Gold: $1076.40 down $1.60 (comex closing time)
Silver $14.10 down 14 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 8 notices for 40,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 200.01 tonnes for a loss of 103 tonnes over that period.
In silver, the open interest fell by 1454 contracts despite silver being up by 16 cents in yesterday’s trading. We probably had some short covering. The total silver OI now rests at 170,549 contracts In ounces, the OI is still represented by .852 billion oz or 122% of annual global silver production (ex Russia ex China).
In silver we had 8 notices served upon for 40,000 oz.
In gold, the total comex gold OI was hit again with this time 1182 contracts removed as the OI fell to 423,392 contracts despite gold being up by $9.20 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. 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 a huge withdrawal in gold inventory at the GLD to the tune of 1.19 tonnes/ thus the inventory rests tonight at 660.75 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 fall by 1454 contracts down to 170,549 despite the fact that silver was up by 16 cents with respect to yesterday’s trading. The total OI for gold surprisingly fell by 1182 contracts to 423,392 contracts despite the fact that gold was up by $9.20 with respect to yesterday’s trading.
2 a)Gold trading overnight, Goldcore
b) COT report
3. ASIAN AFFAIRS
4. EUROPEAN AFFAIRS
i) Draghi gives a speech early this morning and he states that he will do anything possible to raise INFLATION
That ought to be good for gold except our crooked bankers decided it best to whack again
ii The German 2 year bund goes deeper into the negative at -.39%. This also causes much grief to Draghi as he has less “good” bonds to monetize. He is not allowed to monetize bonds that are deeper into the negative
iii) Europe is set to outlaw Bitcoin and any virtual currency
(courtesy zero hedge)
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i Russia shows its power by obliterating ISIS in Syria
50 oil trucks totally demolished
(2 commentaries/zero hedge/Inside Russia)
6 GLOBAL AFFAIRS
i) The Baltic Dry Shipping Index just collapsed again and it is at an all time record low
(courtesy Michael Snyder/Economic CollapseBlog)
ii)Islamic Gunmen storm a luxury hotel in Mali. USA special forces and French forces will be coming to the aid of Mali
( zero hedge/3 commentaries)
iii) Suicide bomber hits Yemen
iv) David Stockman writes a terrific commentary showing the plight of the global economy. Through Caterpillar, Stockman illustrates that the next victim in global growth is “cap -ex depression”
7 EMERGING MARKETS
8 OIL RELATED STORIES
i) Oil spikes higher on lower rig counts
9 USA MAJOR STORIES
i) USA 30 yr bond yield initially breaks below 3.00%. With the Dow rising this makes no sense unless:
a) the upcoming rate hike is deemed by many to be a policy error
b) a flight to quality due to the many Islamist blasts during the past 7 days.
ii) The subprime auto loans continue to climb in a parallel bubble to the 2007 subprime housing bubble
this is an accident waiting to happen
iii) Tesla recalls 90,000 vehicles due to a seat belt problem:
iv) Chipotle Restaurants fall badly with announcements of E coli found in 3 restaurants
v) Puerto Rico has big payments due on Dec 1 and it looks like it may default. Congress has not come up with any plan on how to bail these guys out:
(courtesy zero hedge)
vi/ Fed to have an emergency meeting on Monday!!
what could this be??
Fed To Hold An “Expedited, Closed” Meeting On Monday
10. PHYSICAL STORIES
i) The house passes to bill such as to provide for more transparency at the Fed. It has no chance of becoming law as Obama will veto it.
ii) New York Sun also comments on the above story
(New York Sun)
Let us head over to the comex:
The total gold comex open interest fell from 424,574 down to 423,392 for a loss of 1182 contracts despite the fact that gold was up by $9.20 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 2 contracts lowering to 210 contracts. We had 0 notices filed yesterday, so we lost 2 gold contracts or an additional 200 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 13,019 contracts from 173,288 down to 166,541. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 166,541 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 210,611 contracts.
November contract month:
INITIAL standings for November
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||100.04 oz
|Deposits to the Dealer Inventory in oz||98.10 oz
first deposit in a year and a half
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||0 contracts|
|No of oz to be served (notices)||210 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||267,403.2 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||262,114.730 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||600,005.200
|No of oz served (contracts)||8 contracts (40,000 oz)|
|No of oz to be served (notices)||25 contracts
|Total monthly oz silver served (contracts)||56 contracts (280,000 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||7,858,232.3 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 1 customer deposit:
i) Into Brinks; 600,005.200 oz
total customer deposits: 600,005.200 oz
total withdrawals from customer account: 262,114.73 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/
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, November 17, 2015|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||153||133|
|Tuesday, November 17, 2015||© Si|
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.
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The Rats and The Sinking Ship
Yes, what we are about to show you is simply a collection of anecdotal data points. Taken separately, perhaps they can all be written off and marginalized. Taken collectively, however…well, maybe there’s something to consider here.
This site has been around for over five years now and, for most of that time, we’ve preached about how fractional reserve bullion banking is a scheme that is destined to fail. By pricing a physical commodity upon the oversupply of paper derivatives, shortages become inevitable. The market recognizes the value of the mispricing and drives up demand. At the same time, the lower price affects supply as producers of the commodity limit or shut down production due to the economics and declining/negative margins.
What eventually happens is a physical supply shortage that manifests itself in smaller global stockpiles. This is evident in the increasing abundance of stories about the tight global gold market, particularly in London. This has also become apparent in silver as, just this week, Thomson Reuters GFMS released their latest Silver Interim Report, which projected the third consecutive year of a global shortfall in the supply of physical silver. Check these links for details:
As we all know, the global “price” of physical gold and silver is largely derived by trading on highly-leveraged futures exchanges such as The Comex in New York. On these exchanges, a modern form of alchemy has been perfected, whereby a relatively small amount of metal can be leveraged multiple times in the creation of paper metal derivative contracts. If after five years we are, in fact, seeing the first real physical cracks in the global paper metal bullion banking scheme, logic would compel us to expect those cracks to appear at The Comex first.
And that may be what we are seeing play out in real time. Below are those “anecdotal data points” mentioned above. Consider them independently but also take time to view them collectively, as well.
COMEX BANK LEVERAGE AT RECORD LEVELS
This site and others have been documenting this trend for weeks. What we’re talking about here is not margin leverage. Instead, this is The Banks’ ability to lever their existing supply of readily-deliverable gold. On the Comex, this is gold classified as “registered” and it is this registered stockpile that has been at record lows for over two months. As of Thursday, the amount of gold shown in this category was just 151,384 troy ounces. When you divide this amount of available gold into the total amount of “paper gold” outstanding…as measured by a total open interest of 424,000 contracts (100 paper ounces per contract)…we get a historically high and unprecedented leverage ratio that is nearing 300:1. We’ve repeatedly written about this here and you can also see this displayed on the chart below from ZeroHedge:http://www.tfmetalsreport.com/blog/7249/bullion-bank-leverage-soars-near-3001
TOTAL COMEX GOLD STOCKS
However, it’s not just registered gold on The Comex that is dwindling, it’s also the total amount of gold held in the bullion bank vaults. The chart below was published yesterday by Dave Kranzler, at his excellent site called Investment Research Dynamics:http://investmentresearchdynamics.com/did-greshams-law-invade-jp-morgans-comex-gold-vault/ Note that over the past five years the total amount of gold held within the Comex vaulting system has declined from over 12,000,000 troy ounces to yesterday’s new low of 6,436,404 troy ounces. Of course, this hasn’t limited The Banks ability to create paper metal to meet occasional speculator demand, but that’s a topic for another day. http://www.tfmetalsreport.com/blog/7214/inherent-unfairness-comex
THE GOLD HELD BY JP MORGAN
But let’s dig even deeper and look at the gold held by individual Bullion Banks within the Comex vaulting system. Every day, the CME puts out a “Gold Stocks Report” which attempts to show the total amount of gold held within the Comex vaults, though the CME added a major disclaimer to the report back in 2013 (http://jessescrossroadscafe.blogspot.com/2013/06/caveat-emptor-another-level-of-risk.html)
On the Gold Stocks report below, dated July 27 of this year, note that JPM reported a total vault of nearly 1,398,215 ounces. In that vault were 115,755 ounces categorized as registered and 1,282,460 ounces listed as eligible.
Next is a chart from about two weeks ago. Note that JPM’s total vault has been more than cut in half. Total registered gold has fallen to just 10,777 ounces and total eligible gold was shown to only be 657,721 ounces. Hmmm.
But now look at what has transpired in just the past week. The total amount of gold held in the vaults of JPM has been cut in half again! As of Monday, JPM showed a total of 668,498 ounces of gold in their Comex vault. After two separate withdrawals of nearly five metric tonnes, JPM’s vault was down to just 347,898 ounces as of yesterday:
So, after including the massive withdrawals of just this week, the total amount of gold held by JPMorgan in their Comex vault has fallen by 1,050,317 troy ounces…or 32.7 metric tonnes…that’s a cumulative 75.1%…in just the past four months.
SCOTIA MOCATTA’S GOLD AND SILVER VAULTS
And if you’re beginning to feel as I do…that all of these points are connected…then what is going on at The Scoshe might be the most important as the Canadian bank, Scotia Mocatta, is the “oldest” gold dealer and bullion bank in the world.
One might think that, as the world’s oldest bullion bank, The Scoshe is pretty well wired into what’s going on in the global gold market. Additionally, you don’t get to be the longest-tenured bullion bank without recognizing/anticipating change and then positioning yourself for future profits…and, as importantly, avoiding current losses.
We’ve detailed what appears to be a slow-burning “bank run” that is ongoing at Scotia Mocatta’s Comex vault. We most recently wrote about the trend here: http://www.tfmetalsreport.com/blog/7170/comex-bank-run-scotia-mocatta Note that The Scoshe (or their clients) almost appears to be exiting the Comex system…similar to what we’re now seeing at JPMorgan. As you can see on the report below, back on March 5 of this year The Scoshe allegedly held 3,066,169 troy ounces of gold in their Comex vault. (You might also note the total amount of gold held by all six banks at that time and compare it to the 6,436,404 ounces reported yesterday.)
Now let’s look again at the CME Gold Stocks report from yesterday. Notice that The Scoshe currently shows just 79,096 ounces of registered gold and about 1,008,831 ounces of eligible gold for a total vault of 1,167,927 troy ounces. This means that, over the course of the past 8+ months, Scotia Mocatta has lost 77% of its registered gold and 60% of its eligible gold. As measured by its total vault, the drop has been 1,898,242 troy ounces…or 59.4 metric tonnes…that’s a cumulative 61.9%…in a little over eight months.
And here’s where the intrigue regarding The Scoshe gets even deeper. They’re losing (moving?) silver, too.
Below is a CME Silver Stocks report from September of 2013. Note that the total amount of silver held with Scotia Mocatta’s Comex vault was well over 22MM ounces or about 695 metric tonnes.
By May of this year, Scotia’s silver vault was down to about 15MM ounces or about 468 metric tonnes:
And after yesterday’s posted withdrawal of over 1MM ounces, Scotia’s Comex vault held only 5,148,700 troy ounces of silver.
So, measuring from September of 2013, the drop in Scotia Mocatta’s Comex silver vault has been 17,188,272 troy ounces…or about 535 metric tonnes…that’s a cumulative 76.9%…in about 26 months.
Again, we’ll leave it up to you, the reader, to decide if something significant is happening behind the scenes OR if what has been displayed above is simply a collection of disparate data points. Maybe ponder these questions over the weekend, though:
- Is the world’s most important bullion bank (JPMorgan) moving gold away from a Comex system that is leveraged to a degree not seen before in its history?
- Is the world’s oldest bullion bank (Scotia Mocatta) relocating gold AND silver away from and out of the same Comex vaulting system?
- If they are doing so, are these banks signaling that they, too, understand that the days of the current fractional reserve and derivative-based pricing scheme are numbered?
- As gold and silver exit the Comex system…and as reports continue about physical tightness in London…and as the world continues to run physical silver supply deficits…it at safe to conclude that the system’s ultimate collapse is, at a minimum, an eventuality?
