Gold: $1088.20 up $.30 (comex closing time)
Silver $14.36 down 6 cents
In the access market 5:15 pm
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a very poor delivery day, registering 0 notice for nil ounces. Silver saw 0 notices for nil oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.60 tonnes for a loss of 94 tonnes over that period.
In silver, the open interest surprisingly fell by only 1462 contracts despite silver being down 27 cents in yesterday’s trading. The total silver OI now rests at 165.289 contracts In ounces, the OI is still represented by .826 billion oz or 118% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI fell by 1581 contracts to 438,385 contracts despite the fact that gold was only down by $0.30 yesterday. it seems the modus operandi of the bandits is to liquefy gold/silver OI. We had 0 notices filed for 100 oz today.
We had a slight addition in gold inventory at the GLD to the tune of 0.32 tonnes / thus the inventory rests tonight at 666.43 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. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. 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, after they deplete the GLD will be the FRBNY and the comex. In silver,no change in silver inventory / Inventory rests at 313.681 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver fall by only 1,462 contracts down to 165,278 despite the fact that silver was down 27 cents with respect to yesterday’s trading. The total OI for gold fell by a rather large 1,581 contracts to 436,804 contracts despite the fact that gold was down only 30 cents yesterday.
The fact that OI continues to remain high in silver necessitates the bankers to continue raiding hoping to shake the leaves from both the gold and silver trees. Remember that December is generally a big delivery month for both gold and silver
2.Gold trading overnight, Goldcore
9 USA stories/Trading of equities:
i) Apple cuts component orders by 10% as global aggregate demand softens
ii) Looks what happens when China sends her deflation to the rest of the world:
iii) The real truth behind the jobs report: the declining manufacturing jobs vs leisure time part time gains
generated through the factitious B/D and further adjustments
( David Stockman)
iv) The Fed is worried about the soundness of the USA banks
(Simon Black/Sovereign Man)
v) The phoniness is the retail jobs and the construction jobs in the latest jobs report
vi Something to worry about: the spread between retail sales and inventories have never been greater
vii) Fast food workers are going on strike. With automation here, just why on earth are they striking?
viii) Continuing with the fast food industry:
10. Physical stories
i) Koos Jansen reports on gold demand (SGE withdrawal) in the latest weekly report: 47 tonnes.
He compares gold deliveries at the SGE vs comex. It is nutshell, they are totally different
ii) James Turk believes (as do I) that the gold that has been fed by the uSA into the market is from the FRBNY
iii) Hugo Salinas Price… what is Bitcoin?
(Hugo Salinas Price)
iv) China now allows the direct conversion from yuan into Swiss francs and visa versa, totally by-passing the dollar
v) Bill Holter interview by Palisades Radio
vi) Dave Kranzler on the looting of GLD gold:
vii Nyrstar does a rights offering and 20% owned Trafigura is buying 50% of the rights offering raising their level to 30% of the company. They are contemplating removing 400,000 tonnes of zinc concentrate from the market to order to raise the price of zinc
viii Dave Kranzler talks about that other base metal company is trouble;
Take a look at the discrepancy in silver production reporting from our major country producers!!
looks to me like the supply of silver is coming down!!!
a great paper!!
(courtesy Steve St Angelo/SRSRocco report)
Let us head over to the comex:
The total gold comex open interest fell from 438,385 down to 436,804 for a loss of 1,581 contracts despite the fact that gold was down by only $0.30 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. The November contract fell by 0 contracts remaining at 211. We had 0 notices filed yesterday, so we neither lost nor gained any gold contracts that will stand for delivery in this non active delivery month of November. The big December contract saw it’s OI fall by 10,338 contracts from 247,319 down to 164,476. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 164,476 which is good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 172,212 contracts and aided by copious HFT trading.
November contract month:
INITIAL standings for November
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| 7,046.878 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||
|No of oz served (contracts) today||0 contracts
|No of oz to be served (notices)||211 contracts
|Total monthly oz gold served (contracts) so far this month||7 contracts
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||89,423.6 oz
Total customer deposits nil oz
we had 0 adjustments:
November initial standings/First day notice
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||95,399.720 oz|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||5 contracts
|Total monthly oz silver served (contracts)||5 contracts (25,000 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||3,512,989.6 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: nil oz
total withdrawals from customer account: 803,216.592 oz
And now SLV
Nov 10/no change in silver inventory at the SLV/rests tonight at 313.681 million oz/
Nov 9/no change in silver inventory/rests tonight at 313.681
Nov 6/ we had a very tiny withdrawal of 136,000 oz (probably to pay for fees)/Inventory rests tonight at 313.681 oz
Nov 5/strange no change in silver inventory/rests tonight at 313.817 million oz/
Nov 4/2015: no change in silver inventory/rests tonight at 313.817 million oz/
Nov 3.2015; no change in silver inventory/rests tonight at 313.817 million oz/
Nov 2/a withdrawal of 716,000 oz from the SLV/Inventory rests tonight at 313.817 million oz
Oct 30.no change in silver inventory at the SLV/Inventory rests at 314.532 million oz
Oct 29/a big withdrawal of 1.001 million oz from the SLV/Inventory rests at 314.532 million oz
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
One of America’s Largest Online Retailers Is Stockpiling Gold and Silver Coins to Pay Employees In Coming Crisis
One of America’s largest companies is preparing for problems in the banking and financial system and another financial crisis.
Online retail giant Overstock.com (OSTK), publicly stated that the company has stockpiled gold and silver coins in preparation for another U.S. financial crisis. Patrick Byrne, its founder and chief executive, is a libertarian who champions crypto currencies, bitcoin and gold and silver bullion as financial insurance against risk in the financial and monetary system.
Overstock Chairman, Jonathan Johnson recently told an audience at the United Precious Metals Association:
“We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.”
Quantitative easing (QE) is when central banks create billions and trillions worth of fiat currency out of thin air and inject it into the financial system rising currency debasement and inflation in the long term.
Johnson went on to explain the company’s preparations:
“So what do we do as a business so that we would be prepared when that happens? One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be two days, or two weeks, or two months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe, and our site up and running during a financial crisis.
We also happen to have three months of food supply for every employee that we can live on.”
A further insight into the company’s preparations for a crisis can be seen in the company’s latest 10-Q filed with the SEC:
“Our precious metals consisted of $6.3 million in gold and $4.6 million in silver at June 30, 2015 and December 31, 2014. We store our precious metals at an off-site secure facility. Because these assets consist of actual precious metals, rather than financial instruments, we account for them as a cost method investment initially recorded at cost (including transaction fees) and then adjusted to the lower of cost or market based on an average unit cost”.
Johnson, Overstock’s anti-establishment chairman, told the Financial Times it holds the bullion coins outside the banking system so the company could pay employees even if banks close for a period of time in a crisis – as was seen in Cyprus and Greece in recent months:
“We thought there’s a decent chance that there could be a banking holiday at some point caused by a crisis and it could last for two days or two weeks or who knows how long, and we wanted to be in a position where we could continue to operate during any such crisis,” he said.
GoldCore is advising companies internationally to allocate capital to gold and silver bullion as a way to diversify their assets. This is prudent given the risks of today and need for financial insurance to protect against bank bail-ins, capital controls, “bank holidays”, currency debasement and other risks posed by another financial crisis.
Today’s Gold Prices: USD 1092.50, EUR 1017.23 and GBP 723.50 per ounce.
Yesterday’s Gold Prices: USD 1095.60 , EUR 1015.90 and GBP 725.95 per ounce.
Gold closed higher yesterday up $3.10 to $1091.10. Silver lost $0.18 to close at $14.56. Platinum lost $28 to $910.
Gold in USD – 5 Years
Gold has eked out small gains and appears to be stabilising at just above five-year lows reached in July, after last week’s nearly 5% plunge.
Less than two weeks ago – on October 28th – gold was trading at $1180 per ounce and has declined a sharp 8 per cent in just two weeks. Value buyers and those dollar cost averaging into position are taking advantage of the price weakness.
Indian demand for gold and silver remains robust as we had into the Indian festival season. Gold and silver coins saw good demand on Dhanteras in India today instead of jewellery. It was noted that consumers were on a buying spree due to lower prices.
According to jewellers and bullion dealers MMTC-PAMP India, the buying activity remained robust in the first half of the day at most places. But more sales are expected later in the day, with office-goers coming in for buying late in the evening.
Dhanteras is considered to be an auspicious day for buying gold and silver and is largely celebrated in North and West India.
Here is Steve St Angelo’s latest piece of silver
Take a look at the discrepancy in silver production reporting from our major country producers!!
looks to me like the supply of silver is coming down!!!
a great paper!!
(courtesy Steve St Angelo/SRSRocco report)
As the financial and economic systems continue to disintegrate, this will put more stress will on the silver market. Why? Because elevated physical silver investment demand will likely exceed available silver supply in the future. Even though physical silver investment demand has fallen off since the huge spike starting in June, market conditions have impacted supply in a negative way.
According to the most recently released data, three of the top five silver producing countries are showing large declines in production compared to the same period last year. When I researched the mine supply figures, I came up with some conflicting data. For some strange reason, my data showed a decline in Mexican silver production, while figures from another source stated an increase.
I wrote the organization responsible for providing silver production figures to the Chile Copper Commission. You see, the Chile Copper Commission (Cochilco.cl) provides global production data on many metals. They use data from World Metal Statistics.
Here is a snapshot of their monthly world silver production update:
Please click on the table to see a larger image. If you look at Mexico silver production, they show an increase to 3,870.1 metric tons (mt) JAN-AUG 2015 up from 3,767.9 mt during the same period in 2014. From this report, Mexico’s silver production JAN-AUG 2015 increased 102 mt, or 3% year over year (yoy).
However, I spoke with a person at Mexico’s Department of Mineral Resources (INEGI), and they sent me the link to their monthly silver production figures. I downloaded the excel spreadsheet and made a screenshot show below:
I added the total of Mexican silver production from JAN-AUG 2014 and 2015 and put the figures in the next column. As you can see from Mexico’s official INEGI monthly data, silver production is down from 3,839 mt in JAN-AUG 2014 to 3,640 mt during the same period this year.
So, instead of Mexican silver production being up 3% this year (according to data from World Metal Statistics), it’s actually down 6% if we go by official Mexican INEGI figures.
When I contacted World Metal Statistics about this inconsistency, they were nice enough to reply. I asked them why was their Mexican silver production showing an increase while Mexico’s official data reports a decline? They stated that they do use INEGI data for their silver production figures, but they use different data for the Chile Copper Commission.
That being said, they were surprised that Mexico showed a decline in silver production in 2015. I sent them the excel spreadsheet from Mexico’s INEGI, and they told me that their data was different. They replied to me stating that they had to update all their Mexican silver production data back to 2011… as it was revised and I gather they revised it using incorrect data. How interesting.
I find this quite interesting because it costs an individual 2,240 Euros to purchase 12 monthly metal production reports from World Metal Statistics. Readers on my site, get to find out this information for FREE.
NOTE: I will be including a DONATE BUTTON on the site shortly. After many requests from readers, I decided to finally add this function for the individuals who would like to donate for the public research and articles on the site.
While I used some of the silver production data (in the chart below) from the Copper Commission Table shown above, I double checked Peru’s and Australia’s silver production from their official state figures.. and they matched up. That being said, I also have a problem with World Metals Statistics “Total World Silver Production Figures” shown at 17,967 metric tons (mt) JAN-AUG 2015 compared to 18,014 mt during same period in 2014. These figures come from the Chile Copper Commission table above.
