Gold: $1083.70 up $2.90 cents (comex closing time)
Silver $14.20 up 2 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 209.83 tonnes for a loss of 93 tonnes over that period.
In silver, the open interest surprisingly rose by a tiny 474 contracts despite silver being down by 2 cents in Friday’s trading. The total silver OI now rests at 165,802 contracts In ounces, the OI is still represented by .829 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 rose by a huge 3752 contracts to 427,799 contracts despite gold being down 10 cents in Friday’s trading. It seems the modus operandi of the bandits is to liquefy gold/silver OI as be approach first day notice on Monday, November 30. We had 0 notices filed for nil today.
We had no change in gold inventory at the GLD / thus the inventory rests tonight at 661.94 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, we had another huge deposit of in silver inventory to the tune of 2.145 million oz / Inventory rests at 317.256 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rise by a tiny 474 contracts down to 165,802 despite the fact that silver was down by 2 cents with respect to yesterday’s trading. The total OI for gold rose by a considerable 3,752 contracts to 427,799 contracts despite the fact that gold was down 10 cents with respect to Friday’s trading.
2. a)Gold trading overnight, Goldcore
i) The three major ports in the uSA: New York, Los Angeles and Long Beach have seen a decline in imports of about 10% in the last two months signifying global trade is waning
ii) A good snapshot on the finances inside Norway and its sovereign wealth fund. The country is having a problem with rising home prices. Also its Sov. Wealth Fund is losing money due to loses in the emerging markets. Right now Norway has a positive yield on its interest rates but they will no doubt join Denmark and Sweden with NIRP to lower the value of the Kroner
iv It seems that the Saudis have increased production and increased discounts in Europe trying to take market share away from russia.These discounts and pricing wars have hurt all sides.
(courtesy Nick Cunningham /OilPrice.com)
9 USA stories/Trading of equities
i) Stocks initially rise despite lousy reports:
ii) poor NY Empire mfg report again/6 straight months and 9 out of the last 10 months seems to indicate that the USA mfg baseis slowing down
iii) Report on Obamacare : huge deductibles for the poor folk who cannot afford to pay in case of a catastrophic event
iv) Texas says no to refugees
v) Houston we have a problem!! The low price of oil is having a devastating effect on pensions in Houston. Is Houston the next Chicago?
vi) Dave Kranzler talks about the huge problems in the USA economy:
a) Poor sales
b) Poor Empire or Mfg index as manufacturing in the NY area grinds to a halt
c) poor jobs growth
(courtesy Dave Kranzler/IRD)
vii) Gundlach also reports that the uSA economy is falling apart
10. Physical stories
i) Doug Casey defines Money and discusses why gold with its 5 attributes is money
( Doug Casey)
ii) The World Gold Council may be eyeing a collaboration with the LBMA. It certainly would not fit gold investors needs..
( Ben Kilbey/Platt.com/GATA)
iii Sunday: UK Prosecutors have charged 10 traders, this time for Euribor manipulation. Eventually the Serious Fraud Squad will get to the gold/silver manipulation:
iv) Ralph Benko of Pulse outlines economies with a gold standard and without one and finds that economies with gold at its backbone did much better.(Benko/Pulse/GATA)
v) Koos Jansen reports of record number of gold ounces demanded by China/(SGE withdrawals)
Let us head over to the comex:
The total gold comex open interest rose from 424,047 up to 427799 for a gain of 3752 contracts as gold was down 10 cents with respect to Friday’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. It looks like the latter has stopped. The November contract gained 7 contracs up 220 contracts. We had 0 notices filed yesterday, so we gained 7 gold contracts or an additional 700 oz of gold will stand for delivery in this non active delivery month of November. The big December contract saw it’s OI fall by 2,426 contracts from 193,969 down to 191,543. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 191,802 which is good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 147,675 contracts.
November contract month:
INITIAL standings for November
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| nil
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||4018.75 oz
|No of oz served (contracts) today||0 contracts|
|No of oz to be served (notices)||220 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||89,945.6 oz|
Total customer deposits 4018.75 oz
we had 0 adjustments:
November initial standings/First day notice
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||940,754.75 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||520,449.46 oz
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||31 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||5,951,111.9 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 520,449.46 oz
total withdrawals from customer account: 940,754.75 oz
And now SLV/another huge addition of 2.145 million oz into the silver inventory of SLV/rests tonight at 317.256 million oz
Nov 16/no change in silver inventory at the SLV/inventory 315.111 million oz/
nov 12/surprisingly we had a huge addition of 1.43 million oz of silver into the SLV/Inventory rests at 315.111 million oz/(my bet: it is paper silver not real silver entering the vaults)
Nov 11/no change in silver inventory at the SLV/rests tonight at 313.681 million oz/
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
Gold Remains “Best Insurance For A Crisis” – Ficenec
- “Future is uncertain and gold is the most effective insurance against that”
- As fears grow about outlook for global economy – long term attraction of gold remains
- As “central banks race to devalue currency,” private individuals are buying record amounts of gold
- “Gold is simply the best insurance against inflation, or deflation”
- Editor’s Note: The tragic events in Paris, terrorism and war throughout the world, show geopolitical risk remains high. These risks will likely impact economies and financial markets and will see continuing safe haven demand for gold
The price of gold might be falling, but private individuals are buying record amounts of the precious metal, and as fears grow about the outlook for the global economy the long term attraction of gold remains according to John Ficenec in The Telegraph today.
UK Gold Sovereigns
The strength of the US dollar and the threat from rising interest rates have made it a tough year for gold. The yellow metal was down 9 percent last week to reach a five-year low at $1,083, and that marks a 43 percent fall from the all-time high of $1,900 reached in 2011.
However, the fundamentals, characteristics and attractions of gold are undiminished because we remain in times of extreme intervention by governments around the world and for thousands of years gold has been the best insurance during times of uncertainty.
Demand remains strong
This theory was proven in the latest report from the World Gold Council that showed bar and coin demand increase by 33 percent during the third quarter to 295.7 tonnes, led by a 70 percent year-on-year increase in Chinese investment. UK demand for owning physical bars and coins jumped 67 percent to 2.5 tonnes.
The first rule of investment is preservation of capital. The second is to go searching for gains or income that fit with your appetite for risk. Gold has been the insurance of choice for thousands of years to satisfy the first rule, despite the fact it generates no income and actually incurs costs for storage.
US Dollar weighs on gold
It is that lack of income that is driving down the price of gold at the moment. Gold’s big rival as a store of value is the US dollar.
The market expects the US Federal Reserve to increase interest rates in December, marking the first rate increase for nine years. As the returns from holding safe haven assets such as US government bonds increase then the attractions of gold are diminished.
Bad money drives out good
One of the most interesting reasons that can be linked to the falling gold price is to be found in “Gresham’s Law” that “bad money drives out good”. The Tudor financier, Sir Thomas Gresham, found that: “When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.”
Artificial currency devaluation is nothing new. It is as old as the pyramids themselves. Sir Thomas Gresham was merely drawing conclusions from the studies of the Islamic scholar and historian, Al-Maqrizi, who noted the effect of currency devaluation during the Mamluk empire in Egypt.
Al-Maqrizi observed the effect of a liquidity crisis on the Mamluk dynasty in the early 15th century that caused money circulation to dry up. The solution was mass enforced currency devaluation through replacing the gold-and-silver-based Dinar, with copper coinage, or Fulus, and for a period the Mamluk economy recovered rapidly as trade once again flowed freely.
However, inflation soon crept in and prices ran out of control as the currency was repeatedly debased. All the while gold hoarding was taking place behind the scenes.
Fast-forward half a century, and the money printing continues apace, while demand for physical gold is rising sharply. The latest government to devalue its currency to support the slowing economy has been China.
The People’s Bank of China is cutting interest rates and allowing the value of the Yuan to fall. Chinese citizens concerned about their loss of spending power are buying gold. Gold is simply the best insurance against inflation, or deflation.
The other long term support to the gold price is that when prices fall below $1,000 many miners will be forced to cut output. The gold mining industry invested millions in projects that are only profitable when prices are above those levels, and it has been absolutely hammered by falling prices.
The future is uncertain and gold is the most effective insurance against that.
Today’s Gold Prices: USD 1094.50, EUR 1020.32 and GBP 719.89 per ounce.
Friday’s Gold Prices: USD 1083.75, EUR 1006.60 and GBP 712.08 per ounce.
Gold in EUR – 1 Year
Gold closed at $1082 even on Friday, down by $2.60 and -0.55% overall for the week. Silver also continued to lose value on Friday closing down $0.08 to $14.23 showing an overall loss of -3.46% for the week. Platinum lost $18 to $856.
Asian shares hit six-week lows as investors moved into safe haven assets, including gold and government debt. However, gold came off session highs as European shares reversed early losses.
Markets remain complacent about financial and economic risks posed by terrorism and consensus is that there will be no long-term economic impact from the tragedy in Paris on Friday.
The amount of gold withdrawn from the vaults of the Shanghai Gold Exchange (SGE), which equals Chinese wholesale gold demand, accounted for 45 tonnes in the trading week that ended on 6 November. Year to date SGE withdrawalshave reached an astonishing 2,210 tonnes, which is more than the previous yearly record set in 2013 at 2,197 tonnes. With nearly two months of trading left in the Chinese gold market, SGE withdrawals are estimated to reach more than 2,600 tonnes.
Please read The Mechanics Of The Chinese Domestic Gold Market for a comprehensive explanation of the relationship between SGE withdrawals and Chinese wholesale gold demand.
If Chinese gold import will be higher than in 2013 remains to be seen. Two years ago China imported 1,507 tonnes instandard gold bars. According to my estimates China is on track to import 1,400 tonnes in 2015. This year’s SGE withdrawals can have been supplied by more recycled gold than in 2013 that in part replaces gold import.
SGE withdrawals = mine + import + recycled gold supply.
SGE withdrawals can only be supplied by domestically mined gold, imported gold or recycled gold (ie scrap). Because China is one of the few countries that doesn’t disclose its gold trade data we must estimate Chinese gold import from data provided by gold exporters such as the UK, Switzerland, Hong Kong and Australia. Their foreign trade statistics show China has net imported more than 1,032 tonnes of gold in the first three quarters of 2015. In addition, Chinese domestic mining output has been 357 tonnes, according to the China Gold Association, which is prohibited from being exported. Without counting scrap supply apparent physical gold supply in China was 1,389 tonnes in the first nine months of 2015, yet, the World Gold Council disclose Q1-Q3 Chinese gold demand at 736 tonnes. Again, for years in a row now, there is more than twice as much physical gold being supplied to China than what is presented as demand to the average gold investor by the authority on gold (the World Gold Council).
How can so much gold be supplied to China without someone buying it and thus being genuine demand? It cannot. Chinese gold demand as disclosed by the World Gold Council (WGC) is fallacious.
Western consultancy firms have presented numerous arguments to explain the difference between SGE withdrawals and Chinese consumer gold demand, but none of them have proven to be complete. First it was industrial demand that should have caused the difference (WGC 2013), then it was stock movement change (GFMS 2013), then it was round tripping (WGC 2014), then it was gold leasing (WGC 2014), then it was official purchases (WGC 2013), then it wasrecycled gold (CPM Group 2014, GFMS 2015), even gold export from China has been tested to fool gold investors (PMI 2015). Although some of these arguments are partially true (read this post for an overview) they cannot fully explain the difference, which is at least 2,500 tonnes.
Does the mainstream media ever investigate this odd discrepancy? Of course not, according to them gold is just a commodity, a pet rock. Nobody cares about 2,500 tonnes of gold that have vanished into a black hole somewhere in China. Whilst, coincidentally, China is the second largest economy in the world that has stated the US dollar should be replaced as the world reserve currency. At the same time the global economy is still struggling to recover from the biggest financial crisis in recent history by printing money, which seems to do nothing more than buy time. But Western media refuse to connect the dots.
Also note, none of the arguments listed above have been carefully described by the consultancy firms that presented them. A few sentences in a report from the World Gold Council were enough to convince the Financial Times to copy-paste the conclusion, although being factually incorrect. Never do the firms thoroughly describe the process of gold leasing or round tripping. Please, show me how gold leasing has inflated SGE withdrawals by 2,500 tonnes and I would be happy to further investigate the flows of gold through the SGE. The most recent sign from mainstream analysts with respect to this topic was communicated through a tweet. 140 characters achieved to set in motion a renewed wave of believe Chinese gold demand numbers make perfect sense.
Doesn’t this subject deserve a little more debate? By the way, isn’t there a contradiction in “numbers complex” and “huge gap between SGE withdrawals and demand data is simple”?
But there is more. Some analysts speculate the PBOC is the secretive buyer of the ‘surplus’ imported gold in China. I would not agree (click here, here and here for my posts on this subject) and I suppose the WGC agrees with me. From the WGC in 2014 [brackets added by me]:
China’s authorities have a range of options when purchasing gold. They may acquire some of the gold which flows into China [required to be sold through the SGE]…. but there are reasons why they may prefer to buy gold on international markets: gold sold on the SGE is priced in yuan and prospective buyers – for example, the PBoC with large multi-currency reserves – may rather use US dollars than purchasing domestically-priced gold. The international market would have a lot more liquidity too.
