Gold: $1070.50 down $3.80 (comex closing time)
Silver $14.17 unchanged
In the access market 5:15 pm
Gold $1071.10
Silver: $14.18
At the gold comex today, we had a very poor delivery day, registering 6 notice for 600 ounces. Silver saw 24 notice for 120,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 200.26 tonnes for a loss of 103 tonnes over that period.
In silver, the open interest fell by a surprisingly low 4107 contracts despite the fact that silver was up 13 cents in yesterday’s trading. Generally we are witnessing a massive OI contraction once we approach first day notice. The total silver OI now rests at 170,092 contracts In ounces, the OI is still represented by .850 billion oz or 121% of annual global silver production (ex Russia ex China).
In silver we had 24 notice served upon for 120,000 oz.
In gold, the total comex gold OI was hit again as this time another massive 19,841 contracts were liquidated as the OI fell to 397,705 contracts. Gold was up by $7.50 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. They are succeeding in gold but not silver. The bankers get very nervous when OI is rising despite awful prices for the metals. We had 0 notices filed for nil today. As I know everybody is aware that we are now in the options expiry for: a) the comex gold/silver contracts, b) LBMA contracts and c) OTC contracts.
We had no change in gold inventory at the GLD/ thus the inventory rests tonight at 655.69 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, / Inventory rests at 318.209 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 675 contracts up to 174,199 despite the fact that silver was up by 13 cents with respect to yesterday’s trading. The total OI for gold fell by 1079 contracts to 417,546 contracts as gold was up by $7.50 with respect to yesterday’s trading.
(report Harvey)
2 a)Gold trading overnight, Goldcore
(Mark OByrne)
3. ASIAN AFFAIRS
(courtesy zero hedge)
ii) Then finally it had to come: China’s commodity sector asks for a bailout:
i)
ii The Math does not make sense. A fighter jet cannot fly at stall speed.
v) William Engdahl discusses the real reason for the attack.
Erdogan’s son Bilal Erodgan is the owner of those oil trucks that have been destroyed by the Russians. Erodgan is angry that Russia has destroyed his son’s illegal business:
vi “George Washington” discusses the Russian-Turkey confrontation:
“George Washington” reports that a USA official has stated to Reuters that the downed Russian aircraft was in Syrian territory:
(courtesy George Washington/zero hedge)
vii) So much for Russia’s response being mute:
Second: Lavrov states that Turkey’s attack was planned as no doubt Erdogan wanted to protect the “Turkman” on the Syrian side of the border. These guys want to oust Assad and thus against Russian interests.
It seems that Russia is playing a waiting game, as so far they have taken 2 strikes on then:
i) the Turkish downing of a Russian drone
ii) the downing of yesterday’s Russian fighter jet and rescue helicopter.
Russia will act if strike 3 is orchestrated on them:
(courtesy zero hedge)
viii) Late this morning, we get more details that shed light on events with respect to the Turkey-Russia conflict
Here are the facts:
- The second pilot (the co pilot) is not dead. He parachuted safely and was rescued by the real Syrian army after facing gunfire from the free Syrian army. His commander and co pilot was killed as he parachuted and it was his body that we saw celebration from the FSA
- The second body witnessed in various videos was the pilot of the helicopter that tried to rescue to boys
- The co pilot stated that he was in Syrian territory and knows the area” like the back of their hands.”
- The co pilot stated that there were no warnings from Turkey.
Check to Mr Putin…
(courtesy zero hedge)
ii) Riksbank to Swedish citizens: “he have a big problem”
a)We first reported on Glencore /the king of derivative players in Europe
b) Then we reported on problems with the biggest derivative player in China/Hong Kong/Asia: Nobel
c) Now we add the biggest derivative player in South America 40 year old billionaire Esteves
(courtesy zero hedge)
Oil falls 40 cents due to:
i) DOE buildup in inventories
ii but more important: huge significant build in Cushing
this is offset by the biggest drop in overall crude production (but hurts USA trade)
( zero hedge)
ii) Then oil rebounds on lower rigs:
(courtesy zero hedge)
iii) USA drillers are going to have a tough time next year(courtesy McDonald/OilPrice.com)
i) jobless claims rise now at its fastest pace in over 2 years.
iii) durable goods orders drop again for the 7th consecutive month. This signals recession!
Let us head over to the comex:
The total gold comex open interest had a colossal fall from 417,546 down to 397,705 for a loss of 19,841 contracts despite the fact that gold was up by $7.50 with 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. We certainly witnessed the former in spades again today. Surprisingly somebody was in need of gold and the amount standing increased. The November contract gained 11 contracts up to 265 . We had 0 notices filed yesterday, so we gained 11 gold contracts or an additional 1100 oz will stand for delivery in this non active delivery month of November. Somebody was in great need of gold today. The big December contract saw it’s OI fall by a monstrous 41,124 contracts from 101,283 down to 60,159. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 263,200 which is very good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was very good at 259,504 contracts.
November contract month:
INITIAL standings for November
Nov 25/2015
| Gold |
Ounces
|
| Withdrawals from Dealers Inventory in oz | nil |
| Withdrawals from Customer Inventory in oz nil | 96.45 oz
Manfra |
| Deposits to the Dealer Inventory in oz | |
| Deposits to the Customer Inventory, in oz | nil
|
| No of oz served (contracts) today | 6 contracts
600 oz |
| No of oz to be served (notices) | 259 contracts
(259,00) oz |
| Total monthly oz gold served (contracts) so far this month | 13 contracts
1300 oz |
| Total accumulative withdrawals of gold from the Dealers inventory this month | nil |
| Total accumulative withdrawal of gold from the Customer inventory this month | 267,599.5 oz |
Total customer deposits nil oz
we had 1 adjustment:
i) from HSBC 96.442 oz was adjusted out of the customer account and into the dealer account of HSBC
November initial standings/First day notice
Nov 25/2015:
| Silver |
Ounces
|
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory | 1,518,870.14 oz
(Scotia,Brinks jpmorgan,CNT) |
| Deposits to the Dealer Inventory | 34,072.900 oz CNT |
| Deposits to the Customer Inventory | nil |
| No of oz served (contracts) | 24 contracts (120,000 oz) |
| No of oz to be served (notices) | 24 contracts
120,000 oz) |
| Total monthly oz silver served (contracts) | 81 contracts (405,000 oz) |
| Total accumulative withdrawal of silver from the Dealers inventory this month | nil oz |
| Total accumulative withdrawal of silver from the Customer inventory this month | 10,270,375.7 oz |
Today, we had 1 deposit into the dealer account:
i) Into CNT: 34,072.900 oz
total dealer deposit; 34.072.900 oz
we had no dealer withdrawals:
total dealer withdrawals: nil
we had 0 customer deposits:
total customer deposits: nil oz
total withdrawals from customer account: 1,518,870.14 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/
Press Release
Sprott Announces Clear Path and Timeline to Complete Offers for Central GoldTrust and Silver Bullion Trust
Only Through the Sprott Offers can Unitholders Receive Real and Certain Value
Sprott Encourages all Unitholders to Follow the Majority That Have Already Tendered
TORONTO, Nov. 23, 2015 (GLOBE NEWSWIRE) — Sprott Asset Management LP (“Sprott” or “Sprott Asset Management”), together with Sprott Physical Gold Trust (NYSE:PHYS) (TSX:PHY.U) and Sprott Physical Silver Trust (NYSE:PSLV) (TSX:PHS.U), today announced that it is now positioned to take action to expedite its offers for Central GoldTrust (“GTU”) (TSX:GTU.UN) (TSX:GTU.U) (NYSEMKT:GTU) and Silver Bullion Trust (“SBT”) (TSX:SBT.UN) (TSX:SBT.U) and bring these matters to a successful conclusion.
Pursuant to the recently announced decision of the Ontario Securities Commission, Sprott has provided additional disclosure and extended its offers to 5:00 p.m. (Toronto time) on December 7, 2015 to allow unitholders to review such updated disclosure. Upon the expiration of this 15 day “waiting period”, Sprott will be entitled to remove the GTU and SBT trustees in order to expedite a special meeting of unitholders to vote on the transactions, assuming more than 50.1% of units have been tendered to the applicable Sprott offer.
A majority of GTU, and a significant number of SBT, unitholders have already tendered into the Sprott offers. With majority unitholder support on December 7, 2015, Sprott will have a clear path to completion by being able to affect the necessary changes at the Trustee level of both Trusts on this date. Sprott will then immediately take actions to convene special meetings where unitholders may finally take action to complete the Sprott offers.
John Wilson, CEO of Sprott Asset Management, said, “We have consistently defeated the transparent attempts of the Spicers and the conflicted GTU and SBT Trustees to block our offers and we are now finally positioned to bring this process to a timely and successful conclusion. We encourage unitholders to not be swayed by the proposal to convert their bullion trust into an open-ended ETF or the Spicers’ hollow arguments to support this extreme and self-serving measure. Sprott encourages any unitholders who haven’t already done so to tender their units to the Sprott offer today to receive real and certain value from your bullion investment.”
Sprott urges GTU and SBT unitholders to remember the reasons to tender to the Sprott offers:
- The Sprott offers provide an immediate premium on an NAV to NAV basis plus an additional premium payable in Sprott Physical Gold Trust and Sprott Physical Silver Trust units, respectively.
- Sprott initiated these offers after GTU and SBT unitholders were punished by consistent trading discounts to NAV.
- The Sprott offers are an opportunity to enter into a security that is fully-backed by bullion and properly tracks the price of such underlying bullion. Unitholders have chosen to invest in gold or silver, and the Sprott offers provide an opportunity for unitholders to enter into a security that properly reflects the value of that commodity.
- Sprott is now positioned to provide GTU and SBT unitholders witha clear and timely path to completion.
Additionally, the Sprott offers provide:
- A regulated entity that is committed to unitholders’ best interests and is managed by experienced, professional investors with a superior investment platform. GTU and SBT are run by entrenched and conflicted Trustees who have only sought to maintain the status quo and enrich themselves at unitholders’ expense.
- A safe and secure investment stored at the Royal Canadian Mint, which is backed by the Canadian federal government, rather than the ordinary commercial vault that is used by GTU and SBT.
- Investor friendly redemption features that allow unitholders to decide how and when to sell their investment. GTU and SBT offer no option to redeem for physical bullion and effectively charge a 10% fee to redeem for cash.
Mr. Wilson continued, “The desperation of the Spicers and their Trustees is reflected by their 11th hour announcement of a highly conditional and hastily made proposal to convert GTU and SBT into ETFs. This transaction would betray the very purpose of unitholders initial investments, and even if approved, could take many months to complete and carry substantial costs and risks to unitholders. We encourage unitholders to tender into the real, immediate Sprott offers before them which provide a premium on a NAV to NAV basis.”
As of 5:00 p.m. (Toronto time) on November 20, 2015, there were 9,714,610GTU units (50.34% of all outstanding GTU units) and 2,294,529 SBT units (41.97% of all outstanding SBT units) tendered to the respective Sprott offers.
GTU and SBT unitholders who have questions regarding the offers by Sprott to purchase the units of GTU and SBT (the “Sprott offers”), are encouraged to contact Sprott Unitholders’ Service Agent, Kingsdale Shareholder Services, at 1-888-518-6805 (toll free in North America) or at 1-416-867-2272 (outside of North America) or by e-mail at contactus@kingsdaleshareholder.com.
For more information, unitholders can visitwww.sprottadvantage.com.
Gold Market Goes Quiet – Do We Hear The Echo Of The Bottom?
Demand for gold is soaring according to the World Gold council’s latest report. The report shows that overall worldwide demand for gold rose by a very significant 33% with the US, Europe, China and Russia all stocking up and pushing demand. Central bankers, lead by Russia, are stocking up aggressively.
With fundamentals like these, why are gold prices not soaring? Crowd psychology might be one reason. Sol Palha of Technical Investor explains.
Year-on-Year Changes in Gold Demand, By Category (Source: WGC)
“Fundamentals do not drive the market; they just provide you with a picture to somewhat justify your biased views. What drives the market is emotions, and some technical indicators have the ability to pick up on these emotional changes. Crowd psychology is probably one of the best and least utilized tools when it comes to spotting topping and bottoming action”.
“From the Technical analysis perspective, gold has one more leg down, but the last leg might or might not be too steep. It will serve to bolster the foolish notion that the Gold bull is dead. Every bull market undergoes a back-breaking correction, and Gold is no exception. We believe the next leg up will yield even larger profits”.
“To indicate that a bottom is in place, Gold cannot close below 1050 on a weekly basis; failure to hold above this level should lead to a test of the 1000 ranges, with a possible overshoot to $950”.
“From the mass psychology perspective, Gold is very close to putting in a bottom. Sentiment investors, contrarian investors and investors who are familiar with the concept of mass psychology should consider taking a closer look at the precious metal’s sector now”.
Read Palha’s full analysis: “Is Gold on the verge of a breakout?”
Other sources:
– Gold Bullion Demand Surges 27% In Q3 – New Chinese “Buying Spree
– The Gold Bull is Dead – Tactical Investor
DAILY PRICES
Today’s Gold Prices: USD 1072.20, EUR 1011.10 and GBP 711.23 per ounce.
Yesterday’s Gold Prices: USD 1073.00, EUR 1008.32 and GBP 709.67 per ounce.
(LBMA AM)
Gold in EUR – 1 Month
Gold managed a gain yesterday rising $6.70 to close the day at $1075.40. Silver gained a marginal $0.06 to close at $14.17. Platinum lost $4 to $839.
Must-read guides to international bullion storage:
Download Essential Guide to Gold Storage in Switzerland
Koos Jansen: Shanghai Gold Exchange offtake rises
Submitted by cpowell on Tue, 2015-11-24 17:38. Section: Daily Dispatches
12:38p ET Tuesday, November 24, 2015
Dear Friend of GATA and Gold:
Gold researcher and GATA consultant Koos Jansen reports today that withdrawals from the Shanghai Gold Exchange, the best measure of China’s gold demand, are rising into the traditionally strong sales season. His commentary is posted at Bullion Star here:
https://www.bullionstar.com/blogs/koos-jansen/switzerland-gold-export-ch…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
end
An excellent commentary and history lesson on money and inflation and how the state can debase your currency. The commentary first deals with the original silver denarius having 95% silver content in Augustus time (37 AD) to Diocletian time 295 AD where it was only 5%.
The author compares this to the present and the debasing of the USA dollar having only 5% value having been “debased” from 1933 to its present buying value today.
(courtesy Mike Kosares)
Mike Kosares: Hoard of ancient Roman coins argues for gold ownership today
Submitted by cpowell on Tue, 2015-11-24 16:37. Section: Daily Dispatches
11:35a ET Tuesday, November 24, 2015
Dear Friend of GATA and Gold:
A recently discovered hoard of ancient Roman coins that are mostly bronze with just 5 percent silver content nevertheless makes the case for ownership of the monetary metals today, USA Gold’s Mike Kosares writes.
The hoard also may demonstrate the correlation of political and societal decline with currency debasement.
Of course if futures markets, derivatives, high-frequency trading, and the establishment propagandists of the Financial Times had been available to the Roman treasury, Emperor Caracalla’s descendants might still be in power, with each gram of silver supporting whole mountain ranges of claims to the metal and the ignorant Goths and Huns pacing outside the gates wondering how the regime was managing to hold on so long.
