Gold: $1078.00 up $9.20 (comex closing time)
Silver $14.24 up 16 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 43 notices for 215,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 205.20 tonnes for a loss of 98 tonnes over that period.
In silver, the open interest surprisingly rose by a huge 1,282 contracts despite silver being down by 9 cents in yesterday’s trading (and gold battered). The total silver OI now rests at 172,003 contracts In ounces, the OI is still represented by .860 billion oz or 122% of annual global silver production (ex Russia ex China).
In silver we had 43 notices served upon for 215 oz.
In gold, the total comex gold OI was pummeled by a huge 10,802 contracts to 424,574 contracts despite gold being down by only $0.10 in yesterday’s trading. It seems the modus operandi of the bandits is to try and liquefy gold/silver OI as we approach first day notice on Monday, November 30. It seems it is working in gold but not silver. The bankers get very nervous when OI is rising despite awful prices for the metals. 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 no change in silver inventory to the tune of / 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 huge 1282 contracts up to 172,003 despite the fact that silver was down by 9 cents with respect to yesterday’s trading. The total OI for gold surprisingly fell by a huge 10,802 contracts to 424,574 contracts despite the fact that gold was down by $0.10 with respect to yesterday’s trading.
2 a)Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
ii) who is the commodity trader that is buying all of the heavily discount ISIS oil (Glencore?Trafigura?)(Bloomberg/zero hedge) and extremely important for you to read this!!
i) A slight gain in the Philly Fed. However the important parts of the index are all down:
ii) a) It seems that financing for all of the private companies are now out of whack. Companies that are lucky enough to go public are seeing their IPO’s priced below the latest private financing.
The consumer is 70% of USA GDP
vi)A well written commentary on the true state of the USA economy
Let us head over to the comex:
The total gold comex open interest fell from 435,376 down 424,574 for a loss of 10,802 contracts despite the fact that gold was down by only $0.10 in yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. For today, both were in force especially the former. The November contract lost 1 contract lowering to 212 contracts. We had 0 notices filed yesterday, so we lost 1 gold contracts or an additional 100 oz will not stand for delivery in this non active delivery month of November. The big December contract saw it’s OI fall by a monstrous 15,395 contracts from 188,683 down to 173,288. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 170,119 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 187,194 contracts.
November contract month:
INITIAL standings for November
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||161,014.125 oz Brinks,JPM,Scotia|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||
|No of oz served (contracts) today||0 contracts|
|No of oz to be served (notices)||212 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||267,303.2 oz|
Total customer deposits 0 oz
we had 0 adjustments:
November initial standings/First day notice
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||1,011,335.02 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served (contracts)||43 contracts (215,000 oz)|
|No of oz to be served (notices)||3 contracts
|Total monthly oz silver served (contracts)||48 contracts (240,000 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||7,596,117.6 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
we had no dealer withdrawals:
total dealer withdrawals: nil
we had 0 customer deposits:
total customer deposits: nil oz
total withdrawals from customer account: 1,011,335.02 oz
Nov 16.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 15/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/
Dark Days: Vulnerable Europe faces crisis of confidence
Europe is in a very dark place. Under the cloud of on-going terrorist threats there is widespread fear of what the future holds – economically, socially and politically.
Jeremy Warner writing for the Telegraph yesterday describes the ‘abyss’ into which we are sliding and how this is precisely the reaction that the terrorists had hoped to elicit, despite the fact that – “even in Israel, citizens are far more likely to be the victim of a car accident than a terrorist outrage”.
Despite the initial bravado and defiance of the population in the immediate wake of such attacks, there is inevitably always a knock-on effect. “Most people will indeed carry on as before, but it only takes a 10pc reduction in footfall to have quite marked economic effects.”
“Yet it is to the wider geo-political impact of terrorism that we must look for the longer-term economic consequences.
In providing a pretext for war in Afghanistan and Iraq, 9/11 ended up having a massive economic impact far beyond any immediate behavioural changes.”
“The fiscal costs alone of these wars were vast. On its own, Iraq is estimated to have cost the US $1.1 trillion, and that’s ignoring myriad after conflict costs, which compound over time.”
“The wars also triggered a series of interest rate cuts in the US and beyond, helping to unleash a dangerous degree of credit expansion which ultimately culminated in the Global Financial Crisis (GFC). You can have guns or butter, it is sometimes said, but not both. America and Britain tried to have both, and paid the price.”
Read the full article: “Europe is sliding towards the abyss, and the terrorists know it”
You can follow Jeremy Warner on twitter
Today’s Gold Prices: USD 1073.10, EUR 1004.18 and GBP 703.05 per ounce.
Yesterday’s Gold Prices: USD 1070.50, EUR 1002.95 and GBP 702.74 per ounce.
Gold in EUR – 1 Month
Gold gained yesterday closing up $0.60 to $1070.10. Silver lost slightly on the day closing at $14.17, down $0.04. Platinum lost $5 to $84.
Download your guide to Protecting Your Savings in the Coming Bail-in Era
Indians Refuse To Give Their Gold To The Government: Only 30 Kilograms Take Part In “Gold Monetization Scheme”
Two months ago we gave our most recent review of what we dubbed the soft launch of India’s gold confiscation program, when the government’s “voluntary”gold-to-paper backed bonds conversion went, well, gold: back then, Modi’s government approved the gold monetization plan and sale of sovereign bonds proposed several months ago by the Reserve Bank of India.
The plans were first announced by Finance Minister Arun Jaitley in February as measures to woo Indians away from physical gold. As Jaitley explained the deposited gold would be auctioned, used to replenish the Reserve Bank of India’s reserves or be lent to jewelers. Subsequently, gold “depositors” can redeem in gold or cash depending on the tenure. Said otherwise, an attempt to “fractionally-reserve” gold, which would then be used a source of gold rehypothecation in the country that despite all the government’s efforts, remains starved for physical gold.
Now, one week after the gold scheme’s official launch, we take a look at how has it has done so far. In one word, so far the “gold monetization” plan has been a disaster with a laughable 30 kilograms in gold tendered by the people from physical into “government-backed” form.
The Times of India has the details, and reports that in the first-week “collection by the government’s sovereign gold bond scheme has been rather tepid with less than Rs 10 crore being reported to the Reserve Bank of India (RBI). The scheme, which closes on November 20, allows investors to purchase between 2 and 500 grams of gold-equivalent.
The spin was immediate: “bankers say that in any issue, savvy investors – including high net worth individuals – usually hold off until the closing date before locking in their funds.” Or maybe they don’t lock in their funds at all since giving the government your physical gold in exchange for a interest payment – in other words, converting gold into a paper asset with the government’s blessing – is about as stupid as it gets.
TofI adds that “the money raised through the sale of these bonds will form a part of government borrowing. According to sources, the RBI, which manages government borrowings, is keeping track of the collections and it has got a number of below Rs 8 crore until last weekend. Of this, around Rs 6.5 crore has been reported by banks and another Rs 1.35 crore by the Post Office.The government has fixed the issue price at Rs 2,684 per gram, which means that the gold-equivalent of the bonds is less than 30kg.”
The government has been aggressively marketing the scheme on three main points:
- It is more remunerative than buying gold as the investor gets an interest of 2.75% in addition to getting returns equivalent to the value of gold on maturity. Incidentally this is far below the rate of inflation, so the nominal interest does not even cover rising prices).
- Second, there is no risk of theft since the gold is held in dematerialized form.
- Thirdly, although the bond has an eight-year tenure, it offers liquidity as it is accepted as collateral and there is also a premature exit option at the end of five years.
Alas, none of these appear to have had any impact on people’s willingness to part with bullion.
Which brings us to our conclusion from two months ago, when we said that “the one thing to watch for is a shift in the posture of the Indian government: for now participation in the gold monetization scheme is voluntary, and largely geared to the general public with the 500 gram/year limit. But if and when the Modi cabinet starts “urging” the population, and certainly when threats of fines and/or prison time emerge, that is when we will finally have confirmation that the second coming of Executive Order 6102 has arrived.”
If and when that happens, expect a full-blown global press to obliterate the price of gold as the gold confiscation wave is finally unleashed, first in India then everywhere else.
India’s gold deposit scheme attracts only 400 grams so far
Submitted by cpowell on Thu, 2015-11-19 12:49. Section: Daily Dispatches
By Manoj Kumar
Thursday, November 19, 2015
NEW DELHI, India — A gold deposit scheme launched amid fanfare by Indian Prime Minister Narendra Modi two weeks ago has so far attracted only 400 grams, an industry official said on Thursday, out of a national hoard estimated at 20,000 tonnes.
Modi has urged Indians to put gold stashed in homes and temples in the bank, offering modest rates of interest that earlier schemes have lacked. His government has also launched “paper” gold in the form of gold-backed bonds.
A shortage of centers to assay the gold being put on deposit is a problem that the government has agreed to address, said Anil Sankhwal, the northern regional chairman of India’s Gem and Jewellery Export Promotion Council.
“Only 400 grams have been deposited so far,” Sankhwal told reporters after meeting financial ministry officials. “The government has agreed to review the scheme and open more centres for gold testing and depositing in banks.” …
… For the remainder of the report:
(courtesy GATA/London’s Financial Times)
CME Group uses political clout to guard lucrative monopoly on futures exchanges
Submitted by cpowell on Thu, 2015-11-19 13:21. Section: Daily Dispatches
CME Group: Political Clout Counts
By Gregory Meyer
Financial Times, London
Thursday, November 19, 2015
Terry Duffy is wearing a dark suit, a Movember moustache-beard combination and gold cufflinks shaped in the octagonal logo of his company, CME Group. He sits back in his office beside the Chicago river and glances at framed snapshots on some shelves: his twin sons, the actor Mark Wahlberg, three former US presidents, a grinning Hillary Clinton and himself.
“I’ve been blessed to know a lot of interesting people and become friends with them. I think they like my no-nonsense attitude. I don’t bullshit people,” he says.