The WGC suggests the PBOC does not buy gold through the SGE, which implies official Chinese gold demand complements SGE withdrawals and thus the difference of 2,500 tonnes. But then the supply and demand balance from the WGC is still missing 2,500 tonnes. Or is it…?
After six year of silence China’s central bank, the PBOC, announced in July 2015 it had accumulated 604 tonnes in official gold reserves that jumped from 1,054 to 1,658 tonnes. In the books from the PBOC the 604 tonnes were added to their reserves in the month of June. Subsequently, in July, August and September the PBOC increased its reserves by 50.5 tonnes in total.
The World Gold Council includes all official gold purchases in their Gold Demand Trends (GDT) reports. Below is the total supply and demand table from the WGC released in the GDT report released for Q3 2015.
As we can see central bank purchases are included, though if we look at total official gold demand for Q2 2015 it states 127.9 tonnes (Q3 2015 is 175 tonnes). Apparently, the World Gold Council did not include the 604 tonnes increment from the PBOC in their total supply and demand balance – and likely will not in any forthcoming balance. But the PBOC must have bought it from somewhere right? 604 tonnes couldn’t have fallen from the sky, it must have been supplied by disinvestment, mining output or scraps. Shouldn’t this demand by the PBOC have been disclosed somewhere in a supply and demand overview? We were already missing 2,500 tonnes from the WGC numbers and now we have to add another 604 tonnes.
From the GDT Q3 report we can read:
The People’s Bank of China (PBoC) confirmed in July that its gold reserves had expanded by over 50% since its last announcement in 2009. At 1,658t, that put China at number six in the global rankings. Subsequently, the PBoC has begun regularly to report changes to its gold holdings and has confirmed an additional 50.1t of purchases between July and September.
Did you notice the WGC refrains from mentioning the PBOC bought 604 tonnes, but conveniently writes the PBOC had “its gold reserves … expanded by over 50 %”? This way another 604 tonnes are hidden from the World Gold Council’s total supply and demand balance, which in my opinion is nothing more than a vague mirage of true global gold supply and demand.
E-mail Koos Jansen on: firstname.lastname@example.org
Rethinking Money As The Greater Depression Deepens
We talk a lot in these pages about what to do with one’s money, but I question whether most subscribers (forget about the public at large) have an adequate grasp of the basics. Without it, much of what we say may seem capricious or outlandish, crazy ideas readers tolerate only because we’ve been so right about the big trends. But the basics in speculating and investing are like the basics in martial arts: Just remembering them isn’t enough; they need to be second nature. That means reviewing and practicing over and over.
It’s not an accident that we usually make good investment calls; the selections arise from a constant awareness of the basics. So I want to briefly review those fundamentals. Let’s start with gold. We’re very gold-oriented around here.
You undoubtedly have a good position in gold. Many of your friends are aware that you’re a gold bug, and more than a few of them question your wisdom. Are you able to give them a succinct and cogent explanation not just for why gold is cyclically a good speculation, but why it’s money? I’ll wager the answer in many cases is, “No.”
I say that because when I give a speech, I often offer a prize to the audience member who can tell me the five classical reasons gold is the best money. Quickly now; what are they? Can’t recall them? Read on, and this time, burn them into your memory.
If you can’t define a word precisely, clearly, and quickly, that’s proof you don’t understand what you’re talking about as well as you might. Here, we talk a lot about money, so it only makes sense to know the subject completely. So, what is money? The proper definition of money is: Something that functions as 1) a medium of exchange and 2) a store of value.
Government fiat currencies can, and currently do, function as money. But they are far from ideal. What, then, are the characteristics of a good money? Aristotle listed them in the 4th century BCE. A good money must be all of the following:
- Durable: A good money shouldn’t fall apart in your pocket nor evaporate when you aren’t looking. It should be indestructible. This is why we don’t use fruit for money.
- Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don’t use things like porcelain for money; half a Ming vase isn’t worth much.
- Consistent: A good money is something that always looks the same, so that it’s easy to recognize, each piece identical to the next. This is why we don’t use things like oil paintings for money; each painting, even by the same artist, of the same size and composed of the same materials, is unique.
- Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don’t use water for money, as essential as it is. Just imagine how much you’d have to deliver to pay for a new house, not to mention all the problems you’d have with the escrow.
- Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; even if I’m not a jeweler, I know that someone, somewhere wants gold and will take it in exchange for something else of value to me. This is why we don’t, or shouldn’t, use things like scraps of paper for money, no matter how impressive the inscriptions upon them might be.
Gold is uniquely well qualified for use as money. No other substance meets those five characteristics so well. Gold’s main use, contrary to the belief of some, isn’t in jewelry or dentistry, although those uses are important. Its main use has almost always been as money. But gold’s ancillary uses are growing in importance, because, given its physical characteristics, it’s a high-tech metal. Of the 92 naturally occurring elements, it’s the most resistant to chemical reaction, the most ductile, and the most malleable of all the elements. It’s also highly reflective, and an exceptional conductor of both heat and electricity.
There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don’t even carry serial numbers. That makes it truly untraceable. At current prices, it’s more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.
And it’s becoming increasingly apparent to all the world that paper currencies are nothing but floating abstractions; they will not hold value. Paradoxically, gold is now far more useful as money than it was at $35, and becoming more useful than $100 bills. That will be even truer as it goes to $5,000 (my current guess) in terms of today’s dollars.
Until quite recently, 90% of the world’s people were either flat-out prohibited from owning gold (Russia, China and the rest of the ex-communist world) or simply too poor to consider it (most Indians and other residents of the Third World). But these people are now allowed to own gold and have a fast-increasing ability to buy it. And they’re rapidly doing so. Their cultures have long histories with the metal and recent histories of living in a police state; they understand the value of real money. Although common people are now the biggest gold buyers, many governments and central banks are accumulating it as well.
I expect that gold will soon become the preferred medium of exchange for many. Early adopters will include dealers in drugs, armaments, and other prescribed merchandise; these folks are very security conscious. They will be joined by all manner of people who just want to do business below government radar. And in the years to come, paper currency is gradually going to be eliminatedby governments in favor of debit cards, credit cards, and other media of electronic transfer. Governments prefer these things, for obvious reasons; they make anything you buy or sell a matter of permanent record. People, therefore, are going to need a private way to trade when paper cash is unavailable.
It’s not just that cash will be harder to come by and harder to use. People won’t want to hold it as inflation gets serious; as U.S. dollars are increasingly viewed as hot potatoes, people around the world will gradually go to gold. In 100 or so countries, the dollar is already the de facto currency for large purchases and long-term saving. What will people in these countries do as the dollar starts losing value rapidly? They won’t go back to their untrustworthy local currencies; their only reasonable alternative is gold. All these things will add to demand for the metal. This is good news for those who own gold in size now.
The downside, of course, is that these same things will draw more attention to gold from the state, which doesn’t like to see competition to its currency. Will they, therefore, attempt to outlaw gold again? Or, more likely, regulate its use; perhaps by requiring all gold owners to register it and/or store it in approved facilities? Anything is possible.
Right now, you can still move coins across most borders with relatively little risk or aggravation. There’s the $10,000 declaration rule, of course. But U.S. Eagles, for instance, have a $50 face value, and 200 of them are worth several hundred thousand dollars; although I don’t suggest you carry anything like that with you for lots of reasons, even though it may be technically within the law. My guess is the rules will soon be modified to encompass market value and will be more strictly enforced. Already you can find jump-suited imperial troopers on the jetways of many international flights, ready to interrogate you and search your carry-on luggage for violations.
You may be thinking to yourself, “I already know this stuff; I don’t need to hear it again.” That would be missing the point. Almost everybody, even gold bugs, has far too little gold to buy more. Most people have none at all. Pity the poor fools. Gold is going to be reinstituted as money within our lifetimes, simply out of necessity. But that can only happen at higher prices, since only about six billion ounces exist above ground in the entire world.
Here’s the bottom line: Forget those ridiculous nostrums about having 5% of your portfolio in physical gold, for insurance. I’d say, have a very significant portion of your net worth in gold. And if you can manage it, keep most of it outside your home country. And get working on it as soon as you finish reading this.
Now that we’ve defined what money is, let me further define what money is not: Debt. All U.S. dollars, which is to say Federal Reserve Notes, are debt. They are neither redeemable for anything by their issuer, nor is there a limit on how many can be created. They represent only a vague claim against the “good faith and credit” of the United States government, which is to say the government’s ability to extract taxes from its subjects. But Uncle Sam has shown himself to be remarkably lacking in good faith and is currently embarked on a course to destroy his credit.
Remember that the dollar is literally an “IOU nothing.” It’s true that your grocer and your barber have to accept the dollar because of “legal tender” laws, and because they currently wouldn’t know what else to take in payment. But that’s not true of foreigners, who own something like $10 trillion; they’re starting to look at them more and more as “trading sardines.”
That’s a simple fact, and it has economic and investment implications we’ve written about extensively. Other currencies are no better; most are worse, and many of them are backed largely by dollars. Most countries’ currencies have only very little value outside of their issuer’s borders. Be glad you don’t have too many Zambian kwacha or Burmese kyat…
Governments, however, are not the only ones who think that debt is money. It seems that many people who get a bunch of credit cards, enabling them to spend beyond their means, imagine that they have money. And they also think that owning the debt of others, like government bonds, means they have money. A bank deposit isn’t really cash; it’s a debt of the bank. There are several trillion dollars in money market funds; 100% of that money is invested in the short-term debt of banks, corporations and governments. I would be very leery of these things. Debt is not always repaid. Money, which is to say gold, simply “is.” That distinction is lost on almost everyone. Don’t be among them.
Here, I want to emphasize something else you certainly know but may not have acted on. You not only want to own gold, you want to “short” the dollar. But trying to trade currencies and interest rate futures is not the way to do it; that approach is risky and entirely too focused on the short term.
Here’s the smartest thing you can do with debt: Take out the largest, longest-term, fixed-rate mortgage you can on your home, especially with rates near all-time lows. You’ll win as the dollar is destroyed, and you’ll win as interest rates eventually go to the moon. And you’ll win as the asset you place the proceeds in appreciates.
This last part is critical. Borrowing $500,000 and then frittering it away will only leave you renting in a trailer park. Take the money and buy gold. Or, perhaps, just leave it in secure short-term instruments that will earn the high interest rates that are always the companion of high inflation. That money also will be safest in a foreign jurisdiction, but if you keep it in the U.S., consider keeping it in an IRA or other tax-sheltered vehicle.
Yes, I know it’s a comfort living in a debt-free home. But even if it appears debt-free, your ownership is no more than an ambiguity. Try not paying the property taxes, and you’ll find out who really owns it. The bottom line is that, in a few years, as interest rates and inflation go up, you’ll see that mortgage as a gift.
This relates to the issue of “cash” in dollars. There’s something to be said for being very liquid today and holding dollars, even though the dollars are a ticking bomb. But that’s simply because almost everything else in the world is overpriced.
That sounds paradoxical, or perhaps even metaphysically impossible. How can “everything” be overpriced? It’s happening because trillions of currency units have been created all over the world in the last few years, and other asset bubbles are in process of inflation. People are holding dollars only because they’re liquid and they see no bargains elsewhere.
Large, successful corporations, like Intel, Apple, Microsoft, and Exxon, each has scores of billions of dollars. The cash holdings of U.S. corporations are in the trillions. When the dollar starts losing value rapidly, the people running those corporations will panic and look for a place to hide from inflation. Many will buy their own stock, try to take over other companies, or buy raw materials for their own business. Others will just be deer in the headlights. (I don’t want to get into a discussion of where the stock market is going; there are titanic forces pulling it down as well as pushing it up. That’s a subject for a future article.)
Let me reemphasize that the Greater Depression is still in its early stages. The low interest rates and relatively low inflation rates we’ve had recently aren’t going to last. They will soon be replaced by wildly fluctuating markets and rapidly depreciating currencies. We could have a catastrophic deflation, where trillions of currency units are wiped out. Or we could have a hyperinflation, as governments create trillions more of them. Or both phenomena in sequence.
But, as bad as they are, those are just financial phenomena; what will be much, much more serious are things looming on the political, economic, social, and military fronts of the Greater Depression. These things are why I suggest you own more gold, even though it runs counter to my instincts as a bottom fisher to buy something that’s no longer cheap.
The bottom line is that you want to get out of the dollar before everyone else does. Now is an excellent time to short the dollar with a long-term, fixed-rate mortgage. And put the proceeds in gold.
* * *
Editor’s Note: Most people have no idea what really happens when a currency collapses, let alone how to prepare…
Owning gold is essential.
But there’s more to do to make sure your wealth doesn’t get wiped out in the coming financial tidal wave.
How will you protect your savings in the event of a currency crisis?
This video we just released will show you exactly how. Click here to watch it now.
UK prosecutors charge 10 with Euribor manipulation
Submitted by cpowell on Sat, 2015-11-14 02:56. Section: Daily Dispatches
By Lindsay Fortado
Financial Times, London
Friday, November 13, 2015
UK prosecutors have charged 10 traders from Barclays and Deutsche Bank with conspiring to manipulate Euribor, the largest group of defendants to face prosecution so far in the global rate-rigging probe.