Basically, World Metal Statistics shows a small reduction in total global silver supply JAN-AUG 2015 compared to last year. Even if we adjust the revised lower Mexican silver production data, total world silver production is only down 2.5%… again, according to their figures.
However, if we just go by the top five producers (Mexico, Peru, China, Australia & Chile), overall silver production in down 6%. I gather World Metal Statistics is saying the rest of the countries are reporting increases to show just an average loss of 3% worldwide. Unfortunately, some of the other countries such as Canada are reporting declines in silver production.
Here are the biggest silver supply losers for 2015:
As we can see from the chart above, Australian silver production JAN-AUG 2015 is down a whopping 41% compared to the same period last year, followed by Canada down 32%, Mexico down 6% and Chile down 4%. The combined silver production from these four countries is down 15% compared to last year.
Here is additional silver production data from three countries:
Russia’s Polymetal Jan-Sep 2015 = +53 mt
Poland’s KGHM Polska Jan-Jun 2015 = + 6 mt
United States Jan-Aug 2015 = -22 mt
If we just add up these three producers, we find a net increase of about 37 metric tons. Of course, these show different periods, but an increase of even 40-50 mt for these producers won’t change the overall decline of the top five down 684 mt JAN-AUG 2015.
I would imagine the low metal prices going forward will continue to impact global silver production. Chile, the largest copper producer in the world, is showing a 4% decline in silver production this year. The majority of silver production from Chile is a by-product of copper mine supply. As the price of copper continues to fall, we will see more companies shut down copper mines. This will have a negative impact on global silver supply going forward.
I will be writing future articles on how the future silver supply, demand and price will impact the market in the next several weeks and months.
If you haven’t checked out THE SILVER CHART REPORT, there’s a great deal of information on the Silver Industry & Market not found in any single publication on the internet. There is one chart in this report (Chart #19) that I can guarantee that 99.9% of precious metal investors haven’t seen before.
I use this bird’s-eye approach when I create my easy to understand charts. The Silver Chart Report is a collection of my top silver charts from articles published over the past six years, and includes in-depth, never-before-seen charts and content that indicate that silver is on the rise. There are 48 charts in the report, broken down in five sections.
Please check back for new articles and updates at the SRSrocco Report. You can also follow us at Twitter below:
China allows the direct conversion between yuan and Swiss francs totally by-passing the dollar
China to allow direct conversion between yuan and Swiss franc
Submitted by cpowell on Mon, 2015-11-09 16:17. Section: Daily Dispatches
By Fion Li
Monday, November 9, 2015
China took another step to boost the yuan’s global usage, saying it will start direct trading with the Swiss franc, as the nation pushes its case for reserve-currency status at the International Monetary Fund.
The link will start on Tuesday, the China Foreign Exchange Trade System said in a statement, making the franc the seventh major currency that can bypass a conversion into the U.S. dollar and be directly exchanged for yuan. The rate will be allowed to fluctuate a maximum 5 percent on either side of a daily fixing, according to CFETS. …
… For the remainder of the report:
Dave Kranzler on the looting of GLD gold:
I agree with Dave in that with huge troubles in the steel industry, the base metals industry, and the oil industry there must be huge derivative train wrecks.
a must read…
(courtesy Dave Kranzler/IRD)
The choke hold put on the precious metals the past several days has been relentless, Eric. It was so forceful, it might even have been unprecedented…the selling is being driven by the paper-gold market and the central planners no doubt have had a hand in it. The paper-gold they sell needs to be matched from day to day with a show of force, and the only way to do that is being able to deliver physical metal when the buyer of your paper promise asks for physical metal rather than cash settlement. – James Turk on King World News
The price of gold pushed through its 200 dma and hit a high of $1191 on October 15. It appeared ready to assault $1200 (click to enlarge):
But over the next 17 trading days 36 tonnes of gold was removed from the GLD Trust. Most of the gold – 29 tonnes – was removed in the last 9 trading days to facilitate manipulating the price back below 200 day moving average (red line in the graph above).
There’s unquestionably something wrong behind the “curtain.” With the increasing meltdown in various areas of the global financial system (energy, commodities, high yield debt, leveraged loan portfolios, biotech stock, Glencore/Lonmin, emerging market currencies, etc) the OTC derivatives market must be littered with train wrecks.
At a time when the price of gold should be soaring to reflect the increasing financial, economic and political turmoil brewing, the western Central Banks/banks are relentlessly manipulating the price. Without a doubt they have had to resort to raiding GLD in order to make the deliveries referenced at the top by James Turk.
Now we have to endure another round of the “we’re going to raise rates this time, we promise” game. How many times can the Fed get away with hammering Wall Street’s calcified brain trust and the financial media over the head with this farce?
With the level of systemic debt in the U.S. (Federal, State, corporate, individual and pension debt in the form of underfunding) going parabolic, economic activity quickly fading, financial landmines going off behind the scenes and geopolitical risk escalating, the only way the Fed can maintain any level of credibility is to prevent the price of gold from engaging in bona fide, market-determined price discovery.
At some point the Central Banks will lose their ability to contain the price of gold. We’re already starting to sense their level desperation in this endeavor as reflected in the paper gold to deliverable ratio on the Comex, the gold being drained from the Fed’s vaults and the removal of gold from GLD.
Remember that we told you about the troubles in Nyrstar. They hare undergoing a rights offering and 20% owned Trafigura is taking half of the issue which will raise their share to 30%. They are also looking to take 400,000 tonnes oz zinc concentrate off the market which will hurt their bottom line:
(courtesy Zinc news)
On Monday, debt-laden Nyrstar (EBR:NYR)announced that Trafigura will purchase up to half of the shares it’s selling in a rights offering for 250 to 275 million euros. The news has raised red flags for those concerned that Trafigura is seeking to gain control of Nyrstar.
As the Financial Times explains, Trafigura, a multinational commodities trading company, amassed a 20-percent stake in Nyrstar last year and “pushed successfully to get two directors appointed to its board.” The rights offering could raise Trafigura’s interest in Nyrstar to 30 percent, and will likely attract further scrutiny from the European Commission, which is already looking at whether Trafigura “has taken de facto control of the zinc company.”
However, Bill Scotting, CEO of Nyrstar, has denied that is happening, commenting, “[t]his is not a takeover by stealth. Trafigura is a supportive shareholder.”
Market watchers too seem unconcerned about the growing relationship between Nyrstar and Trafigura, and have instead latched onto other aspects of Nyrstar’s Monday release. In particular, the following statement from the company has raised eyebrows:
Following a detailed review of the performance, near term cash needs, medium term capital requirements and exploration potential of the Mining segment, Nyrstar management is now pursuing strategic alternatives for its mining assets, individually and as a portfolio, which may include additional suspensions, asset disposals and a full exit from mining and has appointed financial advisors to assist with that process. Where appropriate, offtake agreements will be put in place to maintain Nyrstar’s access to concentrates.Nyrstar will consider further suspensions of its mines if the current depressed commodity price environment continues; such suspensions would potentially reduce global supply by up to a further 400,000 tonnes of zinc concentrate (in addition to the 100,000 tonnes removed by the Myra Falls and Campo Morado suspensions).
Many have honed in on the fact that Nyrstar is considering “a full exit from mining,” while those in the zinc space are taking heart from the news that the company is looking at suspensions that could take 400,000 tonnes of zinc concentrate off the market.
And now Dave Kranzler talks about that other copper giant Glencore:
(courtesy Dave Kranzler/IRD)
Glencore stock popped up last week after it announced a $900 million dollar streaming deal with Silver Wheaton. It involves Glencore’s share of the silver that is produced from the Antimina mine in Peru. But Glencore leveraged up to buy Xstrata in 2012, when silver was $32/oz. The amount of debt that Glencore was able to access for this transaction without doubt assumed a $32/oz valuation on Glencore’s silver assets. It only took 3 days for reality to reassert control over Glencore’s stock:
The stock has plunged 16% since hitting 130 (British pounds) last Wednesday after the streaming deal was announced.
Glencore’s business is a general reflection of the entire global economy: A massive cesspool of too much debt supported by economic fundamentals which are quickly collapsing. Glencore’s stock has been repriced downward by 65% since May, when it hit 318 pounds.
This one is going to be a wild ride because the big banks with derivatives and debt exposure to Glencore will do their best to proliferate disinformation designed to cause upward spikes in the stock. But ultimately they can’t support of a collapsing economy and base metals commodities market.
Glencore derives 37% of operating income from copper. When the price of copper dives below $2, whichappears to be inevitable, it will be a disaster for Glencore. Citibank and Blackrock are among Glencore’s largest shareholders.
At some point in time the Fed is going to lose control of its ability to keep the U.S. stock market propped up. That reality is inevitable but placing a bet on the timing of that reality is not easy. However when the event occurs which triggers a complete re-pricing of the U.S. stock market, I suspect that the graph of the S&P 500 will look quite similar to graph of Glencore above. The best advice I can give is that you should prepare accordingly, especially if you have the ability to get out of your retirement asset vehicles.
Bitcoin explained by Hugo…
(courtesy Hugo Salinas Price
Hugo Salinas Price: What is a bitcoin?
Submitted by cpowell on Tue, 2015-11-10 01:31. Section: Daily Dispatches
8:30p ET Monday, November 9, 2015
Dear Friend of GATA and Gold:
Bitcoins, Mexican Civic Association for Silver President Hugo Salinas Price writes today, are no more real than government-issued currency, both being little more than computer entries. Salinas Price’s commentary is headlined “What Is a Bitcoin?” and it’s posted at the association’s Internet site, Plata.com, here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
James Turk is in my camp when he explains that gold from the FRBNY is feeding China et al
(courtesy James Turk/Kingworldnews)
Fed’s outflows likely being used to lock gold down, Turk tells KWN
Submitted by cpowell on Tue, 2015-11-10 01:35. Section: Daily Dispatches
8:35p ET Monday, November 9, 2015
Dear Friend of GATA and Gold:
Gold flows reported out of the Federal Reserve Bank of New York are likely the mechanism of the “choke hold” that governments lately have put on the gold price, GoldMoney founder and GATA consultant James Turk tells King World News today. An excerpt from the interview is posted at the KWN blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Last reporting week for Shanghai demand: 47 tonnes.
(courtesy Koos Jansen)
Withdrawals from the vaults of the Shanghai Gold Exchange, a number by which we can measure Chinese wholesale gold demand, accounted for 47 tonnes in week 42 (26 – 30 October 2015). Strangely, this is a weak number if we compare it to the rest of this year. Still, 47 tonnes of gold equals 47,000 one-kilogram bars, or 3,760 London Good Delivery bars – withdrawn from the vaults in just one week.
Year to date, an astonishing 2,165 tonnes of gold have been withdrawn from the vaults. The yearly record for withdrawals from the vaults of the Shanghai Gold Exchange (SGE) stands at 2,197 tonnes, set in 2013. Probably this record has already been surpassed by 6 November, though the numbers have yet to be released on 13 November. With 8 more weeks left on the calendar SGE withdrawals are set to reach 2,680 tonnes in 2015.
This year’s strong SGE withdrawals have likely been supplied by a higher share of recycled gold than in previous years, which doesn’t mean Chinese gold import was not robust in recent months. Cross-border trade statistics from around the world are slowly being released and all data signals elevated gold exports to China, matching strong SGE withdrawals. Total Chinese gold import 2015 is likely to transcend 1,350 tonnes of gold.
Last week we learned Australia has net exported 17 tonnes of gold to China in July, of which 13 tonnes were shipped directly to the mainland (an all time record) and 4 tonnes have been transported through Hong Kong.