I don’t know about you, but I think I’ll buy some more gold and silver today…and take immediate delivery. The current pricing scheme may not collapse next week or next month (as stated above, we’ve been writing about this for over five years), but it’s not going to last forever, either. And when change does come…and a new system emerges that determines price on the trading of physical and not synthetic metal…I’m quite confident that the prices “discovered” are going to be a little bit higher than $1100/ounce for gold and $14/ounce for silver.
and now Dave Kranzler on the same subject as above:
Gresham’s Law states that bad money drives good money out of the system. People will use inferior money in their daily “bartering” for goods, services, investments etc and hoard good money.
We are seeing Gresham’s Law work in the gold market, where eastern hemisphere Central Banks, investors and populations are in the process of hoarding all the gold the west will send their way in exchange for the constituent country fiat currencies. “Here, take our currency and convert it to dollars and sell us your gold.”
And the gold seems to disappear from sight. Can anyone hazard a guess how much gold the People’s Bank of China controls or where it’s safekept?
Recently my friend and colleague Craig “Turd Ferguson” Hemke – TFMetals Report – noticed an usual amount of gold was being removed from the “registered”/investor account in JP Morgan’s Comex vault. Last Friday, for instance, 24% of the eligible gold disappeared from JPM’s registered vault account and disappeared to destinations unknown: LINK
Again yesterday another chunky 160,750 ozs of gold fled the questionable custody of JP Morgan’s eligible account (click on image to enlarge):
The amount of gold removed yesterday represented 32% of the amount of gold remaining the eligible account after last Friday. In total, this entity or entities has/have removed 49% of the gold that was sitting in “investor safekeeping” section of JP Morgan’s Comex custodial vault.
We can only speculate what might of “spooked” the entitled owners of that gold to take it away from the Comex.
However, I will say this confidence: whomever removed that gold decided that they no longer trusted JP Morgan to safekeep it. It’s interesting because the Comex offers storage rates that are a significant discount to market rates to investors who take delivery off the Comex and use the Comex vaults for safekeeping.
Whatever the case may be, nearly 50% of ALL of the gold in Comex vaults has been removed since 2011 (source: 24hgold.com, edits are mine – click to enlarge):
House passes bill calling for rule-based monetary policy
Submitted by cpowell on Thu, 2015-11-19 21:01. Section: Daily Dispatches
By Jason Lange and David Lawder
Thursday, November 11, 2015
WASHINGTON — The U.S. House of Representatives on Thursday approved a bill that would make the Federal Reserve set interest rate policy using a mathematical rule, a proposal that has little chance of becoming law given a White House veto threat.
The House approved the Fed Oversight Reform and Modernization Act in a 241 to 185 vote thanks to overwhelming Republican support.
The bill is a sign of the deep suspicion many Republican lawmakers hold against the U.S. central bank, which played a major role in America’s policy response to fight the 2007-09 recession. …
… For the remainder of the report:
New York Sun: House bill on Fed includes audit provision and monetary commission
Submitted by cpowell on Fri, 2015-11-20 01:03. Section: Daily Dispatches
From the New York Sun
Thursday, November 19, 2015
We’d like to think it’s no coincidence that less than a month after Paul Ryan of Wisconsin became speaker, the House of Representatives passed the most important monetary reform bill since Humphrey Hawkins in 1978. This happened today with the decision to send to the Senate the Federal Oversight, Reform, and Modernization Act. Mark it well that the Ryan era is about substance, and the most representative body in the American government is unhappy with the performance of the Federal Reserve and is ready for reform. …
The measure passed today would require the Fed to set a monetary rule of its choosing and let the Congress and the American people know what it is. It also includes Audit the Fed, which would give Congress continuing oversight into the Fed’s operations. And, importantly, it would establish the Centennial Monetary Commission, a formal body to review the various monetary regimes the Fed has pursued and make recommendations for reform as it begins, as it does this year, the second century of its operations. …
… For the remainder of the commentary:
1 Chinese yuan vs USA dollar/yuan falls in value , this time at 6.3875/ Shanghai bourse: in the green , hang sang: green
2 Nikkei closed up 20.00 or 0.10%
3. Europe stocks mixed /USA dollar index up to 99.33/Euro down to 1.0682
3b Japan 10 year bond yield: rises to .319% !!!!(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: 41.43 and Brent: 44.17
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .483 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate rise to 6.75%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield falls to : 6.93% (yield curve close to inversion)
3k Gold at $1084.20/silver $14.31 (8:00 am est)
3l USA vs Russian rouble; (Russian rouble down 44/100 in roubles/dollar) 64.96
3m oil into the 41 dollar handle for WTI and 44 handle for Brent/ China purchases huge supplies from Saudi Arabia
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0161 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0853 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 +.483%/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 2.25% early this morning. Thirty year rate above 3% at 3.01% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Rise, Global Stocks Set For Best Week In Six Unfazed By Terrorism Concerns
Futures are modestly higher in early trading having tracked the USDJPY once again almost tick for tick, with the carry trade of choice rising to 123 shortly after Mario Draghi’s latest speech pushed the dollar strong initially only to see most gains promptly evaporate against both the Yen and the Euro. European shares are likewise little changed, after gaining earlier, while Asian stocks rise; oil also advanced in early trading only to drop to its lowest overnight level moments ago, a few dimes over $40, with aluminum and copper both posting modest increases.
Perhaps it is worth noting that a week which many predicted would be bad for risk assets has been precisely the opposite and nowhere more so than in France, where as Bloomberg reports, after Europe’s worst terror attack in more than a decade hasn’t deterred equity investors this week, with France’s CAC 40 Index rising as much as 2.5 percent. Fewer than 10 stocks have fallen, among them Accor, Europe’s biggest hotel operator, which dropped 4.7 percent on Monday on concern about tourist flows. Since then it’s clawed back more than half of those losses. The CAC 40 Index remains one of Western Europe’s best performing equity indexes this year.Only Denmark, Ireland, Italy and Austria have fared better
As Bloomberg also notes, while global stocks are little changed so today, the MSCI All Country World Index is on track for its best week in six. Investors have a new-found belief the path of U.S. interest rate increases will be gradual even if the Federal Reserve embarks on tighter monetary policy next month for the first time in nine years. The MSCI Asia Pacific Index has risen 1.6 percent this week, while the MSCI Emerging Markets Index has jumped 2.4 percent.
Perhaps more notable is that despite the Fed’s tightening rhetoric, emerging market currencies are set for their first weekly gain in five. The JPMorgan Emerging Market Currency Index has risen 0.5 percent over the past five days, the most since Oct. 9. This week some of the year’s worst-performing emerging market currencies have rallied against the dollar. The Brazilian real has risen 3.5 percent, having dropped 28 percent in 2015. The South African rand has jumped 3 percent after falling 17 percent this year.
This is where we stand currently:
- S&P 500 futures up 0.2% to 2084
- Stoxx 600 down less than 0.1% to 381
- MSCI Asia Pacific up 0.4% to 135
- US 10-yr yield up less than 1bp to 2.26%
- Dollar Index up 0.2% to 99.19
- WTI Crude futures up 0.1% to $40.60
- Brent Futures up 0.9% to $44.58
- Gold spot up 0.3% to $1,085
- Silver spot up 0.6% to $14.36
Among the top overnight news: Obama, Putin Agree on One Thing: Bombing Islamic State’s Oil: French leader to push for consensus in Washington, Moscow; France Scrutinizes EU’s Terror Failings a Week After Attacks: Hollande presses ahead on military cooperation with Russia; Swedish Prosecutor Detains Suspected Terrorist: suspect affiliated with Islamic State in Iraq, Swedish media says; Pfizer Said Near Allergan Deal as U.S. Targets Inversions: U.S. drugmaker may pay as much as $380 per share for Allergan; Draghi Says ECB Will Do What It Must to Raise Inflation Quickly: ECB President spoke in speech in Frankfurt; ABN Amro IPO Raises $3.6b as Government Cuts Stake: IPO values ABN at EU16.7b as bank returns to market; 1MDB Said to Near $2.3b Power Sale to Chinese-Led Group: deal with group may be announced as soon as this weekend; Gap Cuts Annual Profit Forecast as Sales Continue to Slide: Sees FY2016 adj. EPS $2.38-$2.42 vs prior view $2.75-$2.80; Goldman Said to Raise $1.3 Billion to Buy Stakes in Hedge Funds: bank started raising money for Petershill II in 2013, initially aiming to raise $1b, according to person familiar.
A closer look at the markets shows Asian stocks rose, with the regional benchmark index extending its biggest weekly advance in 6 weeks; equities traded mixed in a tepid fashion following the flat lead from US bourses. ASX 200 (+0.1%) extended on gains led higher by financials, subsequently on course for the 2nd best week of 2015, while the Nikkei 225 (+0.1%) initially fell as Japanese exporters continued to feel the squeeze from a stronger JPY before recovering heading into the close. Shanghai Comp. (+0.1 %) traded with mild gains following reports that the PBoC reduced the SLF rates in an attempt to combat deflationary pressures., JGBs fell following a lacklustre enhanced liquidity auction which drew a lower than prior b/c.
Key Asian Data:
- MSCI Asia Pacific up 0.4% to 135
- Nikkei 225 up 0.1% to 19880
- Hang Seng up 1.1% to 22755
- Shanghai Composite up 0.4% to 3631
- S&P/ASX 200 up 0.3% to 5256
In Europe, the reaction to Draghi’s latest “whatever it takes to boost inflation” speech in fixed income was somewhat more muted with Bunds relatively unmoved immediately preceding the speech, however we have seen a leg lower in 2 year yield subsequently touching new record lows of -0.39%, while it is worth noting that the Euribor curve has continued to flatten, with the front strip adding between 1.5 and 2 ticks, while the red and green strips remain in the black. Of interest, Portuguese bonds are underperforming their European counterparts this morning amid continued political uncertainty with the Socialists still unable to form a stable government and subsequently unable to guarantee passing their budget. Greek yields also trade notably wider to the German benchmark amid concerns over the fragility of the Syriza government, following yesterday’s expulsion of several members
Key European Data:
- Stoxx 600 up less than 0.1% to 381
- FTSE 100 up less than 0.1% to 6332
- DAX down less than 0.1% to 11077
- German 10Yr yield up less than 1bp to 0.49%
- Italian 10Yr yield down 1bp to 1.5%
- Spanish 10Yr yield down 2bps to 1.67%
- S&P GSCI Index up 0.4% to 338.7
Equity markets have seen a choppy start to the session (Euro Stoxx: -0.5%), with energy names the session’s laggard given that the stronger USD (USD-index: +0.10%) is keeping commodities near their lows as WTI Jan’15 futures remain below USD 42.00/bbl and spot gold continues to reside around USD 1080.00/oz. Stocks continue to edge lower in Europe, from a technical perspective the CAC (-0.50%) and Dax (0.0%) broke their 200DMA’s to the downside.
In commodites, WTI and Brent trade relatively flat, with a lack of fundamental news driving price action. However, WTI is on course to post its 3rd consecutive week of decline, with US supplies sustaining the glut especially following a drop in the front month contract which has seen a drop of 1.1% to the lows of the session.
Gold traded range bound overnight with the USD-index remaining in a tight range after comments from Fed’s Fischer who reaffirmed December hike expectations. Of note, FFR futures are currently pricing in a 68% chance of hike in December. Elsewhere, most LME metals have fallen to multi year lows this week, however copper and Zinc for 3 month delivery have attempted to claw some ground back in recent trade.
Bulletin Headline Summary from Bloomberg and RanSquawk
- Comments from ECB’s Draghi saw immediate downside in EUR, underlying the significance of the December meeting. However moves in EUR/USD were not overtly pronounced, highlighting the dovishness of the market
- Stocks have sold off with CAC and Dax both breaking 200DMA’s to the downside, with financials and energy underperforming
- Looking ahead, highlights include Canadian Retail Sales and CPI, Coeure and Constancio, Fed’s Bullard and Dudley
- Treasuries little changed, 5/30 extends flattening amid expectations Fed to hike rates in Dec; Fed’s Dudley to speak today; yesterday Vice Chairman Fischer said Fed trying not to surprise markets at liftoff.