Christian Bittar, formerly of Deutsche Bank, and Philippe Moryoussef, formerly of Barclays, are among the defendants accused of fixing the euro interbank offered rate. The suspects were ordered to appear before magistrates in London in January.
“Criminal proceedings will be issued against other individuals in due course,” the Serious Fraud Office said, adding: “The investigation continues.”
The charges are the first over manipulation of Euribor, one of the strands in the rate rigging probe that started with Libor. The SFO joined the sprawling global investigation in July 2012 after Barclays became the first bank to be fined by U.S. and U.K. authorities. …
… For the remainder of the report:
Ralph Benko of Pulse outlines economies with a gold standard and without one and finds that economies with gold at its backbone did much better.
Ralph Benko: Gold standard deserves more credit than it gets from modernists
Submitted by cpowell on Sat, 2015-11-14 03:35. Section: Daily Dispatches
10:32p ET Friday, November 13, 2015
Dear Friend of GATA and Gold:
With Republican presidential aspirants being ridiculed by supposedly enlightened modernists for advocating or expressing sympathy for a gold standard, Ralph Benko of the American Principles Project writes that it had more virtues and success than it’s being given credit for. Of course compared to the comprehensive corruption of what Benko calls the current “fiduciary management system” of currencies, oxen and seashells are starting to look better too. Benko’s commentary is headlined “Cruz, Paul, Carson, Huckabee: WSJ’s Greg Ip on ‘What Republicans Get Wrong About Gold'” and it’s posted at the American Principles Project’s The Pulse 2016 Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The World Gold Council may be eyeing a collaboration with the LBMA
It certainly would not fit gold investors needs..
(courtesy Ben Kilbey/Platt.com/GATA)
World Gold Council, LBMA thought to be considering collaboration
Submitted by cpowell on Sat, 2015-11-14 20:12. Section: Daily Dispatches
Could London Gold Groups Join Forces for the Greater Good?
By Ben Kilbey
Friday, November 13, 2015
The possibility of the London Bullion Market Association and World Gold Council collaborating more closely to promote the development of London gold trading seemed less of an alien concept this week than before, with some saying it would be in the best interests of London’s financial sector for the two to join forces.
There has been talk in the market since the launch of a World Gold Council initiative with five banks, still not announced but well known in the market, followed by the LBMA’s “request for information,” that the two may collaborate. The WGC declined to comment.
The WGC represents the miners, thus firmly on the sell side, while the LBMA represents a variety of market counterparts, mainly refiners, and acts as a proxy regulator in an age of increasing audit trails. …
… For the remainder of the report:
1 Chinese yuan vs USA dollar/yuan rises in value , this time at 6.3698/ Shanghai bourse: in the green , hang sang:red
2 Nikkei closed down 203.22 or 1.04%
3. Europe stocks all in the green /USA dollar index down to 99.04/Euro down to 1.0734
3b Japan 10 year bond yield: falls to 30.3% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 123.04
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 41.49 and Brent: 44.98
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 up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .545 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate rise to 6.67%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield falls to : 7.19%
3k Gold at $1092.10 /silver $14.40 (8:00 am est)
3l USA vs Russian rouble; (Russian rouble up 81/100 in roubles/dollar) 65.93
3m oil into the 41 dollar handle for WTI and 44 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 1.0059 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0797 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/arrests 10 traders for Euribor manipulation
3r the 6 year German bund now in negative territory with the 10 year falls to +.545%/German 6 year rate negative%!!!
3s The ELA lowers to 82.4 billion euros,
The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Next step for Greece will be the recapitalization of the banks and that will be difficult.
4. USA 10 year treasury bond at 2.26% early this morning. Thirty year rate above 3% at 3.04% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Stocks Jump On Hope For More Central Bank Intervention After Japan’s Quintuple Recession, Syrian Strikes
While the world’s attention remains focused on the aftermath of the Friday the 13th terrorist attack in France, which overnight took a decidedly more lethal turn when France unleashed a bombing campaign of the Islamic State capital of Raqqa, bringing the number of nations flying warplanes over Syria to 3 (in addition to the US and Russia), the biggest economic development was Japan’s Q3 GDP print which as we reported overnight, badly missed expectations, and dropped significantly for the second quarter in a row, resulting in something truly unprecedented in modern Neo-Keynesian history – a quintuple dip recession.
Which, as so often happens in these upside down days, was the best thing that could happen to the market, because another economic slowdown means the BOJ, even without sellers of JGBs, will have no choice but to expand its “stimulus” program (the same one that led Japan to its current predicament of course) and buy up if not government bonds, then corporate bonds, more ETFs (of which it already own 50%) and ultimately stocks. Because there is nothing better for the richest asset owners than total economic collapse.
And, as we sarcastically observed at the time, we were wondering how long it would take the BOJ to buy up every single USDJPY it could find in the process sending equity futures soaring. The answer: just a few hours, and after a sharp steep drop initially, central banks “got this” and managed to lift both the carry pairs and equity indices in both Europe and the US (it was too late for Asia and Japan) solidly into the green.
This is where we stand currently after the latest 25 point S&P ramp on no good news and even less volume:
- S&P 500 futures up 0.3% to 2024
- Stoxx 600 up 0.1% to 370
- MSCI Asia Pacific down 1.1% to 131
- US 10-yr yield down 1bp to 2.26%
- Dollar Index up 0.1% to 99.1
- WTI Crude futures up 0.8% to $41.08
- Brent Futures up 0.7% to $44.77
- Gold spot up 0.8% to $1,092
- Silver spot up 1% to $14.38
Asian equities fell in tandem with US stock futures, following Friday’s devastating attacks on Paris with Wall Street also weighed on by disappointing data and soft commodities. Nikkei 225 (-1.0%) traded in negative territory as Japan’s Q3 GDP figures confirmed that the nation is in its 4th recession in 5-yrs.
Chinese bourses were on the back-foot (although closed solidly int the green as the market manipulation team was unleashed in the last hour) as officials raised margin requirements to 100% from 50%, consequently cutting half the amount that investors can borrow to purchase stocks. ASX 200 (-0.9%) declined in-sync with its regional counterparts having briefly dipped below the 5000 level for the 1st time since September. A flight to safety saw JGBs trade higher with spill over buying in USTs.
European stocks pared declines as investors assessed the fallout. “Hotels, restaurants, travel agencies as well as other companies in the tourist industry will see a drop in demand, in France but also in other countries targeted by Islamic State,” John Plassard, a senior equity-sales trader at Mirabaud in Geneva, told Bloomberg.
Others, however, will do just great and the markets’ reaction appeared more resilient than anticipated and equities began to claw back some ground that they lost at the open and now major indices have pared their losses (Eurostoxx 0.0%). This came after an optimistic note from Goldman Sachs, who said that the attacks are likely to have a short lived negative market impact. The CAC 40 (-0.1 %) was led higher by ArcelorMittal (+1.1 %) and Technip (+1.4%), after the Co.’s benefited from strength in the metals complex, on the back of a weaker USD and safe haven flows into gold.
Bunds have sold off to close the opening gap and fall below the 157.00 handle, given the turnaround in sentiment and in anticipation of around EUR 20bIn of supply to hit markets this week.
In FX, markets have seen volatility overnight, with Asian and European participants reacting differently to the terrorist attack in France on Friday . While EUR/USD remains in negative territory on the day, the pair have pared much of their losses to retake the 1.0700 handle to the upside, while JPY failed to benefit from a flight to safety, given that the latest GDP release showed the country is once again in recessionary territory.
Commodities head into the North American crossover in positive territory albeit off their best levels , with focus falling on the terror attacks in Paris on Friday. Gold has benefitted from safe haven flows to trade around the USD 1095 level while Brent and WTI have both moved higher during European trade amid uncertainty as to stability in the middle-east. Also of note US natgas continues its recent trend higher to extend on Friday’s close, which was the highest in a week.
- France Bombs Islamic State Targets as Attacks Tied to Syria: France warplanes to bomb Islamic State’s nerve center in Raqqa, Syria, police raid suspects in 5 French towns after Europe’s worst terror attack in a decade
- Airline, Luxury Stocks Slump on Concern Attacks to Sap Demand: Travel, luxury-goods shares drop on concern Paris terrorist attacks will deter tourism and consumer spending
- Paris Attacks Won’t Derail Europe Stock Year-End Rally: JPMorgan: Terrible Paris events won’t help sentiment but historically terrorist incidents don’t weaken markets for long, JPMorgan says
- Terrorism, Climate Rift, Putin-Obama and Merkel: The G-20 So Far: Meetings on Sunday dominated by aftermath of attacks in France, leaders discussed intelligence sharing in fight against Islamic State, war in Syria
- Japan’s Economy Contracted, Entered Recession in 3rd Quarter: GDP data shows slumping business investment hurt the economy; Report could put pressure on Abe, BOJ’s Kuroda for action
- UN Chief Ban to Visit North Korea This Week, Yonhap Says: Ban would be first UN Secretary-General to visit North Korea
- Event-Driven Hedge Funds Are The ‘Worst Disappointment,’ Says K2: K2 has cut amount of allocations to event-driven hedge funds
- Terror Overshadows Debate, But Rivals Cede No Ground to Clinton: Underdogs Sanders and O’Malley band together to attack her positions on everything from foreign policy to Wall Street
Bulletin headline summary from Bloomberg and RanSquawk
- On Friday night, deadly attacks in Paris by gunmen and suicide bombers left at least 132 people dead and hundreds wounded. (BBC)
- The attacks have been described by President Hollande as an “act of war” organised by the Islamic State (IS) militant group, with the French President declaring 3 days of national mourning, putting security on highest level. (BBC/AP)
- Analysts state that French equities, including those connected with the country’s large tourism sector, could be most at risk of large falls with the tourism sector accounting for about 7.5% of French GDP. (BBC) However, GS note that the attacks are likely to have a short-lived negative market impact. (BBG)
- In retaliation to Friday’s attack, France have conducted extensive airstrikes against Islamic States’s stronghold in Syria , according to a French Defence Official while US Defence officials helped with the targeting. (WSJ/Washington Post)
- Treasuries steady, long end pares overnight gains as stocks in Europe gain; France sent warplanes to bomb Islamic State’s nerve center in Syria while PM Valls warned terrorists are plotting more attacks.
- The mass murders in Paris have decimated the EU belief in open borders; as French investigators probe the backgrounds of the killers, some French-born, one possibly a Syrian jihadist who slipped into Europe as a refugee, anti- immigration parties are in the ascendant
- The deadly violence is the latest in a series of attacks with strong links to Belgium, adding to mounting evidence the country has become one of the main havens for radicalized young men intent on terrorizing Europe
- Japan’s economy contracted in the third quarter as business investment fell, confirming what many economists had predicted: The nation fell into its second recession since Prime Minister Shinzo Abe took office in December 2012
- Hillary Clinton’s claim at the Democratic debate that she has a good relationship financial industry because of terrorism triggered rate on Twitter, spite from her rivals and surprise among allies
- Sovereign 10Y bond yields mixed. Asian stocks slide, European stocks mixed, U.S. equity-index futures rise. Crude oil and gold higher, copper falls
DB’s Jim Reid completes the overnight wrap
Europe and France were already torn over the migration crisis and these events are only going to complicate matters further. Merkel’s open immigration policies which are partly aimed at securing a superior economic future have caused her significant domestic political and social pressure and this is now unlikely to fade. For France, regional elections in three weeks will be very closely watched. Front National were already tipped to do well and it’s possible that Friday’s events will cement this. Europe is currently fortunately to be in a positive economic cycle which is dampening the support of extreme parties to a degree. However the migration crisis is impacting this and one can only imagine what would occur politically if this occurred simultaneously with a recession – worst still if it coincided with an important election. Another ramification of Friday’s attacks is the likely confidence hit to the French economy which may in turn increase the dovishness at the ECB meeting in just over two weeks.
Asian equities are lower on a broad based risk off move as we kick things off for the week. The Nikkei, The Hang Seng and the KOSPI are down 1.0%, 1.6% and 1.3%, respectively as we type. The Shanghai Composite is down 0.5%, not helped by late Friday’s announcement that the local two main stock exchanges will raise margin requirements from 23 Nov onwards. News that the CNY is likely to be included in the IMF’s SDR basket (more below) is perhaps helping to offset some of the weakness. Away from equities, Asian credit spreads are broadly wider across the board. In the FX space, the EUR hit a 6-month low earlier against the USD (1.0687) on further easing hopes from the ECB although it has backed off those lows to around 1.0726 as we type. The flight to quality trade is also giving Gold and the USTs a boost overnight. Gold is +0.8% to $1093/oz. The UST 10yr yield is down -3bps overnight to 2.237% extending the downtrend we saw on Friday (mainly led by weak US data discussed below) The already delicate geopolitical situation in Middle East will probably show little signs of easing after France launched an airstrike against Syria on Sunday. This clearly has implications on energy prices as we saw Brent rally over 3% overnight in Asia to nearly $45/bbl as we type.