Known Chinese non-monetary gold import (YTD) stands at 985 tonnes and Chinese domestic mining supply has reached 357 tonnes. Without counting scrap, apparent physical gold supply in China in the first three quarters of 2015 has been at least 1,342 tonnes.
Kindly note, in the chart above Chinese gold import from the UK is not included for September and Chinese gold import from Australia is not included for August en September.
China’s central bank, the PBOC, increased its official gold reserves by 14 tonnes in October, now totalling 1,722.5 tonnes. Vey likely the PBOC owns far more gold than 1,723 tonnes, but they don’t disclose this or they would disturb the US and renminbi inclusion into the SDR could be sabotaged.
China’s Foreign Exchange reserves increased for the first time in six months, from 3,514 billion US dollars to 3,525 billion US dollars.
COMEX Deliveries vs SGE Withdrawals
Across the pond at the COMEX gold futures exchange in New York there is a lot less physical gold going through the vaults. Year to date COMEX deliveries have reached a mere 40 tonnes. Though, in my opinion comparing COMEX deliveries to SGE Withdrawals is meaningless.
Frequently I receive inquires from gold investors around the world that like to verify their Chinese gold demand numbers. Some of the numbers they present are totally outrages, ranging from 20 to 60 tonnes of Chinese gold demand a day. Often, this is based on a misunderstanding regarding the term “delivery”. The same misunderstanding explains why we can’t compare COMEX deliveries to SGE withdrawals.
On any gold (futures) exchange in the world “deliveries” reflect the amount of physical gold that traders prefer to hold over a derivative contract, which requires the long contract holder (buyer) to to pay short contract holder (seller) the notional value of the futures contract in full in a addition to the margin (down payment). When physical gold is delivered through a futures exchange this is not automatically dropped off at the buyer’s doorstep. The amount of gold delivered is the amount of gold inside the vaults of the exchange that changes ownership from ashort to a long. The process of delivery inside the vaults of the exchange can be repeated indefinitely, ownership of gold can change from person X to Y, from owner Y to Z, from Z to X, etc. Delivery captures gold demand to a certain extent – traders at an exchange opting for physical gold instead of a derivative contract – but delivery cannot be compared to SGE withdrawals that capture wholesale gold demand for China.
(SGE) Withdrawals reflect the amount of gold that leaves the vaults of the exchange. Because of the unique structure of the Chinese gold market (nearly) all physical gold in China is traded through the SGE and therefor SGE withdrawals are an indicator for Chinese wholesale gold demand. Note, foreigners cannot buy, withdrawal and export gold from the SGE system. International investors have little incentive to purchase physical gold on the COMEX (or any other futures exchange) as delivery and withdrawing metal from the vaults in New York is a devious process compared to buying gold at a local bullion distributor. International investors looking to buy physical gold are more likely to buy spot gold contracts or directly call a refinery. In China delivery of gold futures contacts on the Shanghai Futures Exchange is practically nothing, as futures contracts are not a convenient way to buy physical gold.
COMEX withdrawals are neither an indicator for (US) gold demand because the structure of the US gold market is different form the market in China. Consequently, it makes no sense to compare COMEX withdrawals or deliveries, to SGE withdrawals.
Some gold blogs depict COMEX deliveries to resemble anything more than “change in ownership of gold in the vaults of the COMEX in New York”. Furthermore, some look at SGE deliveries as if this has anything to do with Chinese gold demand – while only SGE withdrawals are an indicator that can be used to measure gold demand.
At the SGE all Chinese citizens are able to buy spot gold through an SGE account that can be opened at a Chinese commercial bank. The spot gold contracts, officially called physical contracts in the SGE rulebook, which are offered by the SGE are Au99.5, Au99.95, Au99.99, Au100g and Au50g. These physical contracts are not derivatives so the buyers and sellers do not have the option to take or make delivery; change in ownership of in the metal is mandatory when the contracts are traded. Physical contracts can’t be traded on margin and when they are exchanged the physical gold always immediately changes hands.
The SGE also offers spot deferred contracts, which can be described as futures contracts without any predetermined delivery date. Every day traders of SGE spot deferred contracts have the option to take or make delivery. The spot deferred contracts offered by the SGE are Au(T+D), mAu(T+D), Au(T+N1) and Au(T+N2). On the English website of the SGE we can see the delivery volume of the spot deferred contracts in the daily reports – click here to view. Let’s have a look at an example, below is the daily report of 9 November 2015.
We can see the spot deferred contracts show delivery volume and the physical contracts not. The delivery volume reflects the amount of physical gold in the SGE vaults that has changed ownership between traders of spot deferred contracts; it has nothing to do with Chinese gold demand. Though, this delivery volume is erroneously used by some to measure Chinese gold demand.
Also important to mention is that this delivery volume on the SGE is counted bilaterally. So, if one contract is delivered (1 short hands over gold to 1 long) the volume will show “2” (1 short + 1 long). In contrast, COMEX delivery is countedunilaterally (“1″ contract delivered means 1 short hands over gold to 1 long). In the example above SGE delivery volume is 43.248 tonnes, this volume would be displayed on the COMEX website as 21.624 tonnes.
SGE withdrawals are only published in the Chinese weekly reports. Below we can see a screen shot of the most recent report.
The number framed in red is the amount of gold withdrawn from the vaults in the current week denominated in Kg’s counted unilaterally (46.5651 tonnes in between 26 – 30 October 2015). The number framed in blue is the amount of gold withdrawn from the vaults year to date (2,165.4422 tonnes) counted unilaterally.
The misunderstanding regarding COMEX deliveries versus SGE withdrawals is fuelled by some blogs that disclose SGE withdrawals labeled as SGE deliveries. Confusing readers to think deliveries are an indicator for demand. While, deliveries are not the same as withdrawals.
E-mail Koos Jansen on: firstname.lastname@example.org
(courtesy Bill Holter/Palisade Radio)
My latest interview http://palisaderadio.com/bill-holter-gold-is-cheap-gold-stocks-are-cheaper/
Bill Holter: Gold Is Cheap. Gold Stocks Are Cheaper!
Physical gold is a necessary part of one’s portfolio, but investors should also look towards mining stocks. That is according to Bill Holter, who contends that ounces in the ground are so deeply discounted today, that buying mining shares is like getting gold for free!
Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.
Talking points for this week’s interview –
• Why buying mining shares gives you a deep discount on your gold?
• How to get your gold mining share certificates out of the system?
• Geopolitical events that may cause global economic shifts? Russia, Saudia Arabia, and more…
• And you don’t want to miss Bill’s view on BITCOIN!
1 Chinese yuan vs USA dollar/yuan rises slightly in value , this time at 6.3618 Shanghai bourse: in the red, hang sang:red
2 Nikkei closed up 28.32 or 0.15%
3. Europe stocks all in the red /USA dollar index up to 99.13/Euro down to 1.0733
3b Japan 10 year bond yield: falls to .319% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 123.46
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 43.96 and Brent: 47.13
3f Gold up /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .673 per cent. German bunds in negative yields from 5 years out
Greece sees its 2 year rate rise to 7.99%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield falls to : 7.68% (yield curve flat)
3k Gold at $1094.00 /silver $14.53 (8:00 am est)
3l USA vs Russian rouble; (Russian rouble up 1/4 in roubles/dollar) 64.37
3m oil into the 44 dollar handle for WTI and 47 handle for Brent/ China purchases huge supplies from Saudi Arabia
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0041 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0778 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/
3r the 5 year German bund now in negative territory with the 10 year rises to +.673%/German 5 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 2.33% early this morning. Thirty year rate above 3% at 3.09% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks Fall For 5th Day On Disturbing Chinese Inflation Data; Renewed Rate Hike Fears; Copper At 6 Year Low
A day after China reported another month of disappointing trade data, overnight it confirmed that all that communist talk of “recovery”, and “for make benefit glorious concept of central planning” is hot air when overnight not only its CPI missed, rising just 1.3% and below the 1.5% expected, but PPI tumbled by -5.9%, which was the 44th (!) consecutive month of declines and at the current accelerating pace, China may have another 44 months of gate deflation before anything improves.
And with both trade weak, and inflation disappointing, it meant one thing: demand for industrial metals was slumping, leading to another day of tumbling prices overnight, led by nickel…
… and copper, both of which dropped to their lowest levels since before 2010.
It would appear all those Glencore copper production cuts didn’t do anything after all, just as predicted.
Stocks, however, were a different matter and more bad news out of China’s economy is just what the market wanted at least initially, and resulting in the following Bloomberg headline: China Deflation Threat Gives PBOC Room for More Monetary Easing. However, it appears the latest bad news wasn’t bad enough as the Composite failed to continue its 4-day winning streak, and closing down fractionally just 0.2% on the session, despite expectations of another imminent stimulus from someone.
Mockery of central planning aside, the ongoing failure of China to achieve any stabilization in its economy, after already cutting interest rates six times in the past year, and the prospect of a U.S. interest rate hike in December, had made markets increasingly jittery and worried which is not only why the S&P 500 Index had its biggest drop in a month, but thanks to the soaring dollar emerging market stocks are falling for a fourth day – led by China – bringing their decline in that period to almost 4 percent, and the global stock index down for a 5th consecutive day.
Elsewhere in Asia, Asian equity markets traded mostly lower following the lacklustre close on Wall St. which saw the worst intraday decline in a month, amid fears over a Fed December rate hike coupled with the OECD downgrading their global growth forecast. The Shanghai Comp. (-0.1%) fluctuated between gains and losses amid increased speculation of further easing after the latest Chinese CPI figure printed a 5-month low, signalling concerns of slowing demand in China. Hang Seng (-1.4%) was weighed on by weakness in casino names after Wells Fargo cut Macau’s November gaming gross revenue guidance. Nikkei 225 (+0.2%) has seen a relatively mixed session, tracking the fluctuations in Chinese stocks with modest support provided by the healthcare sector. 10yr JGBs traded higher amid risk-off sentiment which prompted inflows into Japanese paper.
- MSCI Asia Pacific down 0.7% to 133
- Nikkei 225 up 0.1% to 19671
- Hang Seng down 1.4% to 22402
- Shanghai Composite down 0.2% to 3640
- S&P/ASX 200 down 0.4% to 5099
Key Asain News:
- Tencent Profit Rises to Record as Online Gaming Lures Users: 3Q net income 7.45b yuan vs est. 7.51b yuan
- Aussie Business Loan Bonanza as Bank Margins Slide May Stall RBA: Borrowing rates for corporates have dropped by at least 57 basis points since Jan.
- Short Sellers’ No. 1 Target Is Surging in Hong Kong as CEO Buys: Shrs of China Huishan Dairy have soared 90% since early Jul., despite highest level of short interest in HK and analyst price targets implying 46% tumble over next 12- mos.
- Morgan Stanley Sees BOJ Shift in Easing Methods as Bonds Run Out: BoJ will be forced to change its stimulus strategy as soon as next autumn as it runs out of gov’t debt to buy from market, Robert Feldman said
In Europe, equities (Euro Stoxx -0.36%) have continued the trend set in the US and Asia and reside in negative territory , led higher initially by stock specific gains, but subsequently led lower by the materials and energy sectors. The aforementioned sectors have underperformed as a result of disappointing data out of China, as highlighted by the latest CPI and PPI data overnight . The FTSE 100 (-0.35%%) underperforms in Europe, weighed upon by mining names, after Barclays downgraded both BHP Biliton (-1.4%) and the sector as a whole. Telecoms is the outperforming sector after Vodafone (+4.2%) reported positive earnings including organic service growth of 1.2% for the quarter, beating expectations. Utilities is the second best performing sector, coming off the back of National Grid’s (+1.8%) announcement that it has begun the process for its stake sale in the UK’s gas grid. The pharma heavy CAC 40 (-0.37%) outperforms its major counterparts in Europe, as a flight to quality ensues.