Mr Duffy’s blunt manner and deep understanding of Washington politics have helped CME emerge from the financial crisis as one of the most lucrative US businesses. As Wall Street banks scale back, the world’s biggest exchange group racks up operating margins of 60 per cent. This ranks CME among the three most profitable members of the S&P 500 index, alongside Visa, the card network, and Gilead Sciences with its $1,000-a-day hepatitis pill.
But the Chicago colossus also faces challenges to its business model. As its wealth grows, the brokers and traders on whom CME depends for liquidity are chafing under cost pressures. The Obama administration wants a cut of its transaction revenue to boost the budget of the group’s main regulator, the Commodity Futures Trading Commission. The clout of Mr Duffy, CME’s 57-year-old executive chairman and president, whose flattering emails to Mrs Clinton were recently released by the State Department, is being put to the test. …
… For the remainder of the report:
1 Chinese yuan vs USA dollar/yuan rises in value , this time at 6.3825/ Shanghai bourse: in the green , hang sang: green
2 Nikkei closed up 210.63 or 1.07%
3. Europe stocks all in the green /USA dollar index down to 99.18/Euro up to 1.0707
3b Japan 10 year bond yield: falls to 30.0% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 123.12
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 40.69 and Brent: 44.20
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and 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 .488 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate rise to 6.55%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 6.98% (yield curve close to inversion)
3k Gold at $1072.50/silver $14.19 (8:00 am est)
3l USA vs Russian rouble; (Russian rouble down 15/100 in roubles/dollar) 64.91
3m oil into the 40 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 1.0171 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0889 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 +.488%/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 3.02% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Markets Surge Overnight On Fed Minutes Optimism; ECB Minutes Set To Keep Rally Going
While it is still unclear just why the FOMC Minutes which are said to have made a December liftoff “more likely” unleashed a dramatic market rally, one which sent both stocks and TSYs higher (suggesting of a rate cut not a hike, and certainly not more tightening), the sentiment continued overnight, with both Asian stocks surging on the US momentum, as well as Europe, where the DAX gapped solidly above the 200 DMA as most European shares advanced, led by resources, travel stocks. U.S. futures continue their ramp higher, and at last check were another 8 points, or 0.4%, in the green.
DB may have summarized yesterday’s action best: “This positive market response will likely please the Fed and give them more confidence.” Poor Fed, locked in a reflexive nightmare of its own making.
But if the Fed Minutes were enough to unleash the latest leg in this rally, than the ECB’s own minutes due also today, should send futures back over 2100 without much difficult, regardless of their actual content.
Here is where the markets stand at this moment:
- S&P 500 futures up 0.4% to 2089
- Stoxx 600 up 1.1% to 384
- MSCI Asia Pacific up 1.6% to 134
- US 10-yr yield down 2bps to 2.26%
- Dollar Index down 0.35% to 99.3
- WTI Crude futures up less than 0.1% to $40.78
- Brent Futures up 0.8% to $44.48
- Gold spot up 0.3% to $1,074
- Silver spot up 0.2% to $14.20
Here are some of the main overnight news: shortly after the close we learned that Pfizer is near an agreement to buy Allergan for $380/share in biggest deal, one which however may be scuttled in the last minute by Treasury’s latest anti-inversion crackdown; Square raised less than sought in IPO, Testing Valuations: Raised $243m selling 27 million shares for $9 each, ~1/3 less than sought; Diller’s Match Group Raises $400 Million in Online-Dating IPO, also at the low end of range; Telegram App Blocks Islamic State Channels Over ‘Propaganda’: ISIS used the service for propaganda; Staples’ Customers Said to be Dissatisfied With Asset Sales: NYP: FTC may move within weeks to block the merger; Blackstone, Carlyle, KKR Said Possible Armacell Bidders: Reuters: Charterhouse set Fri. deadline for bids for Armacell; Wal-Mart to Take Minority Stakes in China Ventures: China Daily: Agreed to buy minority stakes in 21 JVs; M&A Leaks Fall to Lowest in Six Years in Regulatory Crackdown: Stronger regulation discouraged gossip, according to a report
Back to markets, overnight Asian equities took an impetus from a Fed inspired rally in US stocks. ASX 200 (+2.1%) led the region after a rebound in the commodities complex saw material names bolster the index. Nikkei 225 (+1.1%) was supported by the outperformance in tech names, however pulled off best levels as the BoJ stood pat on monetary policy, as expected with the central bank also signalling a cautionary note in regards to inflation. The market as usual ignore weaked than expected Japanese trade data, with exports posting their first drop, declining 2.1%, more than the -2.0% expected, and dropping for the first time in over a year. Shanghai Comp. (+1.4%) dipped in and out of gains and losses, amid reports that leveraged bets for Chinese stocks fell from a 2-month high. JGBs yet again traded in tepid fashion.
Top Asian news:
- BOJ Keeps Policy Unchanged After Recession, Weak Inflation: Almost half of analysts surveyed don’t see bank easing again
- China Should End Yuan-Rate Distortion, Ex-PBOC Adviser Says: Central bank is obsessed with currency stability, Yu Yongding says
- Asia Riches Chase Aussie as Local Currencies Wilt, UBS Says: View that RBA won’t cut interest rate supports currency
- SoftBank’s $100 Billion Debt Spurs Call for Son to Curb Ambition: BNP says SoftBank should set targets to improve finances
- Billionaire Agarwal’s Vedanta to Cut Costs 25% Amid Slump: Commodity prices could drop 5% to 7% further, he says
In Europe, much of the price action across asset classes so far in European trade has stemmed from last night’s release of the FOMC minutes. As such, European equities have followed the precedent set by their US and Asian counterparts (Euro Stoxx: +1.2%), trading in positive territory with 91% of Stoxx 600 members gaining after market participants inferred that the Fed believe the US economy is strong enough to withstand a rate hike. As was the case in the US, Financials are among the best performers on the back of the minutes, while equity specific news has remained in focus in Europe towards the back end of earning season with Royal Mail (+5.6%) and Johnson Matthey (+8.3%) both among the best performers after earning updates.
In terms of fixed income, Bunds initially saw a bid throughout the European morning in line with USTs in the immediate wake of the release after the FOMC minutes release suggested a more gradual rate path and as such the German curve is notably flatter this morning. Elsewhere, Europe has seen supply relatively well received from Spain and France with European paper now coming off its best levels ahead of the US open.
European top news:
- U.K. Retail Sales Fall More Than Forecast as Consumers Pause: Sales volume dropped 0.6% from Sept.
- German Cooperative Banks Said in Biggest Merger Since 2010: DZ Bank, WGZ Bank said to agree to merge
- France Endures State of Emergency as Forensics Scour Wreckage
- VW to Delay China Venture Stake Increase for Financial Reasons
In FX, there was a change in the recent surge in the USD, with some aggressive overnight selling in the USDJPY ever since the BOJ disappointed some after it did not boost QE, while markets have seen weakness go through EUR in early trade as participants focus on Fed/ECB policy divergence following yesterday’s FOMC minutes release which has left a Dec hike on the table while looking ahead to the ECB minutes scheduled for later today.
Separately a miss on expectations from UK retail sales (Ex Auto Fuel (Oct) M/M -0.90% vs. Exp. -0.60%) has seen GBP gains against the USD capped , with GBP weakening against the EUR. The USD remains in negative territory (-0.3%) despite the aforementioned GBP and EUR softness and as such has benefitted the commodity complex, with the likes of WTI, Brent both benefiting, as such we have seen strength in CAD.
In commodities, WTI and Brent have traded relatively range bound, remaining at levels reached after yesterday’s DoE inventories showed a less than expected build. NatsGas outperforms in anticipation of low stockpiles in today’s EIA storage report (Exp. build of 19, prey. build of 49). Gold has come off highs reached during the Asia session, having moved off 5 year lows as the greenback was pressured with yields lower as participants focus on the potentially shallower rate path ahead. Silver prices also benefitted from the aforementioned FOMC minutes, breaking a 15 day losing streak. Elsewhere, London copper sank to fresh 6 year lows, and Nickel near 12 year lows with fears over Chinese demand persisting.
Goldman Sachs expects that copper prices will decline to USD 4,800/ton by the end of 2015 and to USD 4,500/ton by the end of next year, while gold forecasts remain at USD 1,100/oz in 3-months, USD 1,050/oz in 6-months and USD 1,000/oz in 12-months . Furthermore, the bank expects iron ore prices to fall over its forecast period down to USD 44/ton in 2016 and USD 40/ton in 2017. (RTRS)
Of interest today will be the latest set of ECB minutes for the October 22nd meeting while in the US we’ll get last week’s initial jobless claims data, At the same time as the latest Philly Fed.
Bulletin Headline Summary from RanSquawk and Bloomberg
- Stocks in Europe trade higher, following on from their US counterparts, which were bolstered on the back of yesterday’s FOMC release
- FX markets have seen weakness go through EUR in early trade as participants focus on Fed/ECB policy divergence following yesterday’s FOMC minutes, while GBP has weakened after weak retail sales data
- Looking ahead, today sees the release of ECB minutes, US Weekly Jobs, Philadelphia Fed
Business Outlook, EIA Natural Gas Storage, ECB’s Coeure, Fed’s Lockhart and Fischer
- Treasuries steady, 30Y yield falls by ~2bp even as global stocks rise after Fed minutes yesterday showed FOMC “intended to convey’’ a rate increase in Dec. may be appropriate, although no decision had been made.