- Draghi set the scene for further stimulus at the ECB’s next meeting in two weeks’ time, saying it will do what’s necessary to reach its inflation goal rapidly
- A year of ABS purchases by the ECB has left investors underwhelmed and confused as the purchases have been dwarfed by other stimulus efforts and failed to prevent an issuance slowdown; a shortage of detail has led to complaints about transparency
- Chinese borrowers are taking on record amounts of debt to repay interest on existing obligations, raising the risk of defaults and adding pressure on policy makers to keep financing costs low
- China’s slowdown is already playing out across the world, dragging down commodity prices and weighing on trade partners — and that’s while the economy is still growing at about 7%, according to government data. So imagine what happens in a hard-landing scenario
- Federal regulators have started to intensify their scrutiny of risky company loans extended by Wall Street’s biggest banks, just weeks after completing an annual audit of corporate lending, according to people with knowledge of the matter
- France pressed its European partners to toughen security and intelligence across the continent, saying other countries’ shortcomings were to blame for the failure to prevent last week’s terror attacks
- U.S. and French military forces entered a hotel in the Malian capital of Bamako where gunmen took 170 hostages in an attack on the Radisson Blu Hotel
- Sovereign 10Y bond yields higher. Asian stocks gain, European stocks lower, U.S. equity-index futures decline. Crude oil mixed, gold and copper gain
DB’s Jim Reid completes the overnight wrap
After Wednesday’s rally it felt like a bit of winter-related fatigue crept into US equities yesterday with the S&P 500 failing to break out of a tight 8pt range during the session, crossing between gains and losses multiple times and eventually finishing down -0.11%. That was actually the 4th smallest trading range this year (by points) for the index. The steadiness masked what were some steep falls for healthcare stocks (driven by a profit warning from UnitedHealth) and energy names as WTI – although closing the session down ‘only’ -0.64% – broke below $40 again temporarily for the second consecutive day after more bearish inventory data. Meanwhile, the latest October machine sales numbers from Caterpillar failed to inspire much hope for a near-term rebound in the mining sector after reporting sales down double-digits in all regions, with Asia in particular seeing sharp drop-off.
Prior to this European stocks had previously closed broadly higher (Stoxx 600 +0.43%) although off their earlier intraday highs while the ECB minutes didn’t offer a whole lot of new information but continued to hint towards a possible further easing in December (more on that below). The notable underperformer yesterday was US credit where CDX IG finished +3bps wider with the commentary suggesting that book builds for new issues were slightly underwhelming and suggestive of supply indigestion. Still, weekly volumes for US IG has again topped $30bn, marking the fourth consecutive week above that mark.
Meanwhile, the Atlanta Fed President Lockhart was vocal again yesterday, reiterating his view that the Fed is ready for liftoff but continuing to warn that ‘the pace of increases may be somewhat slow and possibly more halting than historic episodes of rising rates’. While the prospect of a December move is looking more and more likely, the likelihood for a gradual pace of moves thereafter appears to be weighing on the USD slightly with the Dollar index finishing -0.69% lower yesterday with sharp gains across the board for currencies in emerging markets in particular (Brazil +1.3%, Malaysia +1.1%, South Africa +1.0%, Colombia +1.0%). US Treasury yields generally nudged lower at the longer end of the curve for the same reason, the benchmark 10y closed 2.5bps lower at 2.248% and 30y yields closed over 3bps down.
Near the end of the US session we also heard from Fed Vice-Chair Fischer who said that the Fed has ‘done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to just do it’.
It’s a bit of a mixed end to the week for bourses in Asia this morning, with little newsflow in the region. The Nikkei (-0.09%) and Hang Seng (-0.23%) are both lower as we go to print, while there’s been a modest gain for the Shanghai Comp (+0.50%), Kospi (+0.08%) and ASX (+0.26%). Asia credit is unchanged, while credit indices in Australia are wider and US equity futures are near flat. The only data of note has come from China where the Conference Board leading economic index was up +0.6% mom in October.
Yesterday’s US data was generally pretty supportive. Initial jobless claims were down 5k last week to 271k (vs. 270k expected) which is pretty much consistent with the current four-week average. The November Philly Fed manufacturing survey was up 6.4pts this month to 1.9 (vs. -0.5 expected) at the headline and back in positive territory after two successive negative prints. In the details, while still negative, new orders and shipments components were up, while the employment index edged back up into positive territory. Shortly following this, the October Conference Board’s leading index printed a +0.6% mom gain, bettering expectations by a tenth.
Over in Europe the main data of note was out of the UK where we saw retail sales come in slightly below expectations for October (excluding fuel -0.9% mom vs. -0.6% expected), although that was on the back of a strong September reading. Meanwhile, the ECB minutes showed that it was argued that the ‘risk of deflation remained relevant’ and that ‘against this background, the view was put forward that a case could be made for considering reinforcing the ECB’s accommodative monetary policy stance already at the current meeting and, in any case, to act sooner rather than later’. Governing Council members also found it ‘necessary to step up communication and underscore the Governing Council’s determination and readiness to act’. Notably, the accounts also highlighted that ‘reference was made to the experience in other jurisdictions, where negative rates had not appeared to result in major difficulties or widespread substitution into cash’.
One other snippet worth highlighting emerged late last night with the news that the Treasury Department has issued new rules which is set to discourage US corporate inversions. According to the WSJ, the rules will restrain US companies from putting their addresses in foreign countries with the aim of benefiting through lower tax bills. Significantly, one of the aspects of the rules is set to apply retroactively to inversions since September 2014, impacting the likes of big headline M&A deals including Medtronic and Mylan and creating issues for Pfizer’s potential deal with Allergan. An interesting story to keep an eye on.
Wrapping up, yesterday also saw the confirmation in Greek parliament of the passing of the vote for the measures required to disburse the bailout funds from creditors. The pass means €2bn will be disbursed to pay state arrears and a further €10bn for bank recapitalisation. Focus will now turn to the progress for the bank recaps, with the FT reporting that three of the four eligible banks said earlier this week that they have reached the thresholds required.
Looking at the day ahead, the Fed’s Bullard is set to speak on the US economy while Dudley will later speak on the same subject later. Over the weekend the San Francisco Fed’s Williams is due to speak on a panel focused on US monetary policy developments which could be of some interest.
Let us begin:
“People Are Worried” – Chinese Authorities Arrest ‘King Of IPOs’ & ‘Hedge Fund Brother No. 1’
The arrests or investigations targeting the finance industry in the aftermath of China’s summer market crash have intensified in recent weeksaccording to Bloomberg,creating a climate of fear among China’s finance firms and chilling their investment strategies. As one professor of Chinese economy noted, “some in the political leadership sought to find scapegoats to blame”for the market crash which along with massive intervention “created uncertainty and anxiety that can only undermine the effort to make these markets work better.” :
1.The high-drama highway arrest of a prominent hedge fund manager. 2.Seizures of computers and phones at Chinese mutual funds. 3.The investigations of the president of Citic Securities Co. and 4. at least six other employees. Now,5) add the probe of China’s former gatekeeper of the IPO process himself.
About a third of China’s futures-focused hedge funds had to stop trading as regulators restricted practices such as short-selling,but as Bloomberg details,
Howbuy Investment Management Co. in September said it stopped providing data on premature fund liquidations because the information was too sensitive. The Shanghai-based fund research firm had previously said almost 1,300 hedge funds closed this year amid the stock rout.
The authorities’ goal was to root out practices such as insider trading as part of China’s anti-corruption campaign, and a desire by “some in the political leadership to find scapegoats to blame” for the market crash, according to Barry Naughton, a professor of Chinese economy at the University of California in San Diego.
“Together these are creating uncertainty and anxiety that can only undermine the effort to make these markets work better,” he said by e-mail.
The government’s response to the market crash was intervention: state-directed purchases of shares, a ban on initial public offerings and restrictions on previously allowed practices, such as short selling and trading in stock-index futures. Next, high-ranking industry figures came under scrutiny as officials investigated trading strategies, decried “malicious short sellers” and vowed to “purify” the market.
Policy makers say “now we’re innovating, so you can all come in — using high-frequency trading, hedging, whatever — to play in our markets,” Gao Xiqing, a former vice chairman of the China Securities Regulatory Commission, told a forum in Beijing on Nov. 6. “A few days later, you say no, the rules we made are not right, there are problems with your trading, and we’re putting you in jail for a while first.”
At least 16 people have been arrested, are being investigated or have been taken away from their job duties to assist authorities, according to statements and announcements compiled by Bloomberg News.
In the latest probe announced last week, Yao Gang, a vice chairman at the CSRC, is under investigation for “alleged serious disciplinary violations,” the Communist Party’s Central Commission for Discipline Inspection said.Known as China’s “King of IPOs,” he supervised China’s initial public offerings until earlier this year, when he changed to approve bonds and futures, according to Caixin magazine. He joins two other CSRC officials being investigated, one of whom, Zhang Yujun, was formerly the general manager of the Shanghai and Shenzhen stock exchanges.
The securities regulator carried out unannounced inspections of several Chinese investment firms including Harvest Fund Management earlier this month, taking away hard drives and mobile phones, according to people familiar with the seizures. Police in Shanghai also confiscated computers and froze $1 billion of shares in listed companies connected to Xu Xiang, the manager of Zexi Investment known as “hedge fund brother No. 1,” who was arrested Nov. 1 on a highway between Shanghai and Ningbo.
Among Xu’s fellow money managers who performed well this year, anxiety has been palpable following his arrest,according to hedge fund manager Lu Weidong, chairman of Xinhong Investment based in China’s southern city of Dongguan. Lu’s Fuguo No. 1 fund was the best-performer among the 236 Chinese multi-strategy hedge funds from June to August, according to Shenzhen Rongzhi Investment Consultant Co., which tracks the data.
It isn’t uncommon for Chinese money managers to trade on unpublished information, according to Lu. Everybody that ever traded on such tips would “restrain themselves a bit” going forward, Lu said by phone.
“People are worried,” he said.
“The extent of this round of clampdown in the financial industry has surpassed everybody’s expectations,” Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong.said. “Over the longer term, the clampdown on corruption in the financial industry will level the playing field in the market for smaller investors.”
However, the arrests or investigations targeting the finance industry are creating a climate of fear among China’s finance firms and chilling their investment strategies.
China’s “Minksy Moment” – $1.2 Trillion In Ponzi Financing
Early last month in “Chinese Cash Flow Shocker: More Than Half Of Commodity Companies Can’t Pay The Interest On Their Debt,” we highlighted a report from Macquarie which showed that for many Chinese corporates, debt service payments have simply become too much to bear in the current environment.
As Macquarie put it “more than half of the cumulative debt in [the commodities space] was EBIT-uncovered in 2014, and all sub-sectors have their share in the uncovered part, particularly for base metals (the big gray bar on the right stands for Chalco), coal, and steel.”
In short, last year about CNY2 trillion in debt was in danger of imminent default.
To be sure, this shouldn’t exactly come as a surprise. Lackluster demand (both domestic and international) combined with an acute excess capacity problem and an enormous amount of leverage spells disaster and as the growing number of defaults we’ve seen in China this year underscores, Beijing’s habit of bailing out anyone and everyone and the unspoken directive that compels Chinese banks to roll bad debt may no longer be enough to keep a lid on things. Meanwhile, multiple rate cuts are proving to be too little, too late.
So what do you do when you can’t service your debt? Well, you either default or you go into full ponzi mode and take out new loans to pay the interest on your old loans. Don’t look now, but that’s exactly what’s happening in China.
As Bloomberg reports, Chinese borrowers are set to take out some CNY7.6 trillion in new loans this year just to pay interest on their existing borrowings.That’s according to Beijing-based Hua Chuang Securities Co., whose data Bloomberg used to construct the following chart:
Chinese companies are struggling to generate the cash flow needed to service their obligations as economic growth slows to the weakest pace in 25 years and corporate profits shrink. While the debt burden has been eased by six central bank interest-rate cuts in 12 months and a tumble in corporate borrowing costs to five-year lows, the number of defaults in China’s onshore corporate bond market has increased to six this year from just one in 2014.
China Shanshui Cement Group Ltd. became the latest company to default on yuan-denominated domestic notes last week as overcapacity in the industry hurt profits and a shareholder dispute stymied financing. State-owned steelmaker Sinosteel Co., which pushed back an interest payment on a bond last month, postponed it again this week.