Fixed income has trended higher, with Bunds supported by the growing consensus suggested by source comments yesterday that some members of the ECB are pushing for a larger than 10bps depo cut as they think that 10bps is already priced in.
- Stoxx 600 down 0.4% to 374
- FTSE 100 down 0.4% to 6272
- DAX down 0.5% to 10766
- German 10Yr yield down 3bps to 0.63%
- Italian 10Yr yield down 5bps to 1.7%
- Spanish 10Yr yield down 6bps to 1.9%
- S&P GSCI Index up 0.3% to 351.9
European Top News:
- ABN Amro Seeks Up to $4.6 Billion in IPO as State Cuts Stake: Dutch govt is selling a 23% stake in ABN at EU16- EU20/shr, valuing the co. at >EU18.8b at the high end of the range
- Portuguese Premier Set to Be Ousted as Socialists Eye Power: Loose alliance of Portuguese opposition parties poised to vote PM Coelho’s govt out of power on Tuesday
- Asda Calls Time on Black Friday as U.K. Turns Back on U.S. Rite: Instead of having customers line up all night for a limited number of heavily discounted items, Asda plans to cut prices by GBP26m across the season
FX markets have remained quiet amid no tier one data releases from Europe . Price action continues to be subdued in the wake of NFP report last Friday, with the USD remaining firm as FFR futures are now pricing in a 70% probability of a fed rate hike at the December meeting. As such, USD/JPY continues to trade above the 123.00 handle. EUR/USD now trades in negative territory however, with hawkish comments by ECB’s Weidmann failing to bolster EUR.
The commodity complex remains quiet for the session with WTI and Brent trading flat, with precious metals continuing to be maintained in range by the firmer USD and industrial metals being weighed upon by the aforementioned weak Chinese inflation data overnight.
Looking ahead data is light on the US calendar, with Import Prices and Wholesale Inventories at 8:30 and 10:00 am respecitvely, and a 10Y auction at 1pm; we are expecting comments from ECB’s Coeure, BoE’s Cunliffe and Fed’s Evan’s.
- China Deflation Threat Gives PBOC Room for More Monetary Easing: Consumer price index rose 1.3% in Oct. from yr earlier, missing the 1.5% median est.
- ECB Faces Three Suits Over Quantitative Easing in German Court: EU1.1 trillion asset-purchase program the target of lawsuits pending in Germany’s top constitutional court that challenge the country’s role in the policy
- Obama Immigration Plan Stymied as States Win Again on Appeal: Court refuses to let program begin while 26 states fight to derail it
- Battle for Asciano Intensifies as Qube Makes Counteroffer: Qube and its North American backers made a A$9b counteroffer for Asciano, rivaling bid from Brookfield Asset Management
- Synchrony Financial Will Be Added to S&P 500, Replacing Genworth: Genworth will take Rovi’s place in S&P MidCap 400
- Goldman Sachs Sees 60% Chance U.S. Expansion Lives to See Ten: U.S. economic upswing now the 5th longest since 1900
- Loomis Avoids Treasuries on View Fed to Lift Rates Twice by June: Loomis Sayles portfolio manager Matt Eagan predicts Fed will raise interest rates in Dec. and again in June
- Gundlach Says December Rate Increase a Threat to Stocks, Bonds: Would potentially drive up the value of the dollar to the point where it weakens the economy, Jeffrey Gundlach, CEO of DoubleLine Capital, said late yday on call with investors
- Vodafone Service Revenue Beats Estimates on Europe Recovery: 2Q organic service rev. growth 1.2% vs est. 0.8%, boosts lower end of FY2015/2016 Ebitda range
- VW Starts Talks to Win Worker Backing for Post-Scandal Cutbacks: Two sides sought to present a unified front after a daylong board meeting on Monday, saying they’re starting 10 days of talks
Bulletin Headline Summary from Bloomberg adn RanSquawk
- Treasuries gain for first time in over a week after weaker than expected Chinese inflation data sparked global stock selloff; quarterly refunding continues with $24b 10Y, WI 2.305%, highest since June, vs. 2.066% in Oct.
- China’s CPI rose 1.3% in October from a year earlier, below 1.5% median forecast in Bloomberg survey; producer prices fell 5.9%, its 44th straight monthly decline
- China’s giant banks got a nine-year breather to issue the securities they need to meet standards for loss absorbency laid down by the FSB, an acknowledgment of the challenge this implies for the largely deposit-funded lenders.
- The EC has proposed that the EU’s overhaul of financial markets regulation — MiFID II — be delayed by a year, according to the European Parliament’s lead rapporteur on the dossier, Markus Ferber
- German politicians who failed in previous attempts to have courts derail EU monetary policy filed lawsuits at the country’s top court challenging the ECB’s EU1.1t asset- purchase program
- Obama’s plan to shield more than 5m undocumented immigrants from deportation before he leaves office was dealt another blow by an appeals court’s refusal to let the program begin while 26 states fight to derail it
- A London judge ruled former Deutsche Bank AG trader Christian Bittar was improperly identified in a regulatory sanction notice against the bank over Libor in a significant setback for the Financial Conduct Authority
- In a speech today, U.K.’s David Cameron outlined for key demands for reforms as he seems to keep Britain in the EU; U.K. Independence Party leader Nigel Farage said speech shows there is no major renegotiation and there should be no delay in holding a referendum on membership
- Chinese police slapped a two-year freeze on more than $670m of shares owned by the mother of Xu Xiang, the Shanghai hedge fund boss under investigation for alleged insider trading and stock manipulation
- $16.95b IG priced yesterday, $1.08b HY. BofAML Corporate Master Index OAS holds at +161, YTD range 180/129. High Yield Master II OAS widens 4bp to +594, YTD range 683/438
- Sovereign 10Y bond yields lower. Asian, European stocks fall, U.S. equity-index futures decline. Crude oil gains, gold little changed. copper falls
DB’s Jim Reid completes the overnight wrap
It’s straight to China this morning where soft inflation data is dominating the headlines. CPI in the month of October was -0.3% mom, the first monthly decline in prices since May. That’s seen the YoY rate fall to +1.3% (vs. +1.5% expected) following a +1.6% reading in September with food prices in particular appearing to be a large contributor to the decline having fallen to 1.9% yoy from 2.7% yoy in the month prior. Prices at the factory gate continue to remain under pressure meanwhile with PPI of -5.9% as expected and unchanged from last month, marking the 44th straight monthly decline.
Chinese equity markets had initially fallen as much as 1% immediately following the data, only to then rebound and trade as much as +0.5%, but have since declined again following the midday break with the Shanghai Comp and CSI 300 both down -0.41%. The Nikkei is +0.08% while the Hang Seng -1.27%, Kospi -1.50% and ASX -0.40% have fallen and base metals have all sold off following the data. US equity markets are a touch firmer while Oil markets are half a percent stronger after the International Energy Agency forecasted that supply outside of OPEC is set to stop growth by 2020.
Friday’s strong US employment report and subsequent Fed rate hike re-pricing dominated much of the tone in markets again yesterday as risk assets starting the week on the back foot with the S&P 500 retreating -0.98%, Dow closing -1.00% and European equity markets down a bit more. The OECD added to the softer tone, joining the IMF in cutting its growth forecast for this year (2.9% from 3.0% previously) and next year (3.3% from 3.6% previously). Meanwhile, Oil markets slid through the afternoon session with WTI eventually closing the session -0.95%, its sixth consecutive down day. Treasury yields nudged a bit higher, the 10y eventually closing up +1.8bps at 2.344%. Credit markets weakened with CDX IG a couple of basis points wider but again the primary market shrugged off any concern as 11 issuers were out with new deals in the US, with nearly $17bn of bonds getting priced. Estimates for supply this week are running at around $25-$30bn.
Yesterday’s Fedspeak didn’t offer a whole lot of new information. Chicago Fed President Evans said that he is not predisposed against liftoff in December while the Boston Fed President Rosengren said that all future meetings, including December’s, could be an ‘appropriate time for raising rates’ should the economy continue to improve as expected. Like his Fed colleagues, Rosengren also highlighted that he prefers a path that involves only a gradual increase in interest rates.
So given the renewed focus on the higher probability of a Fed rate hike we thought it was worth re-highlighting this year’s Long-Term Study (Scaling the Peaks – 07/09/2015 –http://pull.db-gmresearch.com/p/6523-08FD/52242465/LT_Study.pdf) where we looked at the impact of Fed hikes on various financial and economic indicators using 12 hiking cycles since 1950. The results are on pages 10-14 of the document with data from the first hike in the cycle on page 11. Generally the results emphasize the traditional lag of monetary policy on financial and economic variables.
If we look at the first hike in the cycle, real GDP growth has tended to steadily climb into the move and then actually accelerate in the half-year afterwards. From 6 months to three years after, the pace of growth incrementally slows as the long lag of monetary policy and subsequent rate hikes bite. For equities performance in the 6 months before the first hike and 6 months after are fairly similar. It does seem though that there is a trend for equity returns to stall 12-24 months after the first hike which again perhaps reflects the lag in monetary policy. For credit spreads, we see tightening for around 12 months after the first hike. However after this for the next two years this tightening is fully and progressively reversed hinting again at the lag.
While we think there are good reasons to think this cycle is different to the last twelve it’s a useful reminder that we may not know the consequences of any imminent Fed move until maybe 2017. We have a bias to believe that a rate hike now would be a policy error mainly because global growth and inflation are so low that you risk activity tipping over into a recession in say 2017. Clearly a lot can happen between now and then but that’s our current thinking.
Moving on, the Euro was under some pressure yesterday following a report released by Reuters suggesting that the ECB was considering more aggressive easing (relative to market expectations) in December. The article, quoting four governing council members, suggested that a consensus is forming at the ECB to move the deposit rate further into negative territory at the December meeting, although the article noting that the move might be even greater than the 10bp cut currently expected by markets according to the policymakers. Interestingly the article quoted one Governing Council member as going so far as to say that ‘there is no bottom to the deposit rate in the near term’ and that ‘it could be lowered quite sharply still’. The Euro was off as much as -0.6% from the day’s highs but closed pretty much unchanged. 10y Bund yields ended down just over 3bps in at 0.660%. The same couldn’t be said for yields in the periphery however as political headlines dominated markets there.
Portuguese government bond yields moved quite sharply wider yesterday (10yr +16bps) as the main opposition Socialist party reached an agreement with radical-left parties over the weekend. This makes it almost certain that the minority centre-right government will be defeated – a no confidence vote is expected on Tuesday – and increases the likelihood of a leftist government outcome. Although the Socialists’ revised economic programme remains moderate, our economists expect stasis on the structural front with risks tilted towards greater fiscal slippage.
Spanish government bond yields also increased (by a lesser +4bps in 10yrs) as the Catalan pro-independence parties approved in the Catalan Parliament a resolution to begin working on a separate social security system and treasury with the aim to secure independence as early as 2017. This is not a surprise. The pro-independence parties come from a very heterogeneous political spectrum. Hence, they have only the pro-independence battle to unite them. The likely next step is for the Constitutional Court to annul the Catalan resolution although this is unlikely to stop the pro-independence parties. But political risk in Spain is not uniformly increasing, opinion polls ahead of the general election on 20 December in Spain are painting a slightly less fragmented picture, with a slightly higher probability of a pro-business government coalition.