Kosares’ commentary is headlined “How 4,000 Roman Coins Found Buried in Swiss Orchard Reinforce Gold Ownership Today” and it’s posted at USA Gold here:
http://www.usagold.com/cpmforum/2015/11/24/how-4000-roman-coins-found-bu…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
Bron Suchecki: Treasury secretary can decide how much ‘public demand’ to meet with coins
Submitted by cpowell on Wed, 2015-11-25 13:06. Section: Daily Dispatches
8:05a ET Wednesday, November 25, 2015
Dear Friend of GATA and Gold:
Perth Mint Research Director Bron Suchecki writes today that U.S. federal law about the government’s minting of gold and silver coins allows the U.S. treasury secretary discretion in determining how many coins need to be produced to meet public demand. Of course if the secretary determines that enough coins have been minted to meet public demand even as the mint has to ration supply because demand can’t be fulfilled by the coins available, the presumed intent of the law may be mocked. But as Suchecki suggests, this might be an issue to be settled in court. Suchecki’s commentary is headlined “U.S. Mint Has No ‘Sufficient to Meet Public Demand’ Requirement” and it’s posted at the Perth Mint’s research page here:
http://research.perthmint.com.au/2015/11/25/us-mint-has-no-sufficient-to…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
end
(courtesy Steve St Angelo/SRSRocco report)
The Fed Balance Sheet & The Price Of Silver
by SRSrocco on November 23, 2015
Something quite interesting happened as the Federal Reserve increased its balance sheet from 2003 to 2012. As the Fed’s balance sheet jumped from $738 billion to $2.8 trillion by 2012, the price of silver increased to $30 that year. However, as the Fed continued to increase its balance sheet by printing money and acquiring worthless assets, the price of silver changed direction and headed lower over the next four years.
According to information and Chart #26 published in THE SILVER CHART REPORT:
The Fed’s balance sheet was $738 billion in 2003, but grew to $2.8 trillion by 2012, thanks to Quantitative Easing 1 – QE1 (adding $800 billion in bank debt, including U.S. Treasuries and mortgaged- backed-securities –source) and QE2 (adding $600 billion in U.S. Treasuries –source).
The Fed basically printed money out of thin air to purchase these financial instruments, which it placed on its balance sheet. As the market realized the Fed’s QE policies were quite inflationary, silver investment surged, pushing the price of silver to a record annual price of $35.12 in 2011. However, something interesting took place when the Fed announced QE3 in September 2012.
The QE3 policy allowed the Fed to purchase $40 billion a month of mortgaged-backed securities and $45 billion of U.S. Treasuries. From the end of 2012 until 2015, the Fed’s balance sheet increased another $1.7 trillion, to $4.5 trillion. The market began anticipating QE3 after then-Fed Chairman Ben Bernanke stated that more easing might be necessary in a press conference held on June 20, 2012 (source).
Investors started buying silver in early July 2012 at the low price of $26 and by the time QE3 was announced on Sept 12, the price skyrocketed to $35. Unfortunately, the price of silver did not continue to rise with the Fed’s balance sheet as it did before, but rather started a long bear market decline, to a low of $15 in 2015. Instead of the QE3 liquidity heading into the precious metals or commodities, the majority went into the broader stock and bond markets.
Again, that came from THE SILVER CHART REPORT.. As we can see, the price of silver is now close to $14. Fortunately for the fundamentals of owning precious metals, the Fed is in a real corner. While some individuals believe the Central Banks will control the paper prices of gold and silver indefinitely, this is one hell of a lousy assumption.
At some point, the Fed and Central Banks will lose control of the market and things will get out of hand rapidly. The idea that the paper price of gold and silver will head toward zero as monetary printing and debt skyrocket towards the heavens… just goes to show how serious the BRAIN DAMAGE has become in a good percentage of Americans.
1 Chinese yuan vs USA dollar/yuan falls in value , this time at 6.3892/ Shanghai bourse: in the green , hang sang: red
2 Nikkei closed down 77.31 or .39%
3. Europe stocks mixed /USA dollar index up to 99.95/Euro down to 1.0595
3b Japan 10 year bond yield: falls to .304% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 122.65
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 42.30 and Brent: 45.49
3f Gold down /Yen down
3g Japan 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 .520 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate fall to 7.66%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield remains at : 7.32% (yield curve inverted
3k Gold at $1073.25/silver $14.11 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 43/100 in roubles/dollar) 65.89
3m oil into the 42 dollar handle for WTI and 45 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 1.0209 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0816 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 rises to +.523%/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 2.23% early this morning. Thirty year rate below 3% at 2.99% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks Rebound As Geopolitical Tensions Subside; Europe Surges On Report Of More ECB Easing
Following yesterday’s dramatic geopolitical shock, U.S. equity index futures rise as Russia has not escalated the confrontation with Turkey as some had feared, while Asian shares fall, reversing earlier gains. European stocks are rallying and the euro is falling on the back of a Reuters report that the ECB is mulling new measures to prop up lending, although it’s not clear at this point what the real impact from these measures would be.
As a result, global stocks are little changed for a second day as investors assess the geopolitical fallout from the downing of a Russian warplane by Turkey. U.S. President Barack Obama and French President Francois Hollande called for Russia and Turkey to avoid escalating the confrontation. Hollande meets German Chancellor Angela Merkel in Paris today before heading to Moscow tomorrow to meet President Vladimir Putin.
As Bloomberg reports, Tuesday’s worst performing global equity benchmarks are experiencing differing fortunes today. On Tuesday Turkey’s Borsa Istanbul Index sank 4.4 percent, the most in four months.
Russia’s RTS Index dropped 3.3 percent, the most since Sept.1. Today Russian stocks rose as much as 1.6 percent, while Turkish equities fluctuated between gains and losses. Russia was the biggest source of Turkey’s imports in 2014, while some 12 percent of all tourists to Turkey were from Russia last year, according to Renaissance Capital. Turkey is Russia’s second-biggest market for gas exports, and relies on Gazprom to meet half of its gas needs. Turkey’s lira fell for a third day against the dollar.
Elsewhere the commodity rout continues, and the rout in iron ore continues. Today it slumped to the lowest since 2008 as output cuts at Chinese steel mills hurt demand. China accounts for half of global steel output. At the same time, mining companies like BHP Billiton and Rio Tinto are continuing to expand low-cost iron ore supplies. Ore with 62 percent content delivered to Qingdao, a global benchmark, has sunk 38 percent in 2015 to just above $43 a dry metric ton and is on track for a third consecutive annual decline.
Oil, gold, copper decline while food commods gain. Dollar also advances. The top overnight news stories include the aftermath of Turkey’s shooting of Russian bomber, SEC suit of former Goldman compliance worker, UnionPay/Apple agreement, U.S. Senate Cmte’s pending review of inversions, and China data offering early glimpse of 4Q.
Moving the FX market was news from Reuters that the ECB is discussing 2-tiered bank charges, and bond buys, namely that the ECB mulls
staggering charges for banks that park money with central bank or
buying more debt.
Market Wrap
- S&P 500 futures up 0.2% to 2090
- Stoxx 600 up 1.3% to 379
- MSCI Asia Pacific down 0.4% to 134
- US 10-yr yield down 1bp to 2.23%
- Dollar Index up 0.36% to 99.89
- WTI Crude futures down 1.4% to $42.27
- Brent Futures down 1.6% to $45.39
- Gold spot down 0.1% to $1,074
- Silver spot down 0.1% to $14.18
Looking at regional markets, Asian equity markets traded mostly lower despite the flat close on Wall St., as geopolitical uncertainty dampened risk sentiment. The ASX 200 (-0.3%) was pulled lower by consumer staples amid profit taking in retail giant Woolworths. Financials underperformed in the Nikkei 225 (-0.4%) as several large banks including Nomura are told to increase their capital ratio. Shanghai Comp. (+0.9%) swung between gains and losses as broad sector strength was offset by losses in brokerages amid speculation that the recent rally had been overdone. 10yr JGBs traded higher as the risk off tone drove inflows into the paper, while a better 20yr JGB auction where b/c was at its highest YTD also stoked demand into the 10yr.
Key Asian Data:
- China’s Earliest Monthly Economic Indicators Flash a Warning: Baidu index drops, MNI sentiment weakens as challenges mount.
- Singapore’s Economy Expands More Than Estimated on Services: 3Q GDP +1.9% q/q vs est. no change.
- Stevens Says ‘Chill Out’ on Rates as Australia Bows to Slowdown: RBA governor notes currency depreciation effect slow to emerge.
- Li Ka-Shing’s Power Assets, CKI Drop as Investors Spurn Merger: Deal rejection comes as billionaire reorganizes his empire.
- Hedge Fund Calls for $4b Payout From Japan’s Kyocera: Co. should sell giant KDDI stake, Oasis Management says.
- Citic Securities Blames Flawed Swaps Data on ‘System Upgrade’: Securities Association of China said it overstated some swaps data by 1t yuan Apr.-Sept.
- China Energy Engineering Draws Silk Road, GE to $2b IPO: 20 cornerstone investors, incl. China’s Silk Road Fund, also GE, agreed to buy combined $1.27b of stock, terms show.
The biggest overnight news came out of Europe, where Reuters reports regarding the ECB have dictated price action this morning after a relatively subdued start to the session. Monetary officials suggest staggering charges on banks hoarding cash is among the potential options being considered for the ECB meeting next week, with other options including purchasing further debt.
In terms of the consequences of the news , equity markets saw a bid to trade firmly in positive territory (Euro Stoxx: +1.3%) after trading sideways early on with UK housebuilding names among the best performers ahead of the UK Autumn Statement amid speculation of a GBP 6.9bIn project to build 400k new homes. Of note, IBEX (-0.16%) underperforms after Santander have been weighed upon by reports Abengoa are seeking protection from their creditors.
Bunds also benefitted from the ECB news , moving out of negative territory in the wake of the news to trade at their highest level of the day. Momentum to the upside has also been supported with supply from the Eurozone out of the way (despite Germany holding a technically uncovered Bund Auction), with month-end flows also proving to be supportive.
Analysts at Citi note that month end asset rebalancing suggests a weak signal of a move from equities and into bonds, with the anticipated outflows from US and Japanese stocks the main driver behind the move. Citi’s model suggests that fixed income may see global inflows with the exception of Latin America and EM Asia.
Key European Data:
- Osborne to Spur U.K. Housebuilding With Developer Incentives: A doubling of housing budget will see 400k new homes built across England under George Osborne’s proposals later today.
- Abengoa Seeks Creditor Protection After Gonvarri Pulls Accord: Gonvarri Corporacion Financiera pulled out of plan to invest in embattled renewables co.
- Spanish Bank Mergers May Come of ‘Tremendous Pressure’: Ultra-low interest rates, weak home loan demand, growing competition for business credit are eroding returns.
- Merkel Vows to Help France in Fighting Islamic State Terrorism: Germany could strengthen its presence in Mali, prolong its mission in Afghanistan, will step up its own security, intelligence gathering at home, Merkel said in Berlin. Germany’s $7b Refugee Boost to Outweigh VW Crisis Fallout
- Norway Imposes Border Checks as Refugee Flow Splits Scandinavia: Norway said late Tues. it will impose border controls from Thurs. this week.
- ECB Says QE Program to Be Suspended Over Dec. Holiday Period: ECB to step up its asset purchases in December to compensate for nearly 2-week pause over holiday period.
In FX, the EUR/USD fell in the wake of the ECB reports to see the pair slip below the 1.0600 level and the earlier weekly low at 1.0591 with the pair now eyeing notable levels to the downside which include the April low at 1.0521 and March low at 1.0458. Subsequently the USD-index has now broken above 100.00 to take out April highs and eye the best levels seen since 2003 at 101.80. Analysts at Citi note that month end asset rebalancing will have a relatively muted FX impact, with GBP the notable beneficiary from USD positive hedge rebalancing and USD negative asset rebalancing.
In Commodities, the ECB source reports that strengthened USD have led to recent softness in oil and gold, after both traded firmly in early European trade, with WTI coming off yesterday’s highs reached in spite of the large build observed in API crude oil inventories. Of note today sees the release of EIA NatGas storage change and Baker Hughes rig count.
Top Global News
- U.S. Urges Russia, Turkey to Cool Standoff Over Downed Plane: President Obama said Tues. he’ll make it a “top priority” to prevent Turkey-Russia standoff from worsening.
- ECB Said to Discuss 2-Tiered Bank Charges, Bond Buys: Reuters: ECB mulls staggering charges for banks that park money with central bank or buying more debt.
- Ex-Goldman Compliance Worker Sued by SEC for Insider Trading: Yue Han allegedly exploited access to firm’s IT systems to make >$468,000 using his personal trading account, that of a relative.
- UnionPay, Apple Said to Reach Apple Pay Agreement for China: Cos. have preliminary deal using UnionPay’s point-of-sales network, according to people familiar.
- Amazon Challenger Jet.com Announces $350m Investment: Cash infusion led by Fidelity, providing money to help co. attract customers during its first holiday shopping season.
- Senate Panel to Take On Inversions in Review of Global Taxation: Finance Cmte. to take on corporate inversions as part of a broader review of challenges posed by international tax rules
Bulletin Headline Summary from Bloomberg and RanSquawk
- Price action has largely been dictated by ECB source reports suggesting staggering charges on banks hoarding cash is among the potential options being consideredThis has led to upside in equities and fixed income with EUR softness seeing EUR/USD break below 1.0600 and the USD-index break above 100.00Looking ahead, highlights include US Personal Income, PCE Deflator, Composite and Services PMI’s, U. of Mich. Sentiment, UK Chancellor’s Budget Statement
DB’s Jim Reid concludes the overnight wrap
Geopolitical tensions dominated market sentiment for much of
yesterday following the news that a Russian fighter jet had been shot down by Turkey near the Syrian border, prompting the US and NATO to try and deescalate the situation after Russian President Putin warned of ‘serious consequences’. Much like the aftermath of the terror events in Paris, price action was relatively well contained with markets showing a degree of resilience, evident in particular with a decent bounce off the intraday lows for US equities to finish more or less flat (S&P 500 +0.12%, Dow +0.11%). In Europe the Stoxx 600 had finished -1.24%, while losses were unsurprisingly led by the Russian equity markets where the MICEX had closed -3.11%. The tension did provide some short-term respite for Oil markets where WTI bounced +2.68% to close just shy of $43 and helping much of the rebound in the US equity market. Gold finished up +0.61% from its recent 5-year low and
there was positive price action for much of the base metals space also withCopper (+2.63%), Zinc (+2.23%) and Nickel (+5.66%) all sharply highly.
With Thanksgiving in the US tomorrow market liquidity will be pretty thin on the ground through the rest of the week, with no real economic data or Fedspeak due on Thursday or Friday. As a result and as you’ll see at the end of the report, it’s a packed data calendar this afternoon with a number of marketsensitive releases due including the latest PCE data and also durable and capital goods orders. Yesterday, US Q3 GDP offered few surprises after being revised up as expected to +2.1% saar from the initial +1.5% reading on the back of the massive surge in inventories. Concerning however was the downward revision in both consumption (3.0% vs. 3.2%) and final sales (2.7% vs. 3.0%), while our US economists expect inventories to unwind this quarter which will likely depress economic output, and so now expect Q4 real GDP
growth to be 1.5% saar from 2.3% previously.
Yesterday’s corporate profits data for Q3 showed a -1.1% fall in the quarter which marks the third drop in the last four quarters. In fact, profits are now down -4.7% versus a year earlier which is the lowest reading since Q2 2009, or the recession. Given that profits tend to be a leading indicator of the laboumarket, this is another trend worth keeping an eye on. Meanwhile, the other notable data report yesterday was the latest November consumer confidence index reading which was down a steep 8.7pts at the headline to 90.4 (vs. 99.5 expected). The expectations component was down a material 10.1pts to 78.6, while much of the commentary reflected consumers having a less favourable
view of the job market, with jobs ‘plentiful’ falling in particular to the lowest level since April, although jobs ‘not so plentiful’ were up slightly. That brought the labour differential index down to -6.3 (from -1.9 last month). The end result of yesterday’s data was not a huge change to December liftoff expectations however, with the probability of a December hike sitting at 74% (unchanged versus this time yesterday) while US 2y yields continue to hover around 0.930%.
Taking a look at how markets in Asia this morning are trading, it’s been a fairly, cautious start to proceedings with the bulk of bourses generally trading with losses. Markets in Japan have seen the heaviest falls with the Nikkei and Topix down-0.31% and
-0.57% respectively. The Hang Seng (-0.13%), Kospi (-0.26%)
and ASX (-0.63%) are in the red also while Chinese bourses (Shanghai Comp+0.58%) have rebounded after the midday break, supported by 3.4pt rise in the November consumer sentiment reading to 113.1. There was less good news from the latest MNI business sentiment index reading for China however, which was down 5.7pts to 49.9 and a five month low. Also of note in China is the news that the country’s security regulator has removed the rule requiring brokerages to hold net long positions for any proprietary trading in a sign of a gradual reduction in support measures for equities there.