- Oil traded near the lowest level in almost three months as U.S. government data showed crude stockpiles expanded for an eighth week in the world’s biggest consumer
- France prepared to extend a state of emergency and allow police to carry weapons even when off-duty in the wake of last week’s attacks, as forensics teams searched for clues in the wreckage of the terrorists’ suspected hideout
- President Xi Jinping condemned the Islamic State’s execution of a Chinese national, an act that raises pressure on China to take a greater role in resolving Syria’s civil war
- Obama moved to dent Russia’s optimism that a deal is near with the U.S. and France to coordinate the fight against Islamic State
- Sweden’s plan to absorb 350,000 asylum seekers by the end of this year by keeping all those people on state handouts rather than letting them do low-paid jobs looks untenable
- U.K. retail sales fell 0.6% in October, more than forecast, after 1.7% increase in September driven by Rugby World Cup and warm weather
- RBS plans to scrap all bonuses for 20,000 staff at its branches and increase fixed pay by 5% as it seeks to bolster its reputation in the wake of a series of scandals, including wrongly sold payment-protection insurance
- Credit Suisse’s withdrawal from making a market in government bonds in Europe has left everyone from traders to debt-agency chiefs concerned there may be a domino effect of departures that ultimately dries up liquidity for investors
- Home sales in Belgravia, the London district favored by Russian oligarchs for its large Regency-style houses, are slumping after the collapse of the ruble against the pound
- Republicans overwhelmingly pick Ben Carson over Donald Trump for having the better temperament to be president, but they have far more confidence in the billionaire than the retired surgeon to get things done, fix immigration and manage the economy
- Sovereign 10Y bond yields mostly lower. Asian and European stocks rise, U.S. equity-index futures higher. Crude oil and gold rise, copper little changed
DB’s Jim Reid completes the overnight wrap
markets reacted with some calm to the October FOMC minutes which pointed to a Fed that were still on course to raise rates in December. Specifically, the minutes confirmed that ‘most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labour market, and inflation, these conditions could well be met by the time of the next meeting’. This led to the minutes explaining that ‘members emphasized that this change was intended to convey the sense that, while no decision has been made, it may well become appropriate to initiate the normalization process at the next meeting’. The prospect for gradual rate rises following the first hike was acknowledged also, with the text showing ‘that it would probably be appropriate to remove policy accommodation gradually’ and that ‘it was noted that the beginning of the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow’. Meanwhile, in a sign that views are still not necessarily fully aligned within the Fed camp, some members believed that economic conditions ‘had already been met’ for tightening but that ‘some others, however, judged it unlikely that the information available by the December meeting would warrant’ a hike, highlighting concerns over whether economic growth was robust enough to withstand potential adverse shocks.
The comments from Atlanta Fed President Lockhart prior to the minutes suggested that he would be happy to move in December ‘conditioned on no marked deterioration in economic conditions’. Lockhart said that ‘given my reading of current conditions and my outlook views, I believe it will soon be appropriate to begin a new policy phase’. The Richmond Fed’s Lacker also warned of getting behind the curve, while in his first policy speech as the Dallas Fed President, Kaplan aired a somewhat more centrist view, saying that the Fed has been ‘prudent is waiting for more data before taking policy action’ but that ‘accommodative policy does not necessarily mean a zero fed funds rate’.
Markets were already trading with a relatively positive tone leading into the minutes and that continued after the release, with the S&P 500 eventually closing up +1.62% for its biggest one-day gain in nearly a month. Credit indices finished tighter (CDX IG -1.5bps) and 2y Treasury yields closed up +2.5bps at 0.876% to nudge closer to the early month highs as the Treasury curve flattened. The US Dollar finished little changed, while despite briefly dipping below $40/bbl intraday, WTI (+0.20%) managed to rally back into positive territory by the close.
This positive market response will likely please the Fed and give them more confidence. Regular readers will know that last year we felt pretty sure that the Fed would be unable to raise rates in 2015. Well it’s increasingly looking like we’ll be 15 days wrong!! We are now more sanguine on the short-term impact of a hike as positioning in hike-sensitive assets seems to be cleaner than it was in the summer. This doesn’t mean to say that a hike wouldn’t be a policy error and it’ll be too early to conclude on this for sometime. Monetary policy works with a lag that can be around 1-2 years and we worry that with global nominal growth still so low, the Fed has left it rather late in the cycle to be hiking. In our minds we still see 2017-2018 as potential recessionary years which fits with the above.
Overnight the main news out of Asia is that the BoJ, as expected, has stood put on its current monetary stimulus program, despite Japan recently falling back into recession. In the accompanying statement, the BoJ said that the Japanese economy ‘has continued to recover moderately, although exports and production have been affected by the slowdown in emerging markets’. BoJ Governor Kuroda is set to speak shortly after we go to print at 6.30am GMT this morning. Prior to this, Japan’s latest trade balance number showed that the economy had returned to a surplus in October for the first time since March, supported by a steep fall in imports (-13.4% yoy vs. -8.6% expected) which followed a -11% fall in September. Exports were soft, down -2.1% (vs. -2.0% expected). The Yen has gained nearly half a percent this morning, while the Nikkei (+0.84%) and Topix (+0.69%) have both firmed.
Elsewhere there’s been gains also for the Hang Seng (+1.15%), Kospi (+0.83%) and ASX (+1.52%), while bourses in China have rebounded off a weaker open (Shanghai Comp +0.70%) following a soft November MNI business indicator reading which was down -5.7pts this month to 49.9, the first sub-50 print since July.
Closer to home yesterday, European equity markets posted modest declines as events in France continue to dominate headlines. The Stoxx 600 finished -0.14% lower, while the Dax (-0.10%) was down a similar amount but continues to hover near its three-month high. French equities (CAC -0.62%) were the notable underperformers along with the peripheral bourses. The ECB’s Mersch highlighted that markets should be not draw any premature conclusions about the economic impact of the terror attacks in France, saying that ‘we have no indication of any economic pessimism as a result of the Paris attacks, let alone weaker hard data’ and that ‘doom-and-gloom talk is not warranted at this stage’.
European sovereign bond yields continue to nudge lower. 10y Bund yields finished down just shy of 2bps at 0.504% and are now 19bps down from the high earlier this month. Yesterday also saw Germany issue record low 2y Bunds at auction yesterday, fetching a yield of -0.38%. In fact this wasn’t the only case of a sovereign issuing negative yielding bonds yesterday. Portugal issued 12-month bills at an average yield of -0.006%, while outside the eurozone Sweden sold 89-day bills at -0.416% and Denmark sold 3y bonds at -0.31%.
Before we look at the day ahead, yesterday’s data in the US yesterday played second fiddle to the FOMC minutes, but it’s worth highlighting the steep decline in housing starts (-11.0% mom vs. -3.8% expected) last month, driven by multi-family properties. Offsetting this somewhat however was a better than expected building permits reading (+4.1% mom vs. +3.8% expected).
Turning over to today’s calendar now, it’s another relatively quiet day for data in Europe this morning with the only release of note out of the UK where the October retail sales numbers are due, along with the CBI trends survey. Also of interest will be the latest set of ECB minutes for the October 22nd meeting, due out around lunchtime. Over in the US this afternoon we’ll get last week’s initial jobless claims data, followed by the Conference Board’s October leading indicator. In terms of central bank speakers, this morning we’ll hear from the ECB’s Coeure, Weidmann and Praet while this afternoon Lockhart (due 5.30pm GMT) is set to speak again on the US economy and Fischer (due 9.45pm GMT) is scheduled to speak on emerging markets.
Let us begin:
Here Comes China: Xi “Vows Terror Fight” After ISIS Executes First Chinese Hostage
Yesterday, together with the release of a picture of the alleged bomb that brought down the Russian airplane above Egypt, the ISIS propaganda magazine had another, perhaps even more actionable revelation: it confirmed that two hostages, a Norwegian national Ole Johan Grimsgaard-Ofstad, 48, and a Chinese captive, Fan Jinghui, 50, had been executed.
Two months before the release of yesterday’s issue of Dabiq, in the September edition, on the second to last page, ISIS listed two prisoners, one Chinese and one Norwegian, as “for sale.”
Underneath the image of each hostage was a message: “To whom it may concern of the pagans, crusaders, and their allies as well as what are referred to as “human rights” organizations. This Norwegian prisoner was abandoned by his government, which did not do its utmost to purchase his freedom. Whoever would like to pay the ransom for his release and transfer can contact the following telegram number…”
The magazine did not offer any details on how the two hostages were captured or give a deadline outside of the postscript: “Note: This is a limited time offer.”
The tragic fate of both prisoners was revealed yesterday, when Dabiq announced that both had been “executed.”
The news of the execution promptly raised what may be the most important question for the anti-ISIS conflict: will the last remaining superpower, China, join the conflict? This is what the Diplomat said yesterday: “With the Islamic State now directly killing Chinese citizens, will China be drawn into conflict in the Middle East?” It adds:
To date China has mostly stayed on the sidelines of the fight against ISIS, rather than supporting military operations against the group spearheaded separately by the United States and Russia. That’s in part because ISIS has not posed a direct threat to Chinese citizens, although Chinese officials have warned that the group has been successfully recruiting members of the Uyghur ethnic group.
That’s now changed – in addition to reports of Fan’s execution by ISIS, a Chinese citizen was shot during the attacks in Paris. China’s embassy in France reports that the victim is in good condition after being hospitalized. But China Daily notes that over 1,000 Chinese tourists were believed to be in Paris on Friday evening, when the attacks were conducted.
And, as a result of the latest announcement by ISIS, China’s isolationist position has now changed and as Bloomberg reports “Xi Vows Terror Fight After IS Kills Chinese Captive” and as it further adds, China’s President Xi Jinping condemned the Islamic State’s execution of a Chinese national, “an act that raises pressure on China to take a greater role in resolving Syria’s civil war.“
Xi issued a statement on the sidelines of the Asia-Pacific Economic Cooperation summit in Manila on Thursday, after Islamic State claimed credit for killing Fan Jinghui, 50, and another Norwegian captive. The group published pictures of the two dead men in its English-language Dabiq magazine on Wednesday under the banner “Executed.” It was the first time the Islamic State had killed a Chinese captive.
“China strongly condemns the brutal murder of a Chinese national by Islamic State,” Xi said, according to official China Central Television. “I express my deep condolences to the families of the victim. Terrorism is the common enemy of humanity. China resolutely opposes terrorism in any form and resolutely fights against violent, terrorist, criminal activities that challenge the bottom line of human civilization.”