Wrapping up yesterday and specifically the economic data that we got, Germany’s trade balance reading for September revealed a slightly better than expected trade surplus (€22.9bn vs. €20.0bn expected) after exports rose +2.6% mom (vs. +2.0% expected) during the month. French business sentiment for October was up a point last month to 99, while Euro area investor confidence rose +3.4pts to 15.1 (vs. 13.1 expected) for November. In a quiet day for data, the only release of note in the US was the October labour market conditions index which rose 0.3pts to a slightly below-market 1.6 (vs. 1.9 expected).
In terms of the day ahead now, this morning in Europe see’s more industrial production prints out of France and Italy, along with the monthly manufacturing production read in the former. The calendar picks up a bit in the US this afternoon starting with the October NFIB small business optimism index reading, followed by last month’s import price index and then the September wholesale inventories and trade sales data later this afternoon. Meanwhile it’s a busy day for Central Bank speak. The ECB’s Coeure, Weidmann and Nouy are all scheduled to speak at various points, while over at the Fed we’re due to hear from Evans (at 10.15pm GMT) after the US close.
EURUSD Crashes To 1.06 Handle – 7-Month Lows
It appears the stop sbelow yesterday’s lows (following The ECB’s jawboning of “big cuts” in rates) have been run, sparking a 40 pip waterfall to a 1.06 handle in EURUSD (and there are more ECB speakers to come). These are 7-month lows in EURUSD and are pressing The USD Index to break April’s highs.
Obama’s Trade Deal Will Bankrupt Canada’s Farming Industry “Overnight”, Expert Says
Earlier this month, in “Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever,” we took a close look at Canada, where slumping crude prices are beginning to take a serious toll. As we noted, citing BofAML, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.
Citing Sharma’s data Bloomberg wrote that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.
Well now, on the heels of the Obama administration’s rejection of the “dangerous” Keystone Pipeline (which comes as oil tankers continue to derail across the country), some critics say The White House’s controversial new trade deal could end up costing beleaguered Canada massive job along with the “overnight” collapse of their agriculture industry. Here’s more, from Sputnik:
There are also major concerns over the effects the trade deal will have on Canadian agriculture industries.
Dr Sylvain Charlebois, professor of distribution and food policy at the University of Guelph’s Food Institute in Canada, told Sputnik there were many unanswered questions in the deal.
“I think overall, reading the deal, there are some very strong elements to support Canada’s membership into this partnership. However, there are a lot of unknowns unfortunately, particularly in the area of agriculture.”
Dr Charlebois said that Canada’s protectionist supply management scheme, which works to protect local industries, would be thrown out under the TPP, with concerns over how this would impact local producers.
“Canada has supply management, particularly with poultry, milk and eggs, so we basically produce what we need in Canada. Now the Trans-Pacific Partnership would compromise the equilibrium we have between supply and demand domestically […] allowing milk from other member countries to come into the Canadian market.”
“What would happen to quotas for example? But most importantly, what would happen to processing? So there’s lots of questions being asked by farmers and processors, and now with the changing government, hopefully we’ll get some clarity on these issues.”
Charlebois goes on to say that the dairy, egg, and poultry sectors may indeed collapse “overnight”:
The supply management scheme has been in place since the mid-60s in order to protect Canadian agricultural sectors from larger US corporations.
As a result, Dr Charlebois says the local industries have become complacent and inefficient, and would not be able to survive under the TPP if it was implemented immediately. “Overnight if we were to eliminate tariffs on imports, we would likely see the dairy sector in Canada, and perhaps the poultry and egg sectors, collapse overnight.
“We’re just not competitive so we need to give it some time for these sectors to adapt and change their modus operandi to make sure they do become more productive and efficient over the next 15 years or so.”
So, with Canada already stinging from plunging crude, some are now suggesting that TPP could be set to cripple the country’s economy even further. Meanwhile, Jim Balsillie, former co-CEO of BlackBerry – which is of course “dominating” the global smartphone market – thinks this is the “worst thing Canada has ever done”:
“I’m not a partisan actor, but I actually think this is the worst thing that the Harper government has done for Canada… I think in 10 years from now, we’ll call that the signature worst thing in policy that Canada’s ever done. It’s such brilliantly systemic encirclement.
I’m just in awe at its powerful purity by the Americans… We’ve been outfoxed.”
Yeah ok, maybe, but let’s just be honest, the Obama administration has never “outfoxed” anyone on anything. In fact, if recent geopolitical outcomes have taught us anything, Obama and Kerry couldn’t “outfox” their way out of a wet paper bag, so to the extent they’ve designed some kind of cunning trade policy with the aim of bankrupting the Canadian dairy industry it would out of character, but again, stupidity sometimes produces unpredictable outcomes.
Anyway, incompetence and naïvety do have a way of creating unexpected consequences so we hope, for Canada’s sake, that the The White House doesn’t end up bankrupting everything chicken-related north of the border but if it does, don’t worry, because that same incompetence will invariably end up starting a world war in Syria which will swiftly drive crude prices through the roof and then it’s problem solved for the Canadians…
Special thanks to Robert H for sending this to us.
His comment on this issue:
“But while this new requirement may prove to be challenging for US banks, many worry that it could push some troubled European banks to the brink of failure. According to the Basel Committee on Banking Supervision, some 66% of the banks affected fall far short of the amounts they will have to provide.”
(courtesy London’s Financial times)
Global banks must raise €1.1tn in special debt by 2022
Thomas Hale in Basel, Caroline Binham and Laura Noonan in London
The biggest international banks must raise as much as €1.1tn by 2022 in special debt designed to prevent taxpayer bailouts of lenders, a global group of policymakers said as it claimed it had “created the tools needed to end too big to fail banks”.
The Financial Stability Board, which makes policy recommendations to leaders of the Group of 20 large economies, confirmed its final proposals for Total Loss Absorbing Capacity, or TLAC, on Monday.
While previous global requirements have focused on equity, TLAC is about debt that can be converted into equity when a bank fails, essentially putting a lender’s creditors on the hook rather than the taxpayer. It also ends the equal treatment of bondholders and depositors, whose deposits are often insured by their governments.
The FSB, which will put the plan to the G20 later this month, confirmed a widely anticipated range for TLAC that will be 16 per cent of a banking group’s assets when measured for risk by 2019, rising to 18 per cent by 2022.
“Ending ‘too big to fail’ may never be absolute because all financial institutions cannot be insulated fully from all external shocks,” wrote Mark Carney, the governor of the Bank of England who also chairs the FSB, in a letter to the G20. “But these proposals will help change the system so that individual banks as well as their investors and creditors bear the costs of their own actions.”
European banks have become increasingly concerned about rising capital demands, and are describing the latest round of regulation as Basel IV, the successor of the Basel III regulations that do not come into force until 2019.
“It’s not capital, it’s loss absorbency — there’s a big difference,” Mr Carney told journalists. “There is no Basel IV. There is the completion of Basel III . . . What we’re doing is ironing out issues that have been identified over time in terms of the application of Basel III.”
Giles Williams, banking partner at KPMG, said he was “not convinced the market will buy into this as the US proposals are tougher, and it is not clear if the market will buy that this solves the ‘too big to fail’ issue”.
In a note to clients, Citi described the proposals as “as expected and manageable” for European banks, while Laurent Frings at Aberdeen Asset Management said they were “on balance..good for the (European) banks as the FSB went down the pragmatic route both in terms of requirements and timeline to meet those.”
The FSB admitted that the TLAC rules could push up the cost of credit and hurt economic growth but said the impact would be “very limited” and was outweighed by the benefits of increasing bank resiliency by “at least one-third”, reducing the likelihood of systemic crises and cutting the fiscal costs of dealing with them when they do occur.
The final range is lower than the 16-20 per cent spectrum first proposed by the FSB last year but had been widely reported last month. The range has already been described by Citigroupanalysts before Monday’s announcement as a “manageable hit” for the largest European banks, equating to about 2 per cent of income.
But the FSB’s estimates of the current TLAC shortfall swing from as little as €42bn to the €1.1tn figure, depending on the timeframe and what kind of debt is considered eligible. Mr Carney said finalising the TLAC rules put a “hard timetable” on banks’ resolution planing — the other necessary conditions for the elimination of “too big to fail” in banking.
Hardest hit are emerging market banks, which previously enjoyed an exemption from TLAC rules. Four of the 30 lenders that are so-called global systemically important banks, or G-SIBs, currently have no senior debt instruments that count towards TLAC, the FSB said.
Four banks, Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China, will no longer have an exemption around TLAC and have been given deadlines for the lower and upper ranges of 2025 and 2028 respectively. The exemption, widely seen as a sop to the Chinese, was controversial because it undermined the principle of a global level playing field.
Despite TLAC’s design as a global package, Mr Carney played down global regulators’ concerns about law changes in some countries that would make it easier for their banks to meet the requirements. “All can be reconciled,” he said.
The FSB also published research challenging banks’ contention that the capital rules already introduced have crushed liquidity, particularly in the debt markets.
Additional reporting by Jim Brunsden in Brussels and Barney Jopson in Washington
Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves
In late October, when describing Venezuela’s desperate steps to keep itself afloat for a few more months, we reported that in order to fund $3.5 billion bond payments in early November, Maduro’s government had engaged in something that is the very definition of insanity: selling the country’s sovereign (and patiently repatriated by his deceased predecessor) gold to repay creditors.
Specifically, in the past several months, Caracas has quietly 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.”
But while ridiculous, Venezuela’s decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid.
What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.
Recall that this is precisely what Greece did in July when everyone was speculating when it would default. Now its Venezuela’s turn.
The details: Reuters reports that Venezuela withdrew some $467 million from an IMF holding account in October, according to information posted on the fund’s web-site, as the OPEC nation seeks to improve the liquidity of its reserves amid low oil prices and a severe recession.
Venezuela holds part of its reserves with the International Monetary Fund in an instrument called Special Drawing Rights (SDR), a basket of international currencies made up of the euro, Japanese yen, pound sterling and U.S. dollar.
The withdrawal will allow Venezuela to use the funds for imports or debt service,but does not change its total reserve holdings as SDRs are already accounted for.
Needless to say, it is far wiser to use up all paper “assets” to repay “paper” liabilities, before resorting to hart money. By then, it is usually game over anyway, so our advise to Mr. Maduro: just default now, and save your gold.
Referentially, the country’s international reserves as of Thursday stood at $14.819 billion: and dropping fast. At this rate of depletion, we give Venezuela a few more months before the army takes over.
Finally, the central bank’s most recent financial statements as of May, showed that 58% of reserves were held in gold. It is unclear how much, if any, were held in “toilet paper”.
Venezuela Liquidating Assets As Economic Crisis Worsens
Venezuela is at a political crossroads, with an all-important parliamentary election set to take place in December. Meanwhile, the Venezuelan economy continues to deteriorate as the state seeks to stave off default and a brewing financial crisis.
The state-owned oil company PDVSA is looking topush off debt repayments that are due in 2016 and 2017, hoping to buy two more years of breathing room. Eulogio del Pino, the president of PDVSA,confirmed that the oil company completed debt payments of $4.2 billion that matured last month, and will pay another $1 billion due in the near future. But PDVSA is also seeking to work with bond holders to extend the deadlines for short-term debt until 2018 and 2019.
The comments from del Pino highlight the growing difficulty Venezuela is having in dealing with the collapse of crude prices. For a country that depends on oil exports for 95 percent of its export revenue, the bust in oil prices is hurting the South American OPEC member worse than most.
