Gold: $1076.40 down $8.10 (comex closing time)
Silver $14.31 down 19 cents
In the access market 5:15 pm
At the gold comex today, we had an extremely poor delivery day, registering 47 notices for 4700 ounces. And this is the biggest delivery month of the year for gold? Silver saw only 6 notices for 30,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 200.58 tonnes for a loss of 102 tonnes over that period.
In silver, the open interest fell by a considerable 2048 contracts despite the fact that silver was up 45 cents with respect to Friday’s trading which was a pretty good day for precious metals. Generally we are witnessing a massive OI contraction once we approach the first few days of an active delivery month and they did not disappoint us with first day notice results in silver. I promised you that we should start to see the OI in silver start to rise from this level but today we had another setback today as again we must have had some shortcovering. The total silver OI now rests at 162,398 contracts In ounces, the OI is still represented by .812 billion oz or 116% of annual global silver production (ex Russia ex China).
In silver we had 6 notices served upon for 30,000 oz.
In gold, the total comex gold OI fell by a large 5,734 contracts as the OI fell to 389,113 contracts despite the fact that gold was up by $22.00 with respect to Friday’s trading. Today the bankers provided the initial HFT and the specs longs continued their assault on the short side.
We had another huge withdrawal in gold inventory at the GLD to the tune of 4.23 tonnes, / thus the inventory rests tonight at 634.63 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 at the SLV/Inventory rests at 321.507 million oz
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver fall by 2048 contracts down to 162,398 despite the fact that silver was up in price by 45 cents to with respect to Friday’s trading. The total OI for gold fell by 5,734 contracts to 389,113 contracts despite the fact that gold was up by $22.00 with respect to yesterday’s trading.
2 a) Gold trading overnight, Goldcore
b) COT report
3. ASIAN AFFAIRS
i) Greece just lost the last trace of sovereignty over their lands as the EU takes control of Greek borders:
iii) Goldman Sachs thinks that the Euro has little downside risks and then it collapses.
As Bill Holter points out, the USA needs the ECB to carry the baton as a 1/4% rate hike will cause a contraction of 800 billion of liquidity (collateral) which will take the entire wind out of the sales of financial and other assets
iv) We have finally reached this stage: Finland set to unleash the famous helicopter route for a money drop as Finland is awash in deflation. They are using the route to supply 900 euros per month to citizens to spend!!
i) A very prominent Turkish media figure resigns stating he cannot continue his work due to the criminal ongoings of the Erdogan family:
ii) Turkey invades Iraq to protect the illegal ISIS oil smuggling routes:( zero hedge)
iii) Iraq seeks help from Russia with the Turkish invasion setting up a confrontation between Turkey and Russia.
Eventually Turkey calls back some of its invading troops.
iv) middle east in turmoil
email Robert H to me
v) Russia accuses the USA of being complicit in the ISIS oil cover up with Turkey.
vi)The following happened on Saturday night, with USA forces bombing the Free Syrian army positions inside Syria.
(x) Syria sends official protest to the UN with respect to the firing upon the free Syrian Army near the oil fields in Syria, close to Damascus
(courtesy Sputnik news/)
xi) First it was Russia who stated that they have irrefutable proof that Turkey is engaged in illegal trafficking of Iraq and Syrian oil. Now they are joined by Iran.
BIS, central bank for all central banks, warns the uSA that a small 1/4% rise in interest rate will bring on the biggest of all margin calls. And they are right
ii) And on the same topic as above:
ii) Eric Sprott discusses the improving nature of gold trading in this interview with Kingworldnews(Eric Sprott/Kingworldnews)
iii) Chris Powell of GATA believes that the USA will take the foot off the gold suppression pedal while it raises rates with the other food
( Chris Powell/GATA)
iv) a very important piece for you tonight, as Craig lays out the scenario that for the first time, comex gold is net short specs and net long commercials. This always portends a huge rise in the price of bullion;
( Turd Ferguson/Craig Hemke/TFMetals/)
v) A might is brewing in Mexico’s southern poor province where cartels are fighting over real physical gold deposits
vi) China, taking the reins of leadership for the G20, has ideas to reduce the dollar’s role in the global economy:
you can be rest assured that their primary aim to have the commodity gold in the SDR calculations:
vii) Singapore’s gold trading is going nowhere!
And now Bill Holter with an extremely important commentary tonight as he talks about the ramificiations of the USA raising their interest rate and what it means! His piece tonight:
“A Test of Wills!”
(courtesy Bill Holter/Holter-Sinclair collaboration)
ix) China ups its official reserves up 20.8 tonnes.
(Lawrie Williams/Sharp Pixley)
Let us head over to the comex:
The total gold comex open interest fell to 289,113 for a loss of 5,734 contracts despite the fact that gold was up by $22.00 with respect to Friday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today we witnessed the continuation of the drop in OI in the front month as well as number of gold oz standing dropped again but not as much as Friday. We are now in the big December contract which saw it’s OI fall by 224 contracts from 2993 down to 2769. We had 4 notices filed upon yesterday, so we lost 218 contracts or 21,800 oz of gold that will not stand for delivery in this active delivery month of December. As we indicated to you on many occasions, the bankers are cash settling as they do not have physical gold to settle upon.The next contract month of January saw it’s OI rise by 24 contracts up to 586. The next big active delivery month is February and here the OI fell by 4465 contracts down to 279,123. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 100,762 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 219,746 contracts.
December contract month:
INITIAL standings for DECEMBER
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||100.000 oz?????|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| 1929.0000
|No of oz served (contracts) today||47 contracts
|No of oz to be served (notices)||2722 contracts
|Total monthly oz gold served (contracts) so far this month||91 contracts(9100 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||21,289.7 oz|
Total customer deposits 1929.0000 oz
DECEMBER INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 2,984.981 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||579,065.850 oz|
|No of oz served today (contracts)||6 contracts
|No of oz to be served (notices)||427 contracts
|Total monthly oz silver served (contracts)||3513 contracts (17,565,000 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||1,652,311.7 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
we had no dealer withdrawals:
total dealer withdrawals: nil
we had 1 customer deposit:
i) Into Scotia: 579,065.850 oz
total customer deposits: 579.,065.85 oz
total withdrawals from customer account: 2,984.981 oz
And now the Gold inventory at the GLD:
Dec 7/another huge withdrawal of 4.23 tonnes of gold/inventory rests at 634.63 tonnes
Dec 4/no change in gold inventory at the GLD/Inventory rests this weekend at 638.80
Dec 3/ a massive withdrawal of 16.oo tonnes of gold heading straight to Shanghai/tonnage rests tonight at 638.80 tonnes
Dec 2.2015: no change in gold inventory at the GLD/inventory rests at 654.80 tonnes
Nov 30/no change in silver inventory at the SLV/Inventory rests at 318.209 million oz
Sprott Issues Open Letter to Unitholders of Central GoldTrust and Silver Bullion Trust
The Trustees of GTU and SBT have made clear their intentions. They have entered into an agreement with Purpose Investments that will put your investment at significant risk in order to protect their own fees. You made the choice to invest in a closed-end physical bullion security, and now the Spicers and their Trustees are ignoring this choice, and betraying the principles of physical bullion securities, to ensure they continue to profit.
The Purpose Investments transaction would convert your security to an open-ended ETF. Similar transactions have resulted in redemptions of greater than 50% of assets in the first three months of trading as an ETF. There is no reason to believe something similar will not occur with your investment, given the competitive landscape of the bullion ETF market. In short, you made the decision to invest in physical bullion, and the Trustees of GTU and SBT see fit to offer you a sub-standard investment. Do not be fooled.
The proposed transaction with Purpose is highly conditional, and may yet prove to be a defensive measure by the Spicers, as there is no guarantee, or likelihood, that it will close. Such a drastic step is a reflection of their weak position. GTU and SBT have been plagued by significant underperformance, gross mismanagement and questionable side payments to the Trustees and other friends of the Spicer family.
This transaction was principally negotiated by the Spicers themselves, not the Trustees, and there are undisclosed financial arrangements between the Spicers and Purpose. This is especially troublesome, given the history of fees and self-dealing involving the Spicers and their bullion products.
The Sprott offers provide you with an immediate and real premium, certainty, and most importantly, a direct investment in physical bullion. The GTU and SBT transaction with Purpose Investments offers you none of these things.
This proposed conversion presents a number of considerable risks, many of which the GTU and SBT Trustees have declined to disclose. The tax consequences to GTU and SBT unitholders of the anticipated significant redemptions that are likely to occur at GTU and SBT are highly uncertain, and the Trustees have elected to remain silent on the issue. Until further details are provided, it is reasonable to believe that U.S. unitholders are likely to be subject to material taxes. There is no possibility for unitholders to access their physical gold or silver bullion in this investment structure, and ETFs are designed to ensure that GTU and SBT will not trade at a premium, even in a gold or silver bull market.
We urge you to not be distracted by this desperate attempt and to tender into the Sprott offers. The Sprott offers represent an opportunity to preserve the nature of your investment, receive an immediate premium, close the historical discounts to NAV, and participate in a security that trades at, near or above NAV.
With the support of the majority of your fellow unitholders, we will take the necessary steps to remove the Trustees of GTU and SBT and call a special meeting to allow you to vote on the Sprott offers. You have the right to decide. Those have not yet tendered to the Sprott offers, we urge you to tender your units today.
Thank you for your support.
CEO, Sprott Asset Management
And now your overnight trading in gold and also physical stories that may interest you:
Here we go!
A seminar about gold supporting the internationalization of the renminbi and China’s financial strength was held in Beijing on 18 September 2015. One of the keynote speakers was Song Xin, President of the China Gold Association(CGA), Chairman of the Board of China International Resources Corporation, President of China National Gold Group Corporation and Party Secretary, who believes China’s economic power must be serviced by appropriate gold reserves to support the renminbi. An article written by Song published on Sina Finance in 2014 stated (translation by BullionStar):
For China the strategic mission of gold lies in the support of renminbi internationalization. Gold … forms the base for a currency moving up in the international arena.
If the renminbi wants to achieve international status, it must have popular acceptance and a stable value. To this end… it is very important to have enough gold as the foundation and raising the ‘gold content’ of the renminbi. Therefore, to China, the meaning and mission of gold is to support the renminbi to become an internationally accepted currency and make China an economic powerhouse.
That’s why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.
President of the CGA before Song was Sun Zhaoxue, who shared many of the viewpoints of his successor. In 2012 a famous article from Sun was published in Qiushi magazine, the main academic journal of the Chinese Communist Party’s Central Committee, wherein he plead for stimulating the Chinese citizenry to buy gold next to increasing China’s official gold reserves (translation by BullionStar):
Currently, there are more and more people recognizing that the ‘gold is useless’ story contains too many lies. Gold now suffers from a ‘smokescreen’ designed by the US, which stores 74% of global official gold reserves, to put down other currencies and maintain the US Dollar hegemony. Effectively, the rise of the US dollar … and later the euro currency, from a single country currency to a global or regional currency was supported by their huge gold reserves.
Individual investment demand is an important component of China’s gold reserve system, we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security.
Regular readers of this blog will know what Sun wrote in 2012 regarding ‘individual gold investment’ is exactly what has unfolded; through the Shanghai Gold Exchange (SGE) we could see thousands of tonnes of gold moving into the mainland in recent years. According to my estimates Chinese privates gold holdings have reached 12,000 tonnes – next to the People’s Bank Of China’s (PBOC) gold buying program.
Since my last extensive blog post (20 May 2015) on PBOC gold purchases I’ve been able to collect more clues related to the amount of gold China’s central bank has harvested in exchange for its lopsided US dollar holdings. Last week I spoke to an insider with connections at Western bullion banks. This gentleman confirmed proxies of the PBOC purchase gold directly in the London OTC gold market that is shipped to Beijing. Implying much of the 1,750 tonnes that have mysteriously vanished from the London Bullion Market (left London without being disclosed in UK customs statistics) in between 2011 and early 2015 went to China. This supports the analysis the PBOC is buying at a pace of 500 tonnes a year in the international OTC market (not through the SGE) and owns approximately 4,000 tonnes by now.
Furthermore, it seems the writings from Song and Sun correspond with China’s real undertakings in the gold market, which influences our valuation of their words. There are no transcripts from the seminar in September, but I found an article (in Chinese) that summarizes what Song and others have said. Please read the gripping translation below.
Note, Song is the President of China National Gold Group Corporation, which started an alliancewith Russian gold miner Polyus Gold to deepen ties in gold exploration. China and Russia aim to trade (newly mined) gold over the Shanghai International Gold Exchange in renminbi for international institutions and central banks as part of the Silk Road Gold Fund to attract the center of the international gold market towards the East.
Renminbi Internationalization and China’s Gold Strategy Seminar
Date: September 22, 2015. Source
On 18 September 2015 the “Renminbi Internationalization and China’s Gold Strategy Seminar” was smoothly held in Beijing. The seminar was guided by the China Gold Association and jointly held by the Chinese Gold Research Center of Capital University of Economics and Business and Beijing Gold Economic Development Research Center. It was supported by Zhao Jin Futures, Shandong Zhaojin Investment Co., Ltd., Shenzhen Jinmingzhu Jewelry Co., Ltd. and Chifeng Jilong Mining Industry Co., Ltd.
Over 130 representatives from the governments, banks, gold mining industry, gold investment organizations, jewelry companies and educational institutions attended the seminar. Wang Wenju, Vice President of Capital University of Economics and Business announced to rename the Chinese Gold Market Research Center of Capital University of Economics and Business on the seminar site.
Wang Jiaqiong, President of Capital University of Economics and Business, Song Xin, President of Chinese Gold Association & General Manager and Secretary of the Party Committee of China National Gold Group Corporation, Wang Xiaomei, Deputy Party Secretary of China National Gold Group Corporation, Wei Benhua, Former Director of the State Administration of Foreign Exchange and Former General Representative of Chinese International Monetary Fund, and other leaders and representatives attended the seminar. 13 experts from China Gold Association, Shanghai Gold Exchange, Renmin University of China, Chinese Social Science, Capital University of Economics and Business, China Center for International Economic Exchanges, China Forex Investment Research Institute, Gold Economic Research Center, ICBC, China Construction Bank, Shandong Gold Group and Shandong Zhao Jin Group delivered splendid speeches.
President Wang Jiaqiong delivered a speech. In his speech, Wang Jiaqiong pointed out, RMB internationalization is a struggling process in need of strategic research. In the seminar, many experts, scholars and entrepreneurs were discussing renminbi internationalization and Chinese gold strategies. They would propose wise ideas and good policy suggestions after brainstorming, playing as a think tank in the development of China. The research team led by Professor Zhu Heliang from our university spent years studying Chinese gold strategy problems and some research results obtained the central affirmation and recognition. All of your arrival can better support our in-depth research on relevant topics and construction of related disciplines.
In the opening ceremony, Wang Wenju announced the renaming of the Chinese Gold Market Research Center of Capital University of Economics and Business, which focuses on the current gold market, to Chinese Gold Research Center of Capital University of Economics and Business with the purposes of better studying gold problems comprehensively, displaying the function of gold in national economy and society, boosting renminbi internationalization and keeping pace with the times. The school would offer vigorous support and hope that the new research center can strengthen team building and display think tank functions.
In his speech, Song Xin mentioned that the Chinese gold industry has achieved a great-leap-forward development since the new century. In 2014, Chinese gold yield had turned China into the biggest gold producing country in the world for eight consecutive years and the biggest gold consumption country again.Whether in the past, present or future, gold plays a crucial role in the development of human society. Renminbi internationalization has boosted China’s march towards an economic power from an economic giant. The new age has endowed gold with more important missions. Gold has shouldered a heavy responsibility of “increasing credit” for renminbi internationalization and increased the “gold content” for renminbi internationalization.
Recently, the Central Bank announced to increase gold reserves to the public many times in succession. In fact, it’s the strategic layout and major move for laying the renminbi’s international credit foundation.We always suggest formulating and boosting national gold strategies in pace with national financial strategies positively, further improving the quantity and proportion of gold in national foreign exchange reserves, developing occupancy volume of gold production and increased gold resources.We further suggest perfecting the gold market, promoting foreign currency in individuals, boosting Chinese and western wealth flowing, improving our control power of global gold wealth flowing, accelerating renminbi internationalization, helping the renminbi enter special drawing rights currency basket, rebuilding international currency system, balancing American hegemony process, and positively displaying the due function of gold and the gold industry. Leaders from Capital University of Economics and Business have supported the research on gold problems for a long time. The team led by Professor Zhu Heliang has persistently pursued basic research on gold with outstanding viewpoints. They have obtained relevant departments’ high attention for long. I hope that Capital University of Economics and Business can further display its gathering advantages of majors and talents, and strengthen the cooperation with Chinese Gold Research Center, China National Gold Group Corporation and its subordinate companies.