Some are sceptical that the execution of the first Chinese hostage by the Islamic State means an imminent military intervention by China: “While the killing might increase China’s urgency in seeking a resolution to the Syrian civil war helping Islamic State to thrive, it was unlikely to steer the country toward support for military intervention, said Li Wei, head of security and anti-terrorism research at the China Institutes of Contemporary International Relations.”
Others, however, recall that during the 2013 Syria campaign, a reluctant China, after dragging its feet for months, did send several warships to the Mediterranean off the Syrian coast as the standoff between Russia and the US hit a crescendo unlike anything seen since the Cuban missile crisis.
As Bloomberg adds, China has for decades pledged to stay out of the “internal” matters of other nations, declining to back international sanctions against Syrian President Bashar al-Assad or Russia over Ukraine, even as its overseas business interests proliferate. Last month, Chinese Foreign Minister Wang Yi outlined three proposals on the Syrian conflict, including political talks, humanitarian relief and greater anti-terrorism cooperation.
This time China may have no choice, especially now that both Russian and US aircraft carriers are headed for the Mediterranean sea, off the Syrian coast where in a rerun of 2013, they will encounter Russian warships once again. China can hardly avoid participating in what is certain to be another geopolitical showdown, even if one where the proxy enemy is a terrorist organization which seemingly the entire world is trying to eradicate and yet nobody has been able to for years.
Paris Attack “Mastermind” Killed In Police Raid
On Wednesday, once the smoke cleared from a seven hour seige on an apartment in the Paris suburb of St. Denis, French authorities knew attack “mastermind” Abdelhamid Abaaoud’s cousin was dead.
She detonated a suicide vest as police closed in. Here’s an eyewitness account of her final moments:
During a ten or fifteen minute lull in the shooting I heard a woman shouting: ‘Help, help, help me!’ The police asked her to identify herself and to show herself. She showed her hands but she didn’t reveal her face.
She withdrew them and then put them up again several times. They shouted at her: ‘Keep your hands in the air!’
They told her: ‘We’re going to shoot.’
The shooting resumed. The police were firing from the roof of the building opposite. Suddenly there was an enormous explosion [from the window, inside the flat]. It was probably the woman who blew herself up.
The windows shattered. Lots of objects from the apartment were thrown into the street, pieces of human flesh as well. They are still there. You can see a bit of the head, of skin, of ribs.
Seven suspects were arrested after a prolonged gun battle and French prosecutor Francois Molins confirmed that Abaaoud was not among those detained.
Molins did not, however, deny that he was among the dead.
Following Molins’ presser, WaPo reported that according to European intelligence officials, Abaaoud was indeed killed, but there was no confirmation heading into Thursday.
Well, just moments ago, French authorities confirmed that the “mastermind” – the 27-year old that WSJ claims was the “emir of war” in eastern Deir Ezzour, was indeed killed by police in the raid.
- FRANCE PROSECUTOR SAYS ABDEL HAMID ABAAOUD IS DEAD
Here’s a bit of color which seems to indicate that either, i) Abaaoud went down in a blaze of jihadist glory, or ii) French police simply opened up on him in retailiation for the attacks:
As so, the world is now a safer place – or at least that’s probably how authorities will pitch it. Expect this to be trotted out as a major victory for France over terrorism and expect ISIS to immediately use the memory of the martyred “brother” as motivation for still more attacks.
For those who missed it, a complete profile of Abaaoud can be found below.
* * *
Meet The 27-Year Old “Mastermind” Behind The Paris Attacks
Behold! A terrorist “mastermind”:
That’s Abdelhamid Abaaoud, the 27-year old Belgian/ Moroccan that, as we outlined on Monday, is the alleged ringleader of the attacks that killed 129 in Paris last Friday.
ECB Publishes October Minutes, Says “Deflation Risk Not fully Excluded”
Moments ago Bloomberg’s Richard Breslow explained why the ECB’s minutes, since they would confirm the dramatically easing nature of the upcoming ECB action, are far more important than what the Fed disclosed yesterday. And now, here are the minutes themselves, with the following summary courtesy of Bloomberg.
- Amid slow euro-area recovery “it was argued that, in such an environment, the risk of deflation remmained relevant,” according to account of Governing Council’s Oct. 22 meeting in Malta, published Thursday.
- “Reference was also made to a potential deflationary scenario, which could not be fully excluded as a tail risk”
- “Nevertheless, it was highlighted that the likelihood of deflation had decreased since the start of the year”
- While weak price pressures are mostly due to lower oil prices, “indirect effects on core inflation were significant in the current environment,” ECB account shows in section on presentation by Chief Economist Peter Praet
- Inflation, “after a pickup around the turn of the year owing to oil-price related base effects, could fall back to relatively low levels in early 2016”
- “Lower energy prices and recent exchange-rate developments, if not reversed, suggested a further downward revision to the inflation outlook”
- “Such a downward revision to the inflation outlook was seen as particularly worrisome” as it would imply a further postponement of the return of inflation to levels in line with ECB’s goal
- Governing Council agreed that degree of monetary-policy accommodation would need to be re-examined at Dec. 3 monetary-policy meeting
GLEN GLENCORE PLC ORD USD0.01
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RUSSIAN AND MIDDLE EASTERN AFFAIRS
The real USA policy in Syria:
(courtesy zero hedge)
Russia Explains To Clueless US Public Why Obama Can’t Defeat ISIS
Earlier this week, CNN’s senior White House correspondent Jim Acosta asked President Obama the following question at a press briefing:
“A lot of Americans have this frustration that they see the United States has the greatest military in the world, it has the backing of nearly every other country in the world when it comes to taking on ISIS. I guess the question is, and if you’ll forgive the language, but why can’t we take out these bastards?”
Well Jim, the answer is quite simple and indeed, if you – or any other member of the mainstream media for that matter – would bother to look at things like thedeclassified Pentagon report that Judicial Watch turned up earlier this year, you’d be less confused.
Allow us, once again, to provide you with the answers you seek, straight from the Pentagon ca. 2012:
…there is the possibility of establishing a declared or undeclared Salafist Principality in eastern Syria (Hasaka and Der Zor), and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion (Iraq and Iran).”
Translation: if Sunni extremists were to establish a proto-state in eastern Syria that would be great because it would destabilize Assad and cut off Iran from Hezbollah thus endangering the preservation of Tehran’s Shiite crescent.
For those who need a still simpler formulation: ISIS started out no different than any of the other rebels the US supports in Syria. They likely received guns, money, and training if not directly from the US, then from Saudi Arabia and Qatar. Washington seems to have had some idea that they would seek to capture and hold territory and as far as the Pentagon was concerned, that was just fine. Whether or not the CIA anticipated what would come next is up for debate, but make no mistake, US intelligence knew good and well this was a possibility and let it happen because ousting Assad was (and still is) the top priority.
So when the Jim Costas of the world ask “why can’t we take out these bastards?”, the answer is that if if we did, one of the main forces destabilizing the Assad regime would be gone and not only that, the US would no longer have an excuse to be in Syria, which would leave the country’s political future entirely up to Russia and Iran and that is a decidedly unpalatable outcome not only for Washington, but for Riyadh and Doha as well.
It’s Occam’s Razor Jim: look for the simplest possible explanation and go with that.
Of course that explanation is simply too bad to be true for most Americans and so the public and the mass media will continue to exists in a state of perpetual bewilderment as to why 13 months of aerial bombardment hasn’t done anything to degrade the group.
In case any of the above isn’t clear enough, Sergei Lavrov has commentary which may help to drive the point home, presented below without further comment:
“Despite announcing ambitious plans for its coalition against Islamic State (IS, formerly ISIS/ISIL), the analysis of those [US-led] airstrikes during over a year lead to conclusion that they were hitting selectively, I would say, sparingly and on most occasions didn’t touch those IS units, which were capable of seriously challenging the Syrian army.”
“Apparently, it’s a kind of a ‘honey is sweet, but the bee stings’ situation: they want IS to weaken Assad as soon as possible to make him leave somehow, but at the same time they don’t want to overly strengthen IS, which may then seize power.”
“The US stance seriously weakens the prospects of Syria to remain a secular state, where the rights of all ethnic and religious groups will be provided and guaranteed,”
“Russia’s assessment of the US-led anti-terror operation in Syria is based on observations of specific results and there are little results, not to say there are none – except the fact that during this period [since August 2014] the Islamic State has grown on the territories they control.”
who is the commodity trader that is buying all of the heavily discount ISIS oil (Glencore?Trafigura?)
The Most Important Question About ISIS That Nobody Is Asking
The question of how the Islamic State funds its sprawling caliphate has been discussed in the past: we first broke down the primary driver of ISIS revenue well over a year ago, in September 2014, when we explained that “ISIS uses oil wealth to help finance its terror operations.”
Daily Signal’s Kelsey Harkness explained the breakdown as follows:
According to the Iraq Energy Institute, an independent, nonprofit policy organization focused on Iraq’s energy sector, the army of radical Islamists controls production of 30,000 barrels of oil a day in Iraq and 50,000 barrels in Syria. By selling the oil on the black market at a discounted price of $40 per barrel (compared to about $93 per barrel in the free market), ISIS takes in $3.2 million a day.
The oil revenue, which amounts to nearly $100 million each month, allows ISIS to fund its military and terrorist attacks — and to attract more recruits from around the world, including America.
Most importantly, we added that to be successful in counterterrorism efforts, “the U.S. and its allies must “push the Islamic State out of the oil fields it has captured and disrupt its ability to smuggle the oil to foreign markets.”
None of this was surprising to anyone, but what was quite surprising is that it took the allied forces over a year to take the oil revenue threat seriously and begin targeting the Islamic State’s oil infrastructure in earnest.
Today, in an article titled “Why US Efforts to Cut Off Islamic State’s Funds Have Failed” Bloomberg tries to explain just how it is that despite a more than a year long campaign, ISIS funding remains as strong as ever, and notes that “the latest round of airstrikes are directly related to the administration’s new math. “You have to go after the oil, and you have to do it in a serious way, and we’ve just begun to do that now,” citing Benjamin Bahney, an international policy analyst at the Rand Corp., a U.S. Department of Defense-funded think tank.