The Paris headlines came late on Friday just moments before the US closing bell so markets on both sides of the Atlantic will likely open weaker this morning The bulk of Friday’s market moves were in response to weak economic releases. US retail sales were overall disappointing with PPI also coming in meaningfully softer than expected. Low inflation is also affecting expectations which saw the year-ahead inflation expectations within the UofM Consumer Sentiment index easing to 2.5% yoy in November even though the headline UofM print came above consensus. The S&P 500 ( -1.12%) closed lower for its third consecutive day. The UST 10yr yield fell 5bps to 2.265%.
Back to overnight’s developments, Japanese GDP pretty much confirmed that the country had tipped into a recession in Q3. Q3 GDP contracted an annualized 0.8% QoQ in Q3 (expectations: -0.2%). Looking beyond the headlines it appears that most of the drag was due to businesses running down on inventory while investments remained weak. Consumption actually positively contributed to growth. All eyes will be on BoJ policy meeting later this week.
Also in Asia IMF staff proposed that the Board include the RMB in the SDR basket as a fifth currency, alongside the British pound, euro, Japanese yen, and the U.S. dollar. The board will discuss on 30th November and are expected to approve, although note the inclusion is likely to be October 2016. According to our Chinese economist Zhiwei Zhange, the most important implication of the SDR inclusion is the potential boost for reforms in China. He thinks the progress of structural reforms in China has been slow with the exception of financial reforms and this could persuade the market that the reformers are holding sway in the Government. It will also help to strengthen confidence in the RMB exchange rate after a few months of international suspicion post the shock devaluation.
Markets sentiment will probably remain fragile in the near term after the events in Paris. The G20 meeting in Turkey started on Sunday and the attacks will likely dominate the agenda. Bloomberg has already obtained a draft of the communiqué where leaders continue to pledge job creation and to bolster inclusiveness but a separate statement on terrorism will also touch on tightening border controls. Elsewhere this week, as expectations for European easing continues to build, Draghi’s keynote speech at a Frankfurt banking congress on Friday will be closely watched by markets in light of recent events.
On the economic data front and starting in the US, key events will include NY Fed Empire state survey (DB:-10, Nov) later today, US CPI (DB: +0.2%, Oct), industrial production (DB:-0.5%, Oct), NAHB housing market index (DB: 63, Nov) on Tuesday, housing starts (DB: 1.125m, Oct) and Oct FOMC meeting minutes on Wednesday, Philly Fed (DB: -4, Nov) and leading economic indicators (DB: +0.7, Oct) on Thursday. There will also be a handful of Fed speakers this week including Fed’s Tarullo, Dudley, Kaplan, Lockhart, Bullard and William. As we come towards the end of earnings season the highlights will likely be the retailers which include Home Depot, Wal-Mart, Dollar tree, Ross, Target and Gap.
In Europe, the key releases include Eurozone CPI today, Germany ZEW survey, Italy trade balance and UK PPI and CPI on Tuesday, Eurozone construction output on Wednesday, Eurozone current account, Spain trade balance and UK retail sales on Thursday and by end of the week on Friday we will get Eurozone’s consumer confidence, and Germany PPI European Q3 reporting season also draws to a close this week.
Finally in Asia there are no major releases from China We will get Japan’s trade balance and machine tool orders on Thursday but all eyes will likely be on BoJ’s monetary policy meeting scheduled for Thursday.
Stocks slide badly in the Middle east and futures due to the Paris attacks;
Mid-East Stocks, US Futures Slide As Goldman Warns Of Paris Attacks’ Negative Implications For Markets
Following the weakness in the few minutes of after-hours trading on Friday’s US session that overlapped with the first headlines from France, we are getting a first glimpse at the posible fallout from the Paris terror attacks. The Middle Eastern stock markets tumbled significantly with Saudi Arabia’s Tadawul All Share index down 3% (biggest drop in 3 months) to its lowest since December 2012, and Dubai’s FMG Index plunged 3.7% to its lowest since 2014. Short-run implication for the equity market is likely to be negative according to Goldman, with a notably higher risk premium regarding uncertainties about the medium-term political implications.
Friday’s after-hours action in US equity futures was weak – and this was hours before the worst headlines hit…
And Middle Eastern markets are giving us a glimpse of what is to come…
To 3 year lows…
Near 2-year lows…
As Goldman Sachs warns,Attacks in Paris: Increased uncertainty likely to weigh on activity and increase market volatility in the short run
French President Francois Hollande has declared a ‘state of emergency’ following six simultaneous terrorist attacks in Paris on Friday night (November 13, 2015), for which the Islamist State (IS) organisation has claimed responsibility.
The ‘state of emergency’ entails the imposition of the following measures until further notice:
- Reinforced controls at French borders and for all transport to and from other countries.
- A reinforced military presence in Paris, with the possibility that curfews may be introduced.
- Public events (sport, cultural and entertainment) may be cancelled when public security is believed to be at risk.
- Additional security and police controls (including the ability to conduct home searches at any time without warning).
- Political tensions intensifying, leading to heightened political uncertainty
Political reactions –On Saturday morning, President Hollande declared three national ‘days of mourning’ for the victims of the terrorist attacks, insisting on the need for national unity and solidarity. His immediate response reflects the French authorities’ fear of growing division and tension within the French population, which Friday’s events are only likely to intensify. President Hollande also expressed France’s determination to continue to fight terrorism both inside and outside its borders.
The President’s communique was followed by statements from other political leaders, including former President Nicolas Sarkozy (now head of the centre-right Les Républicains party) and Marine Le Pen (leader of the far-right-wing Front National). Mr. Sarkozy called for a “drastic reinforcement” of security measures, while Ms. Le Pen stressed that “France and French citizens are no longer safe”.
Meeting the challenges posed by these attacks represents a significant political test for the French government in general, and for President Hollande (as Head of State) in particular.
Political tensions are likely to increase ahead of France’s regional elections, scheduled for early December (6 and 13). As already reflected in yesterday’s reactions from Mr. Sarkozy and Ms. Le Pen, issues of security will inevitably come to centre-stage in the electoral debate. Heightened concerns about security and immigration are likely to bolster the performance of Ms. Le Pen’s Front National (which has taken a hard line on these issues), while simultaneously forcing the mainstream parties to clarify their position on both issues.
Under such electoral pressures, the French government is likely to adopt a harder line towards immigration, complicating management of the ongoing European refugee crisis and creating further political tensions at the EU level at a sensitive time.
In the longer run and ahead of the Presidential election in May 2017, the Front National will likely benefit from ongoing concerns about security and migration, in particular at the local level. Whether this proves sufficient to sway the dynamics of the presidential election will depend on the ability of mainstream parties to tackle terrorist risks credibly and effectively in the coming months.
Rising uncertainty will weigh on economic activity in some sectors, but largely in a transitory manner
Concerning the economic impact of the terrorist attacks, the immediate impact is likely to be a decline in tourism (to Paris in the first place) and an associated fall in (non-durable) consumption (as spending on entertainment/sport/cultural events declines). Activity in the retail sector will be negatively affected in the short run. Consumer spending is likely to remain weak for some months if concerns about further terrorist attacks persist, as some security experts say is likely. At the same time, there is likely to be some substitution of spending towards ‘home-based’ entertainment and leisure.
Taking a longer perspective, the duration of the ‘confidence shock’ stemming from the terrorist attacks (reflecting concerns about security) is uncertain.* While heightened security concerns and uncertainty persist, investment decisions and purchases of consumer durables are likely to be delayed. But such effects can reverse quickly should confidence be re-established. Whether we see a further escalation of events – more terrorist attacks and/or an intensified military response aimed at IS – remains key in this respect.
Where we can be more certain is that the French government budget will become more stimulative, as additional security and military expenditure to address the terrorist challenge is announced (as was already the case in the 2016 budget) (see here).
In sum, the overall economic impact of the terrorist attacks will be negative in the short run, and focused on specific sectors. At longer horizons, the magnitude of the impact is unclear. Higher government spending will support aggregate demand as security measures are expanded. The response of the private sector will depend crucially on whether (and how quickly) confidence can be restored and uncertainty reduced.
We expect the likely negative market impact to be short-lived
In the similar attacks in Madrid (March 11, 2004) and London (July 7, 2005), the impact on country-wide statistics and overall consumer confidence was relatively small. Consistently, knee-jerk flight-to-quality financial markets, and the increase in volatility, proved short-lived. As said above, it is likely that the near-term negative implications for some categories of household spending (culture and leisure services offered outside the home) will be compensated by shifts in consumption patterns and the boost to aggregate demand from government spending.
Beyond the increase in near-term uncertainty, asset performance will be primarily driven by expectations around the medium-term economic outlook. At this early stage, changes to our forecasts for Euro area sovereign bonds (which we expect to offer better returns than their US counterparts thanks to the ECB’s upcoming easing) and the Euro (which we expect to weaken, reaching parity against the USD by the end of this year) do not seem warranted.
Short-run implication for the equity market is likely to be negative …
As far as the equity market is concerned, the short-run implication is likely to be negative. Equities markets remain volatile and fragile given existing macro uncertainties surrounding US interest rates and emerging market (EM) growth, together with mixed results from the corporate sector.
… with a notably higher risk premium regarding uncertainties about the medium-term political implications
Recent events in Paris are likely to push the equity risk premium (ERP) higher in the short term, reflecting both the uncertainty about the immediate responses but also the medium-term political implications. European countries are already struggling to deal with the refugee crisis and to agree a coordinated response. This event will likely strengthen the hands of nationalist parties both in France and elsewhere. With a number of important elections coming up in Europe over the next year, this will increase the uncertainties around the likely results, including that of the UK referendum.
Up until now, the bright spot for the equity market has been the resilience of domestic demand and we have strongly favoured domestic-facing companies.
There may be some immediate (but transitory) weakness in discretionary consumer spending, or a hit to consumer confidence, which may temporarily hit the CAC 40 as it has a high exposure to the retail sector. Indeed, the CAC 40 has a high weight in consumer stocks and may be more affected because of the impact on domestic consumer confidence in France. That said, equally, these names are often seen as safer than higher-beta industrial stocks, especially if the impact of the events in Paris is to raise the overall risk premium on equities. Therefore, we continue to believe that consumer stocks are likely to remain more resilient across Europe over the next several months, while we remain negative on industrial capex exposed areas of the market that are suffering from the twin effect of commodity capex cuts and slower EM industrial demand. Our 3-month target remains unchanged for the SXXP and SX5E at 365 and 3300, respectively, which implies a modest decline of 1% in the SXXP and 2% in the SX5E.
All in all, we do not expect a sustained increase in French sovereign risk.
and then the Dow futures open: It looks like the Dow will open down 140 points. Gold rises!!
Dow Drops 140 Points, Bonds & Bullion Pop As Markets Open
As futures markets reopen, a flight to safety bid is evident with gold ($1090) and bonds bid as US equity futures extend Friday’s losses (erasing half of the October surge gains). The Dollar is modestly bid against the euro(EURUSD 1.06 handle looms) and oil is holding slightly in the green (war premium)…
Leaving Dow Futures down 140 points from Friday’s close…
And The S&P has erased half the October surge gains…
As EURUSD tests back down to a 1.06 handle…
Statement by Ms. Christine Lagarde on IMF Review of SDR Basket of Currencies
Press Release No. 15/513
November 13, 2015Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF) issued the following statement today:
“The staff of the IMF has today issued a paper to the Executive Board on the quinquennial review of the SDR. A key focus of the Board review is whether the Chinese renminbi (RMB), which continues to meet the export criterion for inclusion in the SDR basket, also meets the other existing criterion, that the currency be “freely usable”, which is defined as being “widely used” for international transactions and “widely traded” in the principal foreign exchange markets.
“In the paper, IMF staff assesses that the RMB meets the requirements to be a “freely usable” currency and, accordingly, the staff proposes that the Executive Board determine the RMB to be freely usable and include it in the SDR basket as a fifth currency, along with the British pound, euro, Japanese yen, and the U.S. dollar. The staff also finds that the Chinese authorities have addressed all remaining operational issues identified in an initial staff analysis submitted to the Executive Board in July.
“I support the staff’s findings. The decision, of course, on whether the RMB should be included in the SDR basket rests with the IMF’s Executive Board. I will chair a meeting of the Board to consider the issue on November 30.”
IMF agrees to allow China into the SDR’s. Only the USA can veto and they seem to support the Chinese entry:
(courtesy zero hedge)
(courtesy zero hedge)
The Mastermind of the attacks named!
(courtesy zero hedge)
Paris Attacks Mastermind Named; French PM Knew “Operations Were Being Prepared” From Syria
As the third day after the Paris attacks dawns, and hours after France launched an unprecedented blitz airstrike on the Islamic State “capital” of Raqqa (located in the sovereign state of Syria), here are the latest developments following the worst European terrorist attack in the past decade.
Moments ago, French officials named the suspected mastermind behind the Paris attacks as one Abdelhamid Abaaoud of Belgium.
According to Sky News, it has been reported that Abaaoud had links to thwarted attacks on a Paris-bound high-speed train when two US soldiers overpowered a heavily-armed gunman and a separate attack on a church. He also had links to two suspects killed in a counter-terrorism raid in Verviers, Belgium, in January.