In the seminar, experts thoroughly analyzed the essence and inherent laws of renminbi internationalization, new positioning and functions of gold in the non-gold standard currency system.They discussed the strategic significance of gold in renminbi internationalization from historical and actual perspectives and Chinese gold strategies in the new age. Experts unanimously regarded gold as playing an irreplaceable role in currency internationalization progress. The important element of gold shouldn’t be ignored during renminbi internationalization. The country should attach great importance to the development of the gold industry and market and increase gold reserve from a strategic height.
The seminar is the “prelude” of the first renminbi internationalization and Chinese Gold Strategy Research Project jointly carried out by Chinese Gold Research Center of Capital University of Economics and Business and Beijing Gold Economic Development Research Center. After the seminar, key viewpoints were to be collected and submitted to related departments. Chinese Gold News will set up a special column and publish solicited articles about “renminbi Internationalization and Chinese Gold Strategies”. Meanwhile, two organizations will organize special research teams, focus on the topic research of “renminbi internationalization and Chinese Gold Strategies”, and open the research results for publication. With national major strategy research as their own duty, the two organizations have formed a strategic alliance in terms of promoting renminbi internationalization and adjusted research directions of Chinese gold strategies in order to make effort and contribution to the prosperous cause of China.
E-mail Koos Jansen on: firstname.lastname@example.org
China increases in’ts gold reserves by 20.8 tonnes and it’s new sovereign reserve is 1,743.3 tonnes
(courtesy Lawrie on gold/Sharp Pixley)
Analysts at Bloomberg have calculated that China’s gold reserves have grown from 55.38 million ounces (1,722.5 tonnes) at end October to 56.05 million ounces (1,743.3 tonnes) at end-November by taking the announced gold reserve figures in U.S. dollars for the two months and applying the LBMA gold price prevailing at the end of each month to make their estimate. The figures thus suggest that China increased its reserves by 20.8 tonnes over the period – the highest monthly increase in its gold reserves since it started announcing monthly reserve figures back in July.
There still remain doubts about the true levels of Chinese gold holdings, with many analysts believing these are still being understated, as they have been in the past when there were large time gaps – five or six years – between reserve increase announcements. China’s gold reserves are seen as of political significance with the country only letting the world know what it wishes it to believe!
Writing on www.bullionstar.com this week, Koos Jansen, who undertakes perhaps the most comprehensive research on Chinese gold policy and gold holdings of anyone, came up with his view that much of the 1,750 tonnes that have mysteriously vanished from the London Bullion Market (left London without being disclosed in UK customs statistics) in between 2011 and early 2015 went to China. This supports the analysis the PBOC is buying at a pace of 500 tonnes a year in the international OTC market (not through the SGE) and owns approximately 4,000 tonnes by now. See Koos’ blog post: Renminbi Internationalization And China’s Gold Strategy. Some commentators put the figure higher yet, as noted above, the latest official figure is less than half Jansen’s estimate.
Eric Sprott discusses the improving nature of gold trading in this interview with Kingworldnews
In KWN interview, Sprott discusses gold’s improving prospects
Submitted by cpowell on Fri, 2015-12-04 22:04. Section: Daily Dispatches
5p ET Friday, December 4, 2015
Dear Friend of GATA and Gold:
Sprott Asset Management’s Eric Sprott tells King World News today that Federal Reserve Chairwoman Janet Yellen is assuring markets that a normalized interest rate will be lower than such a rate has been in the past. Sprott also discusses the reversal in trader positioning in gold futures in New York, with the commercials increasingly going long. He sees gold’s prospects improving.
An excerpt from the interview is posted at the KWN blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Will sunken treasure ship’s gold be leased even before it’s recovered?
Submitted by cpowell on Sat, 2015-12-05 18:10. Section: Daily Dispatches
Colombia Says Treasure-Laden San Jose Galleon Found
From the British Broadcasting Corp., London
Saturday, December 5, 2015
The wreck of a Spanish ship laden with treasure that was sunk by the British more than 300 years ago has been found, says Colombian President Juan Manuel Santos.
“Great news! We have found the San Jose galleon,” the president tweeted.
The wreck was discovered near the port city of Cartagena.
It has been described as the holy grail of shipwrecks, as the ship was carrying one of the largest amounts of valuables ever to have been lost at sea.
Santos said the cargo was worth at least $1 billion (L662 million).
The San Jose was carrying gold, silver, gems, and jewellery collected in the South American colonies to be shipped to Spain’s king to help finance his war of succession against the British when it was sunk in June 1708.
The vessel was attacked by a British warship just outside Cartagena.
Colombian officials would not reveal the precise location of the wreck, but Santos said the find “constitutes one of the greatest — if not the biggest, as some say — discoveries of submerged patrimony in the history of mankind”.
He said a museum would be built in Cartagena to house the ship’s treasures. …
… For the remainder of the report:
Chris Powell of GATA believes that the USA will take the foot off the gold suppression pedal while it raises rates with the other food
(courtesy Chris powell/GATA)
Will U.S. ease off gold price suppression to offset rate-rise boost to dollar?
Submitted by cpowell on Sun, 2015-12-06 17:22. Section: Daily Dispatches
12:20p ET Sunday, December 6, 2015
Dear Friend of GATA and Gold:
Your secretary/treasurer is no market analyst. Rather, he is only the archivist of documentation of largely surreptitious intervention in the gold market by central banks to defend their currencies and government bonds, to control interest rates and the prices of strategic commodities, and, really, thereby to control the world:
But given the new warning from the Bank for International Settlements against more appreciation of the U.S. dollar, as described in the report today from the London Telegraph appended here, your secretary/treasurer will volunteer a suspicion that he hopes arises more from his experience with the deceit basic to modern central banking than from his wishful thinking, his belief in free and transparent markets and gold’s crucial function in achieving them
That suspicion is that the U.S. government and its remaining allies in international market rigging will use and maybe already on Friday began using the Federal Reserve’s expected nominal raising of interest rates this month as cause to ease off gold price suppression and to let the gold price rise a little.
While the Fed’s raising U.S. interest rates would tend to strengthen the dollar and increase the burden of dollar-denominated debt, about which the BIS and many others are warning, a simultaneously rising gold price would tend to devalue the dollar. It would be one foot on the brake ostentatiously, the other foot on the accelerator surreptitiously, allowing the Fed to save face after its many postponements of raising rates while continuing to support asset inflation.
Of course, just as when you’re a hammer everything looks like a nail, when you’re the archivist of gold price suppression everything central banks do is read in the context of their ever-increasing intervention in the markets to protect their power. Indeed, as the new BIS report says, central bank policies themselves have become the markets. Or as a high school graduate told GATA’s Washington conference seven years ago, with no tutoring at all from the BIS, “There are no markets anymore, just interventions”:
“The problem with central banking,” that high school graduate said then, “has been mainly the old problem of power — it corrupts.
“Central bankers are supposed to be more capable of restraint than ordinary politicians, and maybe some are, but they are not always or even often capable of the necessary restraint. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest — to benefit especially the financial interests, the banking and investment banking industries. These interventions, subsidies to special interests, increasingly are needed to prevent the previous imbalances from imploding.
“And so we have come to an era of daily market interventions by central banks — so much so that the main purpose of central banking now is to prevent ordinary markets from happening at all.”
The Telegraph’s story about the latest hand-wringing by the BIS is below, along with a link to the new BIS report.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
‘Uneasy’ Market Calm Masks Debt Timebomb, BIS Warns
By Szu Ping Chan
The Telegraph, London
Sunday, December 6, 2015
The “uneasy calm” in financial markets could rapidly reverse as the US Federal Reserve’s first tightening cycle in a decade exposes fragilities in the new world order, according to the Bank for International Settlements (BIS).
The central bank watchdog said emerging market households and businesses reliant on cheap debt faced a credit crunch that could trigger panic in a world of evaporating liquidity and fewer market makers.
It warned that the “potential for spillovers” to emerging markets from higher US interest rates was larger now than it was during the so-called “taper tantrum” in 2013.
BIS data show the stock of dollar denominated debt rose to $9.8 trillion (£6.5 trillion) in the second quarter of 2015, with dollar credit to borrowers in emerging markets doubling since 2009 to more than $3 trillion.
Tighter US policy and a stronger dollar would highlight financial vulnerabilities among domestic and foreign currency borrowers, the BIS said. According to the watchdog, total non-financial corporate debt in emerging markets, including dollar borrowing, currently stands at $23.5 trillion. …
“Any further appreciation of the dollar would additionally test the debt servicing capacity of emerging market economy corporates, many of which have borrowed heavily in US dollars in recent years,” the BIS said.
Financial vulnerabilities had far from “gone away,” said Mr Borio, who said investor reaction to the European Central Bank’s latest stimulus plan showed markets remained hooked on “every word and deed” of central banks. …
… For the remainder of the Telegraph report:
… For the report by the BIS:
China uses the army to find gold:
Koos Jansen: China’s gold army
Submitted by cpowell on Sun, 2015-12-06 18:11. Section: Daily Dispatches
1:10p ET Sunday, December 6, 2014
Dear Friend of GATA and Gold:
Gold researcher and GATA consultant Koos Jansen reports today that a special unit of China’s army is devoted to gold exploration. His report is headlined “China’s Gold Army” and it’s posted at Bullion Star here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
a very important piece for you tonight, as Craig lays out the scenario that for the first time, comex gold is net short specs and net long commercials. This always portends a huge rise in the price of bullion;
(courtesy Turd Ferguson/Craig Hemke/TFMetals/)
Trader positions in gold scream upside breakout is imminent
Submitted by cpowell on Sun, 2015-12-06 23:15. Section: Daily Dispatches
6:14p ET Sunday, December 6, 2015
Dear Friend of GATA and Gold:
The TF Metal Report’s Turd Ferguson and Zero Hedge report tonight that trader positions in the gold futures market are screaming that an upside breakout is imminent.
The TF Metal’s Report’s analysis is here:
Zero Hedge’s is here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Amazing, the world sells paper gold but there is a fight for the real stuff
Brutal cartels fight over Mexico’s ‘conflict-free’ gold revenues
Submitted by cpowell on Sun, 2015-12-06 23:30. Section: Daily Dispatches
By Frank Jack Daniel, Anahi Rama, and Lizbeth Diaz
Sunday, December 6, 2015
CARRIZALILLO, Mexico — Heroin traffickers linked to the abduction and disappearance of 43 students a year ago are battling over millions of dollars paid by Canadian mining giant Goldcorp to a village in Mexico’s southern gold belt, leading to a wave of murders.
As a signatory to a Conflict-Free Gold Standard drawn up by the World Gold Council industry group, Goldcorp commits to extracting the precious metal in a manner that “does not fuel unlawful armed conflict or contribute to serious human rights abuses.”
But residents of Carrizalillo in the impoverished state of Guerrero say the some $3 million a year in rent paid by Goldcorp for their land, which the mine is built on, is fuelling a bloody feud between two rival cartels.
Village authorities say the company is not doing all it can to protect them.
The violence highlights an ethical quagmire for industries operating in Mexico’s drug badlands and raises questions of whether companies could do more to ensure safety for people connected to their operations.
In response to Reuters’ questions, Goldcorp said it has held numerous meetings with authorities to seek better security outside the mine’s perimeters, in line with obligations under the standard.
“Even though we can and do advocate with local authorities for the respect of human rights in the vicinity of our operations, we cannot take on the role of government,” said Michael Harvey, Goldcorp’s Latin America director for corporate affairs and security. …
… For the remainder of the report:
China, taking the reins of leadership for the G20, has ideas to reduce the dollar’s role in the global economy:
you can be rest assured that their primary aim to have the commodity gold in the SDR calculations:
China begins G-20 leadership with ideas to reduce dollar’s role
Submitted by cpowell on Mon, 2015-12-07 03:51. Section: Daily Dispatches
By Enda Curran
Sunday, December 6, 2015
As China takes the reins of the Group of 20 for the coming year, the first indications are emerging of its agenda.
Among the priorities: making the global system more resilient to shocks and, perhaps, less reliant on the U.S. dollar. China is setting up a working group led by South Korea and France to develop proposals, including on ways to strengthen the role of the International Monetary Fund’s reserve-currency unit, which is set to incorporate China’s yuan as a component next year.
China also wants a discussion around whether some commodities should be priced in the IMF’s reserve currency, known as Special Drawing Right or SDR, according to a European official involved in the G-20 talks.
Notably absent from a senior role so far is the United States, owner of what’s still the world’s dominant currency. China’s leadership has for years sought to strengthen the international use of the yuan and encourage debate about lessening reliance on the dollar. …
… For the remainder of the report:
Singapore’s gold trading is going nowhere!
Vanishing gold trade prompts Singapore to refine contract
Submitted by cpowell on Mon, 2015-12-07 03:55. Section: Daily Dispatches
By Ranjeetha Pakiam
Sunday, December 6, 2015
Just over a year ago, Singapore Exchange Ltd. started gold trading to help bolster the country’s role as a bullion hub in Asia, the world’s largest consuming region. Transactions slumped to zero in November and the bourse is now trying to revitalize the market.
“Volumes haven’t been spectacular,” William Chin, vice president of commodities at the exchange, said in an interview. “One of the key reasons is the contract specification itself, and this is quite normal across different products. You don’t always get it right the first time round.”
Singapore isn’t alone in trying to solidify its position as a trading hub for commodities from oil to iron ore and rubber. Shanghai offered bullion contracts in the free-trade zone last year and CME Group Inc. started futures with physical delivery in Hong Kong in January as they seek to tap rising demand from China, the top producer and consumer. Singapore’s contract is intended to appeal to industrial users rather than retail investors. …
… For the remainder of the report:
And now Bill Holter with an extremely important commentary tonight as he talks about the ramificiations of the USA raising their interest rate and what it means!
(courtesy Bill Holter/Holter-Sinclair collaboration)
A Test of Wills!
For starters you must understand if the Fed does tighten and collateral is withdrawn from the system, because everything is now so levered …”collateral” from somewhere else must be added. That “somewhere” was supposed to be Europe. Mario Draghi tried to push the EU governing council into further QE, in essence the German hawks refused and instead want to let some air out of the current bubbles. Europe was supposed to carry the baton of QE, they instead dropped it. http://www.zerohedge.com/news/2015-12-05/inside-story-why-ecb-decided-markets-needed-be-disappointed-and-how-it-all-fell-apar
1 Chinese yuan vs USA dollar/yuan falls in value , this time to 6.4095/ Shanghai bourse: in the green , hang sang: red
2 Nikkei closed up 193.67 or .99%
3. Europe stocks all in the green /USA dollar index up to 98.80/Euro down to 1.0808
3b Japan 10 year bond yield: falls to .333% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 123.14
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 39.28 and Brent: 42.55
3f Gold up /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 rises to .675%. German bunds in negative yields from 5 years out
Greece sees its 2 year rate rise to 9.28%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 8.09% (yield curve now inverted)
3k Gold at $1082.00/silver $14.54 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 84/100 in roubles/dollar) 68.88
3m oil into the 39 dollar handle for WTI and 42 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 1.0011 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0823 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 5 year German bund now in negative territory with the 10 year rises to + .675%/German 5 year rate negative%!!!
3s The ELA lowers to 82.4 billion euros,
The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Next step for Greece will be the recapitalization of the banks and that will be difficult.
4. USA 10 year treasury bond at 2.27% early this morning. Thirty year rate at 3% at 3.00% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
European, Asian Stocks Jump As Iron Ore Joins Oil Below $40 For First Time Since May 2009
With Draghi’s Friday comments, which as we noted previously were meant solely to push markets higher, taking place after both Europe and Asia closed for the week, today has been a session of catch up for both Asian and Europe, with Japan and China up 1% and 0.3% respectively, and Europe surging 1.4%, pushing government bond yields lower as the dollar resumes its climb on expectations that Draghi will jawbone the European currency lower once more, which in turn forced Goldman to announce two hours ago that it is “scaling back our expectation for Euro downside.”
And perhaps as if on demand, the euro fell for a second day touching session lows just around the time Goldman’s note hit.
On Friday evening ECB President Mario Draghi defended his measures, saying Thursday’s package wasn’t “meant to address market expectations.” He also stressed the ECB is ready to do more if needed. A stronger dollar has been one of the reasons the Fed has been reluctant to raise interest rates, as it makes American companies less competitive internationally and damps prices on imports. Last week a Bloomberg gauge of the dollar against 10 of its leading global peers had its biggest weekly drop in two months, making it a little easier for the Fed to raise interest rates next week.
