hard to believe as the Fed is fully aware that a rate hike will impact exchange rates and be detrimental to U.S. global trade, but is now elevating internal consequences of holding rates down.

However, there is always a danger that we over-read consequences into minor details. What is directly affecting the gold price in all of this is the gold being priced in dollars or euros. While the gold price is lower in the dollar over last week’s price the euro price of gold is at €1,056.71 up from last week’s €1,043.10. This illustrates that the gold price is reflecting currency values far more that we have seen before. We expect this to continue.

Chinese gold import numbers continue to be reported differently by the Shanghai Gold Exchange and GFMS the highly respected metals consultancy. The latter has China’s imports as lackluster while the SGE reports record import levels. So either the SGE is not presenting an accurate picture or GFMS is getting it badly wrong.

The Technicals continue to look very good in all currencies including the dollar where it is now sitting right on support.

There have been sales of 2.978 tonnes this week from the SPDR gold ETF and a sale of 0.84of a  tonne into the Gold Trust. The holdings of the SPDR gold ETF are at 694.344 tonnes and 161.99 tonnes in the Gold Trust.




Third quarter GDP misses expectations at only 1.5% as inventories tumble. Inventories still provided a slight boost to GDP.  However then inventories are really liquidated that is when GDP tumbles the greatest!!



(courtesy zero hedge)

Q3 GDP Misses Expectations, Tumbles To 1.5% On Sliding Inventories

The long awaited inventory correction is finally arriving.

Moments ago the BEA reported preliminary Q3 GDP, which at 1.49%, missed both sellside consensus expectations of 1.6%, and tumbled from the 3.9% reported in the second quarter as the quarterly volatility continues at an unprecedented pace. This was the second lowest quarterly GDP print since Q1 2014 excluding the “double seasonal adjustment” meant to cover up the collapse in Q1 2015 GDP.


The component breakdown reveals that virtually every component of GDP was weaker, starting with Personal Consumption expenditures which dropped from 3.6% to 3.2%, missing expectations of 3.3% as a result PCE contributed 2.19% to the bottom line GDP number, down from 2.42% last quarter. Once again the biggest contributor to spending growth was healthcare expenses.

Fixed investment – something the Fed was bullishly touting in its statement yesterday, also tumbled and added just 0.47% to GDP down from 0.83%.

Net trade also detracted modestly from growth after a small contribution in Q2, and even government spending dropped, adding 0.3% to GDP, down from 0.46%.


But the biggest factor for the drop in GDP was what we had been warning for a while, namely inventories, which tumbled from a boost of 0.02% in Q2 to a negative 1.44% in Q3 – the biggest drop since Q4 2012, as the nominal contribution from inventories slid from $127.5 billion to just $62.2 billion. While this may seem like an inventory normalization, it was still an addition to GDP – recall that during the financial crisis, Inventories subtracted a whopping $718 billion from GDP over 8 consecutive quarters. At some point, that same liquidation cycle which can only be delayed so long, will take place once again.

The jobless numbers just do not make sense!!
(courtesy zero hedge)

Someone’s Still Lying

The raw initial claims data rose 1k from 259 to 260k (beating expectations of 265k).


But the less-noisy 4-week average of initial jobless claims has slid further this week – to 263.25, its lowest since Dec 1973 – as the divergence between “useless at this point in the business cycle”claims and ‘real’ job cuts has never been wider.



Charts: Bloomberg

 Valeant flash crashes on a report that CVS terminates its pharmacy (Philidor) contract:
(courtesy zero hedge)

Valeant Flash Crashes On Report CVS Terminates Its Philidor From Caremark Pharmacy Network

A few days ago we laid out Valeant’s “Enron” org chart, laying out the extensive, and previously undocumented and in fact, secret, relationships between Valeant and Philidor – the specialty pharmacy whose sole customer is Valeant.


As a reminder, it was the revelation of Philidor’s shady existence that was the reason for the rout that slashed the price of Valeant stock by more than half last week.