Bond prices for the government and PDVSA have collapsed, a development that del Pino blames on speculators seeking to drive down their value. Based on market sentiment, there is a strong consensus that Venezuela is facing the likelihood of default within the next year. Still, Venezuela thus far has been careful to meet debt payments, something that del Pino argued should give PDVSA credibility as it seeks to renegotiate maturity terms with bondholders.
But cash is running low. Gold reserves are falling sharply as Venezuela liquidates them to raise funds to meet debt payments. Also, the Wall Street Journalreported that Venezuela withdrew $467 million in cash reserves that it keeps with the International Monetary Fund, a sign that Venezuela is scrambling to raise as much money as it can. “Venezuela and PDVSA has a major liquidity problem,” Goldman Sachs analyst Mauro Roca told the WSJ. “If they are able to in some way to push those payments down the road through financial engineering they’ll be able to continue muddling along.”
Venezuela’s GDP could fall by 10 percent this year, the worst economic performance in the entire world. The country suffers from shortages of basic goods, including food and medicine. And inflation is running at around 85 percent, at least according to official estimates, which are likely vastly understating the true inflation rate. Crime rates are some of the worst in the hemisphere.
It is hard to see how the fortunes for Venezuela will improve in the near-term. Oil prices are showing very little sign of rebounding in a substantial way. Venezuelan officials have been pleading with OPEC to alter course and pursue a stronger price target. Venezuelan President Nicolas Maduro says that oil prices need to rise to $88 per barrel in order to guarantee global oil investments. “If the price of oil stays at $40, there will be a depreciation of investment, and within a few months we are going to see a price of $150, $200. Who does this suit? Nobody,” Maduro said on state TV.
His pleas fell on deaf ears. Saudi Arabia continues to dismiss calls from its fellow OPEC members to abandon its strategy of pursuing market share. “Let the market determine the price,” Saudi oil minister Ali al-Naimi said at a conference in late October.
Venezuela’s heavy crude fetches a lower price than some international benchmarks. While WTI traded for around $46 per barrel for the week ending on October 23, PDVSA was earning just $39.47 per barrel.
The economic crisis could quickly undermine political stability, especially with elections scheduled for December 6. Maduro’s mismanagement of the economy and the worsening economic crisis has cut into the popularity of the Chavista government. That would suggest that the opposition would score a major victory in the legislative elections in a few weeks, but there are few reasons to be optimistic about the fairness of the vote. On October 26, Maduro declared an “emergency” and said that he wouldactivate an “anti-coup” plan ahead of the elections, an ominous development considering that the government routinely cracks down on opposition figures, jailing them on trumped up charges. And with state control of the media, the playing field is tilted in favor of the ruling party.
Late last month, Brazil withdrew its involvement in election monitoring after Venezuela rejected the officials Brazil put forward. Maduro is doing his best to keep international observers from scrutinizing the election.
The election will take place just as the OPECmeeting will be wrapping up in Vienna, which is expected to yield few benefits for Venezuela. All signs point to OPEC continuing its market share strategy, keeping a lid on any substantial price rebound in the short-run. That does not bode well for Venezuela as it teeters on the brink of catastrophe.
EM Exodus: Emerging Economies See Half Trillion In Capital Flight
When Janet Yellen and the rest of the Eccles cabal decided to stay on hold in September, the “new” reaction functionwas all anyone wanted to talk about.
Of course, the idea that the Fed was to that point “data dependent” (versus market dependent) was something of a joke in the first place, but the specificity the FOMC employed when referring to global financial markets still took some observers off guard. The worry for the Fed revolved primarily around the possibility that a hike could accelerate EM capital outflows at a time when a series of idiosyncratic factors (like a civil war in Turkey, a political crisis in Brazil, and the 1MDB scandal in Malaysia) had already pushed the emerging world to the brink of crisis. Enormous outflows from China as a result of the yuan deval didn’t help.
In short, the theory was that even a “symbolic” 25 bps hike had the potential to trigger an EM exodus that would make the taper tantrum look like a walk in the park as a soaring dollar exacerbated an already tenuous scenario playing out across the space.
Now, as we look back at Q2 and Q3, we learn that all told,well more than a half trillion in capital fled EM over six months.
Here’s JP Morgan who calls the capital flight “unprecedented”:
Recent capital outflows from EM have raised fears of a potential credit crunch, which if it materializes, could exacerbate the economic downshifting of EM economies. On our estimates $360bn of capital left China during the previous two quarters and an additional $210bn left from the rest of EM.
This of course led directly to a massive FX reserve drawdown and indeed, over the past 18 or so months, the end of the so-called “Great Accumulation” of USD assets has come to a rather unceremonious end. Here are two graphics from Goldman which demonstrate the scope of build and subsequent unwind:
But for anyone who’s concerned about the effect this might have on tightening global monetary conditions or otherwise amplfying a “liftoff”, don’t worry because while QT may indeed be QE in reverse, Goldman thinks it can’t possibly be as “negative” as QE was “positive”given the fact that it’s inherently limited by how much EMs have to sell whereas QE is only limited by central planners’ collective imagination:
Countering widespread worries about QT, Zach Pandl of our US Economics Research team argues that the impact of EM reserve selling does not amount to QE in reverse.Even if the pace of dollar-denominated asset sales lines up roughly with the Fed’s Treasury purchases over the main phase of QE, the former won’t pack the same punch.
Specifically, QT lacks the signaling value of QE, actually works to weaken the dollar (as does QE), and is finite because reserves can only decline to zero (in contrast to theoretically unlimited asset purchases—a key source of QE’s potency).
Or, summed up…
Euro/USA 1.0733 down .0027
USA/JAPAN YEN 123.21 up .157
GBP/USA 1.5109 down .0009
USA/CAN 1.3270 up .0004
Early this morning in Europe, the Euro fell by 27 basis points, trading now just above the 1.07 level falling to 1.0733; 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 yield. Last night the Chinese yuan down in value (onshore). The USA/CNY down in rate at closing last night: 6.3618 / (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 southbound trajectory as settled down again in Japan by 16 basis points and trading now well above the all important 120 level to 123.21 yen to the dollar.
The pound was down this morning by 9 basis points as it now trades just above the 1.51 level at 1.5109.
The Canadian dollar is now trading down 4 basis points to 1.3270 to the dollar.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this TUESDAY morning:closed up 28.32 or 0.15%
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 red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) in the green/India’s Sensex in the red/
Gold very early morning trading: $1093.50
Early Tuesday morning USA 10 year bond yield: 2.33% !!! down 2 in basis points from Monday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 3.09 down 2 in basis point.
USA dollar index early Tuesday morning: 99.13 cents up 13 cents from Monday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Tuesday morning
WTI Tumbles To $43 Handle After API Confirms Huge Inventory Build
API reported a huge 6.3 million barrel inventory build(notably larger than expected) extending the series of build to seven weeks. Even more worrying was themassive 2.5 million barrel build at Cushing, even as gasoline inventories fell 3.2mm. WTI immediately dropped 35c, breaking back to a $43 handle after-hours.
A huge build…
But for Cushing it was massive…
The reaction was quick and on heavy volume…
USA/Chinese Yuan: 6.3603 down .0016 on the day (yuan up)
New York equity performances for today:
S&P (Barely) Ends Losing Streak Despite Crumbling Credit, Pumping’n’Dumping Dollar
Despite the awesome unchiness of today’s broad market, some big names were ugly…
Everything is not awesome everywhere…
* * *
US equities traded in an extremely narrow range all day, weak into Europe’s close, drifting higher in the afternoon…
The following chart of the S&P (cash) shows the odd nature of the last few days – opening dump, stabilize into EU close, drift higher in the afternoon, ramp into close…
And here is how you close the S&P green…
AAPL tumbled on a CS report confirming our earlier channel check and supply chain details…
Another hedge fund hotel – SunEdison – collapsed another 20-plus percent today…
Finally VRX dropped again – after a bief bounce intraday… despite every effort to calm investor anxiety…
Credit markets have now fallen for (wider spreads) for 5 days in a row – longest streak in 3 months…
With Credit leading stocks lower…
But Treasuries & Stocks have now finally recoupled...
But Treasury yields ended the day lower (with the front-end outperforming – 3Y -4bps, 10Y -2bps, 30Y -1bp) – once again Treasuries followed a similar pattern around the EU close… (someone is dumping Treasuries from Europe, and then stop once Europe closes)
The USD spiked early on amid a collapse in EURUSD back to a 1.06 handle – but recovered after Europe closed to end the day unchanged on the week…
Notably it appears someone in Europe is dumping EURs into the early US session…
Commodities were a mixed bag today with PMs hurt early on and crude bouncing higher despite IEA warnings (only to end unch)…
Bloomberg’s Commodity Index hit a fresh 16-year low…
Bonus Chart: Seriously – as we stated at the start – everything is not awesome…
Aggregate demand falling throughout the world as Apple cuts it’s component orders by 10%
(courtesy zero hedge)
Apple Cuts Component Orders By 10% Due To Weak iPhone 6s Demand: Credit Suisse
One week ago we reported something unpleasant for the world’s largest company: China Daily had reported that Apple’s key Taiwanese supplier, Pegatron, had halted hiring “due to poor iPhone sales.” Today, Credit Suisse confirms much of the cautions laid out previously in a note in which it says “iPhone supply chain orders have weakened recently. In our view, the continued weak supply chain news could weigh on Apple shares for the next few weeks/quarters.”
As a result of the change in sales expectations, the Swiss bank is lowering its CY16 EPS estimates by 6%, but since it doesn’t want to get on Tim Cook’s bad side, says that it continues to “believe that with high retention rates, continued installed base growth, and the optionality of a smaller 4-inch iPhone, Apple remains an Outperform.”
In other words, the current weakness, previewed here, is “transitory”, or so CS hopes.
Here are the details from Credit Suisse’ note on Supply-chain cuts:
Production cuts. Apple has lowered its component orders by as much as 10% according to our teams in Asia. The cuts seem to be driven by weak demand for the new iPhone 6s, as overall builds are now estimated to be below 80mn units for the December quarter and between 55-60mn units for the March quarter. We lower our CY16 units to 222mn from 242mn to reflect this and assume 235mn for 2017 (6% growth y/y).
Downward revisions anticipated, but coming sooner and deeper. The downward revisions came in earlier (November 2015, versus December 2015) and deeper (by 10% versus earlier expectations by 5%) than anticipated. We believe the softer- than-expected demand could be due to (1) currency volatility, (2) the lack of attractive Apps supporting the new force touch function (which has been the key selling point of iPhone 6s), and (3) macro uncertainties.
Data points suggest a weaker 1Q16. Current data points suggest the production cuts are mostly in the December quarter. However, as the new smartphones have only been available in the market for one month, we believe 1Q16 cuts could be potentially more significant. As a result, we now expect the component supply chain to see a single-digit YoY decline in 4Q15, and ~20% YoY decline in 1Q16. The aggregate number of iPhone builds is now expected to be in the range of 55mn to 60mn in production in the first quarter of 2016.
Pegatron sets solid 4Q guidance. For assemblers, 4Q15 earnings appear solid based on guidance, but 1H16 may be at risk due to iPhone. iPhone component cuts could lead to 1H16 risks for assemblers. Apple may shift to greater 6s orders to Pegatron as Hon Hai is exclusive on the new 4″ model. We expect Pegatron to ship 22/18mn iPhones in 4Q15/1Q16 and 66mn/70mn in CY15/16.
Is the supply chain a good read? It is worth remembering that Apple’s supply chain is vast with an additional complication with the timing between Apple’s sell-in and sell-through numbers. Additionally, what is important to note with these estimates is the strong correlation (R = 0.95) between production builds and reported sales, as shown in Exhibit 2 over time.