While global stocks have been catching up to the massive US closing surge on Friday, the US itself has been quiet as oil falls for second day after OPEC’s decision to raise its production quota on Friday, sinking even further below 40.
Silver rises, while gold, metals, food commodities fall. This is how global markets look right now:
- S&P 500 futures up 0.1% to 2094
- Stoxx 600 up 1.4% to 376
- MSCI Asia Pacific up less than 0.1% to 132
- US 10-yr yield up less than 1bp to 2.28%
- Dollar Index up 0.45% to 98.8
- WTI Crude futures down 1.2% to $39.50
- Brent Futures down 0.6% to $42.76
- Gold spot down 0.4% to $1,083
- Silver spot up 0.3% to $14.59
Other top news stories include China’s foreign reserve drop which declined more than expected to just $3.44 trillion, below the $3.49 trillion expected and down from $3.53 trillion at end of October; Icahn’s Pep Boys stake, Jes Staley’s reported planned cuts, Chipotle warning on E. Coli scare, GE backing out of Electrolux sale, French & Venezuelan votes.
The biggest weekend development in the political arena was the stunning surge in the French National Front, which soared to first place in the French regional elections with 28.1% of the vote.
Joining oil below $40 this morning is iron ore which tumbled to the lowest price since May 2009. As Bloomberg reports, iron ore sank below $40 a metric ton on rising low-cost supply from the world’s top miners and weakening demand in China, with investors assessing the impact of the first shipments from Gina Rinehart’s Roy Hill mine within the coming days. Ore with 62 percent content delivered to Qingdao lost 2.4 percent to $39.06 a dry ton, a record low in daily prices compiled by Metal Bulletin Ltd. dating back to May 2009. The raw material is headed for a third annual decline and has lost 80 percent since peaking in 2011 at $191.70.
Here is how the two key commodities looked like as they now are set to race each other who can hit $30, then $20 first.
Looking closer at regional markets, Asian stocks kicked off the week on the front foot following the strong lead from Wall Street. This came after the better than expected NFP report and upward revisions, which hinted at further strength in the US economy. As such, the Nikkei 225 (+1.0%) has pared over half of Friday’s losses, while the ASX 200 (+0.1 %) was initially lifted higher by material names amid the gains seen in the precious metals complex. However, did pull off best levels with pressure from energy stocks after oil prices continued to find no reprieve with investors disappointed by OPECs decision to keep producing at record levels. Elsewhere, Shanghai Comp. (+0.3%) fluctuated between gains and loss with strength in healthcare names.
Top Asian News:
- China End-Nov. Forex Reserves $3.44t; Est. $3.49t
- CMA CGM Said Near $2.4 Billion Cash Offer for Neptune Orient: Buying Temasek’s stake would trigger mandatory takeover offer
- Citic Securities Says Executives Missing Amid China Stocks Probe: They may have been drawn into market probe, according to media reports
- China’s Sichuan Shengda Defaults on Onshore Bond as Growth Slows: Co. says default is due to cash shortage
- Japan Megabanks Face Tricky Task Unwinding $15 Billion of Stocks: Banks are expected to meet targets to sell cross- shareholdings
- Rajan Seen Buying $10 Billion of Rupee Bonds as Cash Runs Short: First open-market purchase of bonds in two years due Monday
In Europe, the slew of critical macroeconomic events last week, which included the ECB and the NFP, meant that the typical December Santa Claus rally can finally kick off. Nevertheless, the upside in stocks (Euro Stoxx: +1.8%) was led by the more defensive sectors such as health care, underpinning the fragile nature of the recovery, especially since market participants remain particularly wary of risks surrounding the upcoming FOMC decision. Despite the apparent risk on sentiment, Bunds remained better bid, as somewhat dovish comments by Draghi late Friday, together with the release of biggest fall in Chinese FX reserves since August (USD 3438.3bIn vs. Exp 3492.5bIn), supported the flow into safe-haven securities. Also of note, analysts at IFR suggest that model driven buying has added to the real money buying behind the bid tone seen so far today.
Top European News:
- German Industrial Output Rises Less Than Forecast on Energy: Industrial production rose less than economists predicted in October amid a slump in energy output
- Electrolux Plunges After GE Pulls $3.3B Appliance Deal: Swedish co. needed GE deal to gain scale in U.mkt; had decided to fight in court the U.S. DoJ’s claim that combined co. will dominate U.S. cooking-appliance mkt.
- Le Pen Scores Historic Victory in France’s Regional Elections: National Front led in 6 out of 12 regions in mainland France, increasing share of national vote to 28% vs 11% in last regional vote in 2010: Interior Ministry.
- Syngenta May Reconsider Sale of Assets: Shareholder Group: Co. may reconsider planned sale of its flower-, vegetable- seed units, according to group of shareholders that said it met with chairman Michel Demare.
- BOE Approves Prudential, Aviva Capital Models Under Solvency II: BOE’s Prudential Regulation Authority approved 19 full or partial internal models submitted by insurers, regulator said in a statement on Sat.
In FX, in line with the aforementioned Chinese data and as concerns over China and the likely re-emergence of outflows, further upside was seen in USD/CNH. While also of note, USD strength was seen across the board during the European morning (USD-index: +0.5%) to see the greenback gain against all major pairs, with USD/JPY residing around the 123.50 level and GBP/USD below 1.5100, while analysts at Informa note that leverage accounts are said to have been sellers of GBP/USD in early European trade. Separately, Goldman Sachs have raised their EUR/USD forecast for 3 months to 1.07 (Prey. 1.02), 6 month to 1.05 (prey. 1.00) and 12 month to 1.00 (Prey. 0.95). Finally, commodity currencies have also softened, continuing the declines seen in the wake of the OPEC decision.
In commodities, after the OPEC meeting saw the cartel leave supply output unchanged, WTI futures continued to trade lower overnight with Jan’16 futures trading around USD 39.50/bbl, with OPEC also declining to set a target or the output production for the next meeting which will be held in June 2016. Separately gold has traded sideways this morning, although still close to 3 week highs after last week’s gains (2%) following the US NFP announcement. Copper prices also rebounded slightly last week from fresh lows, but since have been trading sideways during this morning’s session.
There is little on today’s US economic calendar, with the Fed’s Labor Mkt Conditions Index due in the morning, followed by the latest Consumer Credit report at 3pm.
Top Global News
- Jes Staley Said to Mull Deeper Cuts at Barclays Investment Bank: Under plan, bank is looking to eliminate Asain jobs, also in global cash equities business.
- GE Investors Said to Fight Forced $5b Securities Exchange: Holders of preferred shares in GE’s finance unit are revolting against co.’s decision to exchange $5b of securities for notes that investors say are less valuable: people familiar
- Icahn Buys Into Pep Boys, Seeks Retail Sale to His Auto Plus: Billionaire investor says PBY’s auto parts & maintenance chain’s retail business should be acquired by Auto Plus, a competitor he controls.
- Chipotle Rescinds Forecast After E. Coli Scare Crushes Sales: Sales plunged as much as 20% in days after illnesses were reported; same-store sales expected to be down 8%-11% in 4Q
- Caesars Among Firms Said to Push to Curb Lender Protection Rules: Caesars has said it will probably have to join its bankrupt subsidiary in Chapter 11 if it loses the suits, which are over actions co. took to shuffle debt before unit filed for court protection.
- VMware Said to Mull Buyback, Virtustream Changes for Dell- EMC: Co. considering multibillion-dollar buyback, also changes to plan to consolidate financial results of money- losing Virtustream: people familiar.
- Obama Wants Silicon Valley’s Help to Fight Terror Online: Obama asked tech firms to work with U.S. law enforcement authorities to prevent terrorists from using social media, encryption technologies.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European and Asian stocks follow the trend set by US on Friday to kick off the week firmly higher
- USD strength dictates play in FX markets, stronger against all major pairs heading into the North American open
- Looking ahead, economic releases are fairly light today, with focus instead falling on scheduled comments from BoE’s Carney and Fed’s Bullard
- Treasuries lower led by 2Y, curve flattens as markets turn attention to next week’s FOMC meeting after Friday’s better than forecast payrolls report.
- Oil extended losses below $40/bbl amid speculation a record global glut will be prolonged as OPEC effectively abandoned its long-time strategy of limiting production to control prices
- Iron ore sank below $40 a metric ton on rising low-cost supply from the world’s top miners and weakening demand in China, with investors assessing the impact of the first shipments from Gina Rinehart’s Roy Hill mine within the coming days
- A Chinese pig iron producer said it missed a bond payment, becoming at least the seventh firm to renege on obligations in the local note market this year
- German industrial production rose 0.2% in October, less than economists predicted, amid a slump in energy output
- Citic Securities said it has been unable to contact two executives, adding to deepening turmoil at a brokerage that is being investigated amid a government probe into China’s stock- market rout
- Obama warned that the mass shooting in California last week showed the terrorist menace has evolved into a “new phase” and assured the public that organizations like Islamic State would be destroyed
- Obama’s 13-minute Oval Office address came after criticism even from some liberal allies that his statements following attacks in Paris and California didn’t demonstrate sufficient urgency
- Turkey backtracked on a plan to send more troops into Iraq to support its allies there, after the government in Baghdad said it would appeal to the United Nations to force their withdrawal
- Venezuela’s opposition alliance won a majority in Congress for the first time in 16 years in elections on Sunday as an unprecedented recession and a collapse in the bolivar turned voters against the populist policies of Maduro
- $34.45b IG priced last week, $3.6b HY. BofAML Corporate Master Index OAS holds at +162, YTD range 180/129. High Yield Master II OAS widens 5bp to +637, YTD range 683/438
- Sovereign 10Y bond yields mostly lower. Asian stocks mixed, European stocks and U.S. equity-index futures gain. Crude oil and copper higher, gold unchanged
DB’s Jim Reid completes the overnight wrap
As we move on from what was an eventful five days for markets last week, the focus now turns squarely to the FOMC decision in nine days time, the last main event before markets surely take a bit of a breather for the holiday period. Capping off the end of a busy week, Friday’s payrolls helped cement a Fed hike, while headlines out of the OPEC meeting helped keep markets on their toes right up until the closing bell.
As is usually the case after payrolls the week ahead is a little quiet in the US but there’s plenty of data in China for us to keep an eye on throughout the week with the main monthly data due out at various stages. The usual full run down of the week ahead is at the end of the report.
We’re still waiting for the latest Chinese reserve numbers this morning which should be out as we publish. Clearly in light on the running down of reserves seen in late summer these are a crucial monthly release going forward. Ahead of this markets in Asia are a bit of a mixed bag. The Nikkei is leading the way, up +1.08%, while the Hang Seng (+0.25%) and ASX (+0.08%) have more modest gains. Bourses in China are back to flat after a positive start while the Kospi (-0.54%) is the notable underperformer. It’s been a decent start for credit markets with indices in Australia and Asia 2bps and 1bp tighter respectively.
Much of the focus over the weekend has been on yesterday’s regional elections in France where, as largely expected, the National Front has stolen the limelight. As per Bloomberg, exit polls have the NF holding anywhere between 27% to 30% of the overall votes with the centre-right Republicans party (led by former President Sarkozy) in second place at around 27%, while current President Hollande’s Socialist party is third with around 23% of votes. Importantly also, the NF are said to be in front in at least six of the 13 regions in France. Our Economists on Saturday noted prior to yesterday’s elections that the NF were up to around 30% in the latest opinion polls and on course to come ahead in six regions, so the early signs from the exit polls appear to be reflecting those expectations. While it’s a strong showing from the NF, our Economists still expect them to struggle to convert more voters from the first-round in the second round due on the 13th of December. They highlight that in polls published on Friday, the percentage of voters who consider the National Front being in charge of their region as not a desirable outcome remained stable at 60%. The other possibility is some sort of cooperation between the mainstream parties emerging after this round. Nonetheless, Sunday’s second round will be important to keep an eye on in the run up to the national elections in 2017.
Also attracting a few headlines over the weekend was the latest (cautionary) Bank of International Settlements quarterly report. The report highlighted that financial markets are showing an ‘uneasy calm’ at the moment ahead of a move by the Fed and that ‘there is a clear tension between the markets’ behaviour and underlying economic conditions’. The report cited risks for emerging markets in particular, highlighting that they would be able to ‘ride out’ the prospect of US monetary tightening in the short run but ‘less favourable financial market conditions, combined with a weaker macro outlook and increased sensitivity to US interest rates, heighten the risk of negative spillovers’.
Back to Friday’s highlights. November US payrolls were up 211k during the month, in-line with the 12-month average and a tad ahead the 200k expected by the market. Helping support the number was also a cumulative 35k of upward revisions to the prior two months too. The other components of the employment report generally offered few surprises. The unemployment rate held steady at 5%. Average hourly earnings rose +0.2% mom as expected, while the YoY rate was dragged down two-tenths to +2.3%. Hours worked fell slightly to 34.5hrs from 34.6hrs, while the labour force participation rate came in a little ahead of expectations at 62.5% (vs. 62.4% expected). Released at the same time, the October trade deficit edged slightly wider during the month, from $42.5bn to $43.9bn after expectations for a narrowing to $40.5bn. The recent slug of data has seen the Atlanta Fed edge up their Q4 GDP forecast now to 1.5% from 1.4% on December 1st. Meanwhile St Louis Fed President Bullard reiterated his stance of being an advocate for commencing policy normalization soon.
The price action was interesting with 2y Treasury yields initially spiking as high at 0.989% following the data, although the move was only brief with yields then trending lower and eventually closing back below where they were pre-payrolls at 0.941% (-1.2bps on the day). It was a similar story for 10y yields which finished the day -4.4bps lower at 2.270%, although that’s in the context of the previous day’s huge move higher post the ECB. It was a better day for the US Dollar, finishing up over half a percent versus the Euro. Some of the more notable moves were in US equity markets where the S&P 500, Dow and Nasdaq all finished up over +2% – also reflecting something of a rebound from Thursday’s losses.
This was despite a weak session for energy names after Oil turned on a dime as OPEC headlines hit the wires. WTI traded as high as $42 on Friday, before then plummeting over $2 in a matter of minutes as the news emerged from the OPEC meeting in Vienna that there were to be no cuts to production. WTI traded as low as $39.60 after that news, marking a 5.7% swing from the high print, before finishing the day at $39.97, a -2.70% decline on the day (and is down another 1% this morning). The meeting was described as contentious, lasting nearly seven hours having only been scheduled for four. According to the WSJ, the cartel was said to have considered a cut in production but as a group decided that a cut of even 5% was unlikely to have much impact on pushing prices higher. Much of the focus was also on the lack of any mention of the 30m barrels a day ceiling for production in the post meeting statement, instead the OPEC Secretary emphasizing that the cartel would pump at the ‘current production level’ – a sign production will likely exceed this ceiling for now.
While there was a decent rebound for risk assets in the US on Friday, the same couldn’t be said for European markets where the post-ECB negative tone continued into Friday’s session and which saw equity markets post modest losses as a result. Indeed the Stoxx 600 finished -0.41%, meaning it was down nearly 3.5% on the week and the most over 5-days since August. With little in the way of data in the region other than a slightly better than expected German factory orders print for October (+1.8% mom vs. +1.2% expected) the focus was instead on more comments from the ECB President Draghi.
Responding to the disappointing market reaction on Thursday afternoon, Draghi said that the measures announced by the ECB ‘was not a package meant to address market expectations’ and instead ‘it was meant to address the reaching of our objectives’. Draghi called the measures a ‘recalibration’ and ‘not a novel monetary policy change’. In comments which came across as far more dovish relative to Thursday and perhaps a sign of trying to repair a bit of the damage, the ECB President also made the point that ‘there cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate’.
China’s FX Reserves Fall By Third Most On Record As Outflows Persist
When the PBoC reported the change in Chinese FX reserves for October, some were surprised to learn that apparently, Beijing’s war chest actually grew by $11 billion.
Why was that surprising? Because over the preceding three months, China had liquidated some $300 billion in USTs as Beijing struggled to contain the fallout from the “surprise” August 11 deval.
As it turns out, manipulating the spot to control the fix (versus manipulating the fix to effectively reset the spot) entails quite a bit of intervention when everyone is banking on continued depreciation. So, in order to contain the devaluation and close the onshore/offshore spread, China tapped its FX reserves to ensure that yuan weakness would be “managed” and would unfold on Beijing’s terms, not the market’s.