In terms of the rest of the dataflow yesterday. The October advance goods trade balance revealed a slight narrowing of the deficit to $58.4bn (from $59.1bn) after expectations had been for a modest widening. The September S&P/Case-Shiller house price index reading rose a slightly better than expected+0.61% mom (vs. +0.30% expected) and is now up nearly +5.5% yoy. The November Richmond Fed manufacturing activity index edged down a couple
of points this month to -3 (vs. +1 expected). Meanwhile, over in Europe the main release of note was the Q3 GDP reading for Germany where there was nochange to the final revision at +0.3% qoq, driven by private and government consumption with net exports a major drag. Germany’s IFO survey for November revealed a slight 0.8pt uplift in the business climate reading to 109.0 (vs. 108.2 expected), while both the current assessment (113.4 vs. 112.4 expected) and expectations (104.7 vs. 104.0 expected) surveys were above market. Our German economists noted that yesterday’s data has not moved their expectations in a meaningful way. They expect Germany to remain in a
domestically driven robust business cycle with cyclical positives like continued health of the labour market, strong labour immigration, low interest rates and public infrastructure somewhat offset by moderate global growth limiting ,world trade and equipment investment, along with inflation recovery weighing on real incomes. On top this, there are further risks present including an escalation of the refugee crisis and geopolitical risks.
Before we take a look at today’s calendar, there was some dovish BoE chatter to take note of yesterday, with Chief Economist Andy Haldane saying that ‘I see the balance of risks around UK GDP growth and inflation skewed materially to the downside, more so than embodied in the November 2015 inflation report’. Haldane noted that the risks to the upside are more modest in scale and that given the balance, has a neutral stance on the future direction of monetary policy.
ASIAN AFFAIRS
No End In Sight For Commodity Carnage As Chinese Fear Fed Hike Blowback
Today’s 1.75% rally in copper (ripping vertical at the US open) broke a record 14-day losing-streak after COMEX futures tested towards a ‘1’ handle numerous times for the first time since March 2009 (when the S&P 500 traded around 800). The metals market appears to be increasingly pricing concurrent and/or future weakness in China’s old economy, according to Goldman, as China futures open interest surges, but discussions at the 2015 Shanghai CESCO conference last week exposed the extremely bearish views of Chinese market participants regarding Chinese metals demand in 2016 (notably sentiment was worse than that expressed by investors outside of China) specifically citing a Fed rate hike before year-end as a further bearish factor for metals.
Today’s “bounce” broke the losing streak…
This was the longest losing streak on record (based on Bloomberg data) and is the worst 14-day loss (down 13.8%) since October 2011…
The last time copper traded here, S&P 500 was around 800…
And as we previously noted, Goldman Sachs warns that rising SHFE open interest may flag China demand deterioration
Metals prices have declined by 12%-17% since late October. Over this period, China’s economic data for October has disappointed, the US dollar has strengthened on a trade weighted basis, and the broader commodity complex has moved lower, including most notably, energy prices.
What has also occurred since late October has been an eye catching rise in Shanghai Futures Exchange open interest across the metals complex – for copper, it has been the largest increase in Shanghai open interest in 12 months – since the 1Q15 collapse in Chinese metals demand.
In our view, this development raises a red flag regarding ongoing and near term activity in China’s ‘old economy’ and metals demand growth, as measured by our GS China Metals Consumption Index (see chart below). Indeed, over the past five years, periods of rising SHFE open interest and falling metals prices have been associated with concurrent or imminent weakening in China’s commodity intensive ‘old economy’.
Meanwhile, though LME and Comex net speculative positioning has also declined over the period, it remains well above its August 2015 lows.
Overall, the metals market appears to be increasingly pricing concurrent and/or future weakness in China’s old economy, and related metals demand. To the extent that the metals market positioning predicts ongoing and potential future China growth weakness – since mid-2011 SHFE open interest has given a correct bearish signal on four out of five occasions – the latest metal market developments have bearish implications for China’s upcoming activity data releases and asset classes dependent on this data.
However, it is anything but close to being over. As Goldman notes today, China-led demand concerns point to further downside risk
Our discussions with market participants at the 2015 Shanghai CESCO Conference last week highlighted the extremely bearish views of Chinese market participants regarding Chinese metals demand in 2016. We continue to see that the risks surrounding our metals demand and price forecasts, in particular our Chinese demand forecasts, are skewed to the downside.
Chinese participants were generally at least as concerned as us, if not more so. Participants generally anticipated no improvement in Chinese activity at least before 2Q2016, with persistent weakness expected in property and manufacturing in particular. Participants saw the potential Federal Reserve rate hike before year-end as a further bearish factor for metals.
Demand weakness saw 2016 annual contract premiums decline
Conference participants are most worried about the Chinese demand outlook. We view the slashed 2016 copper premium by Codelco ($98/t for 2016 term shipments from $133/t in 2015) as further proof of demand weakness from China’s ‘old economy’. There was general belief from Chinese participants that the slowdown of credit growth and currency depreciation (via less financing deals) would place further downside risks on Chinese copper demand growth in 2016 (c.0-1% refined growth was considered realistic vs. our base case of 3%). Were this lower Chinese growth to materialize, our projection for a c.500ktpa copper market surplus through 2019 would rise to a c.700-800ktpa surplus, all else equal.
Sharp depreciation or devaluation present further downside risks
While China’ SDR inclusion was not at the top of discussions, the potential for sharp RMB/USD depreciation or devaluation in 2016 is high according to participants. We believe that the timing and range of deprecation is a significant risk to metals prices in the next 12 months, while placing renewed downside risk to pricing in the LME metals complex, as the overall marginal cost of Chinese base metals production would be lower, in dollar terms, and for aluminium particularly.
Copper-aluminium substitution underestimated
There was some discussion about copper-aluminium substitution in China. From the topend users (large SOEs) we believe the impact is generally limited given copper’s high quality in terms of electricity conduction and those top end-users see the current copper-aluminium price ratio (3x) not significantly economic. However, substitution at lower-end users could be substantial and the actual substituted amount is likely more than generally known (participants believe it could be between c.600kt-1mt in 2015), which would be a potential negative factor for copper pricing and leaves risks surrounding our forecasts as skewed to the downside.
Zinc still the least bearish overall
Given Glencore’s zinc output cuts and 500kt aligned production cuts from Chinese smelters, which is roughly 7% of global supply, the zinc supply and demand balance is set to tighten. However, overhang of the stockpile in the form of both concentrates and refined zinc and ongoing demand weakness left most market participants we spoke with negative on zinc prices.
Chinese aluminium cuts are not significant
The price sell-off of Chinese aluminium prices since late October was driven by the bearish supply dynamic in aluminium and the surge in open interest on the SHFE. Further cost reduction via government subsidies and power tariff cuts is making sufficient Chinese cuts more difficult and shifting burden to ex-China producers. We believe aluminium will stay lower for longer and see the risks surrounding our price forecasts as increasingly skewed to the downside.
Chinese market participants turn bearish on nickel
Given increasing concerns over Chinese stainless production in 2016 and ramp-up of Indonesian ferronickel supply, participants that we talked with expect the nickel market to remain loose in addition to the current overhang of nickel stockpiles. Even if Chinese NPI and refined nickel production continues to decline through 2016, high stocks and pressure on currency depreciation suggest that nickel is a risky long trade with both demand and supply deteriorating.
* * *
Does this trend look over?
Here Comes “QE For Metals” – China’s Desperate Commodity Sector Demands A State Bailout
When it comes to commodity metals, the dead cat no longer bounces.
We showed this last night in “No End In Sight For Commodity Carnage As Chinese Fear Fed Hike Blowback“, a post which can be summarized with the following chart showing that at least for nickel, copper, zinc, iron ore and aluminum it will be a very unhappy holiday season:
The one-word reason for this condition: China, which as documented extensively in the past, has clammed down on its unprecedented credit creation now that its debt/GDP is well over 300% and as a result conventional industries are dying a fast and violent death. In fact, months ago we, jokingly, suggested that what China should do, now that it has scared sellers and shorters to death, is to launch QE where it matters – the commodity space.
That joke has become a reality according to Reuters, which reports that China’s aluminum and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis.
The state-controlled metals industry body, China Nonferrous Metals Industry Association, proposed on Monday that the government scoop up aluminum, nickel and minor metals including cobalt and indium, an official at the association and two industry sources with direct knowledge of the matter said. The request was made to the state planner, the National Development and Reform Commission (NDRC).
One Reuters source familiar with the producers’ request said the China Nonferrous Metals Industry Association had suggested that the state buys 900,000 tonnes of aluminum, 30,000 tonnes of refined nickel, 40 tonnes of indium, and 400,000 tonnes of zinc.
In other words, everything that is plunging because there is simply no end-demand should simply be bought by the state.
And why not: in “developed” countries, the same thing is being done by central banks, only instead of directly “monetizing” metals, the central banks indirectly push up stock prices which is where 70% of household net worth is located. For China, and largely investment driven economy, the same can be said about commodity prices.
Furthemore, as reported two months ago, at current commodity prices, more than half of all companies with debt in the space are unable to make even one interest payment using organic cash flow which makes the decision for Beijing moot: either buy up the excess metals or reap the consequences of mass defaults.
For now it is not clear if the authorities will agree to the proposal, but as Reuters notes, the approach underlines the extent to which loss-making smelters in the world’s top producer and consumer are suffering from prices hovering at or near multi-year lows.
“Major Chinese zinc smelters had already proposed that the sector slashes output by 500,000 tonnes next year, or around one month’s production, in an attempt to boost prices. The country’s major nickel producers will meet on Friday to discuss potential output cuts of their own.”
Reuters further adds that “while the proposal does not include copper, it is likely to revive memories of 2009, when the State Reserve Bureau (SRB) in Beijing swooped in to buy more than 700,000 tonnes of copper on the domestic and international markets.”
Prices were languishing at around $3,000 per tonne at the time, and the buying spree reversed the falls and ultimately helped to propel prices to record highs above $10,000 per tonne in February, 2011. The SRB considers copper a strategic metal. The SRB is controlled by the NDRC, and any state purchases of most commodities are normally approved by the planner and executed by the bureau.
The bottom line is that China’s entire metals industry just requested a stated bailout, and as Reuters states the push to get the government to bail out the industry is likely to stir debate over whether Chinese producers in particular are doing enough to limit oversupply that is overwhelming global demand.
Unless there is one, the global deflationary wave is set to continue:
In the United States, aluminum smelters have blamed ballooning exports from China for hurting international prices.
Nickel prices on the London Metal Exchange, which sets the benchmark for global trade, plunged to their lowest in more than a decade on Monday amid concerns about waning demand from China, the world’s second-largest economy.
Few, if any smelters, are making a healthy profit at prices as low as $8,200 per tonne, down almost 60 percent since last year.
Aluminum prices have fallen nearly 30 percent over the past year.
And yet, despite the dreary picture, deep value investors like Baupost and Elliott recently acquired large chunks of Alcoa. Why? Because they are confident that the this latest demand for a government bailout will ultimately be greeted with an affirmative shake of the head by Xi Jinping. After all, the alternative – fair price discovery – is just too gruesome for any central-planner to even contemplate.
Did Mario Draghi Just Leak The Bazooka? Two-Tiered NIRP System May Presage Big Rate Cut
Back in September (and on several subsequent occasions), we discussed the implications of a further cut to the ECB’s depo rate. A plunge further into NIRP-dom would have serious consequences for the Riksbank, the SNB, the Nationalbank, and the Norges Bank.
In world dominated by beggar-thy-neighbor monetary policy, one cut begets another in race to the bottom as everyone scrambles to, i) keep their currency from soaring and ii) keep the inflationary impulse alive.
As Barclays explained in great detail several months ago, another ECB depo rate cut would have an outsized effect of the franc:
A cut in the ECB’s deposit rate further into negative territory likely would have a significant impact on the EURCHF exchange rate and provoke a more immediate response from the SNB. Indeed, we expect that a cut in the ECB’s deposit rate may have a greater effect on EURCHF than on other EUR crosses. Switzerland applies its negative deposit rate to only a fraction of reserves, currently about 1/3rd of sight deposits by our calculation. In contrast, negative deposit rates apply to all reserves held at the ECB, Riksbank and Denmark’s Nationalbank.Consequently, a cut to the ECB’s deposit rate likely has a larger impact both on the economy and on the exchange rate than a proportionate cut by the SNB.
Now, it appears Mario Draghi may be about to go the Swiss route by introducing a tiered system for the application of negative rates. As Reuters reports, “Euro zone central bank officials are considering options such as whether to stagger charges on banks hoarding cash ahead of the next European Central Bank meeting, according to officials.”
“Officials are discussing a split-level rate,” Reuters goes on to note, adding that the “contested step would impose a higher charge on banks depending on the amount of cash they deposit with the ECB.”
“It could be combined with a ceiling, so that from a certain point onwards liquidity can only be parked overnight at a stronger rate,” an unnamed official said. “Whether and how to shape a deposit rate cut in December is in discussion.”
The idea would be to mitigate the effect of a more negative rate on the institutions (German and French banks for instance) that park the most cash with the ECB.
One problem with driving rates further into negative territory is that at a certain point, banks will be forced to pass along the cost to retail deposits. So far, banks have been able to avoid charging depositors by making up the cost through fees and, in what amounts to a perversion of ZIRP/NIRP, higher mortgage rates.
But, as we saw earlier this week with The Alternative Bank Schweiz, there’s only so long lenders can hold out under the NIRP regime and sooner or later, negative rates will make their way to depositors, and that, in turn, has the potential to cause a revolt (i.e. a bank run).
Creating a system of exemptions forestalls the application of negative rates to individual accounts and indeed, it may be the only thing keeping Swiss banks from applying NIRP across the board. As Barclays put it, “a removal of domestic banks’ exemption from negative deposit rates likely would force Swiss banks to pass on negative deposit rates as it would increase the proportion of assets charged negative rates to over 20%.”
The ECB’s plan “sounds like the introduction of allowances similar to that of SNB or in Denmark,” Commerzbank’s Head of Fixed Rate Strategy Christoph Rieger told Bloomberg in e-mailed comments. “If allowances are set properly, the measure should fully impact rates, while still helping banks,” he added.
The interesting thing about the suggestion that the ECB will adopt a tiered system is that Draghi could be telegraphing a larger (i.e. more than 10bps) depo cut. That is, if you figure out a way to mitigate the effect on banks while preserving the “boom” factor vis-a-vis rates, you’ll have hit the sweet spot wherein markets will be pleasantly surprised, and banks will be able to tolerate the push further into NIRP.
“[It] allows scope for a deposit rate to be cut even more aggressively in coming months,” Mizuho’s Head of Rates Strategy Peter Chatwell told Bloomberg.
“I think this could be similar to a proposal from the IMF when they were discussing negative rates for Switzerland. In essence, the ECB will have to distinguish between retail banks and the rest. They could penalize the retail banks that fund themselves via deposits a bit less so that this does not trigger a deposit flight. They could be penalizing wholesale banks a bit more given that the threat of deposit flight is less there,” Credit Agricole adds.
Here’s Citi’s Josh O’Byrne:
Sourced indications the ECB is considering a two-tiered approach to further depo cutssuggests to us bigger cuts are being considered than Citi Economists’ 10bp base case. As we find, changing in rates are having a bigger impact on FX than they did when rates were positive. The coefficients we back out suggest a 20bp cut to a -40bp depo could take EURUSD closer to 1.04.
Worth keeping in mind here, through asset purchases there’s still about 500bn EUR of liquidity to come before now and September 2016. Increasing the term to mid-2017 would make this 1tn and increasing the pace at the same time to 80bn would put it closer to 1.5tn. Even at a -20bp depo that represents 3bn EUR of losses to the extent negative rates are not passed on to depositors and banks reduce margins.