And so, as we pointed out more than 18 months ago, China is about to reach its Minsky Moment. Recall what Morgan Stanley said last March:
It is clear to us that speculative and Ponzi finance dominate China’s economy at this stage. The question is when and how the system’s current instability resolves itself.The Minsky Moment refers to the moment at which a credit boom driven by speculative and Ponzi borrowers begins to unwind. It is the point at which Ponzi and speculative borrowers are no longer able to roll over their debts or borrow additional capital to make interest payments. Minsky states this usually occurs when monetary authorities, in order to control inflationary impulses in the economy, begin to tighten monetary policy. We would add that this monetary tightening often begins to occur at the time when the size of speculative and Ponzi borrowings have become so large that the demand for additional capital to keep these borrowers afloat becomes greater than the supply of such capital. We believe that China finds itself today at exactly this juncture.
To be sure China is is certainly doing its best to forestall this eventuality. The PBoC for instance, is not seeking to tighten monetary policy and deflation is a bigger risk than inflation. Additionally, the local government debt swap program is a sweeping effort to address provincial governments’ inability to make interest payments on LGVF financing which in many cases came with punitive rates.
So while we may not have reached the breaking point just yet (i.e. the point at which borrowers can no longer obtain new financing to pay the interest on their existing obligations), we’re getting there and were it not for the flood of liquidity (the tightening effect of PBoC FX interventions notwithstanding) unleashed by a series of RRR cuts and the implementation of various short- and medium-term lending ops, China probably would have gone over the edge long ago. For a preview of what comes next (and some of what you’ll read below is already happening), here’s Morgan Stanley again:
The unwind of this credit boom is likely in progress, and we expect it to pick up speed over the coming months and quarters. It will likely involve a steady drip of defaults and near-defaults as insolvent borrowers finally become illiquid. Market rates for all assets except central government bonds and central bank bills will likely continue to rise, reflecting increasing market fears of default by shaky borrowers. Asset values will likely begin to deteriorate as stressed borrowers attempt to sell assets to stay afloat. As a result, banks and other financial entities could begin to increase provisioning for bad debts and to reduce credit availability by gradually tightening credit standards. This could lead to a credit crunch where credit to the economy is choked off for all but the safest borrowers.
Xi’s determination to show the world that China is set to liberalize capital markets will only serve to accelerate this dynamic as a free(er) market means allowing for more defaults.
You were warned.
We close with a quote from Shi Lei, the Beijing-based head of fixed-income research at Ping An Securities Co. who spoke to Bloomberg and who we imagine may be “summoned” for daring to offer the following assessment of the situation:
“Some Chinese firms have entered the Ponzi stage because return on investment has come down very fast. As a result, leverage will be rising and zombie companies increasing.”
In $64 Billion Bust, China Nabs “Underground Bank” Kingpin
Late last month, we introduced you to “Mr. Chen”, a catch-all for the operators of tiny storefronts and kiosks in China who can either get you some tea and a Snickers bar, or smuggle millions out of the country, whichever you prefer.
“Mr. Chen” is part and parcel of China’s vast underground bank network which Chinese use to circumvent Beijing’s capital controls.
Officially, you’re only allowed to move $50,000 per year out of China, but there are any number of ways to get around that limit. One popular method – until Xi began to crack down that is – was the UnionPay end-around, which entails making what amounts to a fake purchase for something like, say, an expensive watch, and receiving cash from the merchant instead of merchandise. The underground bank method is more complex than that, but not by much. As WSJ explained in October, “large sums are divided into legally allowed amounts and then channeled out of the mainland via hundreds of bank accounts controlled by the underground banker.” Alternatively, “underground banks can match yuan deposited with them on the mainland with equivalent amounts in foreign currency paid into a client’s bank account elsewhere:Give the underground bank a sum, and a matching sum appears in Hong Kong, minus a cut of anywhere between 0.3% and 3%. No money physically or electronically crosses the border; the match is built on networks on both sides controlled by the underground bank.”
As we mentioned earlier this month when, courtesy of Bloomberg, we presented “5+1 Ways To Smuggle Billions Out Of China,” this is an underground business and so things don’t always go as planned, something a “Mr. Chan” (with an “a”) discovered when he attempted to move CNY63 million out of the country via “Mr. Chen” (with an “e”) only to find that once the transaction was complete, he only had CNY8 million left. That’s a pretty hefty fee even in the world of money laundering and so, Chan reported “Chen” to the authorities. The subsequent investigation led to the arrest of some 31 people and netted 1,087 accounts holding some CNY12 billion.
Those arrested were never heard from again.
Well, we’re not sure if some other “Chan” got robbed and subsequently ratted on “Chen”, but whatever the case, Chinese authorities have broken up another underground bank – more specifically, the largest such operation in the country which allegedly handled some $64 billion in illicit FX transactions.
As Bloomberg reports, “more than 370 people have been arrested or face lawsuits or other punishment in the case centered in eastern Zhejiang province.” According to the details from Xinhua, it took police more than a year to sort the whole thing out, but by the time it was all said and done, 1.3 million transactions were scrutinized and 3,000 accounts were frozen. According to Jinhua City Public Security Bureau of Economic Investigation Detachment Vice Captain Zhang Hui, it took 35,000 sheets of paper to print out all of the evidence.
The group’s “Mr. Chen” is a guy called Zhao Mouyi, and as Bloomberg goes on to detail, he “set up more than 10 companies in Hong Kong from 2013 and transferring more than 100 billion yuan through so-called non-resident accounts, which are used by offshore companies in China when they are transferring money abroad.”
Amusingly, HSBC – the global bastion of money laundering – assissted Zhao in exchanging yuan for foreign currency. Here’s the account from The People’s Daily (Google translated):
Hui said that unlike traditional underground banks by domestic and foreign “knock” level account transfer of funds approach, this is the first case of the use of the case to commit the crime of domestic accounts NRA found that the use of NRA accounts management loopholes and no foreign exchange purchase limit features, bypassing the foreign exchange regulation, the RMB cross-border transfer accounts directly through the NRA, hit the accounts provided by the “customer” in the settlement after HSBC and other banks.
Well, if you’re going to launder money (because that’s basically what this is… you’re taking an illicit sum and via a series of transactions rendering it free and clear) we suppose you might as well go with the guys who have the most experience.
HSBC didn’t comment.
We suppose the only question now is whether anyone will ever hear from “Zhao” or any of his accomplices again.
You can expect this crackdown to continue unabated. The market believes (rightly) that Beijing is targeting a much larger deval going forward as the economy continues to falter. That means the pressure on the yuan isn’t likely to dissipate in a meaningful way. Indeed, as Goldman noted a few days ago, based on the sum of outright spot transactions and freshly entered (but unsettled) forward contracts, FX outflow was about US$26bn in China during October, composed of US$24bn in net outright spot transactions and US$2bn via net forward transactions. In other words: capital is still flowing out of China.
As long as the pressure on the yuan is there, “Mr. Chen” will be around, white-haired, peering out from behind the candy and trinkets – and Xi will keep trying to stop him.
P.S. If you need to get money out of China and Chen isn’t your style, there’s always bitcoin…
Early this morning: 3 am est 9 am local time
(courtesy zero hedge)
Euro Tumbles As Draghi Says “ECB Will Do What It Must To Raise Inflation” But Drop May Not Last
Yesterday, there was pent up expectation that the ECB’s latest minutes, by being structurally dovish and thus the opposite of the Fed’s own minutes, would unleash another round of EUR weakness. This did not happen, and instead not only did the EUR jump during the day, but the USD saw an unexpected round of all day weakness. Many were surprised by this response. It turns out Mario Draghi was merely biding his time, and in a speech released moments ago, titled “Monetary Policy: Past, Present and Future” delivered at the European Banking Congress, Draghi pulled another “whatever it takes” card, and promptly sent the Euro currency reeling, if only for the time being.
Here are the key highlights:
- DRAGHI SAYS ECB WILL DO WHAT IT MUST TO RAISE INFLATION QUICKLY
- DRAGHI: ECONOMY NEEDS MORE AID IF RECOVERY NOT SELF-SUSTAINING
- DRAGHI: BALANCE OF RISKS TO PRICE STABILITY SKEWED TO DOWNSIDE
Some of the key excerpts:
- “If we decide that the current trajectory of our policy is not sufficient to achieve that objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us,” ECB President Mario Draghi says in speech in Frankfurt.
- “In making our assessment of the risks to price stability, we will not ignore the fact that inflation has already been low for some time”
- “If we conclude that the balance of risks to our medium- term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate”
- “Low core inflation is not something we can be relaxed about, as it has in the past been a good forecaster for where inflation will stabilise in the medium-term”
- “The question we face now is not therefore whether we have the tools available to provide the appropriate degree of monetary stimulus. We have proven that. The question is one of calibration”
“Moar” is coming:
“growth momentum remains weak and inflation remains well below our objective of below but close to 2%.“
“The Governing Council is committed – unanimously – to using both unconventional and conventional instruments to deal effectively with the risks of a too prolonged period of low inflation.”
For those who skip straight to the conclusion, it doubled-down:
“So let me reiterate what I said here last year: if we decide that the current trajectory of our policy is not sufficient to achieve that objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us.”
The impact on the Euro was predictable:
… But the reaction may be shortlived. Here is CA’s Valentin Marinov explaining why:
So we got yet another ‘…do what it takes speech’ by Draghi. I guess the expression was put in there to evoke the spirit of the, by now, famous speech from July 2012, which helped to solve the sovereign debt crisis.
EUR went promptly lower presumably on the back of Draghi’s signal that the ECB will do what it must to lift the EZ inflation quickly. For some that maybe the tantamount of aggressive easing on December 3. The thing is, however, there is not much new in there to suggest that the ECB will actually exceed the already dovish market expectations.
Indeed, it seems that, by now, everyone we talk to is expecting a 10bps deposit rate cut and QE-extension (even an increase in the monthly purchases). I am struggling to see how the ECB will exceed the already dovish expectations. In addition, one potential mistake people are making thinking about the ECB is that they will go and fire their bullets in one go. I disagree with that. I think that they realize this is a long-term process and they don’t want to corner themselves like the BoJ by acting too aggressively.
I was also thinking about how people like to compare EUR and JPY all the time. By implication, they like to think of ECB QE2 as having the same impact on EUR as it BoJ QE2 had on JPY. I think that there are at least two important differences there:
1/ The BoJ QE2 came on the back of the GPIF reform which had set in motion a massive outflows abroad
2/ Europe is far behind Japan in terms of institutional set up to support the so called EUR-funded carry trades. In other words there are no uridashi bonds or double decker funds for the EZ investors to export EUR. These have been available in Japan for years
Our call for EUR/USD is a grind lower from here towards the lows of the year. I think, however, extreme moves on the downside maybe less likely for now
The German Bund is now deeply into the negative at -.39% as the world believes the only way that Draghi can get inflation going is to monetize more debt. The deeper into the negative makes it more difficult for Draghi to find enough bonds (bunds) to monetize.
(courtesy zero hedge)
German Bunds Give Draghi The Finger: 2-Year Hits Record Negative Low -0.39%
As we reported moments ago, Mario Draghi just unleashed another “whatever it takes” speech, this time focusing on the ECB’s fight with the “deflation monster” and explaining how the central bank plans to boost inflation and inflation expectations, saying that “while inflation will remain low for a prolonged period, we see it gradually rising back to 2%. The delay is largely explained by the impairments in the transmission mechanism that lengthen the lag between our accommodative policy stance and price developments.”
And while the initial EUR response was as expected, dropping about 30 pips (but already rebounding on concerns that the Draghi bazooka may truly be empty this time – after all what else can he surprise with as CA’s Valentin Marinov said), German Bunds, especially the short-end, were quick to give Mario Draghi the middle finger and the 2Y has dropped to a quite deflationary all time record low of -0.389%, because all they heard was that the ECB will monetize even more debt.
And a longer view:
However, as a reminder, the ECB has a monetization floor: recall “purchases of nominal marketable debt instruments at a negative yield to maturity are permissible as long as the yield is above the deposit facility rate.”