But October’s reserve data seemed to indicate that suddenly, the pressure on the yuan had dissipated and the outflows had ceased. We would later discover that when you look at the bigger picture which includes bank settlements and forward transactions, the outflows continued unabated during October.
On Monday, we got the latest data from the PBoC which shows that during November, China’s reserves fell by around $87 billion. Stripping out valuation effects, the figure is probably closer to $40 billion (in other words, China probably sold some $40 billion in US paper during the month).
“The figure may not capture all the PBOC’s intervention efforts as the central bank also transacts in the forwards market to support the currency,”Bloomberg notes. And here’s the customary warning from Goldman: “…headline FX reserve data may not necessarily give a comprehensive picture on the underlying trend of FX-RMB conversion by corporates and households.”
In other words, the headline figure likely underestimates the pressure on the yuan and as usual, we won’t get a clear picture for at least another week. Here’s Goldman:
In our view, a preferred gauge of the FX-RMB conversion trend amongst onshore non-banks would be SAFE data on banks’ FX settlements on behalf of their onshore clients (to be out on December 17th). That report captures banks’ FX transactions vis-à-vis non-banks through both spot and forward transactions. Data on the positions of FX purchases will likely be out around mid-December.
The headline figure represents the third-largest decline on record and as FT reminds us, China’s official reserves have fallen in nine of the last eleven months. “The unprecedented declines have raised worries that the reserves could quickly evaporate if capital outflows continue and the central bank continues to defend the exchange rate,” FT adds.
Of course capital outlfows most certainly will continue. Indeed, the fear is that Beijing is in fact targeting a deval on the order of some 20% in order to resuscitate the country’s flagging economy and it’s not clear that the expected inflows from SDR inclusion will be sufficient to offset the inexorable capital flight facilitated by end-arounds like the UnionPay ruse and the country’s network of “Mr. Chens.” “China in recent months has tightened its already stringent capital controls to keep needed funds within the country,”WSJ notes (see our full account here).
“Since October many countries around China have experienced some capital outflow, and China has had its share. The strengthening dollar is bound to cause some repositioning into dollar assets,” Xie Yaxuan, economist at China Merchants Securities in Shenzhen said on Monday, reinforcing the notion that a Fed hike may well exacerbate the pressure on China and other EMs.
“Although a weaker renminbi could give a mild boost to export competitiveness, the PBOC appears concerned that a depreciation would set back their efforts to encourage increased international use of the currency and could slow the process of economic rebalancing toward consumption,” Capital Economics says, suggesting that Beijing isn’t likely to simply let the yuan go now that SDR inclusion is secured. Further, if the headline figure net of valuation effects suggests a $40 billion drawdown, the figure inclusive of unsettled forwards will likely be far larger.
In any event, you can expect the outflows to continue unabated if for no other reason than the fact that while no one is quite sure where the yuan goes from here, the general consensus is that over the long haul, the trend will be towards a weaker exchange rate in the absence of an abrupt economic turnaround. That means that up to and until Beijing finally moves to an honest float, FX reserves will continue to fall, “Mr. Chen” will continue to run a lucrative business, and bitcoin may well find favor among Chinese looking to move money out of the country without buying grossly overpriced real estate in Manhattan or London.
Greece Loses Last Trace Of Sovereignty After EU Takes Control Of Greek Borders
Ever since this summer’s dramatic “referendum” farce, and the subsequent hijacking of the Greek banking system by the ECB’s ELA, Greece has officially been a nation without state sovereignty. Europe reminded Greece of just this a few days ago when days after its waved the carrot before Turkey promising billions in aid, and an EU acceptance fast track, it threatened Greece with expulsion from the Schengen customs union (a union which as a subsequent leak revealed will likely be “temporarily” shuttered for as long as two years unless the refugee crisis is brought under control).
Perhaps to confirm that few things will stand in its mission-creep to subjugate the sovereignty of European member states, starting with the poorest and most insolvent, namely Greece, we find out that the EU and its border agency, is not only preparing to take over border control of countries that have been found to be “ill-equipped” to deal with the refugee problem, but has already launched this plan into action in Greece.
Because after being threatened with expulsion from the Schengen zone, Greece (which does not actually share a contiguous, physical border with any Schengen nation) caved in and accepted an offer from the European Union to bolster its borders with foreign guards as well as other aid, including tents and first aid kits. This decision follows reports that Greece was unwilling to accept foreign border guards on its territory, but these were later denied by the government.
The deployment of additional officers will begin next week.
As Keep Talking Greece writes, “the masks have fallen. Hand in hand, the European Union and the Frontex want to cancel national sovereignty and take over border controls in the pretext of “safeguarding the Schengen borders”. With controversial claims, they use the case of Greece to create an example that could soon happen “in the border area near you.” And the plan is all German.”
Paranoia? Or just another confirmation that the Eurozone is using every incremental, and produced, crisis to cement its power over discrete European state sovereignty and wipe out the cultural and religious borders the prevent the amalgamation of Europe into a Brussels, Berlin and Frankfurt-controlled superstate?
Decide for yourselves after reading this from The Independent:
* * *
EU considers measures to intervene if states’ borders are not guarded
The European Union is considering a measure that would give a new EU border force powers to intervene and guard a member state’s external frontier to protect the Schengen open-borders zone, EU officials and diplomats said yesterday in Brussels.
Such a move would be controversial. It might be blocked by states wary of surrendering sovereign control of their territory. But the discussion reflects fears that Greece’s failure to manage a flood of migrants from Turkey has brought Schengen’s open borders to the brink of collapse.
Germany’s Thomas de Maiziere, in Brussels for a meeting of EU interior ministers, said he expected proposal from the EU executive due on December 15 to include giving responsibility for controlling a frontier with a non-Schengen country to Frontex, the EU’s border agency, if a member state failed to do so.
“The Commission should put forward a proposal … which has the goal of, when a national state is not effectively fulfilling its duty of defending the external border, then that can be taken over by Frontex,” de Maiziere told reporters.
He noted a Franco-German push for Frontex, whose role is largely to coordinate national border agencies, to be complemented by a permanent European Border and Coast Guard – a measure the European Commission has confirmed it will propose.
Greece has come under heavy pressure from states concerned about Schengen this week to accept EU offers of help on its borders.
Diplomats have warned that Athens might find itself effectively excluded from the Schengen zone if it failed to work with other Europeans to control migration.
Earlier this week, Greece finally agreed to accept help from Frontex, averting a showdown at the ministerial meeting in Brussels.
EU diplomats said the proposals to bolster defence of the external Schengen frontiers would look at whether the EU must rely on an invitation from the state concerned.
“One option could be not to seek the member state’s approval for deploying Frontex but activating it by a majority vote among all 28 members,” an EU official said.
Under the Schengen Borders Code, the Commission can now recommend a state accept help from other EU members to control its frontiers. But it cannot force it to accept help – something that may, in any case, not be practicable.
The code also gives states the right to impose controls on internal Schengen borders if external borders are neglected.
As Greece has no land border with the rest of the Schengen zone, that could mean obliging ferries and flights coming from Greece to undergo passport checks.
Asked whether an EU force should require an invitation or could be imposed by the bloc, Swedish Interior Minister Anders Ygeman said: “Border control is the competence for the member states, and it’s hard to say that there is a need to impose that on member states forcefully.
“On the other hand,” he said, referring to this week’s pressure on Greece, “we must safeguard the borders of Schengen, and what we have seen is that if a country is not able to protect its own border, it can leave Schengen or accept Frontex. It’s not mandatory, but in practice it’s quite mandatory.”
A dramatic increase in EU powers over national territory would be deeply controversial in much of Europe.
On Thursday, Danes, who are part of the Schengen zone, heeded Eurosceptic calls and voted against giving their government power to deepen its cooperation with the EU policy agency.
The European Union faces another test over the next two years as Britain, its second biggest economy, prepares to hold a referendum on whether to quit – although it is not a member of the 26-nation Schengen zone. (full article Irish Independent)
* * *
Our Greek friends at KTG are hardly enthused about ceding control of their borders to Europe:
Dramatically increase EU powers over national territories? Be my guest. Brussels and Berlin should not be surprised to see the increase of Eurosceptics spreading like mushrooms. Brussels and Berlin may save the Schengen zone and the Euro zone, but in the end they will stand there with their pants down.
Maybe, but that would require Europe’s “sovereign” states to take a stand against the oppressor. So far, they have all failed and refused to do that as any attempts to exit the Euro and Eurozone, would mean immediate loss of all Euro-denominated savings and a collapse of the financial sector as Greece found out the hard way.
For the time being however, we bring to mind the May 30, 2008 presentation from then-AIG’s Bernard Connolly who laid out precisely what is happening now in Europe some seven years ago.
Here is his answer to the question What Europe Wants:
To use global issues as excuses to extend its power:
- environmental issues: increase control over member countries; advance idea of global governance
- terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
- global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
- EMU: create a crisis to force introduction of “European economic government”
The full presentation, uncannily prescient then, can be read below.
see zero hedge if you want to see the entire presentation of Connolly
The Inside Story Why The ECB Decided “The Markets Needed To Be Disappointed” And How It All Fell Apart
On Wednesday morning, less than 24 hours before the historic, and grossly disappointing ECB announcement, one which sent the EUR soaring the most since the Fed’s announcement of QE1, we warned that Mario Draghi may underdeliver, although in doing so he would face the risk of appearing quite weak before the ECB’s governing council where in recent months the schism between European doves and hawks has grown to epic proportions.
As MNI noted, “Thursday’s meeting will not only be key for the euro area’s economic outlook but also decisive for the nature of Draghi’s presidency as he starts the second half of his tenure. If he gets his way without sparking a revolt, it hard to conceive a situation in which Draghi won’t prevail” to which we add that this is “correct, but the moment ECB decision-making devolves into a pissing contest, Europe has a big problem.”
After all if Europe’s monetary politics become nothing but a contest of egos, a tragic endgame is all but assured. We concluded by saying that “the question is whether Draghi will listen to logic and reason, or if he will continue his campaign to isolate the Hawks on the ECB governing council and in the process make Europe’s monetary situation unfixable. If Draghi does relent, the EURUSD can soar as high as 1.09 tomorrow according to some estimates.”
The next day not only was the warning of underdelivery prescient as Draghi did not prevail, but the EURUSD did soar as high as 1.09 as the ECB unveiled a “stunning” package which left Goldman’s FX strategist reeling .
But just as we were almost ready to congratulate Draghi on “relenting” and acting rationally,we read a Reuters piece which explains that not only did Draghi not relent from his endless confrontation with the ECB governing council, he actually lost. This is what Reuters just reported:
One source with direct knowledge of the situation interpreted Draghi’s public stance ahead of the meeting as trying to pressure the Governing Council to take bigger action.
“Draghi raised expectations too high, on purpose, and attempted to paint the Governing Council into a corner,” the source said. “This was problematic and he was criticized for this by several governors in private.”
He failed, and in doing so may have emboldened the Weidmann-led hawks at the ECB whose opposition to Draghi’s ultra-easy policies has been duly noted.
How did they win?
Reuters says that “unlike last year, when opponents of quantitative easing made their stance public before the decision, the hawks mostly worked behind the scenes. Opponents worked to curtail proposals coming out of the ECB’s committees that prepared the decisions, ensuring that some of the more radical measures expected by market players never made it onto the table.”
The huge market disappointment took place following weeks of public statement by Draghi which convinced traders that the Italian would unleash something short of a neutron bomb, and as a result markets also expected a 25 percent increase in monthly asset purchases and possibly even a deeper rate cut. More radical options under discussion included the purchase of corporate debt or a split deposit rate that would punish banks parking too much cash with the central bank, sources told Reuters earlier.
None of that happened.
Reuters then explains that the smaller than expected move is seen by some as a disappointment for Draghi, who has established a track record for promising and delivering big, as he did with his July 2012 pledge to “do whatever it takes” to preserve the euro and pushing through bigger than expected QE earlier this year.
“Like the Fed earlier this year the ECB has now managed to confuse markets and the public. From now on, markets will treat hints dropped by ECB president Mario Draghi and some of his colleagues with much more scepticism than before,” brokerage Berenberg said.
Here, however, is where the narrative breaks:
“the European Central Bank President and his chief economist Peter Praet stoked expectations with dovish speeches in the weeks before the meeting but the ECB’s Governing Council concluded that markets needed to be disappointed this time because the economic outlook has improved and new inflation forecasts were not as bad as feared, the sources said.”
Now that, unfortunately, makes zero sense because as we reported, the very next day the US stock market had its biggest one day gain entirely due to Draghi appearance in New York, where he reassured the market that there is no need at all to be disappointed, when he said that “QE there to stay”, could be “calibrated” if needed and the ECB can use “further tools” if needed as there is “no limit” to the “size of the ECB’s balance sheet.”
What happened next was a tremendous surge in the S&P which soared to pre-ECB drop levels, even as the EUR, which is at least in theory the monetary policy transmission mechanism did almost nothing.
Ironically, the market’s first reaction was of course correct: yes, Draghi may have resumed his jawboning as the market breathed a sigh of relief, but what will actually happen if the Fed does hike on December 16 without a major increase in ECB liquidity, is that as much as $800 billion in liquidity will be soaked up by the Fed’s 25bps rate hike as calculated previously. The impact of a move which is the equivalent of unwinding one and a third of QE2 overnight, will certainly have dramatic consequences on risk prices unless there is a more than offsetting injection of liquidity elsewhere.
Finally, confirming that Reuters’ attempt to smooth Draghi’s mistake is nothing but an urgently hashed out fiction meant to goalseek the deeply flawed conclusion to a broken narrative, is what Draghi said during yesterday’s Q&A.
Recall that as we reported previously, Mervyn King asked Draghi if “today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi responsed shockingly honestly: “Not really… well, of course.”
Here is what really happened: the ECB tried to engineer a modest market selloff because the “market needed to be disappointed“, coupled with a modest rise in the EUR to give the Fed some rate-hike breathing room. Instead, since everyone was positioned exactly the same – wrong – way, the dramatic overreaction in stocks and FX forced Draghi to not only panic but to publicly come out and admit that the only purpose of his Friday speech was to offset the damage from his failure to defeat the opposition at the governing council and to send markets surging. Which they promptly did.
And while the markets rejoiced at this latest verbal intervention, the question is now that Draghi has challenged the governing council and lost, and furthermore, once again relented to markets, how will the hawks on the council react to any future demands by Draghi to push the S&P even higher? Lastly, if Berenberg is wrong and the ECB has lost a major portion of its credibility, how will Draghi jawbone next time when not even “whatever it takes” is sufficient any more?
As Bill Holter points out, the USA needs the ECB to carry the baton as a 1/4% rate hike will cause a contraction of 800 billion of liquidity (collateral) which will take the entire wind out of the sales of financial and other assets
EUR Slides Below 1.08 After Goldman Raises EUR Forecast
One day before the ECB’s infamous disappointment last Thursday, Goldman’s chief FX strategist Robin Brooks opined as follows: “it remains the case that downside skew in EUR/$ is modest compared to the run-up to the Jan. 22 meeting. In short, we think risk-reward to short EUR/$ into tomorrow’s meeting remains compelling and we anticipate a 2-3 big figure drop on the day.”
The result is by now well-known to everyone – there was a 4-5 big figure move, only it was higher, as countless Goldman clients lost their shirts, and prompted the following mea culpa hours later: “The Euro rallied, driven by declining inflation break-evens and rising nominal yields, i.e., rising real yields. This price action has all the hallmarks of the Yen under Governor Shirakawa, as opposed to Governor Kuroda, raising for us the unpleasant possibility that the idiosyncratic Euro weaker story has been compromised. Even in the unlikely event that today’s disappointment was a mistake, we think it has cost enough credibility that the Euro down story we had envisaged is now less likely to play out. We are placing our forecasts under review.”
Then, one day later, Draghi explained the “disappointment” was indeed a mistake, and the EUR proceeded to slide 150 pips from intraday highs just shy of 1.10.
And then overnight, Goldman concluded its “review” of where the EUR will go in the short, medium and long-term, when Robin Brooks announced Goldman is now “Scaling Back our Expectation for Euro Downside” specifically saying the firm revises its forecast for EUR/$ to 1.07, 1.05 and 1.00 in 3, 6 and 12 months (from 1.02, 1.00 and 0.95 previously) and lifts its year end-2017 forecast to 0.90 from 0.80. To wit:
In our eyes, the Euro lower trade has always been about regime change at the ECB, a shift from Bundesbank-dominated thinking towards reflationary policies aimed at confronting low inflation in Europe. With inflation trending lower, this shift had been under way for some time and grew in intensity in 2014, in the run-up to the QE announcement in January of this year. However, shortly after the start of ECB QE, a discussion over “tapering” and a sharp rise in Bund yields began to undermine the program, causing the Euro downtrend to be arrested.