To be sure, there are other sources of revenue: Bloomberg correctly notes that “even if the U.S. finally weakens the group’s oil income, Bahney and other analysts in the U.S., the Middle East, and Europe contend, Islamic State has resources beyond crude—from selling sex slaves to ransoming hostages to plundering stolen farmland—that can likely keep it fighting for years.”
Still, without a doubt, the dominant source of funds for the terrorists is oil, and not just oil, but a well-greased logistical machine that keeps thousands of barrels moving from unknown pumps to even refineries, and ultimately to smugglers who operated out of Turkey and other countries.
Here is Bloomberg:
Most often refined in Syria, the group’s oil is trucked to cities such as Mosul to provide people living under its black banner with fuel for generators and other basic needs. It’s also used to power the war machine. “They have quite an organized supply chain running fuel into Iraq and [throughout] the ‘caliphate,’ ” says Michael Knights, an Iraq expert at the Washington Institute for Near East Policy, using the militant group’s religiously loaded term for itself. Because the U.S. apparently believed the real money for Islamic State came primarily via selling refined oil, rather than crude, last year’s strikes heavily targeted refineries and storage depots, says Bahney. He and other experts say that strategy missed an important shift:Militants increasingly sell raw crude to truckers and middlemen, rather than refining it themselves. So while Islamic State probably maintains some refining capacity, the majority of the oil in IS territory is refined by locals who operate thousands of rudimentary, roadside furnaces that dot the Syrian desert.
Here is where it gets interesting: Bloomberg cites Pentagon officials who acknowledge “that for more than a year they avoided striking tanker trucks to limit civilian casualties. None of these guys are ISIS. We don’t feel right vaporizing them, so we have been watching ISIS oil flowing around for a year,” says Knights. That changed on Nov. 16, when four U.S. attack planes and two gunships destroyed 116 oil trucks.
So any qualms about vaporizing “innocent civilians” promptly disappeared when the Pentagon realized that its 1+ year long campaign had been an epic debacle, that a suddenly surging ISIS was stronger as ever, and most importantly, that its critical revenue lifelines had been largely untouched for years. Perhaps they weren’t innocent civilians after all.
It is still unknown if this recent crackdown on “dumping oil”, or crude which dramatically lowers the price of oil in global markets – it certainly is an odd coincidence that the price of Brent and WTI began its tumble last fall, just when the Islamic State made its dramatic appearance on the world scene – will have an effect and cut off the primary source of funds to ISIS.
But what we have been wondering for months and what we hope some enterprising journalist will soon answer, is just who are the commodity trading firms that have been so generously buying millions of smuggled oil barrels procured by the Islamic State at massive discounts to market, and then reselling them to other interested parties.
In other words, who are the middlemen.
What we do know is who they may be: they are the same names that were quite prominent in the market in September when Glencore had its first, and certainly not last, near death experience: the Glencores, the Vitols, the Trafiguras, the Nobels, the Mercurias of the world.
To be sure, funding terrorist states is not something thatsome of the most prominent names in the list above have shied away from in the past.
Which one (or ones) are the guilty parties – those who have openly breached terrorism funding laws – we don’t know: it may be one, or more of the above, or someone totally different.
At this point, however, three things are certain: whoever the commodity trading house may be that is paying ISIS-affiliated “innocent civilians” hundreds of millions of dollars for their products, they are perfect aware just who the source of this deeply discounted crude is. Crude so deeply discounted, in fact, it results in massive profits for the enterprising middleman who are engaging in openly criminal transactions.
The second certainty: whoever said middleman is, it is very well known to US intelligence services such as the NSA and CIA, and thus to the Pentagon, and thus, the US government.
The third certainty is that while the US, and Russia, and now France, are all very theatrically bombing something in the Syrian desert (nobody really knows what), the funding of ISIS continues unabated as someone keeps buying ISIS oil.
We wonder how long until someone finally asks the all important question regarding the Islamic State: who is the commodity trader breaching every known law of funding terrorism when buying ISIS crude, almost certainly with the tacit approval by various “western alliance” governments, and why is it that these governments have allowed said middleman to continue funding ISIS for as long as it has?
Bellwether Caterpillar reported that sales continue to plummet. However they announced a plan on how to get back their equipment from farmers et al who could not pay the lease payments. They can turn off the engines and make the machines non opereative..
(courtesy zero hedge/Caterpillar)
For Caterpillar The Depression Has Never Been Worse… But It Has A Cunning Plan How To Deal With It
Moments ago Caterpillar reported its latest monthly retail sales statistics and the numbers have never been worse: not only is the dead CAT bounce in US sales finally over, tumbling -8% Y/Y, after a -4% decline in September and hugging the flatline for the past few months, but sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -28%, a dramatic drop from the -17% a month ago, EAME dropping -13%, and Latin America down -36%…
… but global retail sales just posted a massive -16% drop in the past month, after dropping 9% a year ago and another 12% in 2013, this was the biggest annual drop since early 2010. As the chart below shows, CAT has now suffered a record 35 months, or nearly 3 years, of consecutive declining annual retail sales – something unprecedented in company history, and set to surpass the “only” 19 months of decling during the great financial crisis by a factor of two!
Worse, with the market no longer rewarding stock buybacks, Caterpillar suddenly finds itself flailing in the gale strength winds of what nobody can claims any longer is not a global industrial depression.
However, there is good news – while Caterpillar’s revenues and cash flows may be plummeting with every passing month, at least the company has a cunning plan how to recover some inventory.
According to the WSJ, Caterpillar is eager to reassure shareholders it won’t get burned on equipment leased to customers in China even as the economy cools there. CAT Financial Services President Kent Adams said during a conference call on Tuesday that the company keeps tabs on the position of machinery electronically through its Product Link system.
“If a customer falls behind, we have the ability to derate the engine or turn the engine off, and we’ve set up a legal presence in all of the provinces of China.”
In other words, any and all Chinese lessors who fall behind on their payments will suddenly find their excavator’s engine shut down and no longer operable, stuck in the middle of a mine, quarry, or construction site with a paperweight weighing dozens of tons.
So this is great news right? After all, at least Caterpillar will have recourse to its equipment, and can “solidify” its balance sheet. The problem, as we showed last week, is that there already is an epic glut of CAT heavy equipment in the wild.
How epic? Here is a reminder of what CAT products sold recently at an auction:
Was: $2.9m | Now: $15,000: Caterpillar 992C wheel loader
Was: $2.7m | Now: $46,000: Caterpillar D11N crawler tractor
Was: $900,000 | Now: $47,500: Caterpillar 775D rear dump truck
Well, if all else fails, CAT’s creditors will at least be able to convert their secured “claims” into all too physical inventory, even if that inventory’s market value is now worth less than 99% of book.
As promised to you over the weekend, Brazil was going to release 3 important stats to give us a good idea of where they are going:
The GDP figures were released and it was awful: real activity falling .5% month over month and accumulate contraction of 6.1% on an annual basis
(courtesy zero hedge)
Brazil GDP In “Free Fall Mode”, Get Ready For “Terrible” Q3 Print, Analysts Warn
on Sunday in “Depression Tracker: Brazil Braces For Big Week Of Bad Data,” we warned that this was likely to be a rather harrowing week for anyone hoping to see a light at the end of the tunnel for the trainwreck that is Brazil’s collapsing economy.
Specifically, we previewed three data points, i) the IBC-Br monthly real GDP indicator, ii) IPCA-15 inflation, and iii) the IBGE October labor market report. The latter two prints are due tomorrow. We got the GDP tracker today. It was not pretty.
The the central bank’s output proxy showed real activity falling 0.5% m/m, the fourth straight month of declines. Here’s Goldman’s full breakdown:
In annual terms, the monthly indicator of activity declined by a large 6.1% yoy in September and on a 12-month cumulative sum basis, real GDP contracted 2.8% yoy, close to the lows reached in 3Q2009.
According to the IBC-Br, the statistical carry-over for growth in 2015 dipped to -3.6% (i.e., if the economy remains flat throughout 2015 at the September level real GDP will record a 3.6% contraction on average during the year).
According to the central monthly real GDP indicator, which has been an imperfect indicator of the National Accounts quarterly GDP, real GDP declined 1.4% QoQ sa during 3Q2015 (adding to the-2.1% qoq sa variation recorded during 2Q2015). Hence,real GDP has now declined by four consecutive quarters. Finally, the carry-over for 4Q real GDP is at -0.6%, that is, were GDP to remain flat during Oct-Dec at the September level, real GDP would decline 0.6% qoq sa during 4Q2015.
Barclays simply called it “free fall mode”, noting that “today’s result is due to the strong contraction in industrial production (-1.3% m/m sa) and retail sales (-1.5% m/m sa).”
Finally, here’s FT, quoting Capital Economics:
Economic activity fell by 6.2 per cent in September from the same period a year earlier.
That’s the biggest year-on-year drop on record, according to Capital Economics, andpoints to a third quarter contraction of nearly 5 per cent.
Edward Glossop at Capital Economics said he expects Brazil’s third quarter GDP numbers “to be terrible”. He added:
“Conditions are unlikely to have improved much at the start of Q4. October’s PMI data suggest that the slump in industry deepened, while the further deterioration in labour market conditions over the past couple of months suggests that consumption remained under pressure.”
Q3 data is due on December 1.
Bear in mind that this comes against a backdrop of worsening inflation. As we noted on Sunday, Goldman sees IPCA-15 inflation coming in at 0.87%. The implication: inflation would print somewhere in the neighborhood of 10.3% y/y (the worst in more than 10 years) and you when you put that together with everything noted above you get a stagflationary nightmare.