A system which exempts a degree of deposits isn’t necessarily new and we have seen in Switzerland almost 65% of deposits exempt from negative rates using a multiple of minimum reserves. Still, CHF LIBOR has been fixing close to the -75bp, move to -80bp since expectations of ECB ease picked up. Following the very dovish speech from President Draghi last week, targeting higher inflation as quickly as possible, an ECB overwhelm looks on the cards.
Yes, an ECB “overwhelm” looks likely and that’s not good news for the SNB. In a separate piece out Wednesday, Reuters notes that the Swiss are backed up against the wall. “More ECB easing would be the latest challenge in the SNB’s four-year battle to shield the export-reliant economy from the strong franc,” Reuters says. “I think the SNB would act if the ECB cuts rates but the room for maneuver is limited,”Zuercher Kantonalbank’s foreign exchange head Bernd Roth warns. The SNB’s options:
- It could push three-month interbank offered rates CHLBOR=ECI, where the target range is between -1.25 and -0.25 percent,further into negative territory to maintain a spread to euro interest rates,
- it could charge more than 0.75 percent on some sight deposits at the SNB.
But Reuters leaves out the “nuclear option”: removing all exemptions from the negative deposit rate.That would mean individual accounts are in danger of NIRP and it would set the stage for the proliferation of negative rates to individual depositors, a dangerous precedent to be sure.
Meanwhile, analysts are already looking at the domino effect that we’ve been keen on outlining since the ECB’s September meeting. Nordea’s Niels Christensen says “Denmark will be forced to cut below -0.75 percent if the SNB moves after Draghi while Nomura’s Yujiro Goto, Jordan Rochester contend that the Riksbank is more likely that the SNB to cut. “The Riksbank will likely to be proactive after expected ECB decision to cut deposit rate further [and there’s a] high possibility of 10-15bps Riksbank rate cut,” Goto said in a note on Wedensday. And let’s not forget about the Norges Bank who, at +0.75 still has some room to go before NIRP if Oeystein Olsen wants to use monetary policy to combat an economy struggling with “lower for longer” crude.
So as you can see, the currency wars are alive and well and the race to the bottom (or, more appropriately, “below” the bottom) is on with the ECB set to kick off a new phase in competitive European devaluations.
It’s worth noting that if the SNB’s exemptions mean an ECB depo cut under the current regime would have an outsized effect of the EURCHF cross versus other euro pairs, then by definition that should mean that if Draghi introduces a tiered system, the decreased divergence between how the ECB and the SNB apply NIRP should mean less upward pressure on the franc than would have been the case with no tiered system. So consider that as well.
Finally, because all of the above was a bit technical in nature, we’ll close with a bit of comic relief courtesy of sheer central bank lunacy (via Reuters):
Another possibility raised among officials was the idea of buying bank loans at risk of non-payment. One person familiar with the matter said these could be packaged with more creditworthy loans before being put up for sale. “You could buy rebundled non-performing loans, combined with good loans,” said the person. “If we get to that, then things are very bad.”
GLEN GLENCORE PLC ORD USD0.01
| Price (GBX) | 90.58 | Var % (+/-) | -3.62% ( -3.40) |
| High | 95.93 | Low | 89.91 |
| Volume | 61,343,549 | Last close | 90.58 on 25-Nov-2015 |
| Bid | 90.51 | Offer | 90.61 |
| Trading status | Closing Price Crossing | Special conditions | NONE |
Russia Deploys Warship Off Syrian Coast To “Destroy Any Threats To Russian Planes”
Despite demands from France’s Hollande, America’s Obama, and NATO’s Stoltenberg that this situation not esclate, it appears Putin is not taking the shooting down of a fighter jet lying down. The seemingly cagey confirmation by NATO and Obama of Turkey’s claims that Russia invaded its airspace has been rebuked byRussia which claims the Hmeimim airbase radar shows the attacking Turkish plane violating Syrian airspace. In response, Russia is moving a Cruiser ‘Moskva’ off the coast to strengthen air-defenses – just as French and US carriers are on their way.
Here is The Turkish version mapping of the flight paths.
Russia claims otherwise:
- HMEIMIM AIRBASE’S RADAR SYSTEM RECORDS VIOLATION OF SYRIAN AIRSPACE BY ATTACKING TURKISH WARPLANE – RUSSIAN DEFENSE MINISTRY
And is escalating:
- RUSSIAN ‘MOSKVA” CRUISER TO GO TO AREA IN COASTAL LATAKIA TO STRENGTHEN AIR DEFENSE IN SYRIA – RUSSIAN DEFENSE MINISTRY
The Missile cruiser in question:
The reason for the deployment:
- RUSSIAN ARMED FORCES GENERAL STAFF: NONE OF OUR PARTNERS, COUNTRIES FIGHTING ISIL HAVE EVER TOLD US THAT SO-CALLED MODERATE OPPOSITION UNITS WERE IN AREA WHERE SU-24 DOWNED
- NO ATTEMPTS REGISTERED ON PART OF TURKISH PLANE TO GET IN TOUCH OR ESTABLISH VISUAL CONTACT WITH OUR CREW VIA OBJECTVE CONTROL DEVICES – RUSSIAN DEFENSE MINSTRY
- WARSHIP TO DESTROY ANY THREATS SEEN TO RUSSIAN PLANES: IFX
Specifically, as RT reports, the steps announced by Russian top brass as the following:Three steps as announced by top brass:
- Each and every strike groups’ operation is to be carried out under the guise of fighter jets
- Air defense to be boosted with the deployment of Moskva guided missile cruiser off Latakia coast with an aim to destroy any target that may pose danger
- Military contacts with Turkey to be suspended
Just like the downing of flight MH17 over Ukraine, it has quickly become a case of “he said, she said”:
Rudskoy said the Russian warplane did not violate Turkish airspace. Additionally, according to the Hmeymim airfield radar, it was the Turkish fighter jet that actually entered Syrian airspace as it attacked the Russian bomber. The Turkish fighter jet made no attempts to contact Russian pilots before attacking the bomber, Rudskoy added.
“We assume the strike was carried out with a close range missile with an infra-red seeker,” Rudskoy said. “The Turkish jet made no attempts to communicate or establish visual contact with our crew that our equipment would have registered. The Su-24 was hit by a missile over Syria’s territory.”
Sergey Rudskoy, a top official with the Russian General Staff, condemned the attack on the Russian bomber in Syrian airspace by a Turkish fighter jet as “a severe violation of international law”. He stressed that the Su-24 was downed over the Syrian territory. The crash site was four kilometers away from the Turkish border, he said.
As a result, Russia now plans to implement new measures aimed at strengthening the security of the country’s air base in Syria and in particular to bolster air defense. Russian guided missile cruiser Moskva, equipped with the ‘Fort’ air defense system, similar to the S-300, will be deployed off Latakia province’s coast.
“We warn that every target posing a potential threat will be destroyed,” lieutenant general Sergey Rudskoy said during the briefing.
“All military contacts with Turkey will be suspended,” he added.
Furthermore, as the Russian Ministry of Defense explained, going forward, any Turkish plane that enters Syrian airspace will be fair game.
And again, all this is happening as both the Frenchcarrier de Gaulle and the US carrier CVN-75 USS Harry S. Truman are on their way to a very dangerous rendezvous off the Syrian coast.
So just as we warned in September, the situation has become a complete rerun of the 2013 Syria “Mediterranean” showdown, with full naval engagement by all parties, except this time the tensions are significantly escalated, a Russian fighter jet has just been taken down, US and French aircraft carriers are arriving in weeks, and Putin will not hestitate to go as far as he has to in order to save face.
END
17 Seconds That Changed The World – Leaked Letter Exposes Turkey’s Hair-Trigger Reality
Needless to say, Moscow and Ankara are at odds over precisely what happened on Tuesday when a Russian Su-24 was shot down near the Syrian border.
The two pilots ejected and attempted to parachute to safety but Turkmen FSA-allied Alwiya al-Ashar militiamen shot at them as they fell before posting a video purporting to show rebel soldiers celebrating over one of the bodies. It only got worse from there when the FSA’s 1st Coastal Brigade used a US-made TOW to destroy a Russian search and rescue helicopter.
Clearly, this was a marked escalation and indeed it was the first time a NATO member had engaged a Russian or Soviet warplane in more than 60 years.
The Kremlin was not happy as Vladimir Putin – who was meeting with King Abdullah in Jordan – proceeded to brandErdogan a “backstabber” and an ISIS supporter. Sergei Lavrov subsequently canceled a planned trip to Turkey.
At issue now, is whether the Russian fighter jet did indeed, as Turkey claims, venture into Turkish airspace or whether the Turks actually engaged Moscow’s warplane in the skies over Syria.
Here’s Russia’s version of the story, presented via a video released by the Defense Ministry:
And here’s Turkey’s account:
Finally, here’s The New York Times with a compare and constrast visual:
In the wake of an emergency NATO meeting this afternoon, new information has come to light. First, there’s Ankara’s letter to UN Secretary-General Ban Ki-moon and the 15 members of the UN Security Council. Here it is:
The highlighted passage reads: “Disregarding these warnings, both planes, at an altitude of 19,000 feet,violated Turkish national airspace to a depth of 1.36 miles and 1.15 miles in length for 17 seconds from 9:24:05 local time.”
So, as RT notes, even if we buy Turkey’s story (i.e. if we accept that Russia actually did violate Turkish airspace), then it would appear that Ankara has something of an itchy trigger finger. That is, Turkey was apparently willing to risk sparking a wider conflict between NATO and Russia over a 17 second incursion.
But something doesn’t sound right.
In other words, as Sputnik put it earlier this evening, “according to those numbers, the Su-24 would have had to be flying at stall speed.”
The Su-24’s max speed is 1,320 km/hour.
So if we assume the Su-24 was actually going much faster, was 17 seconds more like 5 seconds? Or perhaps even less?
It’s important not to forget the context here. Ankara is fiercly anti-Assad and in addition to being generally displeased with Russia’s efforts to support the regime, just four days ago, Turkey summoned Russian ambassador Andrey Karlov over the alleged bombing of Turkish villages near the border. “Turkey has asked Russia to ‘immediately end its operation,'” AFP reported, adding that “Ankara warned bombing villages populated by the Turkmen minority in Syria could lead to ‘serious consequences.'”
Of course Russia wasn’t just bombing Turkish civilians for the sheer hell of it. It’s likely Moscow was targeting the very same FSA-affiliated Alwiya al-Ashar militiamen who shot and killed the parachuting Russian pilot earlier today.
In short, it looks like Ankara saw an opportunity to shoot down a Russian jet in retaliation for strikes on Turkish rebel fighters who are operating alongside anti-Assad forces. Erdogan is essentially gambling that Russia will not retailiate militarily against Turkey because doing so would open the door for a direct confrontation with NATO.
Time will tell whether that gamble pays off or whether Moscow decides that the next time a Turkish F-16 gets “lost” over Latakia, a little payback is in order.
end
Wall Street Remains Clueless—–Even As The Brown Stuff Heads Straight Into The Fan
by David Stockman • November 24, 2015
The Dow should have been down 500 points today. And that’s to say nothing of the fact that the market’s current lofty valuation makes no sense in the first place.
The fact is, the brown stuff is now heading straight for the fan.
Didn’t the odds of a major geo-political calamity just take a huge turn for the worse in the airspace over the Syria-Turkey border?
At the same time, wasn’t today’s GDP update just one more reminder that the global economy is sinking into a deflationary contraction? And that our so-called domestic recovery cycle is getting very long in the tooth and is essentially running on the fumes of inventory accumulation?
Yet the Wall Street gamblers and robo-traders seem to think that pricing this global accident waiting to happen at 22X reported S&P 500 earnings is no big deal. And that comes on top of the fact that the long-running corporate earnings expansion cycle is over, as attested to by both the GDP report and the Q3 SEC filings.
At $94 per share S&P earnings came in 11% below last year’s $106 per share and that was before the most recent headwinds became evident.
To wit, Syria is rapidly taking on the complexion of the Balkans in June 1914. The resulting backwash of Islamic State terrorism and millions of refugees deep into the interior of Europe threatens to elicit a political and economic lockdown and a potential Thermidorian Reaction.
The rise of rightwing nationalism, in fact, would end the European Union as we know it.
And this is occurring even as Asian exports to Europe plunge, dragging Japan into its 5th recession in seven years and China ever closer to a thumping hard landing.
So the market at 22X amounts to a bubble floating toward a pin.
And folks, there are sharp objects cropping up everywhere on the planet——starting with last night’s incident on the Syrian border.
This wasn’t a minor stray pitch. It was evidence that a dozen lethally-armed outside combatants are lined-up in a circle firing capriciously into the hodge-podge of sectarian tribes, political factions and marauding militias that have metastasized within the boundaries of a shattered former state.
The idea that Russian planes threatened Turkey and deliberately violated its airspace is ludicrous. By the attestation of US officials themselves, the incursion was hardly measureable, if it happened at all:
US officials told NBC “They were in Turkish airspace only 2 to 3 seconds, a matter of seconds” before the Turkish F-16s attacked.
Two to three seconds?
Why in the world would Washington’s Turkish “ally” in the fight against the Islamic State, and the NATO member located closest to the front and with the largest military in Europe, put a near act of war on a such a hair trigger rule of engagement?
Alas, its because Turkey is not at war with ISIS. Instead, its megalomaniac President is in the midst of a monumental power grab designed to transform Turkey into a Gaullist dictatorship with himself at the helm.
To that end, his incendiary shootdown of a Russian Su-24 warplane was designed to pander to domestic constituencies sympathetic to the Turkman villages in northwest Syria now being bombed by the Russians. Its from that same piece of cloth that Erdogan chose to bomb Kurdish forces on the Syrian border——even though the latter by all accounts have mounted heroic campaigns that ousted ISIS from Kobani last summer and Sinjar more recently.
Moreover, it did not take long for the rest of the gong show to materialize. It seems that Alwiya al-Ashar, an anti-Assad rebel group consisting of or aligned with the Turkmen villages, attacked the parachuting pilots and a Russian rescue helicopter.
According to reports at least one of the pilots was killed and the Russian helicopter was destroyed by a TOW missile supplied to the so-called Free Syrian Army (FSA) by Saudi Arabia and Qatar. Except Alwiya al-Ashar does not consist of “moderate” good guys—–they are jihadi terrorists.
( to be continued)
Marc Champion’s of Bloomberg offers the following as to why the confrontation between Russia and Turkey:
(courtesy Marc Champion/Bloomberg0
The details of how and why a Russian jet was shot down near the Turkish-Syrian border remain unclear, but one thing can already be said: Russian President Vladimir Putin has misjudged his Turkish counterpart and former friend, Recep Tayyip Erdogan.
According to Turkey’s military, one of its F-16sfired on a jet over Turkish territory, after the plane’s pilots ignored 10 warnings to leave. So the North Atlantic Treaty Organization’s second-largest military is claiming to have shot down an aircraft in anger that was probably Russian, and is now “consulting” with its NATO allies.
Russia’s defense ministry confirmed one of its jets had crashed, but said the plane was flying in Syrian airspace at an altitude of 6000 meters when it was fired upon from the ground. Putin blamed “backstabbing” and said his country’s plane was 1 kilometer (0.6 miles) inside Syria when hit. So there’s a dispute.
These kinds of skirmishes happened between NATO and the former Soviet Union during the Cold War, but make no mistake; this is a big deal. What comes next will be a test of maturity for all sides. European stocks slid on the news with Russia’s main index down by 4 percent.
By now, after flatly denying that a Russian missile brought down Malaysian Airlines MH-17 over Eastern Ukraine last year (despite a meticulous Dutch investigation), and pretending for days that there was no evidence that a bomb destroyed a Russian airliner over Egypt in October, Russia’s word counts for zero in matters of aviation. But that doesn’t prove it is lying on the all-important question of where its Su-24 was when it was hit.
Turkey summoned Russia’s ambassador on Friday to demand that Russia stop bombing Turkmen rebels in Syria, who hold territory just across the border and are openly supported by Turkey. Ambassador Andrei Karlov and his military attache were reportedly told that Turkey would “not be indifferent” to any harm that came to Turkmen civilians. In order to bomb these rebels (who are part of the Free Syrian Army, rather than Russia’s proclaimed target, Islamic State), Russian and Syrian aircraft have to fly very close to Turkish airspace. So it is conceivable that Erdogan has simply decided to warn Putin off.