During that period, our view of fundamentals was such that we stuck to our forecasts. We wrote about how structural reforms on the periphery were likely to keep inflation in Europe lower than otherwise, given that product and labor market reforms could be shifting the Euro zone Phillips curve down. Our view was essentially that, with this inflation dynamic under way, the doves on the Governing Council would be able to reassert themselves, allowing them to consolidate the ECB QE program and fix some of the damage from the summer.
That is not what happened last week. Of course, the ECB did provide additional stimulus, in the form of another deposit cut and an extension of the QE program. It is also possible that thin liquidity exaggerated market moves, such that the spike in EUR/$ overstates the degree of disappointment to the market. But in the end, what mattered last week was whether the ECB sent a message consistent with President Draghi’s speech in Frankfurt on November 20, one that signalled a sense of urgency over the need to confront low inflation. It did not.
Our best read is that the Governing Council is conflicted over the use of unconventional policies and therefore resisted more aggressive action. Given that – at the zero lower bound – so much rides on a central bank’s willingness to send strong signals in order to influence expectations, last week’s performance likely compounded the damage from the summer, rather than fixing it. In short, our conviction in regime change is down, and we worry that the ECB is starting to lag relative to the BoJ under Governor Kuroda.
As a result, we are scaling back our expectation for Euro downside. We revise our forecast for EUR/$ to 1.07, 1.05 and 1.00 in 3, 6 and 12 months (from 1.02, 1.00 and 0.95 previously) and lift our end-2017 forecast to 0.90 from 0.80. We also reduce our expectation for Euro downside against the Pound, where our EUR/GBP forecast is now 0.71, 0.70 and 0.68 on a 3-, 6- and 12-month horizon (from 0.69, 0.67 and 0.65 before). Our end-2017 forecast is now 0.65 versus 0.57 previously. Finally, we revise our EUR/CHF forecast to be essentially flat on a 12-month horizon, with an end-point of 1.15 in 2017 (from 1.10 before).
On a trade-weighted basis, these forecast revisions mean that Dollar appreciation against the majors through end-2017 is now 14 percent, down from 20 percent previously. We are still firmly in the Dollar bull camp, therefore, continuing to see Fed lift-off and subsequent tightening as USD positives, as we laid out in the FX Analyst in April 2014.
The result of Goldman’s increase in its EUR forecast? The EUR promptly tumbled below 1.08
We have finally reached this stage: Finland set to unleash the famous helicopter route for a money drop as Finland is awash in deflation. They are using the route to supply 900 euros per month to citizens to spend!!
(courtesy zero hedge)
It Begins: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens
With Citi’s chief economist proclaiming “only helicopter money can save the world now,” and the Bank of England pre-empting paradropping money concerns, it appears thatAustralia’s largest investment bank’s forecast that money-drops were 12-18 months away was too conservative.
Over the last few months, in a prime example of currency failure and euro-defenders’ narratives, Finland has been sliding deeper into depression. Almost 7 years into the the current global expansion, Finland’s GDP is 6pc below its previous peak. As The Telegraph reports, this is a deeper and more protracted slump than the post-Soviet crash of the early 1990s, or the Great Depression of the 1930s. And so, having tried it all, Finnish authorities are preparing to unleash “helicopter money” to save their nation by giving every citizen a tax-free payout of around $900 each month!
Just over two years ago, when the world was deciding who would be Bernanke Fed Chair replacement, Larry Summers or Janet Yellen (how ironic that Larry Summers did not get the nod just because a bunch of progressive economists thought he would not be dovish enough)we wrote about a different problem: with the end of QE3 upcoming and with the inevitable failure of the economy to reignite (again), we warned that there remains one option after (when not if) QE fails to stimulate growth: helicopter money.
While QE may be ending, it certainly does not mean that the Fed is halting its effort to “boost” the economy. In fact… the end of QE may well be simply a redirection, whereby the broken monetary pathway, one which uses banks as intermediaries to stimulate inflation (supposedly a failure according to the economist mainstream), i.e., “second-round effects”, is bypassed entirely andreplaced with Plan Z, aka “Helicopter Money” mentioned previously as an all too real monetary policy option by none other than Milton Friedman and one Ben Bernanke. This is also known as the nuclear option.
Today Finland needs the nuclear option.As The Telegraph explained, nobody can accuse Finland of being spendthrift, or undisciplined, or technologically backward, or corrupt, or captive of an entrenched oligarchy, the sort of accusations levelled against the Greco-Latins.
The country’s public debt is 62pc of GDP, lower than in Germany. Finland has long been held up as the EMU poster child of austerity, grit, and super-flexibility, the one member of the periphery that supposedly did its homework before joining monetary union and could therefore roll with the punches.
Finland tops the EU in the World Economic Forum’s index of global competitiveness. It comes 1st in the entire world for primary schools, higher education and training, innovation, property rights, intellectual property protection, its legal framework and reliability, anti-monopoly policies, university R&D links, availability of latest technologies, as well as scientists and engineers.
Its near-perfect profile demolishes the central claim of the German finance ministry – through its mouthpiece in Brussels – that countries get into bad trouble in EMU only if they drag their feet on reform and spend too much.
The country has obviously been hit by a series of asymmetric shocks: the collapse of its hi-tech champion Nokia, the slump in forestry and commodity prices, and the recession in Russia.
The relevant point is that it cannot now defend itself. Finland is trapped by a fixed exchange rate and by the fiscal straightjacket of the Stability Pact, a lawyers’ construct that was never intended for such circumstances. The Pact is being enforced anyway because rules are rules and because leaders in the Teutonic bloc have an idee fixee that moral hazard will run rampant if any country in the EMU core sets a bad example.
Finland’s output shrank a further 0.6pc in the third quarter and the country’s three-year long recession is turning into a fourth year. Industrial orders fell 31pc in September. “It’s spooky,” said Pasi Sorjonen from Nordea.
Finland is digging itself into an ever deeper hole. The International Monetary Fundwarned this week against austerity overkill and “pro-cyclical” cuts before the economy is strong enough to take it.
The IMF spoke softly but the message was clear. Finland should not even be thinking of a “front-loaded” fiscal contraction or slashing investment at a time when its output gap is 3.2pc of GDP.
The Finnish authorities admitted in their reply to the IMF’s Article IV report that they had no choice because they had to comply with the Stability Pact. This is what European policy-making has come to.
Some in Finland were quick to throw stones at Greece during the debt crisis, seemingly unaware at the time that they too lived in a glass house. Their own story is not really that different from the EMU disasters that unfolded in the South.
Interest rates were too low for Finland’s needs during the commodity boom, causing the economy to overheat. Unit labour costs spiralled up 20pc from 2006 onwards, leaving the country high and dry when the music stopped. Public debt was low but private debt was high (somewhat like Spain and Ireland). The crisis hit later merely because the commodity bubble did not burst until 2012.
Sweden was able to navigate similar shocks by letting its currency take the strain at key moments over the last decade. Swedish GDP is now 8pc above its pre-Lehman level.
The divergence between Finland and Sweden is staggering for two Nordic economies with so much in common, and it has rekindled Finland’s dormant anti-euro movement.
And that ‘political’ crisis may have been just the kick the authorities needed to unleash the nuclear money drop option, as The Telegraph continues,
Authorities in Finland are considering giving every citizen a tax-free payout of €800 ($900) each month.
Under proposals being draw up by the Finnish Social Insurance Institution (Kela), this national basic income would replace all other benefit payments, and would be paid to all adults regardless of whether or not they receive any other income.
Unemployment in Finland is currently at record levels, and the basic income is intended to encourage more people back to work. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.
Detractors caution that a basic income would remove people’s incentive to work and lead to higher unemployment. Those in favour point to previous experiments where a basic income has been successfully trialed.
Finnish Prime Minister Juha Sipilä supports the idea, saying: “For me, a basic income means simplifying the social security system.”
The basic income will cost Finland roughly €46.7 billion per year if fully implemented. Kela’s proposals are due to be submitted in November 2016.
That’s around 20% of GDP annually… and while politicians will claim it is temporary, these ‘initiatives’ never are – just ask Japan!
* * *
As we previously detailed,support is growing around the world for such spending to be funded by “People’s QE.” The idea behind “People’s QE” is that central banks would directly fund government spending… and even inject money directly into household bank accounts, if need be. And the idea is catching on.
Already the European Central Bank is buying bonds of the European Investment Bank, an E.U. institution that finances infrastructure projects. And the new leader of Britain’s Labor Party, Jeremy Corbyn, is backing a British version of this scheme.
That’s the monster coming to towns and villages near you! Call it “overt monetary financing.” Call it “money from helicopters.” Call in “insane.”
But it won’t be unpopular. Who will protest when the feds begin handing our money to “mid- and low-income households”?
Simply put, The Keynesian Endgame is here… as the only way to avoid secular stagnation (which, for the uninitiated, is just another complicated-sounding, economist buzzword for the more colloquial “everything grinds to a halt”) is for central bankers to call in the Krugman Kraken and go full-Keynes.
Rather than buying assets, central banks drop money on the street. Or even better, in a more modern and civilised fashion, credit our bank accounts! That, after all, may be more effective than buying assets, and would not imply the same transfer of wealth as previous or current forms of QE. Indeed, ‘helicopter money’ can be seen as permanent QE, where the central bank commits to making the increase in the monetary base permanent.
Again, crediting accounts does not guarantee that money will be spent – in contrast to monetary financing where the newly created cash can be used for fiscal spending. And in many cases, such policy would actually imply fiscal policy, as most central banks cannot conduct helicopter money operations on their own.
So again, the thing to realize here is that this has moved well beyond the theoretical and it’s not entirely clear that most people understand how completely absurd this has become (and this isn’t necessarily a specific critique of SocGen by the way, it’s just an honest look at what’s going on). At the risk of violating every semblance of capital market analysis decorum, allow us to just say that this is pure, unadulterated insanity. There’s not even any humor in it anymore.
You cannot simply print a piece of paper, sell it to yourself, and then use the virtual pieces of paper you just printed to buy your piece of paper to stimulate the economy. There’s no credibility in that whatsoever, and we don’t mean that in the somewhat academic language that everyone is now employing on the way to criticizing the Fed, the ECB, and the BoJ.
The monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds and drops the money into household bank accounts, the central bank buys the new bonds and promptly buries them in the bank’s balance sheet as an asset.
The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues.
But the downsides of helicopter money are never mentioned, of course. Like QE (i.e. monetary stimulus), fiscal stimulus (helicopter money) will be sold as a temporary measure that quickly become permanent, as the economy will crater the moment it is withdrawn.
The temporary relief turns out to be, well, heroin, and the Cold Turkey withdrawal, full-blown depression.
Prominent Turkish Media Figure Resigns Citing Legal Battle With Erdogan
Last week, Turkey’s NATO-backed, Washington-approved autocrat Recep Tayyip Erdogan took another step towards ensuring that the concept of a free press doesn’t exist in Turkey when Can Dundar, editor in chief of Cumhuriyet, and Erdem Gul, the newspaper’s capital correspondent were arrested on charges of spying and aiding a terrorist organization.
When you hear “aiding a terrorist organization”, you might think the men had, say, provided weapons to extremists or perhaps assisted in the smuggling of illegal oil from which the most prominent terrorist organization on the planet derives up to a billion dollar per year in revenue.
But no, that’s what the Turkish government does. As for the reporters, their crime was exposing the fact that Ankara was sending weapons to militants in Syria via trucks manned by Turkish intelligence agents. For those who missed it, here’s the video proof:
Of course that was hardly the first time Erdogan has cracked down on the press. Back in September, in a move dubbed “unsubstantiated, outrageous and bizarre” by Amnesty International, Turkey arrested three Vice News journalists (two British citizens and an Iraqi) for allegedly “engaging in terror activity” on behalf of ISIS. That was just the latest example of Ankara using the NATO-backed ISIS offensive as an excuse to eradicate pro-Kurdish sentiment. According to The New York Times (and according to common sense) the reporters’ only real “crime” was “covering the conflict between Kurdish separatists and the Turkish state.”
And there are countless other examples.
Well, in the latest press casualty brought to you by America’s despotic ally in Ankara, Today’s Zaman Editor-in-Chief Bulent Kenes, a journalist who has been at the helm of Turkey’s best-selling English-language daily since it was launched in 2007, has resigned citing an ongoing legal battle with Erdogan. Here’s the full post from TZ:
Kenes said on Thursday that he cannot perform his job as the editor-in-chief of Today’s Zaman due to a series of criminal and civil lawsuits government officials have launched against him as part of the campaign of pressure on the independent media in Turkey. He has already been convicted in one defamation case and is facing many others that observers have said are nothing but intimidation and persecution of independent and critical journalists in Turkey.
He also said he wanted to spend more time with his family and pay more attention to his health.
“As the founding editor-in-chief of the Today’s Zaman, I have sincerely tried to fulfill my job to the best of my ability, maintained the paper’s integrity and tried to resist all kinds of pressure from the government as much as I could,” Kenes said. He wished success for his colleagues at the daily, which he said has been a leading brand name in telling Turkey’s story abroad, and thanked the readers of the daily for their valuable support for him over the years.
Kene? was arrested by the ?stanbul 7th Criminal Court of Peace on Oct. 10 and remained behind bars until his release pending trial was ordered on Oct. 14. The charges against the journalist concern 14 tweets that allegedly insult President Recep Tayyip Erdogan. He has already been convicted of insulting the president in a Twitter post and was handed a suspended prison sentence of 21 months earlier this year. However, Kenes did not even mention the president’s name in his tweet and this sentence has attracted worldwide condemnation.
Kenes is facing the prospect of up to eight years and two months in prison on charges of “insulting” Erdogan in a series of tweets and statements that he has said were simply the expression of a critical opinion. He has also been hit by dozens of other pending cases launched against him by Erdogan, Prime Minister Ahmet Davutoglu and other government officials.
So the takeaway from this travesty (well, other than to reiterate that the US should not be supporting this despot) is that you don’t “insult Erodgan” on Twitter. Especially if you happen to live in Turkey. Although amusingly, you might be able to get away with comparing the President to Gollum (from Lord of the Rings) because as it turns out, Turkish judges aren’t Tolkein fans and on that note, we close with the following from The Guardian:
The trial of a Turkish man accused of insulting the president, Recep Tayyip Erdogan, by comparing him to Gollum has been adjourned so that a group of experts can study JRR Tolkein’s Lord of the Rings character, Turkish media has reported.
Bilgin Ciftci was fired from his job at Turkey’s public health service in October after sharing images comparing Erdo?an’s facial expressions to those of Gollum.
According to a report in the daily newspaper Today’s Zaman, a court in Ayd?n has adjourned Ciftci’s trial as the chief judge had not seen the Lord of the Rings films. The court-appointed experts have reportedly been asked to determine whether the comparison is indeed an insult.
Turkey invades Iraq to protect the illegal ISIS oil smuggling routes:
(courtesy zero hedge)
Did Turkey Just Invade Iraq To Protect Erdogan’s ISIS Oil Smuggling Routes?
On Friday, Turkey sent troops into Iraq.
Here’s a video of the deployment shared on social media:
Contrary to what you might have read, there’s really nothing unusual about that.
As you may recall, Turkey’s military entered Iraq back in September in hot pursuit of PKK “terrorists” Ankara claimed had fled over the border. And that was just par for the proverbial course. Here’s what we said at the time:
In early 2008, Turkish soldiers entered Iraq in a similar effort to eradicate the PKK. “Operation Sun”, as the incursion was called, was conducted with Washington’s blessing for the most part. “Washington described the PKK as a ‘common enemy’, and only urged Ankara to keep its incursion short and closely focused,” BBC noted at the time, adding that “the positions of the UN and EU have been similar, suggesting a degree of sympathy with Turkey’s cause.”
And then there was “Operation Steel” in 1995. And “Operation Hammer” in 1997.” And “Operation Dawn.” And the aplty named “Operation Northern Iraq.”
You get the idea.
So while history doesn’t repeat itself, it damn sure rhymes and here we are again watching as the Turkish military crosses the Iraqi border as though it’s not even there chasing “terrorists” up into the mountains.
What’s different this time around, is that this isn’t a Kurd-chasing mission.