Abaaoud, who also uses the name Abu Omar al Baljiki, is of Moroccan origin and, sure enough, is believed to be in Syria currently. After all the “Syrian connection” must be kept alive in everyone’s head.
He is thought to be the older brother of 14-year-old Younes Abaaoud, one of the youngest European teenagers to travel to Syria to fight.
While Abaaoud’s whereabouts or fate are both unknown at this moment, French authorities have been busy and seven people are in custody in Belgium suspected of links to the attacks and an international arrest warrant has been issued for a Belgian-born Frenchman who is still at large. In addition to Abaaoud, investigators also named another suspect who was questioned and released by police hours after the massacres which left 129 people dead.
Below are some of the people already named as suspects in the Friday attacks:
Salah Abdeslam, who has become known as “Public Enemy Number One”, reportedly helped with logistics and rented a black Volkswagen Polo used by the gunmen who stormed the Bataclan concert hall and killed at least 89 people on Friday night. The 26-year-old was apparently spoken to by officers on Saturday morning when they pulled over a car carrying three people near the Belgian border. Police then checked Abdeslam’s ID and subsequently let him go, officials told the Associated Press. Abdeslam, who was born in Brussels, is described as 1m 75cm (5ft 8in) tall and has brown eyes. Meanwhile more suicide bombers involved in attacks have been identified by the prosecutor’s office.
Ibrahim Abdeslam, was the brother of Salah was reportedly among the seven suicide bombers in the co-ordinated assaults targeting six sites across the French capital.
Samy Amimour, 28-year-old, who blew himself up inside the Bataclan theatre, was charged in a terrorism investigation in 2012.Prosecutors said he was from Drancy in northeast Paris and had been placed under judicial supervision but dropped off the radar and was the subject of an international arrest warrant. Three people in Amimour’s family have been in custody since early on Monday.
Ahmad al Mohammad, was a suicide bomber who died outside the national football stadium was found with a Syrian passport with the name of this 25-year-old born in Idlib. The identity of the man in the passport has not been verified but the prosecutor’s office said fingerprints from the attacker match those of someone who passed through Greece in October.
Ismael Omar Mostefai, a 29-year-old from Courcouronnes, a town 16 miles south of Paris in Essonne, has been officially identified as another assailant. He was one of the terrorists inside the Bataclan and had been flagged for links to Islamic radicalism. His father and brother have been arrested.
* * *
Also earlier this morning, French police launched dozens of raids overnight as part of a colossal manhunt in wake of Paris’s deadly terror attacks. Prime Minister Manuel Valls told the RTL radio more than 150 raids were carried out across the country.
According to Australia’s ABC, French police seized “an arsenal” of weapons during dozens of pre-dawn raids against Islamist suspects in the early hours of Monday (local time), as prime minister Manuel Valls warned terrorists were planning more attacks in the wake of Friday night’s atrocities in Paris.
The raids focused particularly on the Lyon area, where police made five arrests and seized a rocket launcher, a Kalashnikov assault rifle, bulletproof vests and handguns.
Police sources said authorities conducted at least 110 house searches in cities around France.
The French PM said terrorism could hit again in “in days or weeks to come” and said the attacks in Paris, which killed 129 people, were “planned in Syria.” How he knows that, and how a complicated operation involving numerous concurrent strikes in Paris could have been planned in Syria is unclear, or even remotely logical, but what matters is to, once again, keep the media and public attention focused on the Syria – after all that’s where the war will begin.
Perhaps preempting the question how the NSA and Europe’s sterling intelligence – which collects all the private information except that which is actually needed to avert tragic loss of life – failed so massively in preventing this terrorist attack, Valls said French intelligence services had prevented several attacks since the summer and police knew other attacks were being prepared in France as well as in the rest of Europe.
“We know that operations were being prepared and are still being prepared, not only against France but other European countries too.”
But If you knew, why did you not stop them then? Perhaps some questions are better left unasked.
As reported previously, on Sunday night French jets launched extensive air strikes on what the government in Paris said were Islamic State targets in the terrorist movement’s stronghold Raqqa. A manhunt is also underway for Salah Abdeslam, a Belgium-born man identified as the only surviving terrorist from the attacks.
As part of the attacks, the NYT reports that United States warplanes for the first time attacked hundreds of trucks on Monday that the extremist group has been using to smuggle the crude oil it has been producing in Syria, American officials said. “The airstrikes were carried out by four A-10 attack planes and two AC-130 gunships based in Turkey.”
The logical question again emerges: why had they not done this before! It will remain unanswered.
“American officials have long been frustrated by the Islamic State’s ability to generate as much as $40 million a month by producing and exporting oil.” Well, here’s a thought: do something about it then. Unless, of course, low oil is part of the grand US campaign to crush the Russian economy and as a result ISIS dumping of commodities is all part of the grand plan.
According to an initial assessment, 116 trucks were destroyed in the attack, which took place near Deir al-Zour, an area of Syria controlled by the Islamic State that is close to the eastern border with Iraq. No explanation why no trucks had been destroyed previously in the 13 months since the US air campaign over Syria started.
Actually, no: here is the explanation: “Until Monday, the United States had refrained from striking the fleet used to transport oil, believed to include more than 1,000 tanker trucks, because of concerns about causing civilian casualties. As a result, the Islamic State’s distribution system for exporting oil had been largely intact.”
And as Doctors without Borders learned so well recently, civilian casualties are now fair game.
The new US campaign is called Tidal Wave II. It is named after the World War II effort to counter Nazi Germany by striking Romania’s oil industry. Lt. Gen. Sean B. MacFarland, who in September assumed command of the international coalition’s campaign in Iraq and Syria, suggested the name.
The bottom line: there are now Russian, US and French warplanes flying within kilometers of each other above Syria, a French ground force is imminent, as European police around the continent is conducting an epic manhunt while the alleged “mastermind” is supposedly thousands of kilometers away.
* * *
Finally, going back to the alleged terrorist attacks mastermind, Abdelhamid Abaaoud, perhaps the most curious discovery is that just a few months ago he was interviewed for the official ISIS magazine Dabiq. His interview below.
German lawmakers call for an end to absorbing refugees
(courtesy zero hedge)
Russian Track And Field Athletes Banned From International Competition
Earlier this week, the “independent” anti-doping commission WADA found that Russia engaged in state-sponsored doping and more importantly, recommended that Russia’s track and field athletes be suspended from Olympic competition in 2016. Apparently, the corruption was “on a whole different scale” that involved extorting athletes and ultimately ended up “significantly changing the actual results and final standings of international athletics competitions.”
The report includes allegations that Russian security services interfered with the Moscow doping lab ahead of the Sochi Winter Olympics as part of a conspiracy that involved all levels of Russian sport. During the Sochi Games, Russia pulled off a stunning turnaround from its performance in Vancouver in 2010, where it won 3 gold medals and 15 overall. In 2014 Russia won 13 gold medals and 33 overall, an unprecedented level of improvement.
As we noted on Monday, “in the event that IAAF were to adopt the commission’s recommendation, Russia could be excluded from major competitions including the Olympics.”
Well, as it turns out, that’s exactly what happened because as WSJ reports, “track and field’s world governing body provisionally suspended Russia’s athletes from international competition indefinitely,” late on Friday evening. Here’s more:
The suspension, which was expected, was approved by a vote of 22 to 1 by the international federation’s ruling council and takes effect immediately. It will prevent Russian track-and-field athletes from participating in all international events, including—as of now—the 2016 Rio Olympics in August.
While condemning the Russians, Sebastian Coe, the newly elected president of the IAAF, said the federation had to work to fix a broken system.
“We discussed and agreed that the whole system has failed the athletes, not just in Russia, but around the world,” Mr. Coe’s statement read. “This has been a shameful wake-up call and we are clear that cheating at any level will not be tolerated.”
The Russians will be able to appeal, possibly in time to win back the “privilege” of competing in beautiful Rio where hopefully, the scent of feces will no longer linger in the air by the time the games roll around (of course giant public works projects don’t look to be in the cards given Brazil’s insistence on running a primary surplus):
However, as often happens in international sports when countries or teams are sanctioned, the International Association of Athletics Federations will set terms for what the Russians must do to have the suspension lifted, perhaps even in time for the Rio Olympics.
The Russian federation can appeal the ban during the next month, with a ruling coming shortly after that. The federation could also take its case to the international Court of Arbitration for Sport.
For their part, the Russians have taken steps to “clean up” the situation, while Putin and several individual athletes claim the ban punishes all of the nation’s participants for the actions of a few bad actors:
Russian officials have urged international authorities not to punish a broad swath of athletes for the sins of a smaller group.President Vladimir Putin called on Russian authorities to hold people personally responsible rather than making innocent athletes pay for the wrongdoing of others.
Russian pole-vaulting champion Yelena Isinbayeva, who has won two Olympic gold medals, called the situation sad in a statement released Friday by the All-Russia Athletics Federation.
“The situation that the Russian team has ended up in is sad. But I urge against painting all athletes with the same brush,” Ms. Isinbayeva said, describing all of her own victories as honest, clean and deserved. “Taking away the right of innocent and uninvolved athletes to participate in international competitions under the auspices of the IAAF and at the 2016 Olympic Games in Rio de Janeiro is unjust and unfair.”
Of course this is just another example of the fox guarding the hen house. As WSJ goes on to point out, it was just last week when French authorities unveiled an nvestigation into the IAAF’s recently retired leadership, including its former president for various alleged criminal behavior including accepting bribes to cover up Russian doping results.
And if they were doing that, then who knows what else they were doing which in turn means that yes, this was probably exaclty what the Russians said it was initially, which is politically motivated move that’s inextricably related to a variety of geopolitical issues and you can probably put in the same file as the deliberate suppression of oil prices by the Saudis, economic sanctions, and the anti-trust suit against Gazprom.
That’s not to say there wasn’t doping going on here, but just like all organizational corruption, everyone has something on everyone else and it’s just a matter of politics when someone’s card gets pulled.
In a supremely amusing bit of irony, The Guardian notesthat in 1980, the abovementioned Sebastian Coe “a charismatic, supremely talented runner but yet to win a major championship medal, was approached privately by the British government and asked to boycott the Moscow Olympics in protest at the Soviet invasion of Afghanistan. Coe refused. He went to Russia. He won gold, ignited his own personal legend and has ridden the wave ever since.”
History may not repeat itself, but it does often rhyme.
Putin: ISIS financed from 40 countries, including G20 members
During the summit, “I provided examples based on our data on the financing of different Islamic State (IS, formerly ISIS/ISIL) units by private individuals. This money, as we have established, comes from 40 countries and, there are some of the G20 members among them,” Putin told the journalists.
Putin also spoke of the urgent need to curb the illegal oil trade by IS.
“I’ve shown our colleagues photos taken from space and from aircraft which clearly demonstrate the scale of the illegal trade in oil and petroleum products,” he said.
“The motorcade of refueling vehicles stretched for dozens of kilometers, so that from a height of 4,000 to 5,000 meters they stretch beyond the horizon,” Putin added, comparing the convoy to gas and oil pipeline systems.
It’s not the right time to try and figure out which country is more and which is less effective in the battle with Islamic State, as now a united international effort is needed against the terrorist group, Putin said.
Putin reiterated Russia’s readiness to support armed opposition in Syria in its efforts to fight Islamic State.
“Some armed opposition groups consider it possible to begin active operations against IS with Russia’s support. And we are ready to provide such support from the air. If it happens it could become a good basis for the subsequent work on a political settlement,” he said.
“We really need support from the US, European nations, Saudi Arabia, Turkey, Iran,” the president added.
Putin pointed out the change in Washington’s stance on cooperation with Moscow in the fight against the terrorists.
“We need to organize work specifically concentrated on the prevention of terrorist attacks and tackling terrorism on a global scale. We offered to cooperate [with the US] in anti-IS efforts. Unfortunately, our American partners refused. They just sent a written note and it says: ‘we reject your offer’,” Putin said.
“But life is always evolving and at a very fast pace, often teaching us lessons. And I think that now the realization that an effective fight [against terror] can only be staged together is coming to everybody,” the Russian leader said.
According to Putin, first of all it should be decided which groups in Syria can be considered terrorist organizations and which can be attributed to an armed, but still legitimate part of the Syrian opposition.
“Our efforts must be concentrated on the battle with terrorist organizations.”
Putin also disagreed with Western criticism of Russia’s actions in Syria, where the country has been carrying out a large-scale air campaign against Islamic State and other terror groups since September 30.
“It’s really difficult to criticize us,” he said, adding that Russia has repeatedly asked its foreign partners to provide data on terrorist targets in Syria.
“They’re afraid to inform us on the territories which we shouldn’t strike, fearing that it is precisely where we’ll strike; that we are going to cheat everybody,” the president said.
“Apparently, their opinion of us is based on their own concept of human decency,” he added.
Putin told the media that Russia has already established contact with the Syrian opposition, which has asked Moscow not carry out airstrikes in the territories it controls.
Depression Tracker: Brazil Braces For Big Week Of Bad Data
Late last week, Brazil was back in the spotlight on speculation about the future of embattled finance minister Joaquim Levy.