The Turkish version of events is also plausible. Russian jets have been flirting with Turkish airspace ever since Putin began his military intervention in Syria. Turkey may just have decided enough was enough.
Whichever version of events turns out to be accurate — or even a combination of the two, in which the Russian Sukhoi had strayed into Turkish airspace and was shot down as it veered back into Syria — it is clear that Putin has misjudged Erdogan. As one Russian report on the website Federal News Agency put it, Turkey claimed to have shot down a Russian drone in its airspace in October, shortly before Turkish parliamentary elections, and threatened that manned aircraft would face the same fate:
But no one attributed any significance to these words; they were thought to be empty election rhetoric on Erdogan’s part. As we can see, the Turks don’t limit themselves to rhetoric.
Both Putin and Erdogan are strongmen, who treat domestic politics as a scorched earth battle for power. Russia’s repeated humiliation of Erdogan before his audience at home, both by bombing Turkish clients just across the border and repeatedly breaching Turkish airspace, was therefore a high-risk strategy.
Putin could afford to be relaxed about Erdogan’s earlier threats to stop buying Russian natural gas in retaliation: Where else would Turkey find enough gas to substitute a fifth of its energy needs? But the Russian leader should have recognized that Turkey, already host to more than 1.7 million Syrian refugees, has a lot at stake in Syria and, in Erdogan, a president who takes rejection personally.
Bashar al-Assad, after all, was once a feted ally who went on vacation with Erdogan’s family. When the Syrian leader ignored Erdogan’s advice and mediation efforts in the face of unarmed pro-democracy protests in 2011, Erdogan took it as a personal affront and spearheaded the campaign to unseat Assad.
Israel discovered something similar in 2008, when the then Prime Minister Ehud Olmert launched an invasion of the Gaza Strip, immediately after returning from a visit to Erdogan in Ankara. The two men had been discussing Erdogan’s efforts to mediate between Israel and Syria, not an invasion of Gaza. Erdogan felt played and broke off Turkey’s alliance with Israel, becoming instead one of its fiercest critics.
Putin, too, was supposed to be Erdogan’s friend and ally, as they faced down together U.S. and European complaints about the crushing of media freedoms and democratic institutions in their respective countries. Instead, the Russian leader has ignored his burgeoning economic and political relationship with Turkey to pursue his goals in Syria.
The best way for Putin to figure out how Erdogan will respond to any further Russian moves is probably to imagine how he himself would react. The two men have a lot in common.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
end
And now George Washington discusses the Russian-Turkey confrontation:
“George Washington” reports that a USA official has stated to Reuters that the downed Russian aircraft was in Syrian territory:
(courtesy George Washington/zero hedge)
Turkish Shootdown of Russian Jet: What You Need to Know
Submitted by George Washington on 11/24/2015 23:12 -0500
A U.S. official told Reuters that the Russian jet was inside of Syria when it was shot down:
The United States believes that the Russian jet shot down by Turkey on Tuesday was hit inside Syrian airspace after a brief incursion into Turkish airspace, a U.S. official told Reuters, speaking on condition of anonymity.
Russia denies that the Russian fighter jet – which was bombing ISIS – ever entered Turkish air space, and has put out its own map purporting to prove that claim.
The Russian jet pilots who parachutted free of their burning plane were then purportedly killed by Turkish rebels inside Syria. If true, this is a war crime.
Then – when a Russian helicopter tried to save the pilots –it was shot down by American-backed Syrian rebels – using weapons provided to them by the United States – and a Russian marine was killed.
Russia is deploying a warship off the Syrian coast to “destroy any threats to Russian planes”. Many believethis is the start of World War III.
While the U.S. and NATO tried to blame Russia, German Vice-Chancellor Sigmar Gabriel slammed Turkey:
“This incident shows for the first time that we are to dealing with an actor who is unpredictable according to statements from various parts of the region – that is not Russia, that is Turkey,” Gabriel said, as cited by DPA news agency. He added that Turkey was playing “a complicated role” in the Syrian conflict.
Indeed, NATO-member Turkey is MASSIVELY supporting ISIS, provided chemical weapons used in the jihadi’s massacre of civilians, and has been bombing ISIS’ main on-the-ground enemy – Kurdish soldiers – using its air force. And some of the Turkish people are alsounsympathetic to the victims of ISIS terrorism.
Turkey was also instrumental in the creation of ISIS. An internal Defense Intelligence Agency (DIA) document produced recently shows, the U.S. knew that the actions of “the West, Gulf countries and Turkey” in Syria might create a terrorist group like ISIS and an Islamic CALIPHATE.
As the former DIA head explained:
It was a willful decision [by Turkey, the West and the Gulf states] to … support an insurgency that had salafists, Al Qaeda and the Muslim Brotherhood ….
Erdogan’s Dirty Dangerous ISIS Games
Turkey is a beautiful land, rich in resources, with many highly intelligent and warm people. It also happens to have a President who seems intent on destroying his once-proud nation. More and more details are coming to light revealing that the Islamic State in Iraq and Syria, variously known as ISIS, IS or Daesh, is being fed and kept alive by Recep Tayyip Erdoğan, the Turkish President and by his Turkish intelligence service, including MIT, the Turkish CIA. Turkey, as a result of Erdoğan’s pursuit of what some call a Neo-Ottoman Empire fantasies that stretch all the way to China, Syria and Iraq, threatens not only to destroy Turkey but much of the Middle East if he continues on his present path
by NEO:
In October 2014 US Vice President Joe Biden told a Harvard gathering that Erdoğan’s regime was backing ISIS with “hundreds of millions of dollars and thousands of tons of weapons…” Biden later apologized clearly for tactical reasons to get Erdoğan’s permission to use Turkey’s Incirlik Air Base for airstrikes against ISIS in Syria, but the dimensions of Erdoğan’s backing for ISIS since revealed is far, far more than Biden hinted.
ISIS militants were trained by US, Israeli and now it emerges, by Turkish special forces at secret bases in Konya Province inside the Turkish border to Syria, over the past three years. Erdoğan’s involvement in ISIS goes much deeper. At a time when Washington, Saudi Arabia and even Qatar appear to have cut off their support for ISIS, they remaining amazingly durable. The reason appears to be the scale of the backing from Erdoğan and his fellow neo-Ottoman Sunni Islam Prime Minister,Ahmet Davutoğlu.
Nice Family Business
The prime source of money feeding ISIS these days is sale of Iraqi oil from the Mosul region oilfields where they maintain a stronghold. The son of Erdoğan it seems is the man who makes the export sales of ISIS-controlled oil possible.
Bilal Erdoğan owns several maritime companies. He has allegedly signed contracts with European operating companies to carry Iraqi stolen oil to different Asian countries. The Turkish government buys Iraqi plundered oil which is being produced from the Iraqi seized oil wells. Bilal Erdoğan’s maritime companies own special wharfs in Beirut and Ceyhan ports that are transporting ISIS’ smuggled crude oil in Japan-bound oil tankers.
Gürsel Tekin vice-president of the Turkish Republican Peoples’ Party, CHP, declared in a recent Turkish media interview, “President Erdoğan claims that according to international transportation conventions there is no legal infraction concerning Bilal’s illicit activities and his son is doing an ordinary business with the registered Japanese companies, but in fact Bilal Erdoğan is up to his neck in complicity with terrorism, but as long as his father holds office he will be immune from any judicial prosecution.” Tekin adds that Bilal’s maritime company doing the oil trades for ISIS, BMZ Ltd, is “a family business and president Erdoğan’s close relatives hold shares in BMZ and they misused public funds and took illicit loans from Turkishbanks.”
In addition to son Bilal’s illegal and lucrative oil trading for ISIS, Sümeyye Erdoğan, the daughter of the Turkish President apparently runs a secret hospital camp inside Turkey just over the Syrian border where Turkish army trucks daily being in scores of wounded ISIS Jihadists to be patched up and sent back to wage the bloody Jihad in Syria, according to the testimony of a nurse who was recruited to work there until it was discovered she was a member of the Alawite branch of Islam, the same as Syrian President Bashar al-Assad who Erdoğan seems hell-bent on toppling.
Turkish citizen Ramazan Başol, captured this month by Kurdish People’s Defence Units,YPG, as he attempted to join ISIS from Konya province, told his captors that said he was sent to ISIS by the ‘İsmail Ağa Sect,’ a strict Turkish Islam sect reported to be tied to Recep Erdoğan. Başol said the sect recruits members and provides logistic support to the radical Islamist organization. He added that the Sect gives jihad training in neighborhoods of Konya and sends those trained here to join ISIS gangs in Syria.
According to French geopolitical analyst, Thierry Meyssan, Recep Erdoğan “organised the pillage of Syria, dismantled all the factories in Aleppo, the economic capital, and stole the machine-tools. Similarly, he organised the theft of archeological treasures and set up an international market in Antioch…with the help of General Benoît Puga, Chief of Staff for the Elysée, he organised a false-flag operation intended to provoke the launching of a war by the Atlantic Alliance – the chemical bombing of la Ghoutta in Damascus, in August 2013. “
Meyssan claims that the Syria strategy of Erdoğan was initially secretly developed in coordination with former French Foreign Minister Alain Juppé and Erdoğan’s then Foreign Minister Ahmet Davutoğlu, in 2011, after Juppe won a hesitant Erdoğan to the idea of supporting the attack on traditional Turkish ally Syria in return for a promise of French support for Turkish membership in the EU. France later backed out, leaving Erdoğan to continue the Syrian bloodbath largely on his own using ISIS.
Gen. John R. Allen, an opponent of Obama’s Iran peace strategy, now US diplomatic envoy coordinating the coalition against the Islamic State, exceeded his authorized role after meeting with Erdoğan and “promised to create a « no-fly zone » ninety miles wide, over Syrian territory, along the whole border with Turkey, supposedly intended to help Syrian refugees fleeing from their government, but in reality to apply the « Juppé-Wright plan ». The Turkish Prime Minister, Ahmet Davutoğlu, revealed US support for the project on the TV channel A Haber by launching a bombing raid against the PKK.” Meyssan adds.
There are never winners in war and Erdoğan’s war against Syria’s Assad demonstrates that in bold. Turkey and the world deserve better. Ahmet Davutoğlu’s famous “Zero Problems With Neighbors” foreign policy has been turned into massive problems with all neighbors due to the foolish ambitions of Erdoğan and his gang.
F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook”.
UPDATE 1-Russia’s Gazprom says halts gas supplies to Ukraine over payment
(Adds Ukraine, Brussels comments, background)
Nov 25 Russia‘s Gazprom said on Wednesday it was halting gas supplies to Ukraine until it makes a prepayment for supplies.
Gazprom said that by 10 a.m. (0700 GMT) on Wednesday Ukraine had received all gas it had paid for.
However, state gas transport monopoly Ukrtrasgaz said that Ukraine would continue importing gas on Wednesday and expected to receive about 5 million cubic metres (mcm) of gas.
The European Commission said it was not worried about the situation for now. Ukraine is an important route for Europe’s imports of Russian gas.
“The European Commission has no particular concern about the gas flows from Russia to Ukraine and no further comment to make,” said Commission spokeswoman Anna-Kaisa Itkonen.
Ukraine has imported 400 mcm of Russian gas so far this month, including 10 mcm on Tuesday, Ukrtransgaz data showed.
Energy Minister Volodymyr Demchyshyn said this week that Kiev had enough gas in reserve to ensure it was not critical for it to buy gas from Russia at this stage.
He said gas consumption had been as much as 19 percent lower year on year this season and estimated that reserves would stand at around 16 billion cubic metres by early December, 2 billion higher than at the same point last year.
The head of state energy firm Naftogaz Andriy Kobolev said this month that Ukraine would buy gas from Russia until the end of the year, but gave no details. [ID: nS8N0ZC01O] (Reporting by Maria Kiselyova, additional reporting by Pavel Polityuk in Kiev and Barbara Lewis in Brussels; writing by Polina Devitt; editing by Lidia Kelly and Jason Neely)
end
Second:
Lavrov states that Turkey’s attack was planned as no doubt Erdogan wanted to protect the “Turkman” on the Syrian side of the border. These guys want to oust Assad and thus against Russian interests.
It seems that Russia is playing a waiting game, as so far they have taken 2 strikes on then:
i) the Turkish downing of a Russian drone
ii) the downing of yesterday’s Russian fighter jet and rescue helicopter.
Russia will act if strike 3 is orchestrated on them:
(courtesy zero hedge)
Russia Says Turkey’s Attack On Jet Was “Planned Provocation” As Ankara Moves Tanks Near Syrian Border
On Tuesday evening, we took a close look at the circumstances surrounding Turkey’s decision to shoot down a Russian Su-24 near the Syrian border. The incident was the most meaningful escalation in the conflict to date and marks the first time a Russian or Soviet plane has been downed by NATO since 1953.
The pilots ejected, one of whom was shot in his parachute by FSA-affiliated Alwiya al-Ashar militiamen who subsequently celebrated over the body. About an hour later, the FSA’s 1st Coastal Brigade used a US-made TOW to destroy a Russian search and rescue helicopter, killing one Russian marine.
For his part, Vladimir Putin called Erdogan a backstabber and proceeded to accuse Turkey of flying the black flag of ISIS and funding the Islamic State cause by facilitating the sale of illegal crude.
Miraculously, there were no further escalations overnight, but as we outlined in detail on Tuesday, something doesn’t add up about the story Ankara is telling. According to a letter Turkey sent to UN Secretary-General Ban Ki-moon and the 15 members of the UN Security Council, the Russian warplane, flying at 19,000 feet, “violated Turkish national airspace to a depth of 1.36 miles and 1.15 miles in length for 17 seconds.” If you do the math on that, it means the Su-24 was basically flying at stall speed.
Here’s how we summed up the situation:
It’s important not to forget the context here. Ankara is fiercly anti-Assad and in addition to being generally displeased with Russia’s efforts to support the regime, just four days ago, Turkey summoned Russian ambassador Andrey Karlov over the alleged bombing of Turkish villages near the border.
Of course Russia wasn’t just bombing Turkish civilians for the sheer hell of it. It’s likely Moscow was targeting the very same FSA-affiliated Alwiya al-Ashar militiamen who shot and killed the parachuting Russian pilot.
In short, it looks like Ankara saw an opportunity to shoot down a Russian jet in retaliation for strikes on Turkish rebel fighters who are operating alongside anti-Assad forces.
With that in mind, note that on Wednesday, Sergei Lavrov (not known for holding his tongue or even for observing any semblance of diplomatic decorum) accused Ankara of conducting a pre-meditated strike.“We have serious doubts this was an unintended incident and believe this is a planned provocation,” Lavrov said, after a meeting with his Turkish counterpart Mevlut Cavusoglu. Lavrov also said he would back a plan to close the Turkish-Syrian border. “I think this is the right desicion. I hope President Hollande will tell us more about the issue tommorow. We would be ready to consider all measures that needed for this [closing the border]. By closing the border we will basically thwart the terrorist threat in Syria,” he said.
Russia also said the Syrian army (so, Iran or Hezbollah) had retrieved the second pilot who is now “alive and well.” Here’s how French ambassador Alexandre Orlov summed up the situation in an interview with Europe 1 radio: “One on board was wounded when he parachuted down and killed in a savage way on the ground by the jihadists in the area. The other managed to escape and, according to the latest information, has been picked up by the Syrian army and should be going back to the Russian air force base.”
Note the difference in the way Russia and the US describes the FSA. For the US, they are a “moderate opposition group,” for the Russians, they are “jihadists.” Considering they are allied with al-Qaeda, and judging from the gruesome videos released by the group on Tuesday, you’d be forgiven if you’re inclined to go with Moscow’s characterization.