In fact, if you believe the official line, it’s the exact opposite. Turkey has apparently had some 90 troops on the ground in Bashiqa “for two years” on a mission to “train” the Peshmerga. The new troops – around 150 personnel supported by two dozen tanks- will “take over the mission,” according to Hurriyet. “Turkey will have a permanent military base in the Bashiqa region of Mosul as the Turkish forces in the region training the Peshmerga forces have been reinforced,” the daily continues, adding that “the deal regarding the base was signed between Kurdistan Regional Government (KRG) President Massoud Barzani and Turkish Foreign Minister Feridun Sinirlioglu, during the latter’s visit to northern Iraq on Nov. 4.”
Ok, so what’s important to remember here is that although Erdogan is no “fan-o’-Kurds”, Ankara is friendly with the KRG and indeed, Barzani’s 632,000 b/d oil operation (which, you’re reminded, runs independent of SOMO, much to Baghdad’s chagrin) depends heavily on a pipeline that runs from Iraq to Ceyhan. Over the summer, the PKK attacked the pipeline costing the KRG some $250 million in lost revenue. As Rudaw noted at the time, that amounts to an entire month’s worth of salaries for the Peshmerga and other security forces, underscoring the extent to which oil sales via Turkey are crucial to the government in Erbil.
You might also remember from “ISIS Oil Trade Full Frontal: “Raqqa’s Rockefellers”, Bilal Erdogan, KRG Crude, And The Israel Connection,” that there seems to be some commingling going on when it comes to Turkish and ISIS crude. Technically, both are “illegal” and because the 45,000 or so barrels per day that ISIS pumps are so inconsequential in the large scheme of things, it’s easy for Islamic State crude to get “lost” in the shuffle once it gets to Turkey which works out great for those involved in the smuggling operation (as an aside, Russia has identified what Moscow says are other ISIS oil smuggling routes but we’ll focus on northern Iraq for now). You might notice that there’s a certian irony to this whole thing as it relates to the KRG. What the Al-Araby al-Jadeed report cited in the article linked above suggests is that the Kurds in Iraq are to some extent complicit in the entire operation which is amusing because its the sale of undocumented Kurdish crude that allegedly funds the Peshmerga’s fight against Islamic State. As with every other dynamic in the region, the entire thing is impossibly convoluted.
With that in mind, consider where these Turkish troops (who, again, are supposed to be “training” the Peshmerga) are located.
So they’re right next to Mosul and right between the Kurds and ISIS and, most importantly of all, right on what Al-Araby al-Jadeed claims is the smuggling route for illegal ISIS crude into Turkey from Iraq.
The star on the map is Zakho. Araby al-Jadeed, citing an unnamed Kurdish security officials, employees at the Ibrahim Khalil border crossing between Turkey and Iraqi Kurdistan, and an official at one of three oil companies that deal in IS-smuggled oil, says that once Islamic State oil “is extracted and loaded, the oil tankers leave Nineveh province and head north to the city of Zakho, 88km north of Mosul [and] after IS oil lorries arrive in Zakho – normally 70 to 100 of them at a time – they are met by oil smuggling mafias, a mix of Syrian and Iraqi Kurds, in addition to some Turks and Iranians.”
Araby al-Jadeed’s story takes a turn for the fantastic after that, but the point is that it seems extraordinarily convenient that just as Russia is making an all-out effort to expose Turkey’s role in financing Islamic State’s lucrative oil operation and also to destroy ISIS oil convoys in Syria, that Ankara would dispatch troops and two dozen tanks to the exact place in Iraq where some reports suggest the heart of ISIS’ Iraqi oil operation lies.
For his part, Iraqi PM Haider al-Abadi has called for Turkey to “immediately” withdraw its troops. He also calls Ankara’s incursion a “violation of sovereignty.” Here’s the full statement:
It has been confirmed to us that Turkish troops numbering around one regiment armoured with tanks and artillery entered the Iraqi territory, and specifically the province of Nineveh claim that they are training Iraqi groups without the request or authorization from the Iraqi federal authorities and this is considered a serious breach of Iraqi sovereignty and does not conform with the good neighbourly relations between Iraq and Turkey.
The Iraqi authorities call on Turkey to respect good neighbourly relations and to withdraw immediately from the Iraqi territory.
That would seem to indicate that Baghdad has never approved the “training mission” that Ankara claims has been going on east of Mosul for two years.
Furthermore, this underscores the fact that Iraq does not want help from NATO when it comes to fighting ISIS. As we reported last week, Iraqis generally believe the US is in bed with Islamic State and you can bet that Russia and Iran will be keen on advising Baghdad to be exceptionally assertive when it comes to expelling a highly suspicious Turkish presence near Najma.
Ultimately, this is yet another escalation from Erdogan and the timing, location, and vague explanation raise all sorts of questions about what exactly those 150 troops and 25 tanks are doing but you can be sure that if Baghdad rebukes Washington and green lights Russian recon and airstrikes in Iraq, we’ll find out soon enough.
Iraq May Seek “Direct Military Intervention From Russia” To Expel Turkish Troops
Turkey just can’t seem to help itself when it comes to escalations in the Mid-East.
First, Erdogan intentionally reignited the conflict between Ankara and the PKK in an effort to scare the public into nullifying a democratic election outcome. Then, the Turks shot down a Russian warplane near the Syrian border. Finally, in what very well might be an effort to protect Islamic State oil smuggling routes, Erdogan sent 150 troops and two dozen tanks to Bashiqa, just northeast of Mosul in a move that has infuriated Baghdad.
We discussed the troop deployment at length on Saturday in “Did Turkey Just Invade Iraq To Protect Erdogan’s ISIS Oil Smuggling Routes?,” and you’re encouraged to review the analysis in its entirety, but here was our conclusion:
The backlash underscores the fact that Iraq does not want help from NATO when it comes to fighting ISIS. Iraqis generally believe the US is in bed with Islamic State and you can bet that Russia and Iran will be keen on advising Baghdad to be exceptionally assertive when it comes to expelling a highly suspicious Turkish presence near Najma.
You’re reminded that Iran wields considerable influence both politically and militarily in Iraq. The Iraqi military has proven largely ineffective at defending the country against the ISIS advance and so, the Quds-backed Shiite militias including the Badr Organisation, Asaib Ahl al-Haq and Kataib Hezbollah have stepped in to fill the void (see our full account here).
Of course that means that the Ayatollah looms large in Iraq and when it comes to loyalty, both the militias and a number of Iraqi lawmakers pledge allegiance to Tehran and more specifically to Qassem Soleimani. The point is this: Iran is not going to stand idly by and let America and Turkey put more boots on the ground in Iraq which is why just hours after Ash Carter announced that The Pentagon is set to send in more US SpecOps, Kataib Hezbollah threatened to hunt them down and kill them. Not coincidentally, PM Haider al-Abadi rejected a larger US troop presence just moments later.
Now, Abadi has given Turkey 48 hours to get its troops out of Iraq or else.
Or else what?, you might ask. Well, or else Baghdad will appeal to the UN Security Council where Russia and China would likely support the Iraqi cause.
But that’s a little too meek of a solution for some Iraqi politicians including Hakim al-Zamili, the head of Iraq’s parliamentary committee on security and defense who said on Sundaythat Iraq “may soon ask Russia for direct military intervention in response to the Turkish invasion and the violation of Iraqi sovereignty.”
“Iraq has the ability to repel these forces and drive them out of Iraqi territory. We could also request Russia to intervene militarily in Iraq in response to Turkish violation of Iraqi sovereignty,” he told Al-Araby al-Jadeed.
Well guess what? Hakim al-Zamili is a somebody.
He was arrested in 2007 by Iraqi and American troops while holding a high ranking office in the Health Ministry. Zamili was charged with sending millions of dollars to Shiite militants who subsequently kidnapped and killed Iraqi civilians. Sunni civilians. More specifically, the US suspected Zamili “of using his position to run a rogue unit of the Mahdi Army, the Shiite militia that claims loyalty to the cleric Moktada al-Sadr,” The New York Times reported at the time, adding that he was accused of “flooding the Health Ministry’s payroll with militants, embezzling American money meant to pay for Iraq’s overworked medical system and using Health Ministry ‘facilities and services for sectarian kidnapping and murder.”
Here’s an interesting account from NPR ca. 2010, after parliamentary elections:
At Friday prayers yesterday in Baghdad’s Sadr City slum, one man in a gray suit seemed to attract as much attention as the preachers speaking over the P.A.
After a sermon that praised both armed and political resistance to the occupation of Iraq, many from the crowd of thousands rushed up to the front to congratulate Hakim al-Zamili, who appears to have won a resounding mandate as a member of parliament from Baghdad.
Though a celebrity here in Sadr City, many Iraqis call him a war criminal. Zamili was the deputy health minister during the ramp-up to Iraq’s civil war, and he’s accused of turning the ministry’s guards into a Shia death squad, kidnapping and killing hundreds of Sunnis. Another ministry official who denounced Zamili disappeared and is presumed dead.
After being arrested and held over a year by the Americans, an Iraqi court acquitted Zamili after a brief trial.
“If I were really involved in those crimes, the courts would have convicted me,” Zamili said.
Anyway, the point is that as we’ve been saying for months, Shiite politicians along with Iran-backed militias now control Iraq, which has essentially been reduced to a colony of Tehran.
There will be no unilateral decisions on the part of the US or Turkey to place troops in the country without pushback from Baghdad and everyone involved knows that when Baghdad pushes back, it means Iran disapproves.
As Zamili’s warning makes clear, Iraq (and thereby Iran) won’t be shy about calling in the big guns from Moscow when they feel the situation demands it – and the militas won’t be shy about targeting the “invaders.”
“Turkish interests in Iraq will now be a legitimate target because of Turkey’s assault on Iraqi territories,” Kata’ib Sayyid al-Shuhada, one of the Shia militias of the Popular Mobilisation said in a statement. Similarly, Harakat al-Nujaba called Turkey “a terrorist state.” You’re reminded that these groups have a reputation for fearing no one other that Khamenei himself. Not the US, not Turkey, not ISIS, no one:
We close with what Zamili said after the establishment of the Baghdad-based joint intelligence cell comprising officials from Iran, Russia, Syria, and Iraq:
“The idea is to formalize the relationship with Iran, Russia and Syria. We wanted a full-blown military alliance.”
* * *
Bonus color from ISW:
The recent deployment into northern Iraq differs from past deployments in three ways. First, Turkey does not appear to have undertaken the action in order to contain the PKK directly, as there is no significant PKK activity in or around Bashiqa. The base is also located too far from other priority territory for the PKK, including Sinjar west of Mosul, to be used as an effective staging point for future operations against the PKK. Second, the Turkish battalion, deployed to an area within the Disputed Internal Boundaries (DIBs) – areas that have substantial Kurdish populations but remain outside of Iraqi Kurdistan. Turkey likely intends to support Barzani and the KDP in securing control over the DIBs while also positioning its own forces to better influence what forces participate in the future operation to recapture Mosul, formerly an ethnically diverse city including Arabs, Kurds, and Turkmen. Third, the Turkish deployment came only four days after Defense Secretary Ashton Carter announced that additional U.S. Special Operations Forces (SOF) would deploy to Iraq to conduct raids and intelligence-gathering in Iraq and Syria, an announcement that generated denunciations from the Shi’a political parties and threats of no-confidence votes against the Prime Minister, forcing PM Abadi to reject publicly the presence of foreign ground troops in Iraq. The Turkish troops thus deployed at a particularly sensitive time.
Turkey also maintains close connections with key players in northern Iraq. Turkey has cooperated with Kurdistan Regional President Masoud Barzani since 2013, particularly over crude oil exports through the Kirkuk-Ceyhan pipeline. Barzani and Turkey share a mutual distrust of the PKK, and the KDP currently competes with the PKK for control over Sinjar district. Turkey also possesses close relations with former Ninewa Province governor Atheel al-Nujaifi, who maintains a camp of former local police and Arab fighters in Bashiqa called the “National Mobilization.” Turkish support was essential for Atheel al-Nujaifi’s elevation to the Ninewa governorship in 2009. Finally, Turkey has close relations Osama al-Nujaifi, Atheel’s brother and the leader of the Sunni Etihad bloc in the Council of Representatives (CoR). Turkey will likely leverage these connections in order to secure greater control over what armed and political actors participate in operations to recapture Mosul. In particular, Turkey will likely support the Nujaifis over Sunni Arabs with whom Turkey has not cultivated relations.
Turkey’s deployment of troops sparked strong rejection from the full spectrum of Iraqi political actors. Iraqi Prime Minister Haidar al-Abadi and Iraqi President Fuad Masoum strongly condemned the deployment as a violation of Iraqi sovereignty and demanded that Turkey conduct an immediate withdrawal. All major Shi’a parties denounced the deployment as a violation of Iraqi sovereignty, with a leading Sadrist official calling for Iraqi airstrikes on the Turkish force if it did not depart the country. Another pro-Maliki CoR member suggesting that “a Russian force” could intervene to expel the Turkish battalion.
The U.S. will not likely press Turkey on the issue, as anonymous U.S. defense sources merely indicated that the U.S. was “aware” of Turkey’s intentions. Iranian proxy militias, however, could challenge Turkey elsewhere in the country. Iran likely ordered Iranian proxy militias to kidnap 18 Turkish construction workers on September 2 in order to pressure Turkey into ordering Turkish-backed rebels to cooperate with a ceasefire around the besieged Shi’a majority towns of Fu’ah and Kifriya in northern Syria. The kidnappings provided sufficient leverage against Turkey and the kidnapped workers were released after Syrian rebels enacted a local ceasefire. Iran could pursue similar actions against Turkish assets in Baghdad or in southern Iraq.
This situation may escalate further if Iran views the deployment as threatening its vital strategic objectives in Iraq or Syria. Iran rejects any foreign forces other than their own on Iraqi soil and backs the Patriotic Union of Kurdistan (PUK), Barzani’s rival in Iraqi Kurdish politics trying to contest his control over the Kurdistan regional presidency. Iranian proxies also recently sparred violently with the Peshmerga in Tuz Khurmato in eastern Salah al-Din proxies on November 12.
Shi’a parties will use the episode to pressure PM Abadi to strongly reject foreign intervention, particularly if reports that Turkey and Barzani signed an agreement to establish a permanent Turkish base in Bashiqa are correct. These calls could complicate U.S. plans to additional Special Operations Forces (SOF) to Iraq to as a “specialized expeditionary targeting force” that will conduct raids and intelligence-gathering in Iraq and Syria.
Let’s see if we can figure this out. Turkey says NO, we like the spoils of stolen oil, and Iraq says get out. So what happens, does Iraq force Turkey out? This would be a war would it not? And what does America do since Iraq has already said no to more American troops, go in anyway and risk fighting the Iraqis while helping the Turks or just go in and help Turkey? What a mess! And what about the Brits, whose side do they pick? And then there are the French who seem to have sided with Russia, which suggests they must be against the Turks or otherwise they condone an oil for weapons trade that helps terrorism. And clearly Iran will not waste time getting into the play. Why miss a good fight?
Putin Accuses US Of ISIS Oil Coverup
Last Wednesday, the Russian MoD delivered a lengthy presentation which contained compelling visual evidence of a connection between Islamic State’s illegal and highly profitable trade in stolen Iraqi and Syrian crude and Turkey. Here are some highlights:
After loading up with oil, a truck convoy in east Syria heads toward Turkey in direction Al-Qamishli:
October 18: in the Drer-ez-zor region a satellite imagte reveals 1772 oil trucks:
November 14: in the Tavan and Zaho regions, in the zone where coalition forces are active, one can see a gathering of oil trucks:
November 28: in the region Kara-Choh on the territory of an oil refinery one can see 50 oil trucks:
The routes of alleged oil smuggling from Syria and Iraq to Turkey:
A substantial part from east Syria enter a refinery in Batman, Turkey (100km from the Syria border):
The slide show, hosted by Deputy Minister of Defence Anatoly Antonov, featured photos of oil trucks, videos of airstrikes and maps detailing the trafficking of stolen oil. It was the latest PR snafu for Erdogan who is struggling to convince Turkey’s allies that The Kremlin’s accusations are unfounded and that Ankara isn’t set to put NATO in an awkward position by effectively instigating a shooting war with Russia.
Washington came to Erdogan’s defense in the aftermath of Moscow’s claims as State Department spokesman Mark Toner said the US is confident that Ankara “is not complicit in Islamic State oil smuggling.” Russia seemed to take that denial in stride, but after US special envoy and coordinator for international energy affairs, Amos Hochstein, said on Friday that the amount of oil smuggled into Turkey from Syria is “of no significance from a volume perspective”, Moscow appears to have had enough.