The BRL can’t seem to decide if the uncertainty surrounding a Levy exit should outweigh any optimism around a Henrique Meirelles appointment, and it all comes against the backdrop of Brazil’s stagflationary nightmare that has plunged one of the world’s most important emerging economies into what, on some measures, certainly looks like a depression.
To be sure, the pace at which the situation continues to deteriorate in terms of Brazilian economic data has been something to behold and indeed, many fear the combination of rising unemployment and overleveraged households could be a ticking time bomb especially in places like the southern end of Sao Paulo, where, asBloomberg documented last month, people like 43-year old steelworker Rossini Santos are now relying on unemployment insurance to service debt incurred to buy small homes and cars.
This week, we’ll get a fresh look at three key Braziliandepression recession trackers: GDP, inflation, and unemployment. Here’s Goldman with the preview and a few charts which serve to underscore the malaise.
* * *
The central bank will release on Wednesday the IBC-Br monthly real GDP indicator. We expect real GDP to decline 0.6% mom sa in September; the fourth consecutive monthly decline. This would be consistent with a 1%-plus qoq sa decline in real GDP during 3Q2015, and a contraction of real GDP during 2015 topping 3%.
IPCA-15 inflation will be released on Thursday and we forecast a high reading of 0.87%. Our forecast impliesheadline inflation would come in at a very high 10.3% yoy; which would be the highest print in more than a decade (since Nov 2003).
Finally, on Thursday IBGE will release the October labor market report. We expect the unemployment rate to increase to 7.6% in October, up from 4.7% a year ago and the highest print in seasonally adjusted terms since September 2009. We expect the labor market to deteriorate further in 2015 and 2016.
* * *
So, running that down, it’s likely we’ll see, i) fourth consecutive monthly decline in GDP, ii) highest inflation print in nearly 11 years, iii) highest seasonally adjusted unemployment since September 2009.
As those who’ve followed this story closely may be aware, Goldman’s Alberto Ramos has a way of employing a kind of subtle, deadpan humor when it comes to explaining the situation in Brazil. The sad fact is that when you list all of the country’s problems, it invariably comes across as comical. Case in point:
The recessionary dynamics are forecasted to extend into 2016. We expect the economy to continue to face strong headwinds fromhigher interest rates, exigent financing conditions, high inflation, significant labor market deterioration, higher levels of inventory in key industrial sectors, higher public tariffs and taxes, high levels of household indebtedness, weak external demand, soft commodity prices, political uncertainty, and extremely depressed consumer and business confidence.
On the positive side, a more competitive exchange rate and weak domestic demand conditions should gradually lift the contribution of net exports to growth and provide a floor for the expected contraction of real GDP in 2015.
Global Trade (Still) In Freefall: Imports Collapse At Largest Three US Ports
We’ve said it before and we’ll say it again: global growth and trade are grinding to a halt.
Back in September, we flagged comments from WTO chief economist Robert Koopman who warned that after a “burst of globalization”, we are now “at a point of consolidation, maybe retrenchment.”
“It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should,” Koopman concluded.
Trade growth, the WTO observed, has averaged just 3%/year since 2010. That compares rather unfavorably with around 6% a year from 1983 to 2008. “Few see any signs that trade will soon regain its previous pace of growth, which was double the rate of economic expansion before 2008. In 2006, global trade volumes grew 8.5%, compared with a 4% expansion in global GDP,” WSJ pointed out at the time.
Besides being proof that trillions in global QE – not to mention DM central bankers’ descent into NIRP-dom – has been utterly insufficient to provide the global economy with the defibrillator shock it apparently needs, this also suggests that we may have entered a new era, where lackluster global growth and trade are systemic rather than cyclical.
For the latest bit of evidence that global trade is indeed in free fall, look no further than the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor which handle more than 50% of seaborne freight coming into the US. As it turns out, “peak” season turned out to be anything but. Here’sWSJ:
For the first time in at least a decade, imports fell in both September and October at each of the three busiest U.S. seaports, according to data from trade researcher Zepol Corp. analyzed by The Wall Street Journal. Combined, imports at the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor, which handle just over half of the goods entering the country by sea, fell by just over 10% between August and October.
The declines came during a stretch from late summer to early fall known in the transportation world as peak shipping season, when cargo volumes typically surge through U.S. ports. It is a crucial few months for the U.S. economy as well: High import volumes can signal a confident view on the economy among retailers and manufacturers, while fears of a slowdown grow when ports are quiet.
The missing peak season has been a major headache for trucking companies, railroads and steamship lines. One large maritime carrier, Singapore’s Neptune Orient Lines Ltd., told investors there was “no peak season” in North America as an explanation for a $96 million quarterly loss.
Some of the country’s biggest trucking companies and railroads have recently reported weaker-than-expected earnings. Many have cut the rates they charge customers as demand sagged during what is usually their strongest months. For trucking companies in particular the turnabout has been abrupt, with some companies pivoting from expressing concerns about tight capacity to worries about future profits in the space of a few weeks.
Amusingly, we seem to have gotten to a point where economists excuse bad news by pointing to old bad news without mentioning that it was bad. Case in point:
Some say the slump is being driven by businesses that have cut back on imports because of a weak economic outlook, which could point to sluggish global growth ahead. Others say it is a side effect of a massive inventory buildup that took place earlier in the year.
Got that? So obviously a “weak economic outlook” is bad, which must mean that what this weak outlook is being contrasted with in the sentence shown above is good – or at least un-bad. In other words, the implication from that excerpt is that if this is due to “a massive inventory buildup” then that’s somehow ok.
Only it isn’t – as we’ve outlined on too many occasions to count. To wit, from last week:
Having risen to its highest level since the middle of the last two recessions, wholesale inventories-to-sales ratio remains at cycle highs at 1.31x. With wholesale sales and inventories both rising 0.5% (both more than expected), however, the absolute difference between sales and inventories has never been higher, leaving either major inventory liquidation ahead (or a miracle in sales). Wholesale inventories have now risen 4.7% YoY, as Sales have fallen 3.9% YoY
The absolute spread between inventories and sales has never been wider…
Back to WSJ:
Despite the weak peak, imports in the first 10 months of the year at the nation’s busiest ports are still up 4% from a year earlier, Zepol data show. Rather than ordering huge shipments of goods in the late summer and early fall, more businesses are stocking up throughout the year and holding on to inventories for longer.
“There was a little bit of overdoing it in the beginning of the year,” said Ethan Harris, co-head of global economic research for Bank of America Merrill Lynch. “Once we adjust to it, I would expect that business picks up again, shipping picks up again, container imports should pick up again.”
Right, once we “adjust to it.” In other words, once people start buying stuff, and if October was any indication, that isn’t in the cards.
As Rosalyn Wilson, a supply-chain analyst with Parsons Corp. told WSJ, “Instead of taking that extra money that [low fuel prices] are generating and going on a shopping spree, consumers are being more conservative. It’s bad for the global economy because it means we’re not purchasing.”
And so, as we’ve said in the past, either central banks start learning how to print trade, or here’s what comes next…
Rich Nation Problems: Even If Norway Wanted To Do QE, They Couldn’t
When last we visited Norway, the country’s sovereign wealth fund – the largest in the world – had just turned in its worst quarter in four years after losing nearly 17% on EM equity bets (and 21% on Chinese stocks).
Here’s what we said late last month:
Because ZIRP and NIRP are depressing yields on government bonds, Norway is shifting into EM. But the fund’s EM bets lost nearly 17% in Q3. Meanwhile, slumping crude prices mean cash injections are about to flatline and indeed, 2016 will actually see the government withdraw some $450 million. Additionally, with US stocks near all-time highs, it wouldn’t be entirely unreasonable to say that giant holdings like Apple and Google (pardon: “Alphabet”) could suffer heavy losses in the event some exogenous shock (like say a Fed-induced EM meltdown) feeds back into US markets.
As noted, cash injections into the $835 billion SWF have flatlined thanks to the sharp decline in crude prices and although “lower for longer” oil has served to put pressure on the krone, the fact that i) everyone else is easing, and ii) global demand and trade are in the doldrums, serves as a kind of counterweight, leading directly to a situation wherein the currency, in Bloomberg’s words, “just can’t get weak enough.”
This has led many to speculate that Norway will soon be forced to either get to ZIRP in a relative hurry, or else face recession. Of course cutting rates by another 75 bps to zero could very well mean exacerbating the housing bubble. What housing bubble, you ask? This one:
That rather disconcerting chart goes some ways towards explaining why the Norges Bank kept rates on hold earlier this month.
Still, if crude prices remain in the doldrums, Oeystein Olsen may be left with little choice – especially if the ECB eases further in December, prompting a “response” from Norway’s neighbors in Sweden and Denmark.
Of course there are always other policy “options” if you want to ease without cutting rates – like QE. The problem for Norway however, is that it’s not at all clear that there’s enough debt to monetize.Consider the following:
Norway is just too rich for quantitative easing.
“If the interest rate weapon is used up, maybe they would try aiming directly for the krone,” said Kari Due-Andresen, chief economist at Svenska Handelsbanken AB. “I don’t know how much traction they would get from buying bonds in Norway, it’s hard to say if it would be a credible strategy due to the small size of the market.”
Norway “could and they would use QE if the situation called for such measures to be taken,” said Kjersti Haugland, an analyst at DNB ASA. “But it would take a significant strengthening of the krone to levels uncomfortable for Norwegian businesses for this to happen.”
Norway has 336 billion kroner ($38.6 billion) in outstanding nominal government bonds, compared with 592 billion kronor ($68.2 billion) in neighboring Sweden. Sweden’s Riksbank last month expanded its bond-purchase plan for a fourth time since February as it tries to keep pace with stimulus measures in the euro zone. Denmark has 376 billion kroner ($54 billion) in total nominal bonds issued.
So essentially, were Norway to go the QE route, they would swiftly find themselves in a situation akin to what happened to Sweden back in the summer. That is, the effect on liquidity would be so great as to essentially “break” the QE virtuous loop and send yields moving in the “wrong” direction as the liquidity risk outweighs the advantages of frontrunning potential Norges Bank purchases in the minds of investors.
If QE isn’t feasible that means that in order to stay competitive in the global currency wars, Norway will may need to intervene directly in the FX market.
And if that doesn’t work, you know what comes next:
“My guess is that we will have negative rates in Norway before there will be any talk of QE,” Handelsbanken’s Due-Andresen said.
It’s NIRP’s world, we just live in it.
The “Bloodbath” in Canada Is Far From Over
The oil price crash continues to claim victims…and many of them are in Canada.
The price of oil hovered around $100 for most of last summer. Today, it’s trading for less than $45.
Weak oil prices have pummeled huge oil companies. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks the performance of major U.S. oil producers, has declined 36% over the past year. The Market Vectors Oil Services ETF (OIH), which tracks U.S. oil services companies, has declined 30% since last November.
Weak oil prices have even pushed entire countries to the brink. Saudi Arabia, which produces more oil than any country in the world, is on track to post its first budget deficit since 2009 this year. If oil prices stay low, the country could burn through its massive $650 million pile of foreign reserves within five years.
• Oil’s collapse is also creating big problems for Canada’s economy…
Canada is the world’s sixth largest oil producer. Oil makes up 25% of its exports.
Last month, The Conference Board of Canada said it expects sales for Canada’s energy sector to fall 22% this year. It also expects the industry to record a net loss of about C$2.1 billion ($1.6 billion) in 2015. That’s a drastic change from last year, when the industry booked a C$6 billion ($4.5 billion) profit.
Major oil firms are slashing spending to cope with low prices. Last month, oil giant Royal Dutch Shell plc (RDS.A) said it would stop construction on an 80,000 barrels per day (bpd) project in western Canada. The company had already abandoned another 200,000 bpd project in northern Canada earlier this year.
The Canadian Association of Petroleum Producers estimates that Canadian oil and gas companies have laid off 36,000 workers since last summer. Most of these layoffs happened in the province of Alberta…
• For the past decade, Alberta was Canada’s fastest growing province…
Its economy exploded, thanks to the booming market for Canadian tar sands.
Tar sand is a gooey sand and oil mixture that melts down with heat from burning natural gas. More than half of Canada’s oil production comes from tar sands. In Alberta, they account for 75% of oil production.
Tar sand is generally more expensive to produce than conventional crude oil. Canadian tar sand projects made sense when oil hovered around $100. But many of these projects can’t make money when oil trades for $45/barrel. Last year, Scotiabank (BNS) said the average breakeven point for new Canadian oil sand projects was around $65/barrel.
This is why giant oil companies are walking away from projects they’ve spent years and billions of dollars developing.
• All these cancelled oil projects are making Alberta’s economy unravel…
Alberta lost 63,500 jobs from the start of year through August. It hasn’t lost that many jobs during the first eight months of the year since the Great Recession.
The decline in oil production is also draining government resources. Last month, Reuters reported that Alberta was on track to post a $4.6 billion budget deficit this year. Economists say it could be another five years before Alberta runs a budget surplus.
The crisis isn’t confined to the oil patches either…
• A real estate crisis is unfolding in Calgary…
Calgary is home to 1.2 million people. It’s the largest city in Alberta and the third largest in Canada.