In fact, based on recent calculations some 30-40% of the entire German curve is now trading with too negative yields to be eligible for the ECB’s current formulation of QE, and we don’t have to remind readers that the biggest risk the ECB’s QE faces is running out of eligible securities it can purchase. The private market is scarce enough as is, and explains why Europe is desperate to find politically correct ways to issue much more debt (hint: refugee crisis).
In effect what the German short end is saying is that not only will the ECB slash the deposit rate, from -0.20% to as low as -0.40% or more, but that another massive wave of QE will be unleashed. What this means, of course, is that the ECB will also unleashe another massive deflation-exporting tsunami, which in turn will force not only Japan and China, but soon, the Fed as well, to respond in kind and expand their own “unconventional monetary policy measures” because in the race to the bottom, all that matters is if just one central bank is doing it.
Finally, as for Draghi’s contention that more negative rates will stop savers from hoarding money at the bank, he is as usual, completely wrong: as the actual data shows, what happens is that the lower the deposit rate across Switzerland, Denmark and Sweden, the greater the eagerenss of savers to, well, save instead of spend.
Glencore falls to 91 pence today, putting tremendous pressure on their derivatives.
GLEN GLENCORE PLC ORD USD0.01
|Price (GBX)||92.33||Var % (+/-)||-1.83% ( -1.72)|
|Volume||72,137,178||Last close||92.33 on 20-Nov-2015|
|Trading status||Market Close||Special conditions||NONE|
Europe is set to outlaw Bitcoin and any virtual currency:
(courtesy zero hedge)
Europe Cracks Down On Bitcoin, Virtual Currencies To “Curb Terrorism Funding”
In the past we have explained why when it comes to circumventing capital controls, primarily in the context of China, there are few as simple and as efficient alternatives to Bitcoin – contrary to what Bernanke may think, gold is concentrated money (and in India it now pays interest) but when it comes to transferring it across borders, it tends to be rather problematic. And now Europe appears to have figured this out, and as Reuters reports, European Union countries are preparing to crackdown on virtual currencies such as bitcoin, and anonymous payments made online and via pre-paid cards “in a bid to tackle terrorism financing after the Paris attacks, acording to a draft document.”
Just a week after the Paris terrorist attack, showing a dramatic ability for coordinated work by a continent that is known for anything but, today EU interior and justice ministers are gathering in Brussels for a crisis meeting called after the Paris carnage of last weekend. This happens days after the European Commission already announced it would make procurement of weapons across Europe virtually impossible, if only for citizens who wish to obtain protection legally.
According to Reuters, the justice minister will urge the European Commission, the EU executive arm, to propose measures to “strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards,” draft conclusions of the meeting said.
Conveniently, Reuters reminds us that “Bitcoin is the most common virtual currency and is used as a vehicle for moving money around the world quickly and anonymously via the web without the need for third-party verification. Electronic anonymous payments can be made also with pre-paid debit cards purchased in stores as gift cards.”
But no more: “EU ministers also plan “to curb more effectively the illicit trade in cultural goods,” the draft document said.”
And with all of Europe sliding ever deeper into negative rates, and where a ban on cash bank notes is an all too realistic possibility, the easiest mechanism to evade the ECB’s creeping financial oppression is about to be made illegal.
Finally, there was no word about the true source of terrorism funding: those mysterious “third parties” which keep pumping the Islamic State with hundreds of millions in cash in exchange for its crude oil. Perhaps Europe is so unwilling to dig down into this most important question (which as we said last night nobody is willing to ask) because it either already knows the answer, or realizes that the people implicated just may be some of the wealthiest and most respected Europeans, and the resulting stench could spread all the way to the various unelected politicians and ex-Goldmanite central bankers?
EU’s Founding Treaty To Be “Reconsidered”, Seeking End To Passport-Free Travel
Between the French (Interior Minister Cazeneuve: “we’re face with a new kind of terrorism”, and Hungary (PM Orban: “allowing people into our own back yard” who may then commit acts of terrorism was irresponsible), AP reports that the EU’s founding treaty with regard to passport-free travel – the so-called Schengen Agreement – is to be reformed. “We want Europe, which has lost too much time on a certain number of questions, to note the urgency and take decisions today,” exclaimed Cazeneuve, with Orban adding “the founding treaty is currently an obstacle to this and I believe it needs to be reconsidered.” According to Cazeneuve, the reforms will happen by year-end.
AP reports The Schengen Agreement is to be reformed..
- *EU SEEKING CHANGE TO PASSPORT-FREE BORDER AREA RULES, AP SAYS
Member states must fully apply the rules of the border-free Schengen zone to carry out systematic controls on EU citizens at the bloc’s external borders, he says, adding, “It’s not an option, it’s an obligation.”The bloc’s internal and justice ministers have also requested a strengthening of the existing Schengen rules, he adds.The move is one of several aimed at “considerably reinforcing our tools in the fight against terrorism,” Schneider says.
- *CAZENEUVE: WE’RE FACED WITH A NEW TYPE OF TERRORISM
- *CAZENEUVE: FRANCE TO KEEP CONTROLS AS LONG AS THREAT REMAINS
- *CAZENEUVE: DRAFT SCHENGEN REFORM PLAN SEEN BY YEAR END
On one hand, “we cannot close Europe,” de Maizière said in an interview on Friday with the Washington Post.
But on the other hand, “we cannot open Europe totally for millions and millions of poor people in the world or even for all of those coming from conflict zones. Impossible,”he stated, calling for a change to the European refugee system.
Berlin intends to slash cash benefits to refugees, providing them with food instead, and engage in a “reunification of families” practice, promising “years” of efforts to those who would like to bring their relatives to Germany after settling there with refugee status.
“The number is too big,” the official said. “It has to be checked.”
And as MTI reports, Hungary’s Orban is calling for more aggressive external borders also...
The European Union’s founding treaty should be reconsidered, Prime Minister Viktor Orban said after meeting Macedonian counterpart Nikola Gruevski on Friday.
The prime minister said European should face up to the fact that migrants come from areas involved in military conflict with EU members. “We are considered enemies in those countries, and the acts of terror committed in our areas are considered war successes over there”, he said, adding that “allowing people into our own back yard” who may then commit acts of terrorism was irresponsible.
The EU should protect its borders, culture, economic interests and its democracy, Orban said.
“The founding treaty is currently an obstacle to this and I believe it needs to be reconsidered,” Orban said.
In order to make Europe effective, basic questions need to be reevaluated, he added. It is increasingly obvious that the EU is capable only of responding to crises rather than taking preventive measures. Citing the Paris terror attacks, he said it was only afterwards that European politicians started assigning security its proper role.
Orban said it was the British who first pushed the issue in connection with the EU’s founding treaty, and they want to make changes to European regulations that will be impossible without amending them.
In response to a query about whether he considered the Schengen system dead, similarly to the Dublin agreement, he said “Dublin is dead, Schengen is alive”. An increasing number of EU countries neglect the Dublin agreement but everybody is trying to uphold Schengen because if it fails then “walls and fences will rise and border controls will be put in place between countries where they have not been used.” The possibility of free travel between Schengen members needs to be maintained, and this is only possible if external Schengen borders are protected, he added.
“One should either be a Schengen member and protect its borders or if they do not protect the borders, they should not be a Schengen member,” Orban said.
* * *
The European Union probably will not abandon the Schengen Agreement anytime soon. Despite the criticisms, the treaty has reduced the time and cost of moving goods across Europe because trucks no longer have to wait for hours to cross an international border. It also benefits tourists and people living on border towns, because passports and visas are no longer needed. Finally, the agreement allows countries to save money, because governments no longer need to patrol their land borders.
The Schengen Agreement will probably be reformed before the end of the decade to make it easier for countries to reintroduce border controls. The first step in this direction happened in 2013, when signatory members agreed that border controls could be temporarily reintroduced under extraordinary circumstances (such as a serious threat to national security). But the reform is limited in its scope (border controls can be reintroduced for a maximum of 10 days, and only after consultation with the European Commission) and it explicitly says that a spike in immigration should not, in itself, be considered a threat to internal security.
In the coming years, member states will push to be given more power and discretion when it comes to reintroducing border controls. EU countries in northern Europe will also push for the suspension or even the expulsion of countries along the European Union’s external borders that are seen as failing to effectively control their borders. New EU member states will have a hard time entering the Schengen zone, and the resistance from some countries to accept nations like Romania and Bulgaria (which have been in the European Union for almost a decade but are still waiting to join the Schengen area) will become the new normal.
Even without a proper reform of the Schengen Agreement, member states will continue to enhance police controls at train and bus stations and at airports. Several countries already employ sporadic police controls on trains and buses, a practice that is likely to grow. Under pressure from conservative forces, many EU countries (mostly in northern Europe) will also toughen their migration laws to make it harder for immigrants to access welfare benefits.
To a certain extent, the weakening of the Schengen Agreement is linked to the weakening of the free movement of people — one of the key liberties of the European Union. The treaty and the principle of free movement are not the same thing; any EU citizen has the right to transit and remain in any member state regardless of the existence of border controls. But the Schengen Agreement was designed to strengthen the free movement of people and create a Continent without borders. The likely reforms to the Schengen Agreement will hurt this basic principle. Once a basic principle is weakened, the door is open for other freedoms to be similarly affected. The main threat to the European Union is that the weakening of the free movement of people could precede the weakening of the free movement of goods, which would end the European Union in its current form.
RUSSIAN AND MIDDLE EASTERN AFFAIRS
Here we see the Russian Air Force totally destroying the dozens of ISIS oil trucks trying to escape Syria so that they could fund them.
The big question of course is who is the party buying the oil?
(courtesy zero hedge)
Caught On Tape: Russian Air Force Destroys Dozens Of ISIS Oil Trucks
Earlier today we revisited Islamic State’s most important revenue stream: crude oil.
When US attack planes destroyed 116 ISIS oil trucks on November 16 (allegedly after dropping leaflets warning “innocent” drivers to scatter), it purportedly marked a shift in strategy. “Somehow”, the Obama administration had grossly underestimated the proceeds ISIS derives from the illicit oil trade while overestimating the damage US warplanes had inflicted on the group’s oil infrastructure.
Additionally, Bloomberg suggests the Pentagon routinely declined to take out tanker trucks for fear of collateral damage. “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,” Michael Knights, an Iraq expert at the Washington Institute for Near East Policy told Bloomberg.
There are a couple of things that should jump out at you there. First, it’s not exactly clear why it matters that the administration “underestimated” the amount of revenue ISIS derives from oil. That is, the difference between $100 million and $400 million per year would be quite meaningful if you were talking about a corporation here,but this is a terrorist group. Sure, it matters that they’re making four times more than you thought when it comes to assessing their operational capabilities (the more money you have, the more you can do), but it shouldn’t matter when it comes to formulating a strategy to cripple their ability to produce oil. It’s not like you can say “oh, well they’re only making $100 million per year, so that’s fine.. now if it’s $400 million, that’s where we’ll have to draw the line.”
Second, since when is the US worried about collateral damage when it comes to taking out “terrorists?” As The Intercept laid bare in a series of recent investigative reports, 90% of those killed in drone strikes aren’t the target. It’s not as if the CIA isn’t aware of that statistic each and every time they pull the trigger on an MQ9 Reaper.
So sure, perhaps the US overestimated the effect its airstrikes were having on Islamic State’s oil production capabilities and perhaps The Pentagon was concerned with killing innocent truck drivers, but it could also be that, as Sergei Lavrov suggested earlier this week, the US has until now intentionally avoided hitting ISIS where it hurts in order to keep them in the game and ensure they can still be effective at destabilizing Assad. If you cut off the oil trade, they lose the ability to battle the regime.
In any event, there are other pressing questions about ISIS and oil and we encourage you to read more in “The Most Important Question About ISIS That Nobody Is Asking,” but for now, we turn to Russia and The Kremlin’s efforts to dent Bakr al-Baghdadi’s wallet.
According to Russian General Staff spokesman Colonel General Andrey Kartapolov, “around 500 fuel tanker vehicles transporting illegal oil from Syria to Iraq for processing have been destroyed by Russia’s Air Forces.”