Meanwhile, Russia is set to deploy the S-400s. “Russia also said Wednesday it would take new measures in Syria to protect its aircraft, deploying powerful S-400 anti-air missile systems, which have a range of nearly 250 miles, to Russia’s Khmeimim airbase in northwestern Syria,” WaPo reports, adding that “the airbase is located a little under 20 miles from the Turkish border, and has the potential to create headaches for Turkish and other aircraft in a U.S.-led coalition that are carrying out a separate airstrike campaign in Syria.”
These are of course the same S-400s which the Western media claimed were already at Latakia earlier this month – a contention Russia denied at the time. Whether or note they were there is now immaterial – they’ll be operational from this point on. As a reminder, here’s what the systems look like:
What seems clear (as noted above and as discussed at length on Tuesday), is that Turkey is keen on protecting Alwiya al-Ashar and other anti-Assad forces operating near the Turkish border. Indeed, Sergei Lavrov said as much in a press briefing on Wednesday. “[The] question arises whether Turkey is defending Syria area to protect rebel infrastructure,” Lavrov said at a press briefing in Moscow on Wednesday.
Indeed, Ankara looks to be stepping up its military presence near the area where the Russian plane was shot down. “Turkey has moved 20 tanks from west of country to southern province of Gaziantep, bordering Syria, and increased number of F-16s flying patrols along border to 18 as of yesterday,” state-run Anadolu Agency said today. Here’s a visual that shows you where Gaziantep is in relation to Aleppo and to the Su-24 crash site:
The logical next question to ask here is how prepared Turkey is to defend FSA positions because it’s only a matter of time before the IRGC and Hezbollah invade these areas on the ground and when that happens, you can expect Ankara to cry genocide against Syria’s Turkmen miniority. What comes after that is anyone’s guess.
In the meantime, Lavrov says Russia “is not going to war against Turkey,” but remember what we said last month when Turkey shot down a Russian drone: “For now, it appears as though The Kremlin is going to take this one in stride, but that may be “strike one” so to speak, meaning NATO might have one or two more pot shots it can take before Erdogan gets a slightly less “neighborly” call from Moscow.”
Tuesday was strike two.
end
Late this morning, we get more details that shed light on events with respect to the Turkey-Russia conflict
Here are the facts:
- The second pilot (the co pilot) is not dead. He parachuted safely and was rescued by the real Syrian army after facing gunfire from the free Syrian army. His commander and co pilot was killed as he parachuted and it was his body that we saw celebration from the FSA
- The second body witnessed in various videos was the pilot of the helicopter that tried to rescue to boys
- The co pilot stated that he was in Syrian territory and knows the area” like the back of their hands.”
- The co pilot stated that there were no warnings from Turkey.
it’s your move Mr Putin
(courtesy zero hedge)
Is Turkey Lying: Rescued Russian Pilot Says There Was No Warning Before F-16 Opened Fire
The conflicting stories over yesterday’s dramatic downing of a Russian jet on the Syria-Turkish border continue to grow, and after the ongoing confusion whether the Russian pilot did or did not enter Turkish territory for a grand total of 17 seconds, moments ago Konstantin Murahtin, the co-pilot from the downed Russian jet who survived the ground fire by US-armed rebels unlike his pilot, and who was rescued by the Syrian army, said that contrary to official reports that Turkey had somehow warned the Russian jet “10 times” (in 17 seconds?) that it would fire, Turkey had in fact given no warning whatsoever before downing the Russian jet.
This is what he said, cited by Sputnik:
“There were no warnings. Not via the radio, not visually. There was no contact whatsoever. That’s why we were keeping our combat course as usual. You have to understand what the cruising speed of a bomber is compared to an F-16. If they wanted to warn us, they could have shown themselves by heading on a parallel course. But there was nothing. And the rocket hit our tail completely unexpectedly. We didn’t even see it in time to take evasive maneuvres.”
It would be quite easy to confirm or deny his allegation that Turkey is lying by simply checking the data from the plane’s Black Box, and alterantively, from the F-16 that was responsible for the downing of the Russian Su-24.
Murahtin also made it clear that he thought there was no violation of the Turkish airspace and added that the crew of the downed Russian bomber jet knew the area of the operation “like the back of their hands.”
The co-pilot added that he wants to continue serving in the Russian aviation group in Syria: “I can’t wait until I get the all-clear from the medics, so that I can step back into the ranks. I’m going to ask our command to keep me on this base — I have a debt to repay, for my commander.”
The bottom line is that someone is lying, and while for now there has been no material escalation in tensions between Turkey and Russia, it is almost assured that Putin is now carefully plotting just what his next move should be, one which will likely include the missile cruiser by the Syrian coast and any Turkish fighter jets that stray into Syrian territory.
For now what Russia appears set on doing next is closing the Syrian border with Turkey. As earlier reported, Moscow backs the proposal of French President Francois Hollande to close the Turkish-Syrian border, Sergei Lavrov said.
“I think this is the right desicion. I hope President Hollande will tell us more about the issue tommorow. We would be ready to consider all measures that needed for this [closing the border]. By closing the border we will basically thwart the terrorist threat in Syria,” the minister said.
But Lavov was not finished. In a press conference earlier today, he first said that “Moscow is not avoiding contacts with Ankara” citing his phone conversation with the Turkish FM as proof.
He press on saying that “too many indicators showing terrorist threats have appeared on Turkish soil”, Russian Foreign Minister Sergei Lavrov said Wednesday.
“We cannot leave everything that has happened without a reaction not because we have to respond somehow, that’s not it. Actually there have been too many indicators on Turkish soil that show a direct terrorist threat to our citizens.”
“I think that now we will insist on not just a list of members of this group, but also agree on the overall understanding of the channels the terrorists use to get their feedlines and support.”
“We will somehow probably have to deal with certain countries so that this support ends,” Lavrov added.
It is quite clear just which “countries” the Russian minister was referring to, and it is safe to say the entire world is eagerly looking forward to see just what Russia’s ultimate decision will be.
end
Goldman Finally Looks At The Freight Charts, Raises Alarm About The “Broader Health Of The US Economy”
In the first days of November, we showed that global trade is in freefall with “China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down.” Now, Goldman has finally caught up, and writes that “indicators of freight activity—the volume of goods carried by truck, rail, air or ship—have slowed recently, raising concerns about the broader health of the US economy.“
This is how Goldman finally admits what we have been saying for the past two years: the biggest threat to the US, and global, economy is the gradual and ever faster slowdown in trade, something which central banks are incapable of “printing.”
Freight transportation data can be a useful gauge of activity in the goods-producing sectors of the economy, for obvious reasons. Products need to move from manufacturers to end consumers, and will be carried along the way by at least one of the four modes of transportation—truck, rail, air or ship—and frequently by multiple types (“intermodal” transport). The economic indicators measuring US transportation activity are also relatively transparent—counting things like the number of containers or rail cars—and in some cases quite timely. They are therefore popular among investors. Recently some of these measures have slowed, raising concerns about the broader health of the US economy.
And here is Goldman doing its best recap of our charting, using its own words:
- Railcar traffic, for example, has been notably weak, falling by about 3% from a year earlier based on monthly data (Exhibit 1, left panel).
- Data on trucking activity—which is nearly four times as large as rail activity by the dollar value of gross output—offers a similar message. The American Trucking Association’s truck tonnage index showed an impressive recovery after bottoming in early 2009, but growth slowed over the last year (Exhibit 2). Year-over-year growth was +1.7% as of Q3, down from +4.2% in Q4 2014 and +9.0% in Q4 2013.
- Air freight volumes as well as port traffic have also slowed, and in both cases the data hint that weakness in foreign growth is playing a role. Exhibit 3 shows the cargo “ton-miles” (i.e. 2,000 pounds/907 kilograms of cargo transported one mile) of US air carriers, divided into domestic and international operations. Total cargo ton-miles have declined by about 3% over the last year, with a 6% decline in international shipments but a 1% gain in domestic traffic (albeit from a low base).
- The largest ports in the US report monthly on their volumes of loaded inbound and outbound shipping containers—the ubiquitous symbol of global trade. In the year to October, total loaded container traffic fell 1.2%, reflecting a 0.6% gain in inbound containers and a 4.3% decline in outbound containers (Exhibit 4). A large portion of outbound port activity reflects trade with Asia (70-90% for the largest West Coast ports and about 35% for the Port of New York/New Jersey, the largest on the East Coast), and the observed weakness may therefore reflect tepid demand for US goods from the region.
We dread to imagine what would happen to Goldman’s economists if they were to find out that a third of all containers shipped from Long Beach harbor are empty…
Finally Goldman’s attempt to put a silver lining on what is clear collapse in global trade:
- The relative performance of different aspects of freight volumes mirrors what we see in other statistics, with greater weakness in areas closely related to commodities, heavy industry and exports, and somewhat better activity for traffic more associated with consumer goods (e.g. intermodal rail volumes) and imports. The contrast in the airline industry is particularly striking: while cargo ton-miles are down 3% year-over-year, passenger ton-miles are up about 5% over the same period. Sluggish freight volumes are therefore more confirmation that activity in goods-producing sectors of the economy remains soft.
In summary, a perfect time for the Fed to hike rates.
END
The global defaults on commodity investments near the century mark
(courtesy London’s Financial times/and special thanks to Robert H for sending this to us)
Global debt defaults near milestone
A slide in oil and commodity prices has weighed on smaller energy producers, primarily in the US, as big Opec producers continue pumping crude to maintain market share. (Photograph: YASUYOSHI CHIBAYASUYOSHI CHIBA/AFP/Getty Images)
Global debt markets are on the cusp of an unwelcome development with the number of companies defaulting on their obligations set to reach the century mark, driven largely by struggling US shale gas providers.
Currently, 99 global companies have defaulted since the year began, the second greatest tally in more than a decade and only exceeded by the financial crisis which saw 222 defaults in 2009, according to Standard & Poor’s. US companies account for 62 of this year’s defaults.
Investors have become increasingly concerned about the state of the credit market, reflecting how companies have borrowed heavily against the backdrop of low interest rates during the era of easy money. Since 2007, the proportion of corporate bonds S&P has rated speculative-grade, or junk, has climbed to about 50 per cent from 40 per cent.
Now, as markets anticipate the Federal Reserve will lift interest rates for the first time in almost a decade, the rise in defaults suggests a number of companies are being challenged by a sluggish operating environment, declining revenues and heavy debt loads.
A slide in oil and commodity prices has weighed on smaller energy producers, primarily in the US, as big OPEC producers continue pumping crude to maintain market share. In the US, about three-fifths of defaults in 2015 have been among energy and natural resources businesses, including Midstates Petroleum, SandRidge Energy and Patriot Coal.
“The heart of the storm has been in commodities but it hasn’t been limited to just that,” said Raman Srivastava, deputy chief investment officer at Standish Mellon Asset Management. “It feels like every week there’s another company in the headlines. You hope it’s isolated but you don’t know.”
The jump in defaults has been reflected in the average yield on US corporate junk bonds, rising from 5.6 per cent at the start of 2014 to 8 per cent at present, according to Barclays.
The sell-off has been concentrated in the energy and materials industries and the average yield for junk bonds in the two sectors shot above 12 per cent last week; no other sector has a yield above the overall average.
Emerging market borrowers have accounted for 19 of the defaults — the second largest source of failures, Europe has counted 13 and the remainder are in other developed countries, such as Japan and Canada.
The number of weaker companies rated by the credit agencies has also risen from 167 in the previous quarter to 178. S&P defines these “weakest links” as borrowers with junk bonds rated B-minus or lower and at risk of further downgrade.
Diane Vazza, head of global fixed income research at S&P, said: “By most measures, the rising number of defaults in the near future likely will be muted by historical standards, but the current crop of US speculative-grade issuers appears fragile and particularly susceptible to any sudden or unanticipated shocks.”
Copyright The Financial Times 2015
Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households
Late last month, Sweden tripled down on QE, as the Riksbank announced it would expand its asset purchases by SEK65 billion. Or, visually:
The recent history of Swedish monetary policy is viewed by some as a cautionary tale about what can happen when a central bank attempts to normalize policy too “early.” As a reminder, the Riskbank began raising rates in 2010. Reminiscing about the bank’s decision four years later, Paul Krugman blew a gasket on the way to accusing Sweden of being a nefarious lot of job hating heretics hell bent on perpetuating global inequality by enriching creditors at the expense of impoverished debtors.
Of course Krugman needn’t have been so hard on the Riksbank. After all, they reversed course a little over a year later and since then, it’s been nothing but easing as the repo rate fell 35 bps into negative territory.
The problem, as we’ve documented quite extensively, is that Sweden’s adventures in NIRP-dom have done little to boost inflation (to be fair, unemployment has fallen).
For the Paul Krugmans of the world, that’s evidence of a hangover from the series of hikes the Riksbank embarked on beginning in 2010. For anyone who is sane, it’s evidence that, i) unconventional monetary policy is bumbing up against the law of diminishing returns , and ii) when everyone is easing, no one gets the benefits.
But while NIRP may not be doing much for inflation, it sure has been effective at creating a rather scary looking housing bubble. Have a look:
We discussed this at length in “Sweden Goes Full Krugman, Gets Massive Housing Bubble.” Here’s what the Riskbank had to say about this after its September meeting:
“Low interest rates contribute to the trends of rising house prices and increasing indebtedness in the Swedish household sector continuing. Current debt levels already pose a substantial risk to the Swedish economy. It is thus essential that the Riksdag (the Swedish parliament), the Government and other authorities implement measures to reduce this risk. If no measures are taken, this, in combination with the low level of interest rates, will further increase the risks, which may ultimately be very costly for the economy.”
So ultimately, Stefan Ingves was pulling the old “blame lawmakers” card in an effort to exculpate Riksbank policy. Commenting further on macroprudential policy, Inves said the following: “We deal with inflation, we keep an eye on the exchange rate, we do our best to reach our inflation target. But that means that somebody else has to deal with the problem we have in our housing market.”
On Wednesday, the Riksbank is out with its latest Financial Stability report and the focus is sqaurely on the housing bubble.
“Valuations on both the asset markets and the housing market in particular are unusually high at present [and] this means that the probability of a fall in prices is elevated,” the bank says, adding that “together with increasing indebtedness in the household sector, this has made households, the financial institutions and the financial system as a whole more vulnerable.”
To be sure, the Riksbank would control macroprudential policy making if it could, but efforts to move in that direction have been stymied in the past and so, Ingves and co. are free to put the burden off on the FSA rather than just admit that krona strength and the CPI be damned, it’s time to normalize policy. Here’s more from the report:
It is of the greatest importance that the mandate for macroprudential policy of Finansinspektionen (the Swedish financial supervisory authority) be clarified as soon as possible so that efficient macroprudential policy can be conducted in Sweden.
Reforms on the housing market aimed at finding a better balance between supply and demand of housing may slow down the rise in housing prices and thereby also indebtedness.Reforms are also needed to reduce households’ willingness to take on debt, such as gradual reductions to tax relief and loan-limiting measures such as an amortisation requirement and a debt-to-income limit. The Riksbank thus considers that there is an urgent need for a combination of measures to both subdue new lending and reduce the risks inherent in existing loans.
Just to drive the point home, have a look at the following two charts from the report which show the rise in housing prices versus disposable income growth and the inexorable increase in household debt:
As Reuters notes, “Swedish household debt levels, at around 170 percent of disposable income, are among the highest in Europe.”
Here’s a look at the supply/demand imbalance along with average debt for households with mortgages:
As you can see, this is a big, big problem, and it’s not confined to Sweden. Norway and Denmark are facing the same reality. The problem, as we’ve documented on any number of occasions (see here and here for instance), is that in a world dominated by beggar-thy-neighbor monetary policy, one rate cut necessitates another in a race to the bottom as everyone scrambles to, i) keep their currency from soaring and ii) keep the inflationary impulse alive. In other words, the most effective way for Sweden to combat the housing bubble is obviously to stop inflating it by pushing rates further into NIRP-dom.
But that’s impossible when Mario Draghi is set to break out the bazooka next week unless the Riksbank wants to just throw in the towel on the global currency wars. Indeed, Nomura believes that the Riksbank “will likely to be proactive after expected ECB decision to cut deposit rate further [and there’s a] high possibility of 10-15bps Riksbank rate cut.”