Specifically, we found that the December quarter builds are being estimated at around 80mn, which would suggest iPhone growth in 4Q15 and indicates our iPhone estimates of 78mn remains intact and conclude the weakness in the supply chain comments is more likely an indicator of iPhone volumes in 1H16. As shown in Exhibit 3,we lower our total iPhone unit estimate by 20mn for CY16 to 222mn.
* * *
If CS is right (in confirming what we previously reported both a week ago and a month ago using channel checks) and if the consumer, both US and Chinese, is tapping out then the recession is surely upon us now that even this company, which until now had shown dramatic resilience to any economic fluctuations, finally feels the sting of the disappearance of the global middle-class.
However, this too will surely be good news for stocks, which will surge on hopes that central banks will be forced to implement even more easing as part of the Fed’s 128th mandate: keeping iPhone sales brisk and from the bottom left to the upper right.
* * *
It appears some are agreeing with us and the CS report…
US Import Prices Tumble, Ex-Fuel Drop Biggest Since 2009 As World Races To Export Its Deflation
The global export of deflation continues as import prices to the US dropped 0.5% MoM in October (notably more than expected) and recent history was revised markedly lower with the 7th miss in 2015. Year-over-year, prices also fell more than expected – down 10.5% vs -9.4% exp. – the biggest miss since April and hovering near the weakest in the cycle. This is the 15th month in a row of year-over-year declines in import prices.
Yet another miss:
15th month in a row of YoY declines…
But most critically, Ex-petroleum, this is the biggest drop in import prices since 2009…
As the world exports its deflation to America’s shores.
The real truth behind the jobs report: the declining manufacturing jobs vs leisure time part time gains
generated through the factitious B/D and further adjustments
(courtesy David Stockman)
No, it wasn’t a “blow-out” jobs report. Inside the artificially bloated, trend-cycle adjusted headline number was the same old BLS con job and an economically devastating shortfall where it really counts. Namely, the US economy still has 2% fewer breadwinner jobs than it did 94 months ago at the pre-crisis peak in December 2007.
Actually, its worse.As is blindingly clear from the chart below, last month’s purportedly “awesome” jobs report contained 1.4 million fewer breadwinner jobs than existed way back in the very first month of this century!
So that’s not an awesome labor market; its the measure of a sick economy.
Indeed, the October pattern was even worse than normal. To wit, the reported number of high pay, high productivity jobs in mining, energy and manufacturing declined by 4,000, while the count of low-pay, part-time waiters and bartenders soared by 41,000.
Yes, the “Leisure and Hospitality” category of the BLS survey is somewhat broader——it also includes bellhops, hotel maids, parking attendants, hot dog vendors, stadium maintenance crews and the rest of the lodging and entertainment complex. These are all worthy and necessary endeavors, but they are mostly gigs, not jobs.
During October the average workweek in Leisure and Hospitality was just 26.3 hours. As a purely mathematical matter this means that a significant proportion of the job count in this category likely involved less than 20 hours per week of paid work.
Likewise, average gross earnings were just $380 per week compared to $1,035 in manufacturing, $1,385 in mining and energy and $1,604 in the utilities category. On an annualized basis, the latter category amounts to $83K, while the leisure and hospitality weekly rate annualizes to $19k or 77% less.
So there are jobs, there are gigs and there is a wide range of economic differentiation in between. But the notion that you can treat all jobs slots as economic equivalents, add them up and get anything more than statistical noise surely strains credulity.
Needless to say, this dubious metric has become the focal point of a monthly media feeding frenzy and the apparent #1 guidepost for central bank policy action. So with dumbing down like that it is virtually certain that the next economic and financial storm will come as a complete shock.
The degree of obfuscation owing to this all-jobs-the-same convention is evident in the trends in the establishment survey since January 2000. The bread and circuses jobs in the Leisure and Hospitality category, of course, are the first to be thrown overboard during recession, but they nevertheless have grown at a 1.8% per annum rate over the last 16 years.
That compares to a negative 1.5% rate for goods producing jobs and a positive 5.4% CAGR for home health workers. While it all adds up to a microscopic 0.4% annual rate for nonfarm payrolls as a whole, the resulting aggregate is self-evidently meaningless; the jobs mix has been changing radically—-and for the worse—-on an unrelenting trend for this entire century.
In any event, I seriously doubt that 41,000 Leisure and Hospitality Jobs were actually created last month——owing to the blatant statistical finagling by the BLS called trend cycle adjustment. Indeed, the smoking gun is right here in the waiters and bartenders count.
As shown below, during the 26-month period between the December 2007 start of the recession and the February 2010 establishment survey bottom, this category lost an average of 26,000 jobs per month. And then, viola, during the next 26 months it gained nearly an identical amount—–29,000 per month.
Can you say bureaucrat with a straight edge ruler? That is, the BLS methodology essentially results in drawing straight lines between cycle-inflection dot points in order to make the jobs chart look like it is moving smoothly from the lower left to the upper right.
Folks, it is not even remotely plausible that in the real world of millions of restaurants, bars, hotels, theme parks, stadiums, concert halls and all the rest that companies actually hired and fired with such lockstep regularity during the recent recession cycle drop and rebound.
Moreover since February 2010, Leisure and Hospitality job growth has averaged 34,000 per month with only minor monthly fluctuations. That is to say, the chart line from 2010 to the present was made by a statistical algorithm, not millions of real world businesses in an $18 trillion economy.
Since real world numbers would have jagged edges and frequent short-term fluctuations the implication is self-evident: The BLS is smoothing the numbers to fit an implicit Keynesian model of reality, not to measure what is actually happening.
In this context, it is worth noting that the current business cycle expansion is now in its 76th month and is therefore long in the tooth compared to the average post-war expansion of 60 months. So when the next recession arrives someday soon, expect this month’s 41,000 Leisure and Hospitality jobs to disappear into the BLS’s smoothing formula for the recession downside.
That is, it will publish a sudden monthly run of job losses, thereby eliciting shrill demands from the Keynesian Chorus and Washington politicians alike for macroeconomic “stimulus” to put America back to work. This syndrome is getting tediously predictable.
It is not surprising, therefore, that the so-called financial press actually treats these utterly fudged and manipulated monthly job change deltas seriously. That is apparently their job—–to applaud the Fed’s acumen in enabling the expansion and to underscore its essential role in preventing any downturn from plunging into a permanent depression.
Consider the following report just posted by the utterly gullible Jeff Bartash from MarketWatch. You can’t make this stuff up:
The stunning 271,000 increase in new jobs in October quelled lingering unease over a slowdown in hiring at the end of summer. The government’s employment report issued Friday also showed the strongest yearly wage gains since 2009 and the lowest unemployment rate in more than seven years.
Now that’s not to say waning job creation in August and September was a mirage. What probably happened is that businesses got nervous after a global stock market selloff that erupted amid reports of a weakening Chinese economy.
The October employment report suggests executives have gotten over their anxiety, no doubt encouraged by fresh signs of steady U.S. growth and a rebounding stock market. Some of the people they might have hired several months earlier were offered jobs in October instead.
Granted, the C-suites of corporate America are virtually tethered to the stock market in pursuit of stock option winnings. But that’s on a slow motion basis.
The idea that the weekly hiring pace of HR departments among retail chains, restaurants, bars, hotels, hospitals and home health agencies—-where most of the job gains occurred in October—–is so fixated on the stock averages and the mindless headlines of the likes of MarketWatch that it shows up in the monthly BLS numbers is not just preposterous. Its downright idiotic!
Nor does that exhaust the gullibility and mendacity of the main stream commentariat. The same MarketWatch article quotes an economist who cites a slight uptick in day care center jobs as a sure a sure fire sign that the US economy is about to surge.
Economist Bernard Baumohl of The Economic Outlook Group sees evidence a robust U.S. economy in an even quirkier place: day-care centers. He points out that hiring at day-care centers jumped by 2,700 to a record 877,300 in October.
“Typically, a rise in day-care employment indicates that more parents are finding jobs and have made arrangements to leave their young children at these locations,” he wrote in a report.
Really? What would scribblers like Baumohl do without media shills like Bartash? Does 25 years worth of data on government subsidized day care jobs show any sign of acute cyclical sensitivity?
In any event, last month also saw a gain of 44,000 retail clerks and 25,000 temps. So if you add these categories plus household and personal service workers to Leisure and Hospitality you get a broad grouping I’ve labeled as the “Part-Time Economy”.
In a word, last month’s results were essentially the story of the 21st century to date. The BLS survey posted 119,00 more of these jobs last month, and has gained 5 million of such jobs slots since January 2000.
Yet since these gigs annualize to less than $20,000 per year or just 40% of the median income what does a modest uptick here have to do with the real jobs story? That is, with the steady bleed-off of real full-time, full-pay jobs during that same 16-year period?
In fact, now that the oil patch is going south and the US dollar north, even the tepid recovery in goods producing jobs has flattened out. Last month there were purportedly 19.554 million goods producing jobs or slightly less than the 19.560 million jobs reported last February when the factories and construction sites were allegedly shutdown due to the purportedly extra real bad winter weather.
Yet if February 2015 is the high water mark for this cycle, as seems indicated by the trend of the dollar and oil prices, we are still 11% below the December 2007 peak and 5.1 million or 21% below the January 2000 level.
Stated differently, the real news Friday was that the productive core of the US jobs market has hit stall speed at a point that is shockingly below where it stood when Bill Clinton was still chasing interns around the oval office. The main stream didn’t notice that, either.
The full story behind the job count divergence as between the Part-Time Economy and the Goods Producing Economy is actually worse than implied by the above charts. That’s because the establishment survey’s all-jobs-equal metric is utterly ridiculous in today’s gig-based economy.
The typical manufacturing job averages nearly 41 hours per week, for instance, while a high share of the part-time jobs generate hardly 20 hours per week of paid work.
Utilizing the BLS’ hours based indices, therefore, you can see an even more egregious deterioration in the quality mix of jobs. Just in the last nine years, employment hours generated by the manufacturing sector have declined by 11% while hours in leisure and hospitality have gained 18%.
The divergence shown below, therefore, captures the true stack of labor market conditions under the noise-ridden top line. The word “blow-out” does not immediately come to mind.
The same deteriorating picture emerges on a pay-weighted basis. The information technology category includes motion pictures, publishing, broadcasting, telecommunications, data processing and related industries. Average pay rates in October for this category of breadwinner jobs was $35.36 per hour or 2.5X the $14.39 average rate for Leisure and Hospitality.
Needless to say, there was nothing awesome about the 2.8 million jobs reported for this category in October. It is still 25% below its early 2001 level.
The same thing is true in the definitely non-smokestack category of computers, semiconductors, peripherals, communications equipment and electronics within the manufacturing total. The not-so-good news in the October report was that the 1.054 million jobs in this category represented a 7% decline from the recession bottom in June 2009!
That’s right. Employment in the core technology sector of the US economy is still going down; and it has been since 1998, when the category job count was 75 percent higher.
Then there the morning after effect of Bubble Finance. Annualized pay rates in the real estate sector average well over $60,000 per year, but that golden goose was strangled by the Fed housing bubble and bust. Notwithstanding the lowest mortgage rates in history and the Fed’s egregious monetization of more than $1 trillion of GSE mortgage debt, the October count of 2.095 million jobs in real estate and leasing was still 4% below its 2006 peak.
Finally, there is the matter of how jobs are financed and its relationship to Fed policy. It is surely evident that massive money printing and 83 months running of ZIRP have done nothing for the goods producing economy or breadwinner jobs generally. But there has been a strong 2.5 million gain in health, education and social services jobs or what I have termed the HES Complex since the pre-crisis peak, including a print of 58,000 jobs in October.