“In recent years, Islamic State (IS, formerly ISIS/ISIL) and other extremist groups have organized the operations of the so-called ‘pipeline on wheels’ on the territories they control,” Kartapolov continued, adding that “in just the first few days, [Russian] aviation has destroyed 500 fuel tanker trucks, which greatly reduced illegal oil export capabilities of the militants and, accordingly, their income from oil smuggling.”
Without further ado, the video from the Russian Defense Ministry:
Giant Russian Bombers Pound ISIS Into Oblivion
Russia deploys some of the most powerful aircraft on earth against the Islamic State
On Tuesday Russia’s military briefed Putin on the further escalation of the air campaign in Syria.
The new air forces deployed are of a power beyond anything seen before.
They all operate from bases deep inside Russia.
There is no plan apparently to send more aircraft to Syria itself.
The air base at Latakia is full to capacity. There is no room for more aircraft there.
Apparently there are no plans for the moment to establish another base in Syria. The Russians continue to rule out sending a ground force.
The plan is that the aircraft flying to Syria from Russia will maintain the attack on the jihadis’ logistics and infrastructure – the main target of the Russian strike force at Latakia up to now.
The strike group in Latakia is now free to provide close air support to the Syrian army as it continues its offensive.
This suggests the new deployment was planned well in advance.
The additional aircraft now deployed come in three groups:
TU160 and TU95 strategic bombers flying from Engels, an airbase near Saratov in southern Russia
TU22M3 medium bomber flying from Mozdok, a giant airbase in northern Ossetia in the northern Caucasus
SU27 and SU34s tactical fighters and fighter bombers, flying from an unidentified airbase, possibly Mozdok but more probably Budyonnovsk in Stavropol Region just north of the Caucasus.
All aircraft types have the range to reach targets in Syria from their bases in Russia, though the SU27s and SU34s may have to use extra fuel tanks and fly with lighter loads.
The oldest design by far is that of the TU95.
This aircraft was designed and entered service in the 1950s. It is the Russian equivalent of the US B52 bomber, which entered service at roughly the same time.
The TU95 has a lighter bomb load than the B52 bomber. However its range is probably greater.
It looks antiquated. This is because it uses giant contra rotating turboprop engines instead of jet engines
Looks however are deceptive. The TU95 flies at barely lower speeds than subsonic jet powered aircraft.
Its extraordinary range, heavy bomb load and low operating costs have kept it in continuous service with the Russian airforce since the 1950s.
The effectiveness of this aircraft is shown by the fact the Russians actually restarted its production in the 1980s.
All B52s in US airforce service were built before 1963. All TU95s serving in Russian airforce service were built after 1981.
Amazingly, though the TU95 has been in Russian service for almost 60 years, this is the first time it has been used in action.
The other strategic bomber is the far more modern and far more powerful TU160.
The TU160 is the heaviest and fastest bomber in the world. It can fly at supersonic speeds and carries the heaviest bomb load (40,000 kgs) of any bomber flying today.
The Russians have not said how many TU95s and TU160s they have committed to the air campaign in Syria. However they have confirmed these aircraft in their first strike did not drop bombs but hit targets in Aleppo and Idlib with long range cruise missiles.
Some reports refer to the missiles launched by the TU95s as “Kh-55s”.
The Kh-55 is essentially the same missile as the Kh-65. However unlike the Kh-65 it uses a nuclear warhead.
These cruise missiles are completely unrelated to the sea launched Klub/Kalibr cruise missiles used earlier in the conflict, which were launched from Russian navy ships in the Caspian Sea. They were designed by completely different design teams.
The Kh-65 and Kh-101 missiles were designed by the Raduga design bureau. The Klub/Kalibr missiles were designed by the Novator design bureau.
With ranges believed to be 3,000 km and 5,000 km respectively, the Kh-65 and Kh-101 missiles have longer ranges than the Klub/Kalibr missiles fired from the Caspian Sea.
Both the Kh-65 and the Kh-101 are long range subsonic air launched cruise missiles.
The very advanced Kh-101 is a highly stealthy missile, practically invisible to most radar. It also has more advanced targeting and is more accurate than the Kh-65.
The TU95 is believed to carry up to 16 Kh-65 missiles.
The TU160 is believed to carry up to 12 Kh-101 missiles.
The Russians say 34 cruise missiles were used in total in the first strike.
This could mean the number of TU95s and TU160s used in the first strike might have been as few as three. A good guess might be one TU160 and two TU95s.
Since the Kh-65 and Kh-101 are long range missiles, it is likely the TU95s and TU160s launched their missile strikes from outside Syrian airspace – probably whilst flying over Iran or Iraq.
The Russians say the total number of TU95s, TU160s and TU22M3s bombing the jihadis in Syria is 25. Most of these are probably TU22M3s.
The TU22M3 is a very powerful medium range supersonic bomber.
It entered service in the 1970s. However it has been continuously updated since.
TU22M3s would have no difficulty reaching targets in Syria from their base in Mozdok with a full bomb load. They can carry up to 24,000 kgs of missiles and bombs
Though capable of launching cruise missiles, Russian reports suggest the TU22M3s used in the first strike dropped bombs in early morning bombing raids on Raqqah and Deir ez-Zor.
The Russians say 12 TU22M3s took part.
The point of using such powerful aircraft with bomb loads of 24,000 tonnes is not just that they have the range to reach targets in Syria from Russia.
It is that they can carry the heaviest bombs in the Russian arsenal.
These include the 9,500 kg FAB-9000 high explosive bomb – currently the heaviest bomb in the world – or the truly monstrous 7,000 kg AVBP (“the father of all bombs”) – a fuel air bomb which is the most powerful non-nuclear bomb in existence, with a blast effect of 44,000 kg of TNT.
Either of these bombs would have an utterly devastating effect on the Islamic State’s facilities. They could effortlessly destroy even the most heavily hardened bunkers or shelters.
It is in order to use such bombs that the TU22M3s have probably been deployed.
Reports are circulating that in response to the growing number of Russian air raids the Islamic State is trying to hunker down.
Deploying heavy bombers with gigantic bombs is Russia’s response.
What of the 6 SU27s and 8 SU34s also flying to Syria from bases in Russia?
The SU27 is a fighter aircraft.
The variant being used is the SU27SM.
Unlike the SU30, which has a pilot and navigator, the SU27SM is a single seat fighter.
It is a much more advanced aircraft with better radar and engines than the original SU27 of the 1980s.
It does not however have the super manoeuvrability of the SU30 deployed in Latakia.
It is nonetheless a formidable fighter aircraft with a longer range than the SU30 and able to carry the same sophisticated air to air missiles as the SU30.
Its job is to provide air protection (“top cover”) for the SU34s and TU22M3s that are carrying out the bombing missions.
The Russians have released film showing the SU27SMs doing this: escorting the TU22M3s.
Deployment of the SU27SM – like that of the SU30 – shows that the Russians are taking no risks.
Though the Islamic State has no air force, the Russians clearly think there is a risk other fighter aircraft might try to interfere with their bombing raids.
These other aircraft can only be those of the US, Turkey and Israel.
Deployment of the SU27SM – like that of the SU30 – reduces that risk, whilst providing protection if things go wrong.
As for the 8 new SU34s, their purpose is to carry out precision strikes on smaller targets where use of the big TU22M3s would be overkill and not cost effective.
The Russians have said the additional aircraft double the striking power of their strike force in Latakia.
This is untrue.
The maximum theoretical bomb load of all the aircraft that form the strike group in Latakia taken together is around 200 tonnes.
The maximum theoretical bomb load of all the aircraft now flying to Syria from Russia is around 600 tonnes.
Obviously neither the aircraft at Latakia nor the aircraft flying from Russia always or even usually carry their total theoretical bomb loads.
Nonetheless this comparison gives an idea of the extent to which the force the Russians are using in Syria has multiplied.
Ir has not doubled as the Russians say. It has at least quadrupled.
To this should be added the force multiplier effect of the giant bombs the TU22M3s are almost certainly carrying.
The Russians have released film of all of the aircraft discussed in this article engaging in the first strike. The TU95s and TU160 can been seen launching their missiles. The film can be seen here
Putin has said the Russian operation is not time limited.
The Russians have confirmed they have no fewer than 10 satellites watching Syria. The whole operation is controlled from the Russian General Staff’s war room in Moscow.
The Islamic State and the other jihadi groups fighting alongside it in Syria are now experiencing bombing the like of which they have never known before or could probably even imagine.
The Baltic Dry Shipping Index just collapsed again and it is at an all time record low
(courtesy Michael Snyder/Economic CollapseBlog)
The Baltic Dry Shipping Index Just Collapsed To An All-Time Record Low
I was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday. I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already. Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low. Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine. In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates. Of course the truth is that there is no “economic recovery” on the horizon. In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis. This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.
Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months. Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this. If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia…
A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assessprice levels for a given route, product to transport and time to delivery (speed).
The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’scomposite measurement.
It is also known as the “Dry Bulk Index”.
Much of the decline of the Baltic Dry Shipping Index is being blamed on China. The following comes from a Bloomberg report that was posted on Thursday…
The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.
The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985. Among the causes of shipowners’ pain is slowing economic growth in China, which is translating into weakening demand for imported iron ore that’s used to make the steel.
So many of the exact same patterns that we witnessed back in 2008 are playing out once again in front of our very eyes. Below, I have shared a chart that was posted by Zero Hedge, and it shows how the Baltic Dry Shipping Index absolutely collapsed in 2008 as we headed into a major financial crisis. Well, now the Index is collapsing again, and it is already lower than it was at any point back in 2008…
The evidence continues to mount that we are steamrolling toward a deflationary economic slowdown that is worldwide in scope.
Just look at the price of U.S. oil. It just keeps on falling, and as I write this article it is sitting at $40.40.
The price of oil collapsed just before the financial crisis of 2008, and the same pattern is happening again.
And look at what is happening to commodities. The Thomson Reuters/CoreCommodity CRB Commodity Index has plummeted to the lowest level that we have seen since the last recession. It is now down more than 30 percent over the past 12 months, and it continues to fall.
So don’t be fooled by the temporary “stock market recovery” that we have witnessed. The underlying economic fundamentals continue to decline. We are entering a global deflationary recession, and the stock market will get the memo at some point just like we saw in 2008.
At this moment, global financial markets are teetering on the brink, and all it is going to take is some kind of major trigger event to send them tumbling over the edge.
And such an event may be coming sooner than you may think.
It wouldn’t take much to push the financial world into full-blown panic mode. A major regional war in the Middle East, a terror attack that kills thousands, or an earthquake or volcanic eruption that affects a large U.S. city are all potential examples of “black swan events” which could fit the bill.
The global financial system has never been more primed for another 2008-style crisis. Thanks to the fragility of the system, it could literally happen any day now.
So keep your eyes open – within weeks our world could be completely and totally different.
Islamic Gunmen storm a luxury hotel in Mali. USA special forces and French forces will be coming to the aid of Mali
(courtesy zero hedge)
Islamic Gunmen Storm Luxury Hotel In Mali Capital, Take 170 Hostage; French, US Special Forces Follow – Live Feed
Update 7:04 am
A second assault is in course in the Radisson hotel, lead by US and French special forces according to Conflict News.
Update 6:56 am
AFP reports that eighty hostages freed in Mali hotel siege citing local TV, while CNN adds that the Mali hotel attackers arrived in vehicle(s) with diplomatic plates, had AK-47s – U.N. spokesman.
Update: 6:45 am
Reuters reports that roughly three hours since the siege began, Malian special forces entered the Radisson Blu in the capital Bamako on Friday after Islamist gunmen attacked the luxury hotel and took hostages, a witness and a police source said. “They’ve penetrated inside the hotel. The operations are under way,” the police source said.
A live feed from SkyNews:
* * *
Less than a week since the Friday 13th Paris terror attack, hours ago the newswires lit up with news of another terrorist attack at least 10 gunmen shouting and screaming “Allahu Akbar” attacked the Radisson Blu, a luxury hotel full of foreigners, in Mali’s capital Bamako, taking 170 people hostage. The identity of the Bamako gunmen, or the group to which they belong, is not known
The location of the capital is shown below:
The Radisson hotel lies just west of the city centre near government ministries and diplomatic offices in the former French colony. The identity of the Bamako gunmen, or the group to which they belong, is not known.