So as worried about the bubble as Stefan Ingves may be, he’s apparently not worried about it enough to arrest the central bank’s descent into the Keynesian Twilight Zone.
Ultimately, the Riksbank believes that the combination of “unusually high housing prices” and overly indebted households means that in the event of an economic shock“the consequences for the Swedish economy could be great.”
Now if only the bank would heed its own warning and normalize policy instead of merrily following the ECB, the SNB, and the Nationalbank as they’re lured into the woods by Pied Piper Krugman.
BTG Pactual CEO Esteves Arrested In Brazil’s Graft Probe, Police Say
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Government’s leader in Senate also arrested, police say
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Arrests tied to Carwash investigation into builders, Petrobras
Andre Esteves, the Brazilian billionaire who transformed Grupo BTG Pactual into the largest independent investment bank in Latin America, was arrested in the corruption probe that has shaken the country’s political and economic leadership. BTG’s shares tumbled the most ever.
Federal police arrested the financier in Rio de Janeiro after first searching for him in Sao Paulo, a police press official said by telephone Wednesday, declining to provide details on why the arrest was made. Esteves is under temporary arrest for a maximum of five days, according to an official for the federal Supreme Court, which authorized the action. Police also detained the government’s leader in the Senate, Delcidio Amaral, on suspicion of harming the investigation, said the official who asked not to be identified because he’s not authorized to comment publicly.
Esteves and Amaral are among the highest-profile arrests since the investigation into a pay-to-play scheme between an alleged cartel of builders and state-run oil producer Petroleo Brasileiro SA began in March 2014. The probe has helped tip Brazil into a recession and left Brazilian President Dilma Rousseff fighting for her political survival.
The move “takes the Petrobras probe to a whole new level and shows the depth and breadth of a scandal that’s engulfing Brazil’s political and corporate establishment,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy, in London. “The scandal is becoming more debilitating by the day.”
Brazil police intercepted a conversation in which Amaral asks someone close to former Petrobras director Nestor Cervero that Cervero not mention him nor Esteves in testimonies, O Estado de S. Paulo reported, without saying how it got the information.
“We’re surprised with the arrest, it must be a big mistake,” said Eduardo Marzagao, a spokesman for Amaral, who added that Amaral’s lawyer is traveling to Brasilia. “Certainly this will be showed to have been a great error.”
BTG Pactual said in an e-mailed statement that it is cooperating with the investigation and is willing to explain whatever is necessary to authorities, without providing further details. The bank’s stock plunged as much as 19 percent in early Sao Paulo trading.
More than 100 people have already been arrested, including former top executives at Petrobras and Brazil’s biggest construction conglomerate. The sweeping investigation into Petrobras — dubbed “Carwash” by prosecutors after a gas station used to launder money — has helped make Brazil’s real the world’s worst-performing major currency this year. Brazil’s economy is forecast to shrink more than 3 percent this year, according to a central bank survey of economists.
Esteves, chairman and chief executive officer of BTG Pactual, has one of Latin America’s largest fortunes, worth $2.7 billion, derived mostly from his stake in the investment bank.
Esteves in 2006 sold what was then Banco Pactual to UBS Group AG for $2.6 billion. He moved to London to be global head of fixed-income sales and trading for UBS the following year and offered to buy a controlling stake in the Swiss bank during the 2008 financial crisis. UBS rejected the bid and Esteves quit to form BTG, which he has joked stands for Back to the Game or Better than Goldman. In 2009, UBS agreed to sell to him and some of his former partners Pactual for $2.5 billion.
BTG teamed up with Petrobras and other partners in 2010 to create Sete Brasil, a rig-supplier whose former operating chief admitted in plea bargains to crimes of corruption
end
We now have a trifecta of derivative commodity players in trouble.
a)We first reported on Glencore /the king of derivative players in Europe
b) Then we reported on problems with the biggest derivative player in China/Hong Kong/Asia: Nobel
c) Now we add the biggest derivative player in South America 40 year old billionaire Esteves
(courtesy zero hedge)
CEO Of Brazil’s “Goldman Sachs” Is Arrested
Several years ago, when Brazil’s economy was roaring on the coattails of the Chinese commodity boom, the country’s Grupo BTG Pactual was transformed into the largest independent investment bank in Latin America by the golden boy of Brazil’s finance – billionaire Andre Esteves.
Alas, over the past year as Brazil’s economy imploded, BTG had been grappling with fallout from his firm’s loans and investments in companies linked to the nation’s biggest-ever corruption scandal.
According to an old Bloomberg profile of Esteves, having disrupted an entrenched industry dominated by old-line banking dynasties, traditional banks and foreign lenders, Esteves became a billionaire before turning 40, then joked that his firm would become “better than Goldman”, a play on the company’s name.
It was not meant to be, not because of rising concerns about the bank’s financial health but because unlike executives linked to Goldman in every way imaginable, earlier today the CEO of “better than Goldman” was arrested in the corruption probe touching everyone from the country’s petrol-producing giant Petrobras, to president Rouseff herself, one which has shaken the country’s political and economic leadership and left the economy reeling in the deepest depression it has suffered in 80 years.
Televised images showed Esteves being escorted by a police officer into the federal police office in Rio de Janeiro. He sported a white button-down shirt, no tie and light stubble on his face as he walked past reporters to an elevator.
Sandra Goncalvez Pires, a partner at law firm Rao & Pires Advogados, said the banker is accompanied by a lawyer at the police station in Rio. She said his defense team is researching the arrest order, which allows for Esteves to be held for as many as five days and can be extended. BTG Pactual said in an e-mailed statement that it is cooperating with the investigation and is willing to explain whatever is necessary to authorities.
Nope, sorry, that would never happen to Lloyd Blankfein.
According to Bloomberg, the Supreme Court authorized the warrant to detain the financier on suspicion he and the leader of the government coalition in the Senate, Delcidio Amaral, allegedly tried to interfere in testimony related to a pay-to-play scheme at the state-run oil giant, Petroleo Brasileiro SA, according to a court document. BTG and Petrobras are partners in a troubled oil-rig supplier. Amaral was also arrested, making him the highest-ranking politician so far to be ensnared in the scandal.
Esteves has been involved in various deals with Petrobras over the years, most notably Sete Brasil. BTG teamed up with Petrobras and other partners in 2010 to create the rig-supplier whose former operating chief admitted in plea bargains to crimes of corruption.
The arrest came as a surprise for most Brazil watchers and ushers in a new phase of a massive graft scandal that has “crippled Brazil’s economy and left President Dilma Rousseff fighting for her political survival. The nation’s currency and stocks, which had stabilized in recent weeks after being in a freefall for much of the year, posted the worst drop among major markets Wednesday amid concern the scandal will prolong political gridlock and the longest recession since the Great Depression.
The stock of BTG promptly plunged on the news to the lowest in years, losing a third of its value in seconds after the news, making a mockery of a March 30 analysis by Morgan Stanley which said that “we think the market is significantly underestimating BTG’s earnings recurrence,” with analysts Jorge Kuri and Felipe Salomao adding that “black-box” concerns “one of the key misconceptions that the market has had on the company.” Turns our the “black box” concerns were quite warranted.
But why would Brazil take such a draconian step as arresting like arresting one of its most prominent bankers? According to Leme Investimentos fixed income manager Paulo Petrassi, this took place because the “CEO believed he was too powerful to be arrested.”
Yet another way BTG never quite made it to “better than Goldman” status.
He added that BTG is very active in swaps market, one of biggest players in the mkt, so volume will fall, even more. It will also impact the Brazilian economy even further as Brazil’s velocity of money is set to slow down even more now that its largest banks is incapacitated indefinitely.
More details from Bloomberg:
The sweeping investigation into Petrobras — dubbed “Carwash” by prosecutors after a gas station used to launder money — has helped make Brazil’s real the world’s worst-performing major currency this year. Brazil’s economy is forecast to shrink more than 3 percent this year, according to a central bank survey of economists.
Esteves has been involved in various deals with Petrobras over the years, most notably Sete Brasil. BTG teamed up with Petrobras and other partners in 2010 to create the rig-supplier whose former operating chief admitted in plea bargains to crimes of corruption.
New arrests suggest the full impact of Carwash, or Lava Jato in Portuguese, “is still to come,” Joao Augusto de Castro Neves, director of Latin America for political consulting firm Eurasia Group, said in a note to clients Wednesday. “BTG Pactual has exposure to the oil and gas sector, and the arrest of its CEO is the first time the Lava Jato probe raises the earnest prospect of financial contagion.”
Even so, many Brazilians were stunned by the unexpected arrest of the CEO: “The arrest of Mr. Esteves, the most high-profile figure in Brazilian finance, takes the Petrobras probe to a whole new level and shows the depth and breadth of a scandal that’s engulfing Brazil’s political and corporate establishment,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy, in London. “The scandal is becoming more debilitating by the day and is severely undermining the prospects for any kind of meaningful economic reform.”
Amaral allegedly tried to convince former Petrobras director Nestor Cervero, who was arrested in January, to not mention him or Esteves in testimony to federal prosecutors, according to a document of the accusations read aloud in Brasilia Wednesday by Judge Teori Zavascki. Cervero’s family would have received 50,000 reais ($13,000) every month in the proposal, and Esteves “would bear the burden of financial aid,” according to the document. The offer also included a promised 4 million-real payment to Cervero’s lawyer.
Eduardo Marzagao, a spokesman for Amaral, said he was “surprised” by the arrest. “It must be a big mistake,” he said.
Well, yes, when rich and powerful people are arrested for embezzling billions, it is usually a “big mistake” as it means that someone’s palms were not greased enough.
Now compare to the US, where any executives working for the “one and only” original Goldman will never be threatened with the perp walk shown above – after all, that is what true banana republics are for.
“There Are No More Dollars In The Central Bank”: Argentina’s New President Confronts Liquidity Crisis
On Monday, Mauricio Macri, the son of Italian-born construction tycoon Francesco Macri, beat out Cristina Kirchner’s handpicked successor Daniel Scioli for Argentina’s presidency in what amounted to a referendum on 12 years of Peronist rule.
A legacy of defaults combined with exceptionally high inflation and slow growth finally tipped the scales on the Leftists and now, Macri will try to clean up the mess.
As Citi noted in the wake of Macri’s victory (which was accompanied by some very bad dancing), “the most urgent challenge on the economic front is FX policy.” The President-elect wants to unify the official and parallel exchange rates (~9.60 and 15.50 ARS/USD, respectively) and that will of course entail a substantial devaluation. Just how overvalued is the peso, you ask? “Grossly” so, Citi says. Here’s their take:
Regarding the real overvaluation of the ARS, we estimate that real effective exchange rate has dropped (appreciated) 44% since 2011. Thus, for Argentina to have the same REER than four years ago, the USDARS should stand at 17. A different approach would be to compare the evolution of the real exchange rate vis-à-vis the USD in Argentina and other countries in the region. While the LatAm currencies (BRL, CLP, COP, MXN, PEN and UYU) real exchange rates relative to the USD have increased on average 36% since 2011, the USDARS has dropped 19% in real terms. Thus, from this point of view, the USDARS should stand 68% higher at 16.1.
A key figure in the execution of Macri’s currency plan is former JP Morgan global head of FX research Alfonso Prat-Gay who will be Argentina’s finance minister under the new Presdent. Prat-Gay was president of the country’s central bank beginning in 2002 and, as Reuters reminds us, “won widespread acclaim for swiftly taming runaway inflation and championing central bank independence.” If that sounds to you like characteristics that might rub a Peronist the wrong way, you’d be right, and Prat-Gay was ousted by the Kirchners.
Over the course of Macri’s campaign, Prat-Gay voiced support for the idea of unifying the official and black market peso rates. “There are no reserves left, and the capital controls don’t make sense,” the new FinMin said earlier this month. “They just destroyed local economies, exports and a good part of industry.”
Here’s a look at Argentina’s reserves:
That chart would be bad enough as it is, but the unfortunate reality is that Argentina actually has no reserves. Consider the following from La Nacion(translated):
While the Central Bank reported yesterday that its reserves amounted to US $ 25.918 million, that number includes loans, as having taken with China or with the Bank of France, which initially only serve to swell the accounts but which are not easy to translate into dollars; also includes, among other items, the foreign exchange part of reserve which by law must make banks increasingly taking a dollar deposit to the public, and those belonging to foreign bondholders who, by order of the judge in New Thomas Griesa York, have not yet been transferred.
“The dollars you have in reserve assets side are offset by liabilities of the Central Bank. The availability in terms of net cash reserves is zero,” says the former head of Carlos Perez. “What happens is that, in terms of liabilities, there are some that are not payable immediately, as is the case of the dollars that were frozen by order of Griesa, which could eventually be used,” says the economist.
According to private estimates, the $ 26,278,000 reported to the Central Bank last week, would be US $ 10.853 million of the loan (swap) with the Bank of China; US $ 1.2 billion of credit with the Bank of France; US $ 155 million would be committed to payments within ALADI (the Latin American Integration Association); US $ 50 million are due to Brazil by the system of local currencies for foreign trade); US $ 8.615 billion are funds of depositors that banks have deposited in the Central; US $ 199.2 million are debts to be paid off with international organizations to December 15; US $ 427.3 million are deposits in custody, and US $ 2,640.7 million are trusts with $ bondholders exchange, which conflict with vulture funds could not cash (US $ 539 million Bank of New York and US $ 2.1017 billion National Bank). In addition, there would be US $ 1.1 billion of Treasuries US Sedesa owned (society that guarantees the deposits of the financial system) and US $ 613 million Cedin titles, which can be cashed at any time.
So in reality, Argentina has about $424 million or, as La Nacion puts it, “less than you need for a week.” Here’s a look at World Bank data on import cover for selcted Latin American countries (note that Argentina was dead last going into 2015):
Argentina’s reserves fell by more than $1 billion in November alone and as should be clear from the above, selling dollars to support the peso really isn’t an option anymore because, well, because there are no more dollars. This rather precarious situation led central bank head Alejandro Vanoli to do two things this month, i) force banks to sell half their dollar assets, and ii) sell $17 billion of dollar futures. Earlier this month, police raided the central bank after Macri’s allies lodged a criminal complaint against Vanoli for violating the bank’s charter by basically turning it into a giant derivatives trading hedge fund.
Here’s a bit of color from Barclays on central bank liquidity:
President-elect Macri will inherit low liquidity levels at the central bank. Reserves have been falling consistently in 2015, largely because of the political decision to prevent a nominal devaluation that would correct the current real exchange rate misalignment. The reserve drain has been substantial – averaging US$100mn – in the past two months, and reserves stood at just US$2bn as of November 16 (Figure 1). The ratio of reserves to the monetary base has fallen to a record low of 0.5 since the Boden payment in October. Since exchange rate controls introduced between end-2011 and the start of 2012, the ratio has halved. In addition, the central bank‘s net worth has fallen from US$12.7bn in December 2014 to US$4.6bn as of October 30 (Figure 2). The liquidity position is so low that, on Saturday November 21, the central bank published a regulation that puts three new limits on banks, effective on December 1. The first forces banks to reduce their foreign exchange positions – which include all assets in foreign currency including treasuries and gold – from 15% to 5% of adjusted net worth1 . The fact that the central bank is depending on this type of urgent measure would seem to confirm that the China swap is not liquid, and that liquidity is better measured by net reserves than by gross reserves.
And here’s Barclays on Macri’s FX challenge:
Success in the liberalization of the exchange rate controls and unification of the market would be measured by the extent of the FX overshoot and inflation pass-through (and, hence, how much real wages fall). We think the central bank has room to limit the exchange rate overshoot, given the lack of financial dominance: it can increase local interest rates to very high levels, given that, due to low leverage in households, banks, and firms, it would not cause immediate financial risks. Furthermore, the more gradualist approach to the depreciation of the peso, the lower the risks.