On Tuesday, Bloomberg Business reported that Calgary’s property market is starting to crack:
Vacancy is already at a five-year high in Calgary and rents are the lowest since 2006 after thousands of office jobs were cut.
In downtown Calgary, the vacancy rate jumped to 14 percent in the third quarter, the highest since 2010 and compared with 5 percent for downtown Toronto, according to CBRE Group Inc. …. That doesn’t include as much as 2 million square feet of so-called “shadow vacancy” or space leased but sitting empty, which would push vacancy to 16 percent, the most since the mid-1980s.
Demand for office space is falling because of massive layoffs in the oil industry. That’s because oil companies didn’t just lay off roughnecks. They also laid off oil traders and middle managers, which means they need a lot less office space.
According to Bloomberg Business, a principal at one Calgary real estate office called the situation “a bloodbath” and said “we’re at the highest point of fear and uncertainty now.”
• Casey readers know the time to buy is when there’s blood in the streets…
But it looks like Calgary’s property crisis is just getting started.
Bloomberg Business reports that the city has five new office towers in the works. These projects will add about 3.8 million square feet to Calgary’s office market over the next three years. More office space will only put more pressure on rents and occupancy rates.
Real estate developers likely planned these projects because they thought Canada’s oil boom would last. It’s that same thinking that made oil companies invest billions of dollars in projects that can’t make money when oil trades for less than $100/barrel.
• Doug Casey saw this coming…
In September, Doug went to Alberta to assess the damage first-hand. E.B. Tucker, editor ofThe Casey Report, joined Doug on the trip.
Doug and E.B. spoke with the locals. They even tried to buy a Ferrari. They shared their experience in the October issue of The Casey Report…
E.B. went on record saying Canada was in for “a major wakeup call.” He still thinks that’s the case. In fact, he thinks the situation is going to get a lot worse.
When we were in Alberta, we heard over and over again “It’ll come right back…it always does.” It’s not coming back.
I expect the situation to get worse. And I see the Canadian dollar going much lower.
When that happens, E.B. thinks Canada’s central bank might do something it’s never done before:
Vacancy rates are rising in Canada’s heartland cities. Jobs in Alberta are disappearing. Unemployment is climbing. And there’s still a global oversupply in oil. None of this bodes well for Canada’s economy.
Canada’s economy is in a midair stall. The locals certainly didn’t grasp this when we visited Alberta last month. That’s usually the case when things are going from bad to a lot worse.
If you’re a central banker in Canada looking at the data, there’s only one decision: print…
• E.B. says Canada’s central bank will launch its own quantitative easing (QE) program…
QE is when a central bank creates money and pumps it into the financial system. It’s basically another term for money printing.
Since 2008, the Fed has used QE to inject $3.5 trillion into the U.S. financial system. If the Fed’s experience with QE is any indication, money printing wouldn’t help Canada’s “real” economy much. But it would inflate asset prices. That, in turn, would only make Canada’s economy even more fragile.
E.B. is confident the situation in Canada will get worse. And he can’t wait to go back to Canada to collect on bets he made during his last visit:
Doug and I made a lot of side bets with business owners during our visit. One of them promised to sell us a Ferrari if things got worse…that’s how sure he was that we were wrong. Looks like we’ll be headed back to collect on that one…
Euro/USA 1.0734 down .0035
USA/JAPAN YEN 123.04 up .458
GBP/USA 1.5193 down .0037
USA/CAN 1.3317 down .0001
Early this morning in Europe, the Euro fell by 35 basis points, trading now just above the 1.07 level falling to 1.0734; 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: 6.3698 / (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 46 basis points and trading now well above the all important 120 level to 123.04 yen to the dollar.
The pound was down this morning by 37 basis points as it now trades just below the 1.52 level at 1.5193.
The Canadian dollar is now trading up 1 basis point to 1.3317 to the dollar.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this MONDAY morning:closed down 203.22 or 1.04%
Trading from Europe and Asia:
1. Europe stocks surprisingly all in the green
2/ Asian bourses most deeply in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) in the red/India’s Sensex closed/
Gold very early morning trading: $1091.80
Early MONDAY morning USA 10 year bond yield: 2.26% !!! down 1 in basis points from Thursday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 3.04 down 1 in basis point.
USA dollar index early Monday morning: 99.08 cents down 4 cents from Friday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Monday morning
Oil Weakness Accelerates, Slams OPEC Export Price Below $40 For First Time Since Feb 2009
Overnight saw a significant ramp higher in crude prices as, presumably, the Paris attacks sparked further Mid-East tension fears and increased the war premium (as Japanese economic growth raises more demand conccerns). But that has all gone now as WTI Crude nears a $39 handle once again…
And, for the first time since February 2009, OPEC Oil Basket price has traded with a $39 handle.
As Bloomberg notes,the daily OPEC Basket Price fell to $39.21 a barrel on Nov. 13, according to an e-mail on Monday from the organization’s secretariat in Vienna. The basket, an average of export grades from each of the group’s 12 members, typically trades below international oil futures as some OPEC nations pump denser or higher-sulfur crude that’s less profitable to refine.
Then the Algos went beserk!! as crude rises again on no fundamentals.
(courtesy zero hedge)
Algos Gone Wild – WTI Crude Storms Higher Having Run Low Stops
Standard 5.5% ramp off the lows… on absolutely no news whatsoever!!
IF Europe Closed THEN Buy (or Stop Selling)
It seems that the Saudis have increased production and increased discounts in Europe trying to take market share away from russia.
These discounts and pricing wars have hurt all sides.
(courtesy Nick Cunningham /OilPrice.com)
Saudis Planning For A War Of Attrition In Europe With Russia’s Oil Industry
Russia’s central bank recently warned about the growing financial risks to the Russian economy from Saudi Arabia encroaching upon its traditional export market for crude oil. Russia sends 70 percent of its oil to Europe, but Saudi Arabia has been making inroads in the European market amid the oil price downturn.
The result is a heavier discount for Russia’s crude oil, the so-called Urals blend. Bloombergreported that the Urals typically lands in Rotterdam, a major European destination, at a discount to Brent of around $2 or less. But the discount has widened to $3.50 lately due to increased competition from Saudi Arabia. “Oil supplies to Europe from Saudi Arabia are probably adversely affecting Urals prices,” the Russian central bank warned in a recent report.
Russian officials have accused Saudi Arabia of “dumping” its oil in Europe, a move that Rosneft chief Igor Sechin said would “backfire.”
Russia’s economy has been battered by the collapse in crude prices, compounded by the screws of western sanctions. The Russian economy could shrink by 3.2 percent this year.
Oil exports account for around half of the revenue taken in by the Russian government. And for an economy so dependent on oil, it is no surprise that the plummeting crude oil price has led to a dramaticdepreciation of the ruble, although over the past month the currency regained some lost ground. The weakening currency has pushed up inflation, which creates a conundrum for the Russian central bank.
To stop the ruble from plunging further and to keep inflation from spiraling ever upwards, the Russian central bank took aggressive action by hiking interest rates to as high as 17 percent at the beginning of 2015. However, that has negatively impacted the economy. As the ruble stabilized, the bank dialed the interest rate back to 11 percent, where it stands today.
In response to the tough financial circumstances that Russia has found itself in, it sees no choice but to squeeze as much oil out of its aging fields as it can. So far, it has succeeded to some extent. Russian oil production is expected to rise by a modest 70,000 barrels per day in 2015, averaging 10.75 million barrels per day (mb/d) over the course of this year. Output hit a post-Soviet record of 10.78 mb/d in October, according to OPEC’s latest monthly report.
However, the upside to Russia’s oil production is limited. The Russian government needs revenue, so is not keen to cut taxes. The government is mulling a delay in the planned cut in export taxes, which, according to OPEC, could result in oil companies paying an additional $2 to $3 billion more in taxes. That could modestly cut into overall Russian oil production, perhaps pushing output down by 0.1 to 0.2 mb/d. In any case, Russia probably can’t boost output any further. OPEC predicts Russia’s oil production will remain flat through next year.
Globally, the competition between oil exporters won’t ease in the near term. There are still too many barrels of crude floating around. OPEC predicts that non-OPEC supply will contract by just 0.13 mb/d in 2016, a rather trivial amount considering the extreme cut backs in investment and drilling activity.
Despite the fact that OPEC officials have consistently put on a brave face in public, insisting that markets will balance relatively quickly, OPEC’s numbers tell a different story. The cartel sees U.S. shale contracting by just 100,000 barrels per day in 2016 from 2015, a volume that is nearly offset by several new projects beginning operations in the Gulf of Mexico.
Which brings us back to Europe. Saudi Arabia could be playing a longer game, intensifying its market share strategy by encroaching on Russia’s traditional market in Europe. An increase in Saudi oil flowing to Europe threatens to undermine Russia’s principle market. In its November report, OPEC reported that the Urals discount to Brent “almost tripled in October amid plentiful supplies, sagging refinery margins and wide availability of alternative grades from the Middle East.”
USA/Chinese Yuan: 6.3745 up .0010 on the day (yuan down)
War Is Bullish: Stocks, Oil Surge Off Paris Panic Lows After Dismal Economic Data/Copper losing each day for 9 straight sessions/
Stocks End Green – The Terrorists Lose!!
This just seemed appropriate… (WARNING – Highly NSFW!!)
Because if one thing says Buy Stocks – it’s ISIS showing just how ineffective Western governments and intelligence is in the new normal, raising uncertainty, an unprecedented 5th recession in 5 years in Japan and dismal US Empire manufacturing data…
Cash indices perfectly bottom-ticked as Europe closed…
The Dow and S&P recovered all of Friday’s losses…
Dow Futures are up over 400 points from the opening lows…
And Clovis was crapped on…
* * *
“123” was really all that mattered to the machines in charge of the manipulation…
But it was crude that really ran the show…
VIX was clubbed like a baby seal… with all sorts of noisy tails…biggest drop in 4 weeks
VXX dropped over 10% – the biggest single-day drop since October 2013!!!!
Sell Vol when the terrorists strike…
Credit markets continue to get crushed (with loans back at 5 year lows)…
Treasury yields were not as excited as stocks… 10Y ended the day unchanged…
Decoupling from stocks once again…
Perhaps this is why… (near record net spec shorts)
The USDollar rallied notably on EUR weakness… (1.06 handle)
Commodities were very mixed with copper and PMs drifting lower as the dollar strengthened…
Most notably crude again as algos could not help themselves…
As Copper plunged to fresh lows not seen since April 2009 – down 9 days in a row!
Bonus Chart: SKEW (tail risk) is once again blowing out but VIX (normal risk) is relatively fearful perhaps signaling another abrupt drop in stocks is due…
Stocks Surge Into The Green After Paris Attacks, Dismal Data
Empire Fed Misses (Again), Contracts For 4th Straight Month As Average Workweek Collapses
For the 4th month in a row, and 9th month of the last 10, Empire Fed Manufacturing survey missedexpectations printing -10.74 (against expectations of -6.34). This is the 4th monthly contraction – thelongest streak of contraction outside of recession. Future outlook (hope) dropped to recent lows asNew Orders have now contracted for 7 straight months, and number of employees shrinks once again as the average workweek collapsed to the lowest sicne July 2011.
As the average workweek collapses…
(courtesy zero hedge)
Meet The Family That Just Spent Half Its Annual Income Paying For Obamacare
Not a week passes without some incremental revelation showing precisely what happens when Congress passes a bill just to see what’s in it.
Well, since the passage of the Affordable Care Act, also known as the Obamacare tax, we have watched in horror as shocker after shocker are revealed.
- In Latest Obamacare Fiasco, Most Low-Income Workers Can’t Afford “Affordable Care Act”
- The Stunning “Explanation” An Insurance Company Just Used To Boost Health Premiums By 60%
- Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why
- Obama Promised Healthcare Premiums Would Fall $2,500 Per Family; They Have Climbed $4,865
- Largest Health Insurer On Colorado Exchange Abruptly Collapses
- Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud
- “$19,000 Premiums, Up 4x Since Passage”: The ‘Crippling Effect’ Of Obamacare On The Middle Class
Now we can add one more thing that “was in it”: soaring deductibles, which give the fake impression of contained, low all-in costs… until one actually needs expensive medial help (and these days there is no other kind).
The latest expose against Obamacare comes not from its usual nemesis, but the hard-left NYT, suggesting that even the ideological supporters of Obama’s “crowning achievement” are losing faith. To wit:
Obama administration officials, urging people to sign up for health insurance under the Affordable Care Act, have trumpeted the low premiums available on the law’s new marketplaces.
But for many consumers, the sticker shock is coming not on the front end, when they purchase the plans, but on the back end when they get sick: sky-high deductibles that are leaving some newly insured feeling nearly as vulnerable as they were before they had coverage.
“The deductible, $3,000 a year, makes it impossible to actually go to the doctor,” said David R. Reines, 60, of Jefferson Township, N.J., a former hardware salesman with chronic knee pain. “We have insurance, but can’t afford to use it.”