According to Reuters, the security source said as many as 10 gunmen had stormed the building, firing shots and shouting “Allahu Akbar”, or “God is great” in Arabic. The Chinese state news agency Xinhua said several Chinese tourists were among those trapped inside the building.
The Chinese state news agency Xinhua said several Chinese tourists were among those trapped inside the building.
The company that runs the hotel, Rezidor Group, said it understood that there were two gunmen although AP has since added there were at least 10 gunmen.
“According to our information, two people are holding 140 clients and 30 employees,” it said in a statement quoted by the BBC.
A senior member of the hotel’s security detail said two private security guards had been injured in the early stages of the attack, which began at 7 a.m. (0700 GMT).
The official response has been swift and according to witnesses in the area police had surrounded the hotel and were blocking roads leading into the neighbourhood. The U.S. Embassy tweeted that it was “aware of an ongoing active shooter operation at the Radisson Hotel,” and instructed its citizens to stay indoors.
A French diplomatic source added that Malian special forces at the scene of hotel siege, France providing logistics and intelligence support.
Reuters notes that the hotel gunmen have since free some hostages, including those able to recite verses of the Koran.
French nationals are among those held in the siege of a luxury hotel in Mali’s capital Bamako on Friday, a source close to French President Francois Hollande said. “We are still awaiting more precise information that’s been checked out. French people are present. The president is following the situation closely,” the presidential source said.
Separately, a diplomatic source said that Malian special forces were at the scene and that France was providing logistical and intelligence support.
As a reminder, northern Mali which has been the locus of French military intervention in recent years, was occupied by Islamist fighters, some with links to al Qaeda, for most of 2012. Although they were supposedly driven out by the French, sporadic violence has continued.
Bloomberg notes that Malian, French and US security forces have since stormed the hotel where at least three are dead, including a french citizen, while 15 hostages hav been released.
Security forces drive an armored vehicle near the Radisson hotel in Bamako, Mali, November 20, 2015. REUTERS/Adama Diarra
A video recap from France 24:
Islamic Gunmen Storm Luxury Hotel In Mali Capital, Eighteen hostages killed so far/no more hostages left,Just the gunman!
Eighteen Bodies Recovered From Mali Hotel, AFP Says, cites foreign security source on number of bodies recovered. Mali gunman, “holding no more hostages,” AFP cites security minister
Reuters reports that supporters of al-Qaeda-affiliated group claim responsibility for attack in Mali citing a Twitter post
Mali hotel gunment have dug in on building’s seventh floor as special forces advance – Security source. Some U.S. military personnel in Mali were helping move civilians to secure locations amid an attack at a luxury hotel in Bamako, a. U.S. defense official told Reuters on Friday.
About 25 American military personnel were in Bamako when Islamist gunmen stormed the hotel, the official said, adding that there has not yet been a formal request for U.S. military assistance. U.S. spokesman says U.S. special forces helping in Mali hotel incident
Update 8:50 am
124 guests, 13 staff still inside Radisson Blu hotel in Mali capital following gun attack – company statement
And this is how it ended: 27 dead and 2 dead gunmen.
(courtesy zero hedge)
Mali Hostage Situation Over; 27 People Reported Dead, 2 Gunmen Killed
The Hostage situation is now over according to AFP. Here is the latest news from Reuters:
At least 27 people were reported dead on Friday after Malian commandos stormed a luxury hotel in the capital Bamako with at least 170 people inside, many of them foreigners, that had been seized by Islamist gunmen.
The former French colony has been battling Islamist rebels for several years, and the jihadist group Al Mourabitoun, allied to al Qaeda and based in the deserts of northern Mali, claimed responsibility for the attack in a tweet.
By late afternoon, ministerial adviser Amadou Sangho told the French television station BFMTV that no more hostages were being held.
But a U.N. official said U.N. peacekeepers on the scene had seen 27 bodies in a preliminary count, and that a search of hotel was continuing. It was not clear whether any of the gunmen, who were said to have dug in on the seventh floor of the hotel as special forces advanced on them, were still active.
State television showed footage of troops in camouflage fatigues wielding AK47s in the lobby of the Radisson Blu, one of Bamako’s smartest hotels and beloved of foreigners. In the background, a body lay under a brown blanket at the bottom of a flight of stairs.
The peacekeepers saw 12 dead bodies in the basement of the hotel and another 15 on the second floor, the U.N. official told Reuters on condition of anonymity. He added that the U.N. troops were still helping Malian authorities search the hotel.
A man working for a Belgian regional parliament was among the dead, the assembly said
Two gunmen killed in Mali hotel siege: Malian military
Eighteen Bodies Recovered From Mali Hotel, AFP Says, cites foreign security source on number of bodies recovered. Mali gunman, “holding no more hostages,” AFP cites security minister
Caught On Tape: Suicide Bomber Detonates As Al-Qaeda Storms Checkpoint In Yemen
These days it’s all about ISIS which means that al-Qaeda – the once proud bastion of international terrorism – has been relegated to also-ran status as the group struggles to compete in the face of Islamic State’s propaganda juggernaut.
ISIS, via its Furat Media arm, is alarmingly effective at recruiting new members as slickly produced, 1080p depictions of battlefield victories and gruesome executions paint a picture of an extremist army on the rise, running roughshod over the enemies of the “caliphate.” Contrast this with images of al-Qaeda’s bespectacled leader Ayman al-Zawahiri sitting in front of a home movie camera ruminating on topics that, when compared to the grand pronouncements that emanate from ISIS, seem to belong to some bygone jihadist era when “principles” still mattered.
But al-Qaeda is still out there believe it or not (even as ISIS refers to them as a bunch of donkeys) and one of the more active cells is AQAP in Yemen who, you’re reminded, was behind the Charlie Hebdo attacks.
Of course AQAP now finds itself in the middle of Yemen’s civil war and the fact that the Houthis are Shiite and are backed by Tehran means AQAP and the Saudi-led coalition are effectively on the same side– for now. Of course AQAP also opposes the Hadi government, which will complicate matters should Saudi Arabia, Qatar, and the UAE succeed in restoring the President. Incidentally, Hadi returned to Aden from exile earlier this week. This is his second “trimuphant” return. He visited Aden back in Septemeber and left after three days. The Prime Minister fled to Riyadh last month after ISIS tried to blow him up.
So ultimately, this is just the same proxy war in a different theatre. The difference between Yemen and Syria is that in Syria, the Saudis and Qatar are fighting via proxies while Iran and Hezbollah are there in the flesh, while in Yemen, Iran is fighting via a proxy while Riyadh and Doha are there in the flesh.
In any event, AQAP stormed a government checkpoint (remember, AQAP is with the Saudis on the whole “rout the Houthis” mission, but not on the “restore Hadi” push) in Shibam, which is colloquially known as “the Manhattan of the desert” for its densely packed “skyscrapers”:
At least 15 Yemeni soldiers and 14 militants have been killed in an attack by al Qaeda on a military post in the eastern region of Hadramawt, a security source said.
Although Al Qaeda in the Arabian Peninsula (AQAP) has controlled the southern Hadramawt city of Mukalla and surrounding areas since early this year, it has not staged attacks on army positions elsewhere in the province for months.
The attack began with a suicide bomber detonating an explosive in his car at the military post, between the towns of Shibam and al-Qatn, followed by an assault by 25-30 militants, the security source said. Clashes in the area were still going on, he said.
Unverified footage on social media that purported to show the attack included a large blast followed by a big plume of smoke, and the sound of gunshots and distant voices shouting.
Bombing and shooting attacks were commonly directed against the army and police across Hadramawt from 2011 until the country’s civil war heated up early this year with the start of a military campaign by a Saudi-led alliance.
Since then, AQAP has seized control of Mukalla and the coast of Hadramawt, but attacks inland receded. Like the Saudi-led coalition, AQAP’s main enemy in Yemen is the Houthi militia, and unconfirmed reports say AQAP has been closely involved in fighting alongside units backed by the Saudis.
However, AQAP is also an enemy of President Abd-Rabbu Mansour Hadi, whose government Saudi Arabia wants to restore via its military campaign.
Without further ado, here’s the “unverified” footage mentioned above:
David Stockman writes a terrific commentary showing the plight of the global economy. Through Caterpillar, Stockman
Caterpillar (CAT) posted a disastrous 16% decline in worldwide retail sales this morning, meaning that its sales have now fallen for 35 straight months. As Zero Hedge noted, not only did US retail sales finally rollover and drop by 8% compared to prior year, but the rest of the world was a veritable bath of yellow blood:
…….. 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%…
Needless to say, this is something new under the sun. CAT is the leading heavy capital goods supplier to the global construction and mining industries and has a long history of boom and bust.
But CAT’s past contains nothing like what is conveyed in the graph below. The current 35 month plunge in its global sales is now nearly twice as long as the downturn in sales during the Great Recession, which was itself a modern record.
Indeed, CAT’s sales during the quarter ended in September had retraced all the way back to the September quarter of 2006. It is as if the massive tide of global capital spending that CAT has been riding for well more than a decade is heading back out to sea.
In fact, it is. The flip-side of the massive commodities boom since the turn of the century is CapEx.
That is, the tremendous increase in demand for iron ore, copper, zinc, nickel, aluminum and hydrocarbons was mainly driven by a massive one-time build-out of industrial infrastructure for mining, manufacturing, transportation and distribution—–along with related public facilities such as roads, bridges, ports, rails and airports—- in China and the EM.
Even where there were substantial increases in final demand for consumer goods—— such as appliances and autos and for the related motor fuels and household electrical power——in both the EM and DM economies, the principle impact was not in the incremental materials and energy consumed by end users; it was in the CapEx build-out of the production capacity needed to supply them.
Stated differently, CapEx is extremely materials and energy intensive. What drove commodity prices to unprecedented highs earlier this century was a once-in-history CapEx boom fueled by the central bank enabled explosion of global credit.
Likewise, the virulent commodity collapse now underway is a reflection of how far the CapEx cycle overshot the sustainable requirements of the world economy. Iron ore and crude oil heading into the $30s are merely a leading indicator of the deflationary correction now underway.
But the obvious implication that $30 per ton iron ore will batter the global mining equipment industry or that $30 oil will shut down the drilling rigs in the shale patch is not the half of it. The whipsaw effect on CapEx is just getting started and it will cascade through the entire warp and woof of the global economy.
As shown below, the publicly listed companies of the world actually increased CapEx by 5X to upwards of $2.5 trillion annually during the run-up to peak capital spending in 2012-2013. Given the massive over-investment and malinvestment in the world economy, however, the drop ahead could easily amount to well more than $1 trillion annually.
Moreover, the gathering CapEx drought will last for years, even decades. That’s because the in-place value of the world’s massive surplus of factories, containerships and heavy mining and construction equipment is now vastly inflated. Accordingly, the market for used equipment and existing capacity will drop so severely that new CapEx orders will be deferred indefinitely.
Zero Hedge provided some examples from the current drastically depressed secondary market for CAT’s big yellow machines. Needless to say, a 99% off sale on existing equipment does not bode well for new orders.
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
Euro/USA 1.0682 down .0043
USA/JAPAN YEN 122.84 down .062
GBP/USA 1.5260 down .0025
USA/CAN 1.3315 up.0022
Early this morning in Europe, the Euro fell by 43 basis points, trading now just below the 1.07 level falling to 1.0682; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore,and now Nysmark and the Ukraine, along with rising peripheral bond yield. Last night the Chinese yuan down in value (onshore). The USA/CNY up in rate at closing last night: 6.3878 / (yuan down)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a northbound trajectory as settled up again in Japan by 6 basis points and trading now well above the all important 120 level to 122.85 yen to the dollar.
The pound was down this morning by 25 basis points as it now trades just above the 1.52 level at 1.5260.
The Canadian dollar is now trading down 22 in basis point to 1.3315 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 FRIDAY morning:closed up 20.00 or 0.10%
Trading from Europe and Asia:
1. Europe stocks mixed
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: $1085.00
Early FRIDAY morning USA 10 year bond yield: 2.25% !!! up 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 3.01 up 2 in basis point.