On Saturday, Russia accused the US of participating in a cover-up. “Our colleagues from the State Department and the Pentagon have confirmed that the photo-proof, which we presented at a briefing [on December 2], of the origin and destination of the stolen oil, coming from the areas controlled by the terrorists, is authentic. However, the US claim that they ‘don’t see the border crossings with tanker trucks crossing the border,’ raises a smile, if only, because the photos are still images,” Major General Igor Konashenkov, a Defense Ministry spokesman said. “We advise the American side to have a look at how the tanker trucks not only drive through checkpoints at the Turkish border, but pass through them without even stopping.”
As RT notes, an unnamed US State Department official confirmed to Reuters on Friday that the Russian photos of thousands of oil tanker trucks in Syria were authentic [but] stressed that he hasn’t seen “the imagery of the border crossing with trucks crossing the border, and that’s because [the US doesn’t] believe it exists.”
Well, here it is:
“The declarations of the Pentagon and the State Department seem like a theatre of the absurd,” the MoD added, before noting that Washington should “watch the videos taken by its (own) drones which have recently been three times as numerous over the Turkey-Syria border and above the oil zones”. That, by the way, is an attempt to mock Washington for increasing the number of drones monitoring the situation while failing to actually conduct strikes. Earlier this week, Russia said that despite Washington’s claims, the US and its partners are actually not bombing ISIS oil infrastructure or convoys.
In case the above isn’t clear enough, here’s more from the Russian MoD’s Facebook: “When US officials say they don’t see how the terrorists’ oil is smuggled to Turkey… it smells badly of a desire to cover up these acts.”
We have on any number of occasions suggested that Washington has avoided striking ISIS oil convoys in an effort to ensure that the group retains the funding it needs to continue to destabilize Syria and the Assad government (see here for instance) and in order to preserve amicable relations with Ankara which appears to benefit from the trafficking of illegal crude both from Kurdistan and Islamic State.
And so, Russia once again turns the screws on the West in an effort to expose what at this point looks to be a coordinated effort to facilitate the funding of international terrorism via the establishment and maintenance of smuggling routes for some 50,000 b/d of oil looted from fields in eastern Syria and northern Iraq. If the US is indeed complicit in this, it might be time to cut ties with Erdogan because Moscow is on the PR warpath and it’s just a matter of time before the smoking gun emerges.
Assad Slams US Bombing Of Government Troops As Turkey Accuses Russia Of Violating Montreux Treaty
On Saturday, the Russian warship Caesar Kunikov passed through the Bosphorus Strait.
On deck, a soldier could be seen wielding a rocket launcher:
“For a Russian soldier to display a rocket launcher or something similar while passing on a Russian warship is a provocation,” Turkish Foreign Minister Mevlut Cavusoglu said, adding that if Turkey “perceives a threat” Ankara “will give the necessary response.”
It’s not clear what the “necessary response” is to the brandishing of a shoulder surface-to-air missile on the deck of a ship, but for those who might have missed it, the Bosphorus is one of Turkey’s only trump cards when it comes to countering the Russians who at this point seem determined to permanently impair Ankara’s international reputation by implicating Erdogan in Islamic State’s lucrative cross-border oil trade.
Closing the strait would mean cutting one of Moscow’s key supply routes to Latakia, which would in turn force The Kremlin to either take a longer sea route or resupply the base by air. As we noted on Sunday, blocking the Bosphorus would technically be illegal, but that wouldn’t likely stop Erdogan if he became inclined to limit passage.
Well, in what has become a petty back-and-forth game of mutual escalation, Turkey now says Russia violated the Montreaux Treaty by placing a soldier with a shouldered rocket launcher on the deck of a warship as it passed through the strait.
It was “a clear provocation” Transportation Minister Binali Yildirim says. Turkey “is capable of taking necessary precautions if threatening or provocative behavior continues,”he added.
Yes, “threatening or proocative behavior” much like sending 150 ground troops and two dozen tanks into a sovereign country with no invite – which, you’re reminded is exactly what Turkey did in Iraq on Friday.
In any event, Turkey seems to be looking for excuses here. Sure, placing a serviceman on deck with a shouldered surface-to-air missile isn’t exactly a friendly display, but Ankara did just shoot down a Russian fighter jet, so it’s not as if Russia has nothing to fear from the Turks.
Between Turkish aggression and the fact that the Bosphorus has emerged as a key issue in the ongoing spat makes it not at all surprising that Moscow would resort to a bit of chest beating while passing through the strait.
Meanwhile, the Syrian government says US warplanes attacked SAA positions for the first time since the conflict began, prompting a swift response from Damascus (or from wherever the government is conducting its business these days).
The strike allegedly took place in Paris mastermind Abdelhamid Abaaoud’s old fiefdom of Deir ez Zor. As RT reports, “the coalition jets fired nine missiles at an army camp” killing three and wounding a dozen. “Syria strongly condemns the act of aggression by the US-led coalition that contradicts the UN Charter on goals and principles. The Ministry of Foreign Affairs has sent letters to the UN Secretary General and the UN Security Council.”
“This hampers efforts to combat terrorism and proves once again that this coalition lacks seriousness and credibility to effectively fight terrorism,” Syria’s letter to the United Nations says.
Hilariously, Washington says it has no idea what Syria is talking about: “We’ve seen those Syrian reports but we did not conduct any strikes in that part of Deir ez Zor yesterday. So we see no evidence,” coalition spokesman Colonel Steve Warren said. This is the same Steve Warren who said it’s “beyond ridiculous” to suggest that the US is tacitly supporting ISIS. Similarly, Lt. Col. Kristi Beckman, director of public affairs at the Combined Air Operations Center at al-Udeid air base in Qatar, told AP that although he’s “aware” of the incident, he doesn’t “have any indication that the strikes killed Syrian soldiers.”
Of course somebody bombed the SAA position and it damn sure wasn’t the Russians, and since ISIS doesn’t have an air force, there’s really only one explanation as to whose planes were involved. Whether or not the strike was intentional or whether the US thought they were bombing ISIS (which controls the area) is an open question.
So, two questions emerge: 1) will Turkey use the rocket launcher “incident” as an excuse to limit passage in the Bosphorus, and 2) was the coalition strike on Syrian troops intentional, and if so, will “accidents” like this become par for the course in eastern Syria?
Turkey issues warning to Russia over Bosphorus incident — diplomatic source
December 07, 21:04 UTC+3
A photograph of allegedly Russian sailor who was standing on the deck of a Russian warship with a man-portable air defense system on his shoulder appeared in Turkish newspapers last Sunday
ANKARA, December 7 /TASS/. The Turkish Foreign Ministry on Monday received explanations from Russian Ambassador to Turkey Andrey Karlov over an incident involving a Russian sailor who allegedly held a man-portable air defense system on his shoulder when his warship was sailing through the Bosphorus, a diplomatic source said.
The ministry expressed the hope that no such incidents, which contradicted the letter and spirit of international laws and the Montreux Convention, would recur in future. The source also said that the Russian side had promised to convey in full measure the official stance of the Turkish Foreign Ministry to the Russian agencies concerned.
The Russian embassy in Turkey confirms that Russian Ambassador Andrey Karlov has been summoned to the Turkish Foreign Ministry, the embassy’s spokesman, Igor Mityakov, told TASS on Monday.
“We confirm that a meeting has taken place. The ambassador met department head Burak Ozugergin (responsible for political, maritime, aviation and border affairs). We are not giving any comments on the content of their conversation,” the spokesperson said.
A photograph of allegedly Russian sailor who was standing on the deck of a Russian warship with a man-portable air defense system on his shoulder appeared in Turkish newspapers last Sunday. The Turkish side described the incident as an “open provocation.
First it was Russia who stated that they have irrefutable proof that Turkey is engaged in illegal trafficking of Iraq and Syrian oil. Now they are joined by Iran.
Iran Has “Irrefutable Evidence” Of Turkey’s Role In ISIS Oil Trade
When Turkey shot down an Su-24 near the Syrian border late last month, the world held its collective breath. Everyone was asking themselves the same question: “How will Putin respond?”
The fear was that Moscow would retaliate militarily. After all, Putin isn’t exactly known for backing down from a fight. Of course an attack on one NATO member is considered an attack on the entire alliance and so, it appeared that the world might have witnessed a Franz Ferdinand moment, if you will.
But Putin had an ace up his sleeve.
Rather than sending a couple of Tupolev Tu-95 Bears to Ankara, Moscow unleashed a propaganda campaign aimed at exposing Turkey’s role in facilitating Islamic State’s lucrative oil trade. It was almost as though Putin was just waiting for Turkey to give him an excuse. Just hours after the Russian warplane crashed, Putin accused Turkey of buying ISIS oil on the way to calling Erdogan a “backstabber”. Adding insult to injury, he said all of that while sitting right next to Jordan’s King Abdullah.
From there, Moscow proceeded to deliver near daily pronouncements accusing Erdogan and his family of funding international terrorism and the entire media campaign culminated in an epic presentation by the Russian MoD featuring photos of oil trucks, videos of airstrikes and maps detailing the trafficking of stolen oil.
As it turns out, this strategy has done far more damage to Ankara than one could ever hope to achieve with a couple of bombing runs. Turkey’s complicity in the smuggling of stolen crude from Syria and Iraq has been put on display for the entire world to see and it’s been nothing short of an epic embarrassment for Erdogan. It’s also helped to inform the public about the extent to which ISIS operates with the support of state actors. Last week, Russia even went so far as to suggest that the US is involved as well.
Washington and Ankara vehemently deny the accusations, but with each new video clip out of Moscow, it becomes more and more difficult for the US and Turkey to explain why it looks like ISIS is able to smuggle oil across the Turkish border with impunity.
Make no mistake, Russia knows damn well what’s going on here, but Moscow has taken the same approach with regard to the US as it did in early October when Putin cordially invited Washington to join forces in the fight against ISIS. That is, last week’s jabs (mentioned above) notwithstanding, Moscow has generally presented the evidence to the US as though The Kremlin seriously expects America to consider it and break off its alliance with Turkey. Russia did the same thing in early October when Moscow invited the US to join forces in the war on terror.
In both cases, Moscow knows that Washington is complicit in the effort to arm, fund, and train Sunni extremists and by making public overtures like proposing alliances and presenting evidence of state sponsored terror, The Kremlin puts The White House in a very awkward position: America is effectively forced to explain what’s going on to the public and when it comes to Syria, there’s no way to do that without exposing the entire charade.
Well, just in case the US needs any more “help” in determining whether its ally in Ankara is in fact supporting “the terrorists” (as Sergei Lavrov refers to ISIS), or if perhaps Erdogan’s right hand isn’t aware of what his left hand is doing, Iran is here to help. “Iranian military advisors in Syria have taken photos and filmed all the routes used by ISIL’s oil tankers to Turkey. If the Turkish authorities are unaware of the Daesh oil sales in their country, then we can provide them with such intelligence,” Iran’s Expediency Council Secretary Mohsen Rezaie told reporters on Friday.
Meanwhile, Iranian diplomat and analyst Seyed Hadi Afghahi had the following to say in aninterview with Sputnik:
“It is important to point out a few key points. Firstly, it is important to understand whether it is sure that the purchase by Turkey of Daesh’s stolen oil was carried out with the full knowledge of President Erdogan, his son and son in law. The reaction of Erdogan and Turkish authorities can say one thing: they were stunned and shocked that Moscow has such evidence. This significantly affected the position of Turkey’s NATO allies.
“Our military advisers and trainers are in the immediate vicinity of the event. Our experts are involved in operations in three areas: strategic, tactical and informational. They are in contact with their Russian counterparts. Through the efforts of our countries (Russia, Iran, Syria, Iraq) the Information Centre for the fight against terrorists and Daesh was established.
“In addition, our experts are working closely with the Syrian army, the soldiers of the Lebanese ‘Hezbollah’ in the conduct of the fight against terrorists. Therefore, any exchange of intelligence between our military agencies, and ways to monitor traffic of trucks with contraband oil, heading in the direction of Turkey, is gathered in photographs and videos.”
“If Erdogan continues to deny the facts [Iran] will provide more irrefutable hard evidence such as photos, GPS navigation of the oil convoys and videos.”
This all comes as Erdogan sends troops and tanks to Iraq where Shiite militias loyal to Iran have promised to attack any and all Turkish interests and where some Shiite politicians in Baghdad are calling on PM Haider al-Abadi to seek “direct military intervention” from Russia to expel the Turks (see our full account here).
On that note, we’ll close with one last quote from Afghahi:
“The immensely ambitious policy of President Erdogan fundamentally damaged relations with many countries. Ankara’s actions ranging from the downed Russian plane, disrespectful remarks against the Iranian authorities, and the illegal invasion by Turkish tanks in the territory of another state – Iraq, all point to the fact that Erdogan is trying to ignite flames of new war in the already unstable region.”
ISIS Makes Major Move In Yemen, Assassinates Aden’s Governor After Executing Two Dozen Houthis
One point we’ve been keen on driving home as the war in Syria intensifies is that while the sheer number of combatants and the overt involvement of at least seven world powers certainly means that among the many conflicts raging in the Mid-East, the war in Syria is the fight that matters most for the non-Arab world, it’s important not to miss the forest for the trees.
That is, it’s critical to see the bigger picture here, and that entails understanding how Syria is related to the conflicts raging in Iraq, Yemen, and to a lesser extent, Afghanistan. Iran is determined to expand its regional influence. Tehran is the power broker in Iraq, Syria, and Lebanon and it’s no coincidence that the Houthis in Yemen are backed by the Iranians and neither is it a coincidence that Iran is rumored to be funneling weapons and money to its old enemy the Taliban in Afghanistan. This is about checking the spread of Sunni extremism and, concurrently, curtailing and diminishing Saudi influence. While Iran and the Taliban make for strange bedfellows (the militants are, after all, Sunni extremists), Tehran is determined to check the spread of Islamic State and with the IRGC, Hezbollah, and the Quds-controlled Shiite militias already fighting ISIS on two fronts (Syria and Iraq), the Ayatollah isn’t particularly thrilled about the prospect of an expanded ISIS presence on its eastern border. Supporting the Taliban in Afghanistan (with whom Iran nearly went to war in 1998), should help to check ISIS gains in the country and has the added benefit of keeping the US off guard which itself speaks to how quickly alliances can change as it was just 12 years ago that Iran assisted the US in picking Taliban and al-Qaeda targets (read more here).
As for ISIS, the official line is that everyone is an enemy. The Taliban are led by “illiterate warlords,” al-Qaeda are “a bunch of donkeys”, the Houthis are heretics as are the Iranians, the Saudis are just plain in the way in Yemen, and everyone else is an infidel. Of course there’s no telling what the group’s leadership really thinks given the support they undoubtedly receive from any number of states governed by “nonbelievers,” but we’ll leave that aside for now.
Ok, so why are we telling you this? Because on Sunday, ISIS killed the governor of the Yemeni port city of Aden in what amounts to the group’s most brazen attack in the country to date. As WSJ reports, “in a statement distributed on social media and translated by the extremist-tracking SITE Intelligence Group, an Aden-based branch of Islamic State claimed responsibility for a suicide car bomb that killed governor Jaafar Saad and several of his guards as his convoy traveled through the city.”
Sunday’s explosion could be heard about 10 km (seven miles) away,” Reuters reports. “Medics said the body of Saad and the others who were killed were burned beyond recognition.”
In a statement ISIS said it detonated a car packed with explosives as Saad’s convoy drove by. The group promised more operations against “the heads of apostasy in Yemen”. Here’s the statement:
Recall that Aden was a major battleground during the spring and it was also the site of China’s first naval rescue operation involving foreign nationals. The Houthis nearly took control of the city earlier this year after driving President Abed Rabbo Mansour Hadi out of the country, but a summer offensive by the Saudi-led, UAE- and Qatar- assisted coalition drove the rebels back. Now, the coalition wants to retake San’a.
As WSJ goes on to note, “Mr. Saad, a major general in Yemen’s army, was a prominent figure among pro-Saudi forces in Aden before his appointment as governor in October.” Here’s a bit more color:
Islamic State and al Qaeda in the Arabian Peninsula, or AQAP, have both exploited the instability to carry out attacks and make territorial gains.
Numerous Islamic State branches have sprouted since the Saudi campaign began.Twin attacks by Islamic State militants on Houthi mosques in San’a killed more than 140 people in March.
Islamic State attacks have targeted the Houthis and the Saudi coalition, both of which the group considers enemies.
This comes just days after Wilayat Aden Abyan (you can identify the origin of ISIS videos by whatever comes after the word “Wilayat” in the introduction that always precedes the clip) released a video depicting the execution of around two dozen Houthis.