The size of any overshoot and FX pass-through to inflation once exchange rate controls are lifted is uncertain at this point. Given the central bank’s low liquidity position, we expect it to try to rebuild the liquidity position before fully lifting exchange rate controls, in line with president-elect comments. As a reference, in 2002, the monthly average overshoot was 22%2 . The value of the ARS depends on several hard-to-forecast variables. First, the currency will likely become stronger the more successful the new administration is in setting a credible monetary program and switching the nominal anchor of the economy from the exchange rate – as it is currently – to the interest rate. Second, it should become stronger the higher and faster the inflow of capitals, which in turn depends on the credibility of fiscal adjustment announcements and fluid external financing. Third, we expect it to be stronger if the FX passthrough to inflation is lower, as a lower nominal devaluation will be needed to achieve the same correction of the real exchange rate.
So good luck Mr. Macri. You’ll first need to oust the central bank chief and sort through the implications of billions upon billions of USD futures he sold and then, once you’ve determined how much the government will likely lose on those trades, you’ll need to figure out a way to rebuild the coffers.
Only then can you attempt to reform the FX regime on the way to unifying the official rate with the black market.
For now, we’ll simply leave you with the following hilariously straightforward assessment from Macri which came across the wires late Tuesday evening:
- ARGENTINA’S MACRI SAYS NO DOLLARS LEFT IN CENTRAL BANK
end
Your humour for the day:
They are pardoning the wrong turkey:
Pardoning The Wrong Turkey?
Euro/USA 1.0596 down .0047
USA/JAPAN YEN 122.65 up .136
GBP/USA 1.5070 down .0007
USA/CAN 1.3307 up.0005
Early this morning in Europe, the Euro fell by 47 basis points, trading now just below the 1.06 level falling to 1.0596; 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: 6.3892 / (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 southbound trajectory as settled up again in Japan by 14 basis points and trading now well above the all important 120 level to 122.65 yen to the dollar.
The pound was down this morning by 20 basis points as it now trades well below the 1.51 level at 1.5070.
The Canadian dollar is now trading down 5 in basis point to 1.3307 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 WEDNESDAY morning:closed down 77.31 or 0.39%
Trading from Europe and Asia:
1. Europe stocks mixed
2/ Asian bourses mostly in the red (except Australia) … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) in the green/India’s Sensex in the red/
Gold very early morning trading: $1073.00
silver:$14.10
Early WEDNESDAY morning USA 10 year bond yield: 2.23% !!! down 1 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.99 down 1 in basis point.
USA dollar index early WEDNESDAY morning: 99.95 up 35 cents from Tuesday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Wednesday morning
Oil falls due to:
i) DOE buildup in inventories
ii but more important: huge significant build in Cushing
this is offset by the biggest drop in overall crude production (but hurts USA trade)
(courtesy zero hedge)
WTI Holds Losses After DOE Confirms Large Cushing Inventory Build Despite Crude Production Cut
Confirming API’s data overnight, DOE reports a build in overall crude inventory (961k barrels – less than API) foro the 9th week in a row but more worryingly a significant build in Cushing inventories (+1.74mm barrels) for the 3rd week in a row. This ‘bearish’ shift is offset for now by the biggest drop in overall crude production in 7 weeks.
Dramatically more than seasonally expected…
And it’s filling up...3mo highs
As Crude production fell the most in 7 weeks…
And the reaction is muted as WTO holds onto losses post-API…
Charts: Bloomberg
end
Then oil rebounds on lower rigs:
(courtesy zero hedge)
Oil Bounce Extends After US Oil Rig Count Continues To Plunge
- A modest production cut this morning may – or may not – be ‘correlated’ with the fact that once again the oil rig count declined 9 to 555 rigs, tracking oil’s slide. This is the 12th weekly drop in the last 13 weeks to the lowest since June 2010.Rig count is tracking the lagged crude price…
When does production slow?
Charts: Bloomberg
end
USA drillers are going to have a tough time next year
(courtesy McDonald/OilPrice.com)
U.S Drillers’ Operating Losses Could Surge In 2016
Submitted by Michael McDonald via OilPrice.com,
What do you do when all of the low hanging fruit is gone?That question is one that oil producers are increasingly facing as they confront an oil price slump that is now more than a year old and shows no serious signs of abating. With oil prices having fallen by nearly half over the last sixteen months, it is little wonder that oil companies found their balance sheets under pressure. From Exxon to Continental all oil companies have faced problems in maintaining their capital spending and more importantly, their profitability. In light of that, it is little wonder that oil companies pulled every lever they could to survive.
The vast majority of oil companies have seen their profitsfall markedly in the last year, and most companies have turned to the same three tools in order to cope with falling prices.
First of all, companies have been relying on production growth. Shale producers especially have done all they can to keep production as high as possible. The idea has been to offset the falling price per barrel with more barrels of output. Some firms, like Devon Energy, have been exceptionally successful with this strategy. The problem is that production growth is not sustainable for shale firms in the absence of large amounts of capital spending, which these firms cannot sustain at this point. The declining production curves are simply too great for oil companies to keep the oil flowing without significant new investment. Thus investors should be prepared to see production fall in 2016.
Secondly, cost cuts are also playing a big role at oil companies in sustaining profits. Oil companies in general are “sharpening their pencils” on cost cuts according to analysts. The supply chain crimp on prices across the entire oil vertical has been severe. From Haliburton to Frank’s International, every oilfield supplier has felt the pinch. This has motivated the supply chain to be more efficient in providing services and has let oil companies wring additional savings out of their businesses’.
These double-digit savings have helped oil companies considerably in maintaining the bottom line, but it is starting to look like that trend may be waning. From Baker Hughes to mom & pop operations, the supply chain simply cannot do much more to help producers. That bodes ill for 2016 profits at oil producers.
Finally, and even more important than production growth,oil producers were as a group fortunate and wise enough to be significantly hedged against the fall in oil prices over the last year. For much of 2015, oil prices hedges have helped keep oil companies afloat and led to sizeable hedging gains.
The problem is that very few companies hedge out for more than one or two years. As a result, these existing hedges are now starting to roll over which is leading some to predict hard times for the industry ahead. Oil companies now face a choice of hedging production at much lower levels per barrel, or of selling production at spot prices and hoping for a rebound.
Given hedges have arguably been the biggest source of economic strength for various oil companies, it is likely that many firms will be facing severe operating losses next year.
That in turn could finally motivate sellers of oil assets enough to narrow the spread between bids and asks on assets which are on the block. More importantly, as those wells continue to decline in output and less capex goes into maintaining them, national oil production could finally start to stagnate or even fall. And that would finally set the stage for a limited rebound in prices. In this case, oil companies do not need to be “faster” than the “oil price bear” they just need to be “faster” than the slower companies in the industry.
The Nasdaq: up 13.34 or 0.02%
Volume-less, Range-less ‘Market’ Sparks Largest Small-Cap Short-Squeeze In 2 Months
It’s one of those days…
The last 4 days have seen the largest “short squeeze” in 2 months…
But the broad market went nowhere…
As Small Caps (heavily shorted) surged…
The market was glued to VWAP most of the day…
On the week – absent the Russia-Turkey dump’n’pump the market has traded in a very narrow, well managed range…
Treasury yields drifted very modestly lower today…in an extremely narrow range…
Credit remains decoupled…
But decoupled from stocks…
Draghi jawboning oin ECB’s 2-tiered QE sparked EUR weakness, USD strength early on but that faded fast as Europe closed…
Commodities all followed the same (inverse) pattern to The USD today with Crude’s beta the greatest…
Oil and stocks continue to pay nice and decouple…
Crude gamma growing…
Charts: Bloomberg
end
Continuing Jobless Claims Rise At Fastest Pace Since July 2013
While initial claims collapsed 11k to 260k, practically cycle lows and the hovering at the lowest level since 1973. But in continuing claims, something is different. The last 4 weeks have seen continuing claims rise 2.85% – the fastest pace of increase since July 2013. Of course, none of that matters with a Fed set on hiking rates no matter what, but it is seasonally aberrant to see a surge of this scale this time of year.
Once again a significant turn in trend…
Which is notably out of line with seasonal trends…
Charts: bloomberg
US Consumers Hunker Down: Personal Spending Misses; Savings Rate Soars To Highest Since 2012
If the US consumer is expected to carry the US economy, then something is certainly off with the US consumer… and the economy.
Moments ago the BEA reported that in October Personal Income and Spending rose at a 0.4% and 0.1% rate respectively, with the first rising as expected, but the latter missing expectations of a 0.3% increase. This was the first 2 month miss in personal spending since July 2012.
The jump in income was mostly due to a $36.8 billion increase in service-producing industry wages, which rose to $5.35 trillion, while spending failed to reflect this alleged increase in wages, which however was the result of an extensive revision to wage data going back to February.
But most notable was the dramatic revision in persona spending which the BEA engages in every year, and which in this case added tens of billions to historical disposable income, however without a mathced offset to personal spending.
As a result, what happened was that the personal savings rate soared to 5.6% in October, from 5.3% in September revised, and 4.8% unrevised, or as it was revealed last month. The dramatic decoupling in pre and post-revision savings is shown in the chart below.
And the punchline: if this data is accurate, and keep in mind the BEA has a habit of revising spending higher after it revises income, to “boost” GDP as we revealed last year, this means that the US consumer is hunkering down at an unprecedented pace, and the 5.6% savings rate is now the highest since 2012, suggesting not only are US consumer unwilling to spending much money, but are actively worried about what is coming just around the corner.
Finally, as readers may recall in what we wrote in December 2014 in “Exposing The Deception: How The US Economy “Grew” By $140 Billion As Americans Became Poorer” what the BEA did then was the opposite, and trimmed savings by almost 1%.
Well, with today’s release it just reversed this fudge which we exposed last year as the primary driver for the big Q3 GDP beat: because this is how that “drop” in savings was just revised higher once again.
Durable Goods Orders Signal Recession With 7th Consecutive Drop
- For the 7th month in a row, Durable Goods New Orders fell year-over-year (down 1.0%). This has not occurred without a recession. While MoM the headline number rose 3.0% (beating the 1.7% rise expected), it appears driven by another one-off surge in Boeing plane orders as Capital Goods Shipments Ex-Air fell 0.4%. Finally, the inventory to shipments ratio re-accelerated in October, back near cycle highs.Core Capex Shipments remain lower YoY…
And Core Capex Orders were flat YoY…
But the headline remains weaker YoY for the 7th month in a row…
Recession looms…Charts: Bloomberg
end
New Home Sales Miss As Median Price Drops To Lowest In 13 Months
Today’s data deluge continues with the latest New Home Sales in which we find that in October a total of 495K new homes were sold, of which just 146K completed (the lowest in the past year), 172K under construction and a whopping 177K houses sold which have not even been started – this was the highest print since 2007. Still, the headline number, while rising from last month’s downward revised 447K missed expectations of a a 500K print.
As the chart below shows, new home construction has plateaued and has been in decline ever since February of 2015 when it posted its post-recession peak of 545K. But what is more troubling is that the median price of new homes tumbled from 307,800 in September, or the highest in the series history to just $281,500, the lowest in 13 months!
In other words, either the series is quite inaccurate or there was a dramatic change in buying behavior in the last month (when all that was bad was blamed on warm weather).
Ackman Loses Over $100 Million In Early Trading As More Valeant Questions Emerge
After tripling down on Valeant by way of a synthetic short as we noted previously, which pushed Ackman’s long to a grand total of 34.1 million Valeant shares (even if 12.5 million of them are by way of long calls/short puts) all it takes for Ackman to generate $100MM in paper losses is a modest $3 move lower in Valeant stock, which is what it has done this morning following a new report by Bronte Capital alleging that Valeant is still back up to its specialty pharma gimmicks, only this time instead of a “chess” theme, the Canadian company is using a cluster of pharma names linked to Stephen King books.
The reaction in VRX is not a pleasant one for the thermostat challenged asset manager:
“All these pharmacies were registered in Delaware. Many are named after chess terms (as are many previously disclosed Philidor entities) but we are also noting a distinct Stephen King theme. This should keep the fraud investigators for various insurance companies busy. I suspect this will also get added to the list of things Congress is investigating.”
His conclusion:
… here is the gem. The registration of false pharmacies continued AFTER Philidor was exposed and after Valeant said that they would stop doing business with Philidor. And the people on registration documents are also often on the pay roll of Valeant (not Philidor). I hope the longs can explain that inconvenient fact away – because it is not obvious how you do that.
VRX holders aren’t waiting to get the answer, but at least Ackman will have an even cheaper basis from which to add… only he can’t as he is now limited by the 9.9% threshold at which he finds himself currently.
Atlanta Fed Slashes Q4 GDP Forecast
Just when you thought it was safe to hike rates, The Atlanta Fed takes an ax to its Q4 GDP forecast, smashing it to cycle lows following this morning’s unexpected weakness in consumer spending.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.8 percent on November 25, down from 2.3 percent on November 18.
The forecast for the fourth-quarter rate of real consumer spending declined from 3.1 percent to 2.2 percent after this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis.
The Atlanta Fed model is now almost half ‘consensus’ expectations…
Which only serves to confirm Goldman’s earlier mark down…
This morning’s data were net negative for our tracking estimate of Q4 GDP growth, which welowered by three tenths to +2.0% (qoq ar).
Weaker-than-expected consumer spending for October implies less consumption growth for the quarter as a whole (we revised down our Q4 PCE estimate to +2.5% from +3.0% previously). There were partial offsets in today’s data on housing and equipment investment, as well as inventory accumulation.
Assuming this 1.8% growth in Q4, that means full year GDP will average 2.1%, well below the 2.4% in 2014. Time to hike rates for sure!!
The Junk Bond Market Is Collapsing
It’s not just distressed debt or the energy sector. I was chatting with a friend/colleague in NYC who is connected with the high yield market. To begin with, the economic devastation to Texas from the collapsing price of oil is just beginning. Word to him from a big Texas bank is that the massive asset write-downs – i.e. energy and real estate loans – are just starting. Up until now the banks and financial firms have been able to hold off marking to market in hopes of a recovery in the price of oil. But distressed offerings in oil, gas and real estate assets are starting to hit the market and it’s going to force the issue. This is going to get ugly.
This is economic fall-out that will spread to the entire country.
Next we turned to the high yield market and he remarked that the junk market is collapsing. And it’s not just oil bonds – it’s gas, technology, healthcare, industrial, retail – everything. The few recent deals that got done soaked up all the cash available and now big outflows are starting again. There’s no liquidity and bids that show up within a reasonable context of the quoted bid/ask market get tattoo’d. It’s impossible to move any kind of stuff – i.e. big investors, mutual funds, pension funds are stuck.
Here’s two graphs that illustrate just how far off the rails the stock market has gone:
This graph from The King Report illustrates the current differential between junk bonds and the SPX vs. the differential in August. Recall that in August the S&P 500 plunged 11.2% in six trading sessions
The second graph compares the returns to the HYG I-shares high yield ETF and the S&P 500. As you can see the, divergence between the S&P 500 and the high yield bond market has reached an absurd level. The high yield market, in the absence of extreme intervention, typically will lead the stock market
directionally. This is especially true on the downside because high yield investors typically are “privy” to bank credit information – trust me, this is true, as our high yield desk was next to the bank debt trading desk and we were very friendly with each other – and can see when corporate numbers are deteriorating well in advance of equity analysts and investors. As you can see from this graph the divergence between high yield debt and the S&P 500 has never been greater.
We can draw two conclusions from the information conveyed in the two graphs above: 1) the Fed is terrified of letting the stock market move lower and, for now at least, has a solid iron floor beneath the stock market; 2) the credit condition of corporate America has been deteriorating since early 2013, punctuated by 3 quarters in a row of declining earnings for the S&P 500. Revenues have been flat to down on average for a couple years.
This is not going to end well for anyone. I would suggest that this is one of the specific reasons that the U.S. Government is ramping up its military aggression, rampant domestic fear-mongering and extreme propaganda. We can’t even enjoy a college or NFL football game anymore without the shameless promotion of the military constantly thrown in our face.
History tells us – and it is very clear on this matter – when all else fails, collapsing empires start a war. This war started slowly burning when Bush II attacked Iraq and now it’s escalating into a global conflict. This will not end well…Happy Thanksgiving.
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary. – HL Menken
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