USA dollar index early Friday morning: 99.33 up 32 cents from Thursday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Friday morning
WTI Crude Spikes After Renewed Tumble In US Oil Rig Count
Between contract roll liquidity and a renewed tumble in the US Oil Rig Count, WTI Crude (Jan 16) has surged above $42.50 (Dec 15 to $41). After last week’s very modest rise, the streak of rig count declines continues (11th week of last 12) with a 10 rig drop to 564 – the lowest since June 2010.
Rig count drops for the 11th week of the last 12…
Texas added 4 rigs to 342 but Oklahoma (down 4 to 81), Colorado (down 3 to 29) and Wyoming (down 3 to 21) all saw rig count declines.
But then again… why?
USA/Chinese Yuan: 6.3835 (up.0010 on the day (yuan down)
The Nasdaq: up 31.28 or 0.62%
Stocks Soar Most In 13 Months After Worst European Terrorist Attack In Over A Decade
Quite a week eh? “I don’t care… I want to trade size and be a big swinging dick… I’m gonna make it rain!!”
A quick summary of the week…
- Paris Population Down 130 people – worst European terrorist attack since Madrid (190 people) in 2004
- S&P Up 3.3% – best week since Bullard Bounce Oct 2014
- EM Stocks Up 4.5% – best week in 2 months
- Gold Down 0.4% – 5th weekly drop in a row, lowest since Oct 09
- Silver Down 0.7% – 5th weekly drop in a row, lowest since July 09
- Crude Down 0.5% – 5th drop in last 6 weeks, lowest since August
- Copper Down 5.3% – worst week sicne Dec 2014, down 6 weeks in a row to lowest since April 2009
* * *
Let’s start with stocks… From worst week of the year last week to best week since October 2014’s Bullard Bounce…
Futures show the real exuberance though… Sunday night’s open marked the low after 100-plus people had been killed, and Paris was under martial law…Nasdaq +5% off Sunday night lows!!
* * *
The Devil’s in the Divergences…
Bonds and stocks…
Credit and stocks…
Trannies and oil…
Credit and equity risk…
And finally FX carry and stocks…
A few individual stocks mattered today…
Chipotle poisoned some folks…
Hope is high that Valeant is fixed (thanks to a Citi debt upgrade)
And then there’s Netflix!!! Up almost 20% this week!!!! An $8.6bn rise in market cap in one week… the most ever.
Tresury yields were extremely mixed – following FOMC Minutes – with 2Y up 8bps and 30Y -3bps on the week… 2Y highest weekly close since April 2010, 30Y yields lower for 2 straight weeks first time since August…
For the biggest flattening in 4 months – 2s30s fell 12bps this week – almost to 7 month flats…
Credit markets have now fallen 14 days in a row…
The USDollar gained on the week – Draghi’s whatever it takes today trumping odd post-FOMC weakness yesterday in the USD – AUD shot up this week…
Commodities were all lower this week – as The USD gained – but copper was really ugly…
Bonus Chart: Retail Deja Vu…
Bonus Bonus Chart: Ponzinormous…
Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers
When last we checked in on America’s auto loan bubble (which recently ballooned past the $1 trillion mark) the “visionary” ex-Santander execs over at Skopos Financial had just finished selling some $154 million in paper backed by a collateral pool wherein 75% of the loans were made to borrowers with credit scores less than 600.
14% of the loans were made to borrowers with no credit score at all.
That deal followed a $150 million securitization the company sold earlier this year in which a fifth of the borrowers had FICOs between 351 and 500.
What this represents is the resurrection of the infamous originate to sell model that was instrumental in exacerbating the housing bubble. Put simply: if you can offload the credit risk to investors, you don’t really care who you’re loaning money to. It’s moral hazard at its finest and it’s enabled by Wall Street’s securitization machine.
Skopos’ latest abomination of an ABS deal came just weeks after Comptroller of the Currency Thomas Currywarned that what’s happening in the auto loan market “reminds [him] of what happened in mortgage-backed securities in the run-up to the crisis.”
Obviously the market isn’t nearly as large, but auto loan-backed ABS supply is expected to grow 25% this year. Here’s an up to date look at consumer ABS supply:
Auto loan-backed issuance will only grow as the bubble expands … and boy oh boy, is it expanding:
Of course in order to keep the US car sales “miracle” alive and thus perpetuate the ridiculous myth of an American auto renaissance, lenders will need to continue to lower their underwriting standards. After all, the pool of creditworthy borrowers is finite and so in order to expand it, you need to make inelligible borrowers eligible and that means the proliferation of subprime lending.
In what amounts to evidence that the subprime auto problem is indeed growing, The New York Fed’s Quarterly Report on Household Debt and Credit (out today) shows that lenders extended more than $110 billion in auto loans to borrowers with credit scores below 660 over the past six months alone. You can view that figure in context by taking a look at the following chart:
But don’t worry, because Phil Lebeau and Experian’s perma-auto-loan bull and senior director of automotive finance Melinda Zabritski will tell you that talk of a subprime auto loan bubble is nonsense (from a CNBC interview earlier this month):
Zabritski: “I don’t see a bubble in subprime loans. This is a very steady market in terms of loans to high-risk borrowers.”
30Y Treasury Yield Breaks Below 3.00% Amid Best Week In 2 Months
Well at least something makes some sense. Whether it is a safety bid from the ramping up of global terrorist attacks or a reflection of a possible Fed policy error (or their jawboning over low equilibrium rates), US Treasury yields at the long-end are rallying. 30Y just broke back below 3.00% to push it to its best week since late September…
Tesla recalls 90,000 vehicles due to a seat belt problem:
(courtesy zero hedge)
Tesla Tumbles After Recalling 90,000 “Best Car Ever” Model S Sedans
From “Best Car Ever” to this… TESLA CONDUCTS VOLUNTARY RECALL OF 90,000 MODEL S SEDANS FOR SEAT BELT INSPECTION.
As Bloomberg reports,
Tesla Motors Inc. said it’s conducting a voluntary recall of 90,000 Model S cars because of a single report of a front seat belt not being properly connected.
“Tesla recently found a Model S in Europe with a front seat belt that was not properly connected to the outboard lap pretensioner,” the company said in an e-mail to customers Friday. “This vehicle was not involved in a crash and there were no injuries. However, in the event of a crash, a seat belt in this condition would not provide full protection. First and foremost, we care about your safety.”
Tesla was alerted to the seat belt issue by a female customer in Europe two weeks ago and moved to inspect 3,000 vehicles and its assembly process. The Palo Alto, California-based company said it has found no other issues, but wants owners to bring their cars in to make sure the seat belts are properly connected. They are being advised to book an appointment for the inspections.
“In early November, a customer sitting in the front passenger seat turned to speak with occupants in the rear and the seat belt became disconnected,” a Tesla representative said. “The seat belt is anchored to the outboard lap pretensioner through two anchor plates that are bolted together. The bolt that was supposed to tie the two anchors together wasn’t properly assembled.”
* * *
And the result…
Fed To Hold An “Expedited, Closed” Meeting On Monday
Given how awesome everything appears to be, judging by stocks and the tidal wave of FedSpeak of the last week confirming that rates are rising in December, we found it at least marginally ‘odd’ that out of the blue, The Fed would announce an ‘expedited, closed’ meeting on Monday…
As we are sure to be told: “it’s probably nothing!”
Puerto Rico has big payments due on Dec 1 and it looks like it may default. Congress has not come up with any plan on how to bail these guys out:
(courtesy zero hedge)
Puerto Rico Faces “Public Unrest” As Cash Crunch May Leave Government Workers Unpaid
Heavily indebted Puerto Rico was due to meet with representatives of its creditors on Friday in a desperate attempt to forge ahead with a plan to restructure some $72 billion in debt. No offer is expected to be made at the meetings in New York, but the commonwealth’s Government Development Bank says it hopes to provide creditors’ advisors with greater clarity on “the proposed restructuring process,” which GDB says “is a comprehensive plan that will benefit all parties while supporting the creation of a sustainable path forward.”
As Reuters notes, “creditors have been resistant to cuts to their repayment, insisting that Governor Alejandro Garcia Padilla’s administration do more to curb spending, boost government efficiency and promote economic growth.”
The GDB is facing a $354 million principal and interest payment on December 1 – some $270 million of that is GO debt guaranteed by the National Public Finance Guarantee Corp. Defaulting on that is bad news and as Moody’s warned earlier this month, a missed payment on the commonwealth’s highest priority obligations “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention.”
Another $303 million comes due one month later on January 1.
GDB called Friday’s meeting with consultants and advisers “part of our continued effort to maintain a constructive and open dialog with our key stakeholders” while a spokesperson for the governor promised Puerto Rico is doing everything in its power to make the December 1 payment although Padilla has repeatedly made clear that if it comes down to defaulting or cutting off services to the people, bondholders will be out of luck.
Here’s a bullet point summary of recent developments from BofAML:
- On 6 November, Puerto Rico released its unaudited quarterly financial and operating report. In the report, Puerto Rico makes plain that it faces a near-term liquidity crisis, has too much debt, limited ability to raise revenues, and a near-decade-long recessionary economy. As a result, it is our opinion that it will likely need to restructure its debt and, absent a voluntary restructuring, will prioritize essential government services at the expense of debt-service payments.
- Moody’s believes Puerto Rico is likely to default on at least a portion of its scheduled debt-service payments due 1 December, which include roughly $273mn of GDB debt guaranteed by the commonwealth.
- Moody’s Analytics opines that, without near-term Congressional action, Puerto Rico may very well suffer an economic depression.
- The US Senate Judiciary Committee scheduled a hearing on Puerto Rico’s financial crisis for 1 December. The Committee’s Chairman stated that allowing a debt restructuring without requiring structural and fiscal reform would be throwing away taxpayer money.
- The Puerto Rican House and Senate approved significantly amended local control board bills from the one the Governor submitted, turning the proposed “control” board into an “advisory” board. The two bills will need to be reconciled.
- The Puerto Rico Highway & Transportation Authority (HTA) cancelled $228.5mn of Ambac-insured bonds, a positive for Ambac-insured bondholders, as the insurer will have more claims-paying ability should Puerto Rico or its public corporations default
And here’s BofA summing up:
In a nutshell, the commonwealth warns: it is facing a liquidity crisis, set to run out of cash this month, and revenues are coming in lower than expected; debt is too high, and needs to be restructured; the economy has been mired in a nearly decade-long recession, and economic factors limit Puerto Rico’s ability to raise revenues; healthcare and retiree costs, along with other essential government services are more important than paying debt service; and, with a lack of access to the capital markets and little room under the constitutional debt cap, it is unlikely that Puerto Rico will be able to borrow to finance its operations.
Speaking of running out of cash, Height Securities analyst Daniel Hanson now says the acute liquidity strain may well mean that Padilla can’t pay government employees and you know what that means: social unrest.
“Puerto Rico’s liquidity strains are ‘serious’ and will likely create ‘greater levels of public unrest’ into year-end,” Hanson said this week in a note, adding that the “island’s Treasury Single Account likely has negative cash balance, will make it ‘nearly impossible’ to meet all government payroll obligations over the next six weeks.”
As for whether any of this can be avoided, a Senate judiciary committee headed by Iowa Republican Charles Grassley will meet on December 1 to discuss a legislative proposal to assist Padilla. As Bloomberg notes, “Republicans would prefer that Puerto Ricans solve the crisis on their own, but if they can’t, lawmakers will probably seek to impose ‘something like’ a federal control board.”
But this will likely be too little too late. Expect a partial default and if the government can’t make payroll, they’ll be trouble in paradise.
We close with a quote and a table from Moody’s Analytics (via BofA). As you’ll note, under the “pessimistic scenario,” Puerto Rico is in for a long and painful ride.
According to MA, under this scenario, “[t]he government would have no choice but to severely cut spending and jobs, pushing the economy deeper into recession, and further undermining revenues and the government’s fiscal situation. This vicious cycle currently plaguing Puerto Rico will only intensify. Moreover, the territory’s standing in capital markets would be irreparably harmed.”
Today it is Chipotle restaurants turn to head south:
Chipotle Plunges To 17-Month Lows After CDC Report Exposes 3 New States With E.Coli Infections
Let us wrap up this week’s report with this commentary from Greg Hunter of USAWatchdog
see you Monday night
Have a grand a safe weekend