We’ll spare you the footage, but here are some screenshots that should give you a decent idea of the fate that befell the men.
What this suggests is that ISIS is now set to expand its influence in Yemen. Remember, the country’s proxy war is really no different in character to what’s going on in Syria. The distinction is that in Yemen, Iran is fighting via proxy while the Saudis and Qatar are there in person while in Syria, Iran has boots on the ground while the Saudis and Qatar are fighting via proxies.
Of course one of Riyadh and Doha’s proxies in the Syrian conflict is ISIS, and as mentioned above, the group is now targeting the Saudi coalition’s support base in Aden which would seem to indicate – and this is a colorful metaphor we’ve used before – that this is but another example of Frankenstein breaking out of the lab and attacking its creators. Whether or not an expanded ISIS presence in Yemen will benefit the Saudi cause largely depends on whether the Houthis become Islamic State’s main target in the country, or whether they intend to wage a protracted war against pro-Hadi forces.
Given the sectarian divide, we’re inclined to believe that the Houthis will get the worst of this and that’s just fine with Riyadh and Doha as anything that weakens Iran’s proxies helps to restore Hadi by default.
And you never know, it could be that much like the cost of destabilizing Assad involves the loss of civilian lives in places like Paris and in the skies over the Sinai Peninsula, the cost of having one more anti-Houthi force on the ground in Yemen is that occasionally a few pro-Hadi government officials end up vaporized in a car bombing, because at the end of the day, covertly supporting groups like ISIS and al-Qaeda (who of course are also operating in Yemen) is a bit like raising tigers as pets – you can foster quite a bit of loyalty over time, but there’s always a chance they might kill you.
12/06/15http://www.difesaonline.it/mondo-militare/siria-il-cremlino-risponde-ai-missili-della-cia-decine-di-carri-armati-t-90-schieratiMoscow has sent to Syria a first armored attack force consisting of T-90 tanks to support the upcoming campaign to the south of Aleppo. The presence of tanks of the third generation is motivated by the ability of the enemy (Isis- rebels supported by the US) to use the TOW missiles (*), capable of destroying less advanced armored platforms such as the T-72 tank standards Damascus has heavy 41 tons.The T-90 weighs 47 tons. And ‘it armed with a 125 mm cannon and anti-tank missiles AT-11 Sniper. In addition to the standard passive armor, it is protected in front by the third generation of explosive reactive armor Kontact-5 ERA, integrated with the electro-optical system “Shtora” (**).The T-90 is the flagship of the Russian armored forces, pending the entry into the production of the universal modular fighting platform “Armyrmata”. Syrian media claim that the T-90 will be led into battle by loyalist troops, but it seems highly unlikely and is clearly a propaganda stunt.The technology of the latest version of the T-90 is jealously guarded by Moscow and its “surrender” to the enemy is not deemed acceptable by the Russian General Staff (as was the case for Iraqi Abrams, “given away” to the enemy without a fight). Despite their presence has been confirmed in Chechnya and Ukraine, the Syrian context is the first redeployment in a war zone for the Russian army T-90.The new Russian countermove should be seen as the latest attempt to give a new impetus to the troops of the Syrian government in the civil war and counteract the effect of TOW antitank missile.The presence of the T-90, is intended as a game-changer, is a clear response to anti-tank missiles of the rebels, rivals to the regime provided by the countries behind the CIA program. The turret of the T-90 is wrapped with reactive plates able to clear all anti-tank missiles with shaped charge. To put them out of order, then, would serve missiles with double charge. Syrian media report that the tanks T-90 will join the Fourth Armored Division of the Republican Guard, commanded by Syrian Ali Maher Assad, younger brother of President Bashar Assad.Until recently the six Russian T-90 were sent to Syria to protect the city of Latakia, on the Mediterranean coast of Syria. Now at least twenty T90A are already in Syria. Their number could double in the next 96 hours in support of Syrian armored divisions consisting of about 200 T-72 (another 200 T-72 would be a protection of the nerve centers of the country).(*) Program TOWThe TOW program overseen by the CIA, is totally separate from that what failed miserably fielded by the Pentagon that, as intended, would have to affect the outcome of the other led war in Syria, one in the north-east of the country against the Islamic state. The CIA has launched the TOW program in early 2014, with the aim of countering Damascus providing training, arms, ammunition and anti-tank missiles: tools that would prove essential to bridge the gap with the heavy equipment of the government loyalist. The missiles arrive in Syria from Saudi Arabia, after delivery from the CIA. The plan, as described by the Pentagon, was intended to exert sufficient military pressure against Assad’s forces and convince him to a political compromise. A sort of “invitation” to the negotiating table, perhaps avoiding the collapse that would unleash chaos in the country. The arrival on the scene of Russia, however, has upset the whole strategy of the CIA. The TOW program, despite everything, continues.Saudi Arabia reiterates its support (none other than the projection mirror the US) to the rebels. Browse around a clause in the program: the missiles are delivered in limited quantities. To get supplies, the rebels must demonstrate that they possess the same pitchers delivered. A clause, we do not know how this can really work, to avoid the systems can end up on the black market. In 2013, Saudi Arabia has purchased 13,975 anti-tank missiles, providing fully delivered. By contract, the Saudi government must inform the Member States of final destination of the missiles. The US approval is implied.(**) Defensive Aids System Shtora-1
The Defensive Aid System Shtora-1 protects the tank from missile guided by SACLOS (Semi-Automatic Command to Line Of Sight) the laser. And is considered effective against missiles TOW, HOT, AT-4, and AT-5 Sagger, as well as against some ATGM.
Developed by the Research and Production Corporation Zenith it entered service in 1993. It is a warning system that detects the threat and directs the laser turret automatically in the direction of the threat, triggering then shielding.
The DAS Shtora-1 is formed by a train of interference electro-optical (jammer, the modulator and the control panel), grenades for shielding against enemy “illuminations”, an alarm system precision laser and the main control panel that processes information from the sensors, activating the defensive screen.
(Photo: MoD Fed. Russian / web)
Syria sends official protest to the UN and the firing upon the free Syrian Army near the oil fields in Syria, close to Damascus
(courtesy Sputnik news/)
The Syrian Foreign Ministry has sent an official protest to the UN Security Council of the US-led coalition’s airstrikes on Syrian Army facilities.
MOSCOW (Sputnik) – The Syrian Foreign Ministry has sent an official protest to the UN Security Council over the US-led coalition’s airstrikes on Syrian Army facilities in Deir ez-Zor, Syria’s official SANA news agency reported Monday.
“Syria strongly condemns the act of aggression by the US-led coalition that contradicts the UN Charter on goals and principles. The Ministry of Foreign Affairs has sent letters to the UN Secretary General and the UN Security Council,” the agency quoted the ministry as saying.
US-led airstrikes on a Syrian Army barracks show the international coalition is not serious in its fight against terrorism, the Syrian Foreign Ministry said.
“The aggression against a Syrian Army barracks as a barrier to forces deployed for the fight against terrorism once again shows that the US coalition is not serious and insincere in the fight against terrorism,” the ministry said.
According to the Syrian Foreign Ministry, four coalition aircraft launched nine missiles at Syrian Army facilities on Sunday evening, killing at least three and injuring another 13.
Besides, the airstrike destroyed three armored vehicles, four other military vehicles, two machine guns and an ammunition depot.
BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History
Over the past several months, one of the biggest conundrums stumping the financial community has been the record negative swap spread which we profiled first in September, and which as Goldman most recently concluded, “has been driven by funding and balance sheet strains, especially since August.”
Today, in its latest quarterly report, the Bank of International Settlement focused precisely on this latest market dislocation. According to the central banks’ central bank, “recent quarters have witnessed unusual price relationships in fixed income markets. US dollar swap spreads (ie the difference between the rate on the fixed leg of a swap and the corresponding Treasury yield) have turned negative, moving in the opposite direction from euro swap spreads (Graph A, left-hand panel).”
Given that counterparties in derivatives markets, typically banks, are less creditworthy than the government, swap rates are normally higher than Treasury yields because of the additional risk premium. Hence, the negative spreads point to a possible dislocation. One set of factors relates to supply and demand conditions in interest rate swap and Treasury bond markets. In the swap markets, forces that can compress swap rates include credit enhancements in swaps, hedging demand from corporate bond issuers, and investors seeking to lock in longer durations (eg insurers and pension funds) by securing fixed rates via swaps.
In cash markets, in turn, upward pressures on yields stemmed from the recent sales of US Treasury securities by EME reserve managers. The market impact of these Treasury bond sales may have been amplified by a second set of factors that curb arbitrage and impede smooth market functioning.First, the capacity of dealers’ balance sheets to absorb rising inventory may have been overwhelmed by the amount of US Treasury bonds reaching the secondary market in the third quarter (Graph A, centre panel), causing dealers to bid market yields above the corresponding swap rates.Second, balance sheet constraints may have made it more costly for intermediaries to engage in the speculative arbitrage needed to restore a positive swap spread. Such arbitrage is sensitive to balance sheet costs because it requires leverage, with a long Treasury position funded in the repo market.
Meanwhile, while US swap spreads hit record negative levels, in Europe the market tensions have been of a different nature:
Ten-year swap spreads started to widen in early 2015, around the time when the Swiss National Bank abandoned its currency peg, then increased further over subsequent months (Graph A, left-hand panel). While past episodes of widening swap spreads can be attributed to credit risk in the banking sector, the most recent developments may have more to do with hedging by institutional investors. While swap rates also fell (Graph A, right-hand panel), the swap spread widened, indicating that cash market yields fell by even more. One possible explanation is that, as yields fall amid expectations of ECB asset purchases, institutional investors with long-duration liabilities, such as insurers and pension funds, would have been under pressure to extend their asset portfolio duration by purchasing additional longer-dated bonds, possibly compressing market yields below the swap rates.
And with cash markets rapidly depleting of physical inventory as a result of central bank monetization, investors have had to rely on derivatives markets, especially swaptions.
For the complete article: see the following link
Peter Schiff Warns: “The Whole Economy Has Imploded… Collapse Is Coming”
Back before 2008 Peter Schiff was harshly criticized and laughed at for his predictions about a coming economic collapse. Among other things Schiff warned that consumer spending had hit a wall, stocks were overpriced and lax credit lending practices would lead to a detonation of the banking system. Rather than heed the warnings, the biggest names in mainstream media tried to discredit him for not toeing the official narrative. Shortly thereafter, of course, Schiff was vindicated and much of the doom he had forecast came to pass.
Today, Schiff continues to argue that the economy is on a downhill trajectory and this time there’ll be no stopping it. All of the emergency measures implemented by the government following the Crash of 2008 were merely temporary stop-gaps. The light at the end of the tunnel being touted by officials as recovery, Schiff has famously said, is actually an oncoming train. And if the forecast he laid out in his latest interview is as accurate as those he shared in 2007, then the the train is about to derail.
We’re broke. We’re basically living off of debt. We’ve had a huge transformation of the American economy. Look at all the Americans now on food stamps, on disability, on unemployment.
The whole economy has imploded… the bottom hasn’t dropped out yet because we’re able to go deeper into debt. But the collapse is coming.
Fundamentally, America is worse off now than it was pre-crash. With the national debt rising unabated and money being printed out of thin air without reprieve, it is only a matter of time.
Schiff notes that while government statistics claim Americans are saving again and consumers seem to be spending, the average Joe Sixpack actually has a negative net worth. But most people don’t even realize what’s happening:
I read a statistic… The average American has less than a $5000 net worth… it’s pathetic… we’re basically broke… but in fact it’s much less… If you actually took the national debt and broke it down per capita, the average American has a negative net worth because the government has borrowed in his name more than the average American is able to save.
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end.
The problem, of course, is that no one with any real influence over public perception, like our elected officials or the media, will do anything about it. They’ll continue the party until it comes to an abrupt and irreversible end, and anyone who goes against the official narrative will be branded a lunatic gloom and doomer or extremist.
But vilifying those who are blaring the warning sirens will do nothing to change the end result:
We’re going to have a crisis… There are always going to be people who say ‘well, you’re a stopped clocked… you keep predicting doom and eventually it happens’… but you have to back and listen to why… Why are they saying it?
If you look back at things that I’ve said and the things that Ron Paul has said… This is why it’s happening… it’s not like we’re just saying negative things to be negative and then when something negative happens we can claim credit for it happening.
If you look back at the events it bears out that we’re right… unfortunately our opinions are in the minority… and you have governments that have a vested interest in ignoring these opinions because they don’t want to change because they’re at the root cause of the problem. But they don’t want to acknowledge their role in creating the problem. They don’t want to acknowledge that the problem is more government and that we need less government because that’s not how they stay in power. They promise something for nothing… they promise that government is the solution for your problems, not the cause of your problems.
They’re never going to acknowledge people like Ron Paul for what they’re saying… but they’ll try to discredit you by saying ‘well, you’ve been saying this for years and nothing bad has happened.’
But look around. A lot of bad stuff has happened. We just haven’t had the final and complete collapse. But what good is it when that happens? Now it’s too late to do anything about it.
The reality is that the American economy is on its last leg. Black Friday sales were pitiful, some of the world’s leading companies are warning of recession, and U.S. national debt will soon surpass $20 Trillion.
Just as was the case before the Crash of 2008, all of the signs are there. And just like before, the stock market continues to hover near all-time highs.
If you’ve been paying attention you know what happens next.
“We Lost A Battle Today”: Venezuela Rebukes Maduro’s Socialist Paradise In Dramatic Election
“Change has started in Venezuela,” Jesus says.
We’re of course referring to Jesus “Chuo” Torrealba, the opposition leader in Venezuela where mid-term elections held on Sunday showed citizens are fed up with Nicolas Maduro’s socialist paradise.
In what amounted to the worst defeat in history for Hugo Chavez’s leftist movement, the opposition won at least 99 of 167 seats that were up for grabs in the National Assembly. With 99% of the vote counted and 22 seats still contested, the United Socialist Party had won 46 seats. “As important as the number of seats won, is the number of votes,” Barclays adds. “For comparison, based on projected voter turnout, the opposition looks to have received more than 8.0mn votes in this election, exceeding what Maduro received when he was elected in 2013 (7.58mn). “
As WSJ notes, “the margin of victory was bigger than expected, and a landmark victory for the country’s frustrated opposition, which hasn’t won a legislative or presidential vote since the late populist Hugo Chávez won the presidency in 1998 and launched his self-styled Bolivarian Revolution.”
“I feel as if we won the World Cup while playing with our two legs tied. This has been the most abusive campaign ever, but the important thing is that we were able to use democracy to beat a system that is deeply undemocratic,” opposition deputy Julio Borges said. Here’s WSJ summarizing what’s at stake:
A majority will allow the opposition to free political prisoners like Leopoldo Lopez, a former mayor well known outside Venezuela, enact basic laws, and approve the budget and government debt. Three-fifths of congress—101 or more deputies—would permit the passage of powerful laws that could lead to a host of deep overhauls. The opposition could also remove the vice president or ministers. Two-thirds of the assembly would give them the power to restructure a judiciary that human-rights groups say is stacked with government supporters.
“This is not the first time that the opposition has a majority in the legislative assembly,” Barclays reminds us. “It also had a majority at the beginning of the chavista era when Chavez was first elected in 1998-2000 [but] at the time the opposition also only had a simple majority, versus the qualified majority (or even super) that it may have achieved this time.” The implication: “…this will be the first time that the opposition can impose real checks and balances on a chavista government.”
But if you thought Mauricio Macri has a tough road ahead in Argentina (where the newly-elected President who just threw out the Peronists will need to fix a veritable FX crisis post-haste), it’s nothing compared to the disaster facing Venezuelan officials. “The current government is doing more or less everything wrong at the moment in terms of maintaining a viable economy,” Paul McNamara, a money manager at GAM UK Ltd. in London told Bloomberg.
Yes, “everything wrong.” Here’s what “everything wrong” looks like:
And here’s a map that puts things in context vis-a-vis LatAm as a whole (via Goldman):
As WSJ puts it, “though rich in oil, Venezuela is ravaged by inflation above 200%, rampant food shortages, a local currency that has shed 81% of its value in 2015, as well as low oil prices that have left the government broke and unable to import basics like medicine and car parts.” Right. And let’s not forget that Caracas has recently resorted to selling its gold and tapping its IMF holdings in a desperate attempt to service its debt.
“In any other country, people can save. Here, no one in my generation can save anything, and much less have hopes of owning a car or a house,” one hotel worker told WSJ.
For his part, Maduro called the vote