But that’s exactly the rub. These sectors are overwhelmingly fiscally dependent. That includes upwards of $2.5 trillion of state and Federal Medicare, Medicaid and other health care spending, as well as $200 billion per year of tax preferences for employer paid health insurance.
Stated differently, hospitals, nursing homes, physicians and other health service vendors spend what they can collect from government entitlements and insurance policies, not because interest rates are at insanely low levels. Indeed, monetary policy is virtually irrelevant to hiring trends in the HES complex because even the theoreticians of the Eccles Building have never described a transmission channel by which cheap credit drives spending in the health care system.
At the end of the day, the picture below says it all. Notwithstanding the Fed’s shift to monetary radicalism after the dotcom bust—what would have been called crackpot economics before then—-the expansion of its balance sheet by 9X since the turn of the century (from $500 billion to $4.5 trillion) has generated virtually no net job growth outside of the HES Complex, and even those gains have been in the low-paying Part-Time Economy.
There is absolutely nothing awesome about that, nor about the Fed’s destructive attempts to make it better. In fact, when the current ZIRP/QE fueled financial bubble splatters it is virtually certain that the line on the chart below will plunge once again to its turn of the century level.
Stated differently, as the coming recession unfolds the Fed will have succeeded in crushing both savers and workers at the same time. Maybe then the torches and pitchforks will converge on the Eccles Building……..at last.
The Fed is worried about the soundness of USA banks:
(courtesy Simon Black/SovereignMan)
US Banks Are Not “Sound”, Fed Report Finds
Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system.
Most notably, they highlighted “continuing gaps between industry practices and the expectations for safe and sound banking.”
This is part of an annual report they publish called the Shared National Credit (SNC) Review. And in this year’s report, they identified a huge jump in risky loans due to overexposure to weakening oil and gas industries.
Make no mistake; this is not chump change.
The total exceeds $3.9 trillion worth of risky loans that US banks made with your money. Given that even the Fed is concerned about this, alarm bells should be ringing.
Bear in mind that, in banking, there are three primary types of risk, at least from the consumer’s perspective.
The first is fraud risk.
This ultimately comes down to whether you can trust your bank. Are they stealing from you?
MF Global was once among the largest brokers in the United States. But in 2011 it was found that the firm had stolen funds from customer accounts to cover its own trading losses, before ultimately declaring bankruptcy.
It’s unfortunate to even have to point this out, but risk of fraud in the Western banking system is clearly not zero.
The second key risk is solvency.
In other words, does your bank have a positive net worth?
Like any business or individual, banks have assets and liabilities.
For banks, their liabilities are customers’ deposits, which the bank is required to repay to customers.
Meanwhile, a bank’s assets are the investments they make with our savings. If these investments go bad, it reduces or even eliminates the bank’s ability to pay us back.
This is precisely what happened in 2008; hundreds of banks became insolvent in the financial crisis as a result of the idiotic bets they’d made with our money.
The third major risk is liquidity risk.
In other words, does your bank have sufficient funds on hand when you want to make a withdrawal or transfer?
Most banks only hold a very small portion of their portfolios in cash or cash equivalents.
I’m not just talking about physical cash, I’m talking about high-quality liquid assets and securities that banks can sell in a heartbeat in order to raise cash and meet their customer needs to transfer and withdraw funds.
For most banks in the West, their amount of cash equivalents as a percentage of customer deposits is extremely low, often in the neighborhood of 1-3%.
This means that if even a small number of customers suddenly wanted their money back, and especially if they wanted physical cash, banks would completely seize up.
* * *
Each of these three risks exists in the banking system today and they are in no way trivial.
Very few people ever give thought to the soundness of their bank, ignoring the blaring warning signs that are right there in front of them.
Every quarter the banks themselves send us detailed financial statements reporting both their low levels of liquidity and the accounting tricks they use to disguise their losses.
Now we have a report from Fed and the FDIC, showing their own concern for the industry and foreshadowing the solvency risk I discussed above.
Every rational person ought to have a plan B to hedge these risks. And I would propose three methods:
1) Transfer a portion of your funds to a much safer, stronger banking jurisdiction, preferably one with zero net debt.
2) Hold physical cash. Physical cash serves as a great short-term hedge against all three risks, with the added benefit that there’s no exchange rate risk. All you have to do is go to your nearest ATM machine, take out a small amount at a time and build up a small pool of cash savings.
3) Hold gold and silver.
While physical cash is a great short-term hedge against risk in the banking system, gold and silver are excellent hedges against long-term risks in the monetary system and global financial system as a whole.
There may be a time where we are faced with the consequences not only of a poor banking system, but also of decades of wanton debt and monetary expansion.
At that point, the only thing that will make any sense at all is direct ownership of real assets.
About That Surge In Retail & Construction Jobs
As one witty observer noted over the weekend, “no one with an IQ greater than their shoe size, save corrupt, captured American economists, buys the fake October unemployment report,” and while we agreed with the pretext of his thesis, we thought a quick sanity check on the sudden surges in Retail employment and Construction jobs and wage growth would help clarify a few things for those who ‘believe’ in miracles. As the following two simple charts show, we have seen this odious pattern of mal-investment, mis-allocation, and erroneous executuve extrapolation before… and it did not end well.
First – Retail..
Something stinks. Retail stock prices have been plunging (despite the promises of increased spending amid expectations of wage growth – which today NYFed admitted was at its lowest on record) and just tonight we see Banana Republic see Same Store Sales collapse 15% and Gap overall down 4%.
We have seen this before…
Coincidence we are sure.
Second – Construction.
Having already pointed out the anomalous surge in construction jobs weekly payrolls print, we thought exposure of the raw underbelly of the construction industry would help. As Framing Lumber prices crash over 21% year-over-year, it just seems odd that construction jobs would keep surging onwards and upwards as if nothing had happened. Of course, this ‘confidence’ in the face of market-implied doom has been seen before…
And did not end well.
* * *
So apart from Retail and Construction sectors entirely decoupling – in an almost perfect replay of the lead-up to the last crash – it seems everything is on target for a rate hike.
This is worth watching!! the spread between sales vs inventories have never been greater:
(courtesy zero hedge)
Wholesale Inventories Have Never Been Higher Relative To Sales, Ever
What happens next? The Fed is the only thing “enabling” zombie firms to carry such huge amounts of inventory… and they are about to leave the party.
Dear Striking Fast-Food Workers: Meet The Machine That Just Put You Out Of A Job
Today, U.S. fast-food workers will strike across 270 cities in a protest for higher wages and union rights that they hope will catch the attention of candidates in 2016 elections, organizers said.
The walkouts will be followed by protests in 500 cities by low-wage workers in such sectors as fast food and home and child care, a statement by organizers of the Fight for $15 campaign said on Monday.
The protests and strikes are aimed at gaining candidates’ support heading into the 2016 election for a minimum wage of $15 an hour and union rights, it said.
The strikes and protests will include workers from McDonald’s, Wendy’s, Burger King , KFC and other restaurants, the statement said.
And while we sympathize with their demands for higher wages, here is the simple reason why they will be very much futile.
Dear fast food workers of the US – presenting you nemesis: the Momentum Machines burger maker.
According to a recent BofA reported on how robotics will reshape the world, San Francisco start up Momentum Machines are out to fully automate the production of burgers with the aim of replacing a human fast food worker. The machine can shape burgers from ground meat, grill them to order with the specified amount of char, toast buns, add tomatoes, onions, pickles, and finally place it on a conveyor belt.
The robot is shown below. It occupies 24 square feet, and is much smaller and efficient than most assembly-line fast-food operations. It provides “gourmet cooking methods never before used in a fast food restaurant” and will deposit the completed burger into a bag. It does all of this without a trace of attitude.
According to public data, the company’s robot can “slice toppings like tomatoes and pickles immediately before it places the slice onto your burger, giving you the freshest burger possible.” Unlike human workers, the robot is “more consistent, more sanitary, and can produce ~360 hamburgers per hour” or a burger every 10 seconds.
Furthermore, future generations of the device “will offer custom meat grinds for every single customer. Want a patty with 1/3 pork and 2/3 bison ground to order? No problem.”
As the company’s website adds, “our various technologies can produce an ever-growing list of common choices like salads, sandwiches, hamburgers, and many other multi-ingredient foods with a gourmet focus.”
But most importantly, it has no wage demands: once one is purchashed it will work with 100% efficiency for years. And it never goes on strike.
As the company’s co-founder Alexandros Vardakostas told Xconomy his “device isn’t meant to make employees more efficient. It’s meant to completely obviate them.”
The company’s philosophy on making millions of fast food workers obsolete:
The issue of machines and job displacement has been around for centuries and economists generally accept that technology like ours actually causes an increase in employment.
The three factors that contribute to this are
- the company that makes the robots must hire new employees,
- the restaurant that uses our robots can expand their frontiers of production which requires hiring more people, and
- the general public saves money on the reduced cost of our burgers. This saved money can then be spent on the rest of the economy.
This is a major problem for the US economy, which once built on a manufacturing backbone, has seen the fastest jobs growth in recent years for workers employed by “food service and drinking places” i.e., fast food workers, waiters and bartenders.
Finally, for those complaining that there will be no “human touch” left to take the orders, robots have that covered too:
And now it’s time to calculate how many tens if not hundreds of billions in additional welfare spending these soon to be unemployed millions in low-skilled workers will cost US taxpayers.
S&P Cuts ‘Releveraging’ Junk Food Vendor’s Debt To Almost Junk
Having told the world that it will borrow billions (and cut capex) to “return all free cash to investors,” it appears ratings agency S&P just needed to remind McDonalds thatShareholder-friendly releveraging no longer comes for free…
- *S&P LWRS MCDONALD’S RTG TO ‘BBB+’ ON SHR BUYBACK PLANS
Who could have seen that coming?
Here’s why… (via S&P)
McDonald’s announced its intent to return an additional $10 billion to shareholders by the end of 2016, substantially funded by debt.
We are lowering the corporate credit rating to ‘BBB+’ from ‘A-‘ since the company’s various credit metrics will now be measurably worse than our previous expectations.
Our assumption is that debt to EBITDA will rise to the low- to mid-3x range during 2016-2017 versus around mid-2x previously.
The outlook is stable, reflecting our view that there will be continued progress in the U.S. and that credit metrics will not rise above 4x over the next two years as the company balances further share repurchases and a substantial dividend with the timing of success in the business turnaround.
- *MCDONALD’S BOOSTS HOLDERS CASH RETURN TARGET BY $10B OVER PRIOR
- *MCD SEES CASH RETURN TO HOLDERS ABOUT $30B 3 YR PERIOD END ’16
- *MCDONALD’S: MAJORITY $10B OF CASH RETURN FUNDED BY ADDED DEBT
- *MCD SEES CAPEX DECLINING OVER TIME
- *MCD SEES RETURNING ALL FREE CASH TO INVESTORS IN THE LONG TERM
* * *
It is notable how quickly S&P jumped on this – immediately slamming companies for aggressive shareholder-friendly releveraging.. as we noted previously,
Until recently, rising corporate leverage was primarily the result of companies desire to bolster shareholder value at the expense of bondholders —issue bonds and buy stock or issue bonds and buy a company. But in recent quarters declining earnings have been an important reason for the upward trend (Figure 4).
The 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general.
But there are signs that this may be changing.
* * *
Ask IBM how it worked out for them.
Well that about does it for tonight
I will see you tomorrow night