In many states, more than half the plans offered for sale through HealthCare.gov, the federal online marketplace, have a deductible of $3,000 or more, a New York Times review has found. Those deductibles are causing concern among Democrats — and some Republican detractors of the health law, who once pushed high-deductible health plans in the belief that consumers would be more cost-conscious if they had more of a financial stake or skin in the game.
“We could not afford the deductible,” said Kevin Fanning, 59, who lives in North Texas, near Wichita Falls. “Basically I was paying for insurance I could not afford to use.” He dropped his policy.
In other words, Obamacare’s “affordable care” is affordable, as long as one doesn’t actually have to use it!
Here is the damage when one does:
- In Miami, the median deductible, according to HealthCare.gov, is $5,000.
- In Jackson, Miss., the comparable figure is $5,500.
- In Chicago, the median deductible is $3,400.
- In Phoenix, it is $4,000;
- In Houston and Des Moines, $3,000.
Considering far more than half the US population has less than $1,000 in savings, there are quite literally tens of millions of people who are one ER visit away from the poor house. And they are unhappy. But at least the liberal think tanks have words of advice:
To those worried about high out-of-pocket costs, Dave Chandra, a policy analyst at the liberal-leaning Center on Budget and Policy Priorities, has some advice: “Everyone should come back to the marketplace and shop. You may get a better deal.”
But you almost certainly won’t, because the whole structuring of Obamacare was to lower future costs at the expense of a surge in deductible payments, aka the oldest trick in the insurance book. And America fell for it.
So here is what happens when one does find out what is in the “affordable” care law, after it was passed.
Meet Mr. Fanning, from North Texas, who said he and his wife had a policy with a monthly premium of about $500 and an annual deductible of about $10,000 after taking account of financial assistance. Their income is about $32,000 a year.
The Fannings dropped the policy in July after he had a one-night hospital stay and she had tests for kidney problems, and the bills started to roll in.
And just like that a family of two spent half their annual income on insurance and deductibles courtesy of the “Affordable” care act.
It gets better:
Another consumer, Anne Cornwell of Chattanooga, Tenn., said she was excited when Congress passed the Affordable Care Act because she had been uninsured for several years. She is glad that she and her husband now have insurance, because he has had tonsil cancer, heart problems and kidney stones this year.
But with a $10,000 deductible, it has still not been easy.
Her conclusion: “When they said affordable, I thought they really meant affordable,” she said.
Nothing more to add.
Houston! we have a problem!!
It is us!!
The Next Chicago? Houston Faces Pension Crisis In Latest Example Of Local Government Fiscal Folly
When it comes to state and local government crises, Illinois and Chicago, respectively, have become the poster children for what not to do if you want to be considered fiscally responsible.
Illinois’ budget crisis was thrust into the national spotlight earlier this year when a State Supreme Court struck down a pension reform bid, setting off a series of events which culminated in Moody’s downgrading the city of Chicago to junk.
From there, the nation media picked up on the story, leading to all sorts of amusing coverage including several pieces documenting the plight of Illinois lottery “winners” who the state began paying in IOUs thanks to the fact that Springfield couldn’t pass a budget even with the help of $30,000/month “guru” and Laffer disciple Donna Arduin.
The fiasco culminated in the October announcement by Comptroller Leslie Geissler Munger that the state would miss a $560 million pension payment in November. As a reminder, here’s a look at Illinois pension problem:
Now, as WSJ reports, cracks are starting to show in Houston, where public sector pension plans have been underfunded for years. Here’s more:
Houston is weathering a prolonged plunge in oil prices, but the city may have an even bigger problem: its pensions.
Though economic growth has only slowed, not stalled, in Texas’ largest city, its finances are showing what several investors and analysts describe as warning signs.
Those include a rapidly growing gap in funding its retirement plans for public workers and a limit on its revenue-raising capabilities imposed by a voter-approved cap on property taxes.
The $3.2 billion pension-funding gap is threatening Houston’s Aa2 credit rating from Moody’s Investors Service, hurting demand for its debt and emerging as an issue in the city’s mayoral race.
Moody’s this summer warned it may downgrade the city’s debt if Houston fails to address its pensions, noting the cap limits the city’s financial flexibility.
A downgrade could lower prices for outstanding bonds and increase Houston’s borrowing costs at a time when it needs improved infrastructure.
And as we’ve documented extensively, this is a growing problem in America:
Houston is the latest U.S. city to face threats from credit-rating firms and investors over bulging pension obligations. Investors have grown concerned about state and local governments’ ability to address unfunded retirement costs. Examples include Chicago and the states of Illinois and Connecticut, whose unfunded retirement costs have ballooned after investing losses from the 2008 financial crisis and chronic underpayments by policy makers.
“Correcting” the problem means either, i) increasing revenue, i.e. raising taxes, or ii) cutting back on public services.
Houston residents are reluctant to support any tax increases [but] unsustainable pension costs have contributed to reductions in hiring of police officers and spending on pothole repairs.
Of course the situation isn’t helped by the ubiquitous (among public sector plans) practice of using outrageously optimistic return assumptions:
Among other concerns, the city’s plans assume relatively high investment returns of 8% or above, meaning the funding gap may be understated, said Marc Watts, chairman of the Greater Houston Partnership’s Municipal Finance Task Force.
Yes, “relatively high investment returns,” as in, “returns that in today’s world can’t possibly be generated by anything that even approximates a conservative mix of assets.” Of course Moody’s is not a fan of these type of assumptions. As we documented back in June, after 2008, Moody’s stopped relying on the investment return assumptions of cities and states opting instead to use its own models. Unsurprisingly, this led the ratings agency to adopt a much less favorable view of state and local government finances.
And while some city officials claim concerns are overblown, a more realistic assessment seems to be that sooner or later, perpetually borrowing from the future will catch up to the city and as we saw with Chicago, Moody’s isn’t exactly shy about pulling the trigger lately. Don’t forget, one energy job generally creates the purchasing power of three non-energy jobs, which, in the face of a prolonged slump in crude, doesn’t bode well for Houston’s economy. We’ll leave you with the following from John Bonnell, senior portfolio manager of tax-exempt investments with San Antonio-based USAA Investments who spoke to WSJ:
“If they end up doing nothing to address this budget issue, 10 years from now Houston could be facing the same problem Chicago is now.”
Texas says no to refugees:
(courtesy zero hedge)
Texas Governor To Obama: No Syrian Refugees In The Lone Star State
Texas governor Greg Abbott does some funny things from time to time.
Back in the summer, when Washington and The Pentagon were set to roll out a covert plan to re-annex the Lone Star State by, i) placing US spec ops among civilians, ii) declaring martial law, and iii) confiscating everyone’s guns, Abbott probably saved Texas from having to be a part of the United States by calling up the state guard to monitor the “exercises.”
“To address concerns that Texas citizens and to ensure that Texas communities remain safe, secure, and informed about military procedures occurring in their vicinity, I am directing the state guard to monitor Operation Jade Helm 15.”
Phew. That was close.
Well, having successfully backed down the Green Berets and Navy SEALs, Abbott is prepared to take on a new adversary: ISIS. Or actually, Syrian refugees. Who are all ISIS members. Just look at Paris. You saw the passport.
On Monday, Abbott penned a letter to The President informing him that in light of what happened in France on Friday evening, Texas would not be participating in any program that resettles Syrian refugees in his state.
This is from the state’s official website:
Governor Greg Abbott today sent a letter to President Barack Obama informing him that the State of Texas will not accept any refugees from Syria in the wake of the deadly terrorist attack in Paris. Furthermore, Governor Abbott implored President Obama to halt his plans to accept more Syrian refugees in the United States entirely, as the federal government does not have the background information necessary to effectively conduct proper security checks on Syrian nationals.
“Given the tragic attacks in Paris and the threats we have already seen, Texas cannot participate in any program that will result in Syrian refugees – any one of whom could be connected to terrorism – being resettled in Texas,” Governor Abbott said in the letter. “Effective today, I am directing the Texas Health & Human Services Commission’s Refugee Resettlement Program to not participate in the resettlement of any Syrian refugees in the State of Texas.
And I urge you, as President, to halt your plans to allow Syrians to be resettled anywhere in the United States.”
“Neither you nor any federal official can guarantee that Syrian refugees will not be part of any terroristic activity,” Governor Abbott continued. “As such, opening our door to them irresponsibly exposes our fellow Americans to unacceptable peril.”
That’s right. No need to Americans in any more “peril” than they’re already in by say, attending class at a community college, going to Sunday school, or going to a movie.
To be fair to Abbott, Texas isn’t the only state to refuse Syrian migrants. Abbott joins his counterparts in Alabama, Arkansas, and Michigain is declining to participate. As a reminder here’s the map of the 2015 “Reception and Placement Program”:
Of course let’s be honest Mr. Abbott, it’s not like no one is watching The Loan Star State’s back…
Dave Kranzler on the uSA economy:
Wall Street, fearful that consumers are running out of cash heading into the crucial Christmas retail season, are selling off retail stocks and everything else sensitive to consumer spending. – New York Post
The retail sales report for October was much worse than expected. Not only that, but the Government’s original estimates for retail sales in August and September were revised lower. A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments. Businesses lower their estimated tax payments when their business activity slows down.
In September the Fed released its Consumer Expectations survey which showed a collapse in consumer income and spending expectations. This does not occur in an economic system which is experiencing growth.
The price of oil traded below $40 briefly this morning. The propaganda machine would have you believe that OPEC is driving the price down to put the U.S. shale industry out of business. This has to be one of the most idiotic rationalizations for a negative economic occurrence I’ve ever seen (that, and “the bad weather ate my homework”). The price of oil is collapsing because demand for oil is collapsing. Demand for oil is collapsing because economic activity globally, including and especially in the U.S., is collapsing.
Once again the Empire Fed Manufacturing survey for November continued to plunge deeper into negative territory. It missed Wall Street analyst expectations once again by a wide margin. The index fell to negative 10.74 vs the -6.34 forecast. The average work week fell for the fourth straight week. I have news for everyone, if the average work week falls, it means people are making less money. Less money translates into a disaster for holiday sales.
Retail sales this holiday season are setting up to be a disaster. Already most retailers are advertising “pre-Black Friday” sales events. Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving? Now retailers are going to cannibalize each other with massive discounting before Thanksgiving. Anybody notice over the weekend that BMW is now offering $6500 price rebates? The collapsing economy is affecting everyone, across all income demographics.
Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings. I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts. Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”
Nordstrom caters to the “keep up withe Jones’” middle class household who works hard to project an image of prosperity but uses credit cards, auto loans and home equity debt to keep the gerbil wheel spinning.
That game has hit a wall.
Amazon stock is down over 2% this morning without any meaningful news reported that would have triggered the selling. But anyone who reads my AMAZON dot CON report will understand why AMZN is the most overvalued stock in the S&P 500 now:
USA Today: Amazon breaks barrier: Now most costly stock – “The online retailer’s shares are now trading for 942 times diluted earnings over the past twelve months – making them most expensive in the Standard & Poor’s 500.”
Someone sent me a copy of Wall Street’s 2013 consensus analyst earnings estimates for Amazon in 2014/2015. Back then Wall Street was forecasting that AMZN would earn $2.58/share in 2014. The high-end estimate was $4.55. AMZN reported a 52 cent per share loss in 2014. The consensus forecast for 2015 was $5.44 with $9.22 on the high-end. On a trailing twelve month basis through Q3 2015, AMZN has reported earnings per share of 70 cents.
Amazon stock is going to crash – it’s just a matter of time…
This guy ought to know:
DoubleLine’s Gundlach Warns “These Markets Are Falling Apart”
The odds of a December rate hike have slipped in recent days from over 70% intraday to 64.0% today as, while economists remain convinced that rates will rise in December, traders appear a little less confident. One of the most outspoken – having doubted The Fed (and questioned the economy’s ability to handle even a 25bps rate hike) since Spring – DoubleLine Capital co-founder Jeffrey Gundlach said on Sunday that the Fed may hesitate to raise rates given rocky economic and financial conditions making it clear, as Reuters reports, “certainly [a Fed] No-Go is more likely than most people think. These markets are falling apart.”
The influential money manager, who recently warned that the U.S. Federal Reserve should not tighten monetary policy in December, said the Paris attacks could pressure stock markets around the globe, “which we know Fed officials have been watching, even if they try not to admit it.”
Gundlach said about a rate hike next month that many economists believe will occur: “Certainly No-Go more likely than most people think. These markets are falling apart.” Los Angeles-based DoubleLine oversees $80 billion in assets under management.
Gundlach cited a number of asset classes that are signaling deteriorating conditions: The S&P Leveraged Loan Index, which is at a four-year low, the SPDR Barclays High Yield Bond Exchange-Traded Fund “very near a four-year low” and the CRB Commodity Index at a 13-year low.
“You also have the Eurozone doubling down on stimulus. Fed raising rates? Really?”
Gundlach said emerging markets may lead developed markets lower against the backdrop of rising borrowing costs, noting that Latin American currencies have crashed and Middle East currencies are down. “No wonder” the yield premium demanded by the markets from emerging markets has been rising, he said.
Since the spring, Gundlach has said the U.S. economy and risk markets cannot digest a premature Fed hike… judging by the data and every market aside from stocks, he is right!
Well that about does it for today
I will see you tomorrow night