Truthfully, this is an unmitigated disaster of epic proportions and it just keeps getting worse. Until now, Goldman’s Alberto Ramos has been the undisputed king when it comes to producing lists of the country’s economic problems that are so long they induce riotous laughter. Well watch out Alberto, BofAML’s David Beker may be coming for your spot:
Leading activity indicators are persistently posting negative prints throughout the year, despite already being at record low levels, corroborating our call for a 3.3% yoy contraction in 2015. Tightened credit markets, high household indebtedness level, rising inflation and the ongoing labor market loosening should continue to drive purchasing power and confidence levels down, preventing a rebound in the near term. Accordingly, industrial production declined 10.9% yoy in September, posting the 19th consecutive negative print and returning to production levels from a decade ago. At the same time, retail sales contracted for the sixth time in a row in year-over-year terms, reaching a negative 6.2% yoy print. All in, these results indicate that activity indicators should continue to decline next year, reflecting a deeper and longer economic recession, with economic activity only starting to recover in late 2016.
Make that a Trifecta in numbers as inflation and unemployment soar!!
Inflation, Unemployment Soar As Brazil Remains Trapped In Stagflationary Nightmare
On Wednesday evening, we brought you the latest economic data out of Brazil.
It was a disaster.
For anyone who missed it, we got a look at the IBC-Br monthly real GDP indicator yesterday and to quote Barclays, output is in “free fall mode.” In annual terms, economic activity declined 6.1% Y/Y in September. It was the worst print in series history.
Unfortunately, for Brazil, IBC-Br wasn’t the only piece of important economic data due out this week. Also on the docket were IPCA-15 inflation, and the IBGE October labor market report.
As we noted last night, the GDP data comes against a backdrop of worsening inflation. For his part, Goldman’s Alberto Ramos said on Sunday that IPCA-15 inflation should come in at 0.87% in November, suggesting that inflation would print somewhere in the neighborhood of 10.3% y/y (the worst in more than 10 years). When you put that together with everything noted above you get a stagflationary nightmare.
Well, the data are out and sure enough, annual headline IPCA inflation accelerated to 10.28% yoy. Here’s Goldman’s breakdown and forecast (note the bit about lagged FX pass through):
Inflation remains high and disseminated: six of the nine IPCA groups have inflation running at or above 9.0% yoy, with three of them with inflation already in double digits (e.g., housing expenses are up a large 18.5% yoy).
We expect annual headline inflation to end 2015 slightly above 10%. Furthermore, the lagged pass-through from BRL depreciation, pass-through (second-round effects) from the large shock from administered prices to freely determined prices, inertia, and formal and informal indexation mechanisms are also likely to keep inflation under significant pressure in 2016 despite the projected severe contraction of real GDP in 2015 and 2016. Sticky above-target inflation should limit the capacity of the central bank to cut rates significantly in 2016.
What should jump out at you here (besides the creepy photobomb) is that Copom is powerless to stop this given the state of the economy. That is, they can’t hike without endangering an already fragile economic situation. As Jason Vieira, chief-economist at Infinity Asset Management told Bloomberg by phone on Wednesday, the “BCB will keep Selic unchanged at 14.25% next week and may [stay] on-hold through 2016 despite the worsening outlook on inflation. “There’s great uncertainty on monetary policy,” he said, adding that the current stagflationary environment will likely to continue in 2016, the activity outlook risks further deterioration.” Here’s a bit more from Bloomberg:
Brazil’s inflation exceeded 10 percent for the first time in 12 years, complicating President Dilma Rousseff’s efforts to revive an economy that is also battling higher-than-forecast unemployment.
As consumer prices in Latin America’s biggest economy continue to accelerate, Brazil’s central bank has delayed its plan of slowing inflation to its 4.5 percent target to 2017 from 2016. The bank has signaled it will keep rates on hold for a third consecutive meeting next week as it is caught between higher living costs and the deepest recession in 25 years.
Policy makers “of course will tread carefully, because Brazil GDP data on Dec. 1 are going to be quite dire,” said Edward Glossop, emerging market economist at Capital Economics in London. “Interest rates probably will remain at their current level for a prolonged period, possibly into 2017 at this stage.”
Meanwhile, the unemployment data (also out this morning) underscore our contention from August that Brazil’s economy has morphed into a veritable jobs destruction machine. As Goldman notes, “employment declined 3.5% yoy and real wages declined by a large 7.0% yoy in October. Hence, the real wage bill of the economy shrank by a large 10.3% yoy in October; the largest decline since October 2003.” The unemployment rate hit 7.9% in August, up from just 4.7% a year ago, and far higher than consensus. A bit more color from Ramos:
Employment plunged 8.7% yoy (-305K jobs) in the industrial sector and by 5.2% yoy (-94K) in the construction sector. Employment in commerce (-1.5% yoy) and in companies that provide services to corporates (-3.7% yoy) also declined at the margin. Furthermore, wages declined significantly across several sectors: industry (-10.3% yoy), construction (-9.4% yoy), commerce (-8.8% yoy), etc.
But even as the economic picture gets worse literally by the day, the BRL has had a nice run of late:
This, presumably, is due to the perception that political risks are moderating. Here’s the lateest bullet point summary from Bloomberg:
- Contrasting with BZ mkt relief, economy keeps deteriorating, with inflation reaching two digits for 1st time since 2003
- IPCA-15 for Nov. 10.28% y/y vs est. 10.29%, prior 9.77%; Nov. 2nd preview IGP-M 1.45%, est. 1.3
- Unemployment rate for Oct. at 7.9%, est. 7.6%, prior 7.6%, 4.7% in Oct. 14
- Brazil mid-Nov. core CPI gauges slow, diffusion rises: Ibiuna
- BCB meets next wk; weak economic activity will keep central bank from raising Selic despite inflation more than twice the 4.5% target
- Congressmen yday afternoon ratified a presidential veto that prevents govt pension obligations from rising in coming years; vote followed similar Rousseff wins on Tue. when two other vetoes on measures that could hinder the fiscal adjustment were upheld
- While tight wins in votes mean Rousseff’s power is still limited, analysts see reduced political risk favoring BRL
- Easing political tensions also seen in lawmakers saying that House’s head Cunha may delay for 2016 the decision on Rousseff impeachment process (ZH: incidentally, Cunha has denied that he said he will delay the decision)
- Cunha seeks to raise lawmakers’ spending limit in a exchange for his support for law that gives govt flexibility on budget management, known as DRU: Valor
So there you go. Soaring inflation, soaring unemployment, a “terrible” outlook for growth, and a glimmer of hope on the political front.
Euro/USA 1.0797 up .0036
USA/JAPAN YEN 123.12 down .400
GBP/USA 1.5265 up .0027
USA/CAN 1.3270 down.0029
Early this morning in Europe, the Euro rose by 36 basis points, trading now just above the 1.07 level rising to 1.0707; 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 up in value (onshore). The USA/CNY down in rate at closing last night: 6.3825 / (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 northbound trajectory as settled up again in Japan by 40 basis points and trading now well above the all important 120 level to 123.15 yen to the dollar.
The pound was up this morning by 27 basis points as it now trades just above the 1.52 level at 1.5265.
The Canadian dollar is now trading up 29 in basis point to 1.3270 to the dollar.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this THURSDAY morning:closed up 210.63 or 1.07%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses all in the green … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai in the green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan) in the green/India’s Sensex in the green/
Gold very early morning trading: $1073.90
Early THURSDAY morning USA 10 year bond yield: 2.26% !!! down 1 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 3.02 down 2 in basis point.
USA dollar index early Thursday morning: 99.18 down 20 cents from Wednesday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Thursday morning
WTI Tumbles Back Below $40, Goldman Warns Risk Of “Sharp Leg Lower”
After an exuberantv-shaped recovery of hawkish fed minutes, WTI Crude (Dec contract) has tumbled back below $40 this morning following warnings from Goldmn Sachs of the potential for a “sharp leg lower” to $20 handle given expectations for warmer-than-normal weather this winter.
As Goldman Sachs notes, Risks of a sharp leg lower remain elevated
Our forecasts reflect our belief that “financial stress” can solve the current market imbalances, by gradually reducing excess supply capacity as demand recovers. We believe however, that there are high risks that this may prove too slow an adjustment as inventories continue to accumulate. This is particularly the case in the oil market where storage utilization is nearing historically elevated levels. The risk of markets adjusting through “operational stress”, when a surplus breaches logistical capacity such that supply can no longer remain above demand, rather than financial stress, is now much greater.
Mild winter weather over the coming months (a concerning risk given current El Niño conditions) could see weak heating demand in the US and Europe. If this materializes, it would likely be the trigger for adjustments through the physical market,pushing oil prices down to cash costs which we estimate are likely around $20/bbl (see New Oil Order: Too full for comfort, published October 25, 2015 for more details). As such a drop in spot prices to cash costs would force rapid adjustments, it would likely be followed by periods of stronger returns in both spot and roll returns, as historically has been the case (1986, 1988 and 1998).
USA/Chinese Yuan: 6.3825 down .0009 on the day (yuan up)
The Nasdaq: up 89.19 or 1.79%
Bonds & Bullion Bid As Fed “Policy Error” Fears Spark Dollar Drop, Stock Slop
This seemed appropriate…
First things first… this…
And finally, this…
* * *
Ok having got that off our chest… On the day, stocks were mixed, treading water all day around unch… aside from Trannies surge…
Trannies are the best performers post-FOMC (and Small Caps worst)…
Which makes perfect sense…
Was today “the top” of the “Buy-The-Fucking-Paris-Massacre-Dip” rally? Or just another Tuesday-like pause?
Note yesterday’s double squeeze was not present today…
Of course all eyes were on these 3 stocks today…
Silicon Valley’s fear-o-meter…
And the end of Obamacare…
And finally Valeant… is fixed!!? After Citi upgraded the debt…
Credit markets get it…
The USDollar has dropped back to unchanged on the week having fallen since the FOMC Minutes were unleashed…
The Treasury Complex was very mixed as the long-end dramatically outperformed… (suggesting policy error concerns loom)…
With 30Y Yields breaking back below 3.00%…back to payrolls levels…
Commodities were a mixed bag… with PMs bid but growth-oriented copper and crude lower…
But gold is the best performer post-FOMC Minutes…
Crude prices retumbled back below $40 (for the Dec contract)…
And finally, here is Peabody Energy’s 2041 bonds (yes bonds not stocks) which traded near par 2 years ago and changed hands at 5c on the dollar today… but still not in bankruptcy…
Philly Fed Creeps Back Into Positive Despite Collapse In Prices Paid, Workweek
After 2 months of notably unusual negative prints, November’s Philly Fed rose from -4.5 to +1.9 (the best MoM rise since June). Sadly, the survey’s headline gains were driven by a big surge in ‘hope’ as the outlook surged from 36.7 to 43.4, as under the covers of the current business environment was a collapse in prices paid, further deterioration in new orders and shipments, and a plunge in average workweek.