And while both the company and its various shareholders, pardon the pun, valiantly defended the company and its exposure to and from Philidor – claiming there is nothing illegal in the troubling disclosures – moments ago VRX stock flash crashed…


… on the following news from Dow Jones:


Recall that Philidor is a sizable 7% of Valeant’s bottom line, as per its own slides:

  • In Q3 2015, Philidor represented 6.8% of total Valeant revenue
  • In Q3 2015, Philidor represented ~7% of Valeant EBITA

And where CVS goes, others will promptly follow, not only leading to an promptly termination of any and all overinvoicing benefits Philidor provided to Valeant, but leading to a crack down on specialty pharma organizations everywhere, and likely finally inviting a federal inquiry into just what is going on, because for a pharmacy to admit that there was fire where until just now there was nothing but smoke, not even the Feds can ignore that.

Perhaps in light of this news, VRX shareholder Sequoia will reassess its hardy defense of the company as disclosed earlier today in the following letter, which came just hours before the same fund also announced two of its members resigned as independent directors from Valeant.



And here is its closing and after hours trading:


Valeant Pharmaceuticals International, Inc. (VRX)


111.50 Down 5.50(4.70%) 4:00PM EDT
After Hours : 98.49 Down 13.01 (11.67%) 5:47PM EDT



It’s about time!!


(courtesy London’s Financial times/and special thanks to Robert H fors ending this to us)


by Joe Rennison and Ben McLannahan

October 28, 2015 9:06 am

US banks hit out at collateral rules on derivatives trade

Banks are reeling after rules finalised by US regulators, aimed at reducing the risk of trading esoteric derivatives, are set to increase trading costs and further hit deteriorating fixed income business.

The Federal Deposit Insurance Corporation will require banks to post and receive collateral to protect against losses on derivatives that are traded bilaterally, as opposed to being centrally cleared.

Banks will also have to collect collateral on trades done with their own affiliates, but here the burden has been eased a little as the FDIC’s proposed rules required inter-affiliate trades to both collect and post collateral.

However, this requirement does not go far enough, the industry has said. One large US dealer claimed its cost of funding transactions would double, pushing banks to trade fewer uncleared derivatives, reducing liquidity and increasing costs for clients.

“The inter affiliate issue is not solved by this,” said a risk manager at the bank. “I am certainly not happy having read this.”

The new rules come at a time when banks’ fixed income units are under pressure, squeezed by tougher rules on capital and a shift among clients to simpler, less profitable products. Last year’s global FICC revenue pool of $118bn was 46 per cent lower than in 2009, according to data from Coalition, a research group, and is set to dip again this year.

At Goldman Sachs, a one-third drop in FICC revenues in the third quarter — knocking return on equity down to 7 per cent, the lowest in two years — was the talk of the US banks’ earnings season.

Large, sprawling banks often trade derivatives between different legal entities to centralise risk, or offset risks within different parts of the bank. The requirement to collect collateral when they trade with affiliates would tie up assets that could otherwise be put to work in the market.

The FDIC rule applies to banking entities. Eyes will now turn to rules being writtenby the Commodity Futures Trading Commission that will apply to non-bank affiliates. If the CFTC requires non-bank affiliates to also collect collateral then the combined rules will effectively still require two-way posting.

“While the requirement to only post one-way rather than two-way with certain affiliates is clearly better than requiring two-way with all affiliates, this rule increases the cost of serving clients and hedging risk while doing nothing to enhance the safety and soundness of the organisation,” said Greg Baer, president of The Clearing House Association, an industry organisation.

The rules also affect the securitisation industry, where assets such as mortgages or loans are packaged up and sold to investors. Often, derivatives are used in the packages to smooth out the different interest rates of the underlying assets, or to convert fixed rate assets into a variable rate that is more suitable to investors.

Ellen Pesch, partner at law firm Sidley Austin, warned of the increased cost of securitising assets, making some deals uneconomic. She added that it could also encourage investors to move deals to Europe where the rules are less stringent.

“I think there are deals getting done on skinny budgets and if you have increased cost because you are posting collateral, then it will inhibit those deals,” she said.



I will see you tomorrow night




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