Philly Fed remains well below ‘recovery’ averages…
As the underlying components expose some harsh realities…
As the average workweek collapses…
The tumbling yields on treasuries is incompatible with a rising Dow:
the key sentence: “if deemed a policy error we will see a flight to quality”
bonds and gold?
(courtesy zero hedge)
Tumbling Treasury Yields Signal Possible Fed ‘Policy Error’ Being Priced In
United Health is pulling back and may quit Obamacare. They are the largest insurer in Obamacare in the USA. They lost hundred of millions of dollars on its plan.
UnitedHealth May Quit Obamacare in Blow to Health Law
Largest insurer lost hundreds of millions of dollars on plans
Retreat calls into question Obamacare exchanges, analyst says
The biggest U.S. health insurer is considering pulling out of Obamacare as it loses hundreds of millions of dollars on the program, casting a pall over President Barack Obama’s signature domestic policy achievement.
UnitedHealth Group Inc. has scaled back marketing efforts for plans sold to individuals this year and may quit the business entirely in 2017. It’s an abrupt shift from October, when the health insurer said it was planning to sell coverage through the Affordable Care Act in 11 more states next year, bringing its total to 34. The company also cut its 2015 earnings forecast.
While millions of Americans have gained coverage under Obamacare since new government-run marketplaces for the plans opened in late 2013, in UnitedHealth’s case they haven’t been the most profitable. Customers the company has added have tended to use more medical care. UnitedHealth also said today that some people are signing up for coverage, getting care and then dropping their policies.
“We cannot sustain these losses,” Chief Executive Officer Stephen Hemsley told analysts on a conference call. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
UnitedHealth said it expects as much as $500 million in losses on the Obamacare plans in 2016. The insurer will record $275 million of the costs in the fourth quarter.
The company’s shares fell 5.8 percent to $110.47 at 12:51 p.m. in New York. Anthem Inc. and Aetna Inc., the two biggest health insurers after UnitedHealth, also declined, as did hospital stocks including HCA Holdings Inc. and Community Health Systems Inc.
Insurance markets rely on premiums paid by healthy people to subsidize the medical costs of the sick. If an insurer sets premiums that are too low or attracts customers that are too sick, it can suffer losses. That can be a particular risk in new markets that an insurer may not be as familiar with.
While UnitedHealth has been slower than some of its rivals to sell Obamacare policies, the announcement may indicate that other insurers are struggling, said Sheryl Skolnick, an analyst at Mizuho Securities.
“If one of the largest and presumably, by reputation and experience, the most sophisticated of the health plans out there can’t make money on the exchanges, then one has to question whether the exchange as an institution is a viable enterprise,” Skolnick said.
The Obama administration pointed out that many people are signing up for Affordable Care Act policies. About 1.1 million people have signed up for coverage in the first two weeks of enrollment, which began on Nov. 1.
“The health insurance marketplace is entering its third year and continues to grow, giving millions of Americans access to quality affordable insurance,” Ben Wakana, a spokesman for the Department of Health and Human Services, said by e-mail.
UnitedHealth said it suspended marketing of its individual exchange plans and is cutting or eliminating commissions for brokers who sell the coverage in many markets.
550,000 in Obamacare
UnitedHealth covers fewer than 550,000 people on the Obamacare exchanges. About 9.9 million people had insurance through the U.S.- and state-run insurance markets as of June 30.
“The company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017,” UnitedHealth said in a statement Thursday announcing the changes.
Last month, UnitedHealth had struck a more optimistic note.
“I think we’ll see strikingly better performance on the insurance exchange business” next year, Chief Financial Officer David Wichmann told analysts on an Oct. 15 conference call.
Other insurers have struggled to profit from the government-run marketplaces created by Obamacare. About a dozen non-profit “co-op” plans created under the Affordable Care Act have failed, after charging too little to cover the cost of patients’ medical care, and because an Obama administration fund designed to stabilize the market paid out just 12.6 percent of what insurers requested. And Anthem last month said some rivals were offering premiums too low to provide the coverage patients require and book a profit.
Anthem and Aetna have said they’ll be patient as the exchange business develops, and that they expect it to eventually become profitable. Aetna has about 1.1 million individual exchange members and Anthem has 824,000.
“It’s way too early to call it quits on the ACA and on the exchanges,” Aetna CEO Mark Bertolini said on an Oct. 29 conference call. “We view it still as a big opportunity for the company.”
Still, Bertolini said the market “remains challenging,” and Aetna reduced the number of states where it sells coverage to 15 for next year from 17. Cynthia Michener, an Aetna spokeswoman, declined to comment Thursday.
Anthem said in late October that the company may need to wait until 2017 or 2018 for the individual exchange business to improve. Jill Becher, a company spokeswoman, said Thursday that the insurer had nothing to add beyond those remarks.
UnitedHealth also said Thursday that earnings per share will probably be $6 this year, down from a range of $6.25 to $6.35, reflecting a “continuing deterioration in individual exchange-compliant product performance. Next year, earnings per share will be between $7.10 and $7.30, the first time it has given 2016 estimates.
The insurer has an investor day scheduled for Dec. 1.
And now zero hedge comments on the above story:
(courtesy zero hedge)
The Beginning Of The End For The Affordable Care Act? Largest US Health Insurer May Exit ObamaCare
Tracking the slow motion trainwreck of Obamacare has become one of our preferred hobbies: below is just a random sample of headlines covering just the most recent tribulations of the “we have to pass it to find out what’s in it” Unaffordable Care Act:
- 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
- Meet The Family That Just Spent Half Its Annual Income Paying For Obamacare
But the most surprising article we wrote was our explanation from three weeks ago explaining why “Your Health Insurance Premiums Are About To Go Through The Roof” showing that even insurance companies have been unable to earn a profit under Obamacare, as shown in the following chart:
This was a stunning revelation because, after all, the Affordable Care Act was largely drafted by the insurance industry itself, and if for whatever reason, it itself was unable to capitalize on Obamacare, then it has truly been a disaster.
Today we got confirmation of this when none other than the U.S.’s biggest health insurer, UnitedHealth, cut its 2015 earnings forecast with a warning that it was considering pulling out of Obamacare, just one month after saying it would expand its presence in the program.
According to Bloomberg, “UnitedHealth Group would scale back marketing efforts for plans it’s selling this year under the Affordable Care Act, and may quit the business entirely in 2017 because it has proven to be more costly than expected.”
This was precisely what we cautioned on November 2.
Fast forward to today when UnitedHealth said in a statement that “the company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.”
Needless to say, the implications for Obamacare – which has seen a surge in tangential problems in recent months – are dire: “A pull-back would deal a significant blow to President Barack Obama’s signature domestic policy achievement. While UnitedHealth has been slower than some of its rivals to sell Obamacare policies since new government-run marketplaces for the plans opened in late 2013, the announcement may indicate that other insurers are struggling, said Sheryl Skolnick, an analyst at Mizuho Securities.
“If one of the largest and presumably, by reputation and experience, the most sophisticated of the health plans out there can’t make money on the exchanges, then one has to question whether the exchange as an institution is a viable enterprise,” Skolnick said.
UnitedHealth further said it suspended marketing its individual exchange plans and is cutting or eliminating commissions for brokers who sell the coverage.
What is surprising is that for UnitedHealth, its Obamacare-facing exposure is relatively limited: the company covers fewer than 550,000 people on the Obamacare exchanges. About 9.9 million people had insurance through the U.S.- and state-run insurance markets as of June 30. This means that all other insurance companies must be getting crushed, something which the market also noticed earlier today hitting the stocks of not only hospitals, such as CYH, HCA, LPNT, THC and UHS but also home health care providers as well such as AFAM, AMED, GTIV and LHCG.
What is perhaps even more perplexing is the abrupt shift in posture: just last month, UnitedHealth had struck a more optimistic note. I think we’ll see strikingly better performance on the insurance exchange business” next year, Chief Financial Officer David Wichmann told analysts on an Oct. 15 conference call.”
Perhaps he had not seen the P&L? Oh well, he certainly did in the subsequently 4 weeks.
The rest of the story is well-known and has been covered here extensively in the past: the inability of businesses to turn a profit from Obamacare has meant that about a dozen non-profit “co-op” plans created under the Affordable Care Act have failed, after charging too little to cover the cost of patients’ medical care, and because an Obama administration fund designed to stabilize the market paid out just 12.6 percent of what insurers requested. And Anthem last month said some rivals were offering premiums too low to provide the coverage patients require and book a profit.
At the end of the day, the worst news is not for the corporations, since Obamacare is not going away any time soon. It simply means that what until now were supposedly Affordable plans under Obamacare, will soon become (even more) Unaffordable as insurer after insurer hikes premiums dramatically in order to make the biggest US governmental intrusion into the private sector in recent decades profitable to shareholders.
Or, as we explained three weeks ago, “Your Health Insurance Premiums Are About To Go Through The Roof”
Dead Unicorn Walking: Square IPOs At $9, 42% Below Latest Private Financing Valuation
If having to slash valuations by 30% from the latest private financing round was not bad enough, Square’s IPO just priced notably below the expected (already lowered) range of $11-13 (and even further below the $15.46 at which it raised private money last year):
- *SQUARE SAID TO PRICE 27M IPO SHARES AT $9 EACH, REUTERS REPORTS
So from a private valuation around $6 billion to this, and along with Fidelity marking down its SnapChat valuation, it appears that without another massacre in a major city, risk appetite for these paper-behemoths may have gone the way of the mythical unicorn itself.
Square most recently raised $180 million in private funding at $15.46 per share, in a multi-stage Series E round stretching from September 2014 through just last month.
Square’s IPO comes at a time when it appears the company’s losses are growing and revenue growth is slowing.In its original S-1 filing with the SEC, Square reported a $77.6 million loss for the first six months of this year compared to a $79 million loss during the same period in 2014. Meanwhile, revenues rose to $560.5 million from $372 million during the same six months.
In a more recent third quarter filing, Square posted a loss of $53.9 million on $332.2 million in revenue, indicating slower revenue growth and widening losses than before.
Skeptical investors forced Square Inc. to sell shares in its initial public offering for less than the mobile payments startup had hoped, dealing another setback to the battered market for new technology-company stock.
The six-year-old company, founded and run by Twitter Inc. Chief Executive Jack Dorsey, priced its shares at $9 late Wednesday. That is beneath the projected offering range of $11 to $13 and even farther below the $15.46 at which Square raised money last year from private investors.
“This deal is representative of companies that are falling out of favor with investors,” said Jeremy Abelson, portfolio manager at Irving Investors. “These are companies that are spending a lot to grow their top line but still have a tough path to profitability.”
* * *
A bigger question, as we noted previously, is whether it will be a controlled demolition as unicorns everywhere are demoted to what we first dubbed “zerocorn” status in the coming days. To be sure, the VCs are desperate for a controlled demolition, and hoping the broader market ignores the euphoria that took place in Silicon Valley over the past 3 years, is now over, and that giddy investors overshot by at least 25-35% to the upside in the past several private funding rounds as everyone was rushing to pass the valuation hot potate to ever greater, and richer, fools.
It remains to be seen how successful they will be, and just what the source of capital for hundreds of “$1+ billion”-valued, cash burning companies will be in lieu of generous VCs, and just how viable the second tech bubble will be if these hundreds of companies suddenly are forced to generate cash flow to fund themselves.
One thing we know: there sure are many of them, as this infographic from the WSJ proves:
It sure looks like this once darling hedge fun is seeing the sun set on it
(courtesy zero hedge)
SUNE is down almost 8% this morning, backunder $3.00, as yesterday Twitter-based rumor is dashed in the epic realization that you might be the last one in line for the exits…
Down 40% this week alone and over 60% in 2 weeks… this is a bloodbath
Consumer Sentiment Decouples From Stocks As Black Americans’ Comfort Nears 2015 Lows
It appears there is a simple solution to regaining animal spirits in America… mandate black Americans to buy Nasdaq stocks…
The administration should call this program “Obam-E-trade”
If The Economy Is Fine, Why Are So Many Hedge Funds, Energy Companies And Large Retailers Imploding?
If the U.S. economy really is in “great shape”, then why do all of the numbers keep telling us that we are in a recession? The manufacturing numbers say that we are in a recession, the trade numbers say that we are in a recession, and as you will see below the retail numbers say that we are in a recession. But just like in 2008, the Federal Reserve and our top politicians will continue to deny that a major economic downturn is happening for as long as they possibly can. In this article, I want to look at more signs that a dramatic shift is happening in our economy right now.
First of all, let’s consider what is happening to hedge funds. For many years, hedge funds had been doing extremely well, but now they are closing up shop at a pace that we haven’t seen since the last financial crisis. The following is an excerpt from an article entitled “Hedge funds keep on imploding” that was posted on Wednesday…
BlackRock is winding down its Global Ascent Fund, a global macro hedge fund that once contained $4.6 billion in assets, according to Bloomberg’s Sabrina Willmer.
“We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” a BlackRock spokeswoman told Business Insider.
The winding down of the Ascent fund is the second high-profile hedge fund closing in 24 hours.The Wall Street Journal reported Tuesday that Achievement Asset Management, a Chicago-based hedge fund, was closing.
And those are just two examples. Quite a few other prominent hedge funds have shut down recently, and many are wondering if this is just the beginning of a major “bloodbath” on Wall Street.
Another troubling sign is the implosion of so many energy companies. Just like in 2008, a major crash in the price of oil is hitting the energy sector really hard. Just check out these stock price declines…
- -Cabot Oil & Gas down 37.27 percent over the past 12 months
- -Southwestern Energy down 68.11 percent over the past 12 months
- -Chesapeake Energy down 73.98 percent over the past 12 months
A number of smaller energy companies have already gone out of business, and several of the big players are teetering on the brink. If the price of oil does not rebound significantly very soon, it is just a matter of time before the dominoes begin to fall.
We are also seeing tremendous turmoil in the retail industry. The following comes from Investment Research Dynamics…
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.
The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom. Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009. Here is more from the article that I just quoted above…
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.”
I think that a chart would be helpful to give you an idea of how bad things have already gotten. Jim Quinnshared this in an article that he just posted, and it shows the change in retail sales once you remove the numbers for the auto industry. As you can see, the numbers have never been this dreadful outside of a recession…
But stocks went up 247 points on Wednesday so everything must be great, right?
The stock market has never been a good barometer for the overall economy, and this is especially true these days.
In 2008, stocks didn’t crash until well after the U.S. economy as a whole started crashing, and the same thing is apparently happening this time around as well.
One of the things that is keeping stocks afloat for the moment is stock buybacks. In recent years, big corporations have spent hundreds of billions of dollars buying back their own stocks. The following comes from Wolf Richter…
IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.
Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it.
Later in that same article, Richter explains that almost 60 percent of all publicly traded non-financial corporations have engaged in stock buybacks over the past five years…
Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.
Big corporations like to do this for a couple of reasons. Number one, it pushes the price of the stock higher, and current investors appreciate that. Number two, corporate executives are usually in favor of conducting stock buybacks because it increases the value of their stock options and their own stock holdings.
But now corporate profits are falling and it is becoming tougher for big corporations to borrow money. So look for stock buybacks to start to decline significantly.
Even though it is taking a bit longer than many would have anticipated, the truth is that we are right on track for a massive financial collapse.
All of the indicators that I watch are flashing red, and even though things are moving slowly, they are definitely moving in the same direction that we saw in 2008.
But just like in 2008, there will be people that mock the warnings up until the day when it becomes completely and utterly apparent that the mockers were dead wrong.
Dave kranzler on the mess in the new IPO called Square and how this will cause more pensions to become eve more underfunded:
(courtesy Dave Kranzler/IRD)
The Square IPO is an event that will deliver a big blow to Silicon Valley private equity valuations and further exacerbate the already near-catastrophic condition of most, if not all, pension funds.
It’s been well publicized that most, if not all, State pension funds are moderately to significantly underfunded. Notwithstanding the fact that States have been “borrowing” cash from these funds in order to pay for State and local Government spending deficits, every pension fund has been earning significantly lower rates of return on its asset base relative to future benefit funding requirements.
The math is pretty simple. Every pension fund, public and private, has an established (actuarial) forecast of future benefit outflows vs. fund member contributions and invested capital earnings. Most, if not all, pension funds have been assuming either a long term ROR of 7.5% or 8% on assets. This is the rate of return required every year in order to fund the long term beneficiary payment obligations. Every year that a fund underperforms its 7.5/8% “hurdle” rate of return is a year in which the fund becomes more underfunded.
Pension funds were disastrously underfunded after the stock market crash that bottomed in the spring of 2009. Most pension funds are allocated 60% in fixed income and 40% in equities, real estate, alternatives. Even with the “remarkable” move in the stock market over the last five years, and because fixed income has returned almost nothing over the time period, pension funds never were able to dig out of the “hole” created in 2009.
Most of them over the past few years have chased returns by literally shoveling money at private equity funds and speculative real estate funds. The investments which do not have continuously observable markets in order to evaluate pricing and appropriate market-to-market are perfect for these funds because they can mark up their private equity and real estate investments quarterly based on “mark to model” pricing assumptions. On the flip side, they can drag their feet on marking these investments down when those asset classes head south.
Keep in mind that many of these funds were never properly marked down to market after the financial crisis, so when you hear Calpers or the Illinois State Retirement fund is 40% or 50% underfunded, on a true mark-to-market basis it’s probably closer to 60% or worse. All the accounting games used by corporations are also used by corporate and public pension funds.
Several pension funds are now allocating as much as 20% of their capital to private equity funds. Most of this money is invested in Silicon Valley, biotech and real estate. Biotech has already been crashing. Real estate is starting to crash.
And it looks like the private equity Silicon Valley bubble is now popping. The valuations became absurd, as small start-ups with no revenues were routinely valued in the billions, based ridiculously on, say, a $10 million dollar funding that valued the entire business on paper at $1 billion. It was, to say the least, retarded.
But along with the soaring paper valuations, private equity fund valuations were marked up to fairytale levels and long with them the value of pension investments in these funds.
It looks like all of that has changed now, as the highly touted Square IPO was priced yesterday 42% below its last round of private equity funding. Think about what this means. It was only a matter of time before Silicon Valley “unicorn” slow motion train wreck ran out track and hit a wall. This is an utter disaster for the pension industry.
Naturally Jim Cramer, who probably has not even bothered to look at any part of the Square deal or its related documentation and instead is vomiting out the smoke blown up his ass by his hedge fund cronies, has issued a strong buy on Square. This will be the final kiss of death for this stock.
I’m not saying that Square doesn’t have intrinsic value. Surely it does as it actually is a real business with real revenue, although the revenues are slowing and the losses are growing. But what does this say about all the companies in private equity portfolios that have been assigned huge bubble valuations and don’t have revenues? Mark them down at least 60%.
The point here is that now big pension funds, which are already underfunded, just become even more unfunded with the mark to market event provided by the Square IPO. While these pension funds will drag their feet on marking down their private equity investments, this reality is going to get worse over time and these funds will become insidiously underfunded.
And then what happens if the Fed does raise rates, which will knock down fixed income and stock investments? Lights out. And, by the way, everything I just said about public pension funds also applies to corporate pension funds, some of which are likely even more underfunded than their public counterparts.
See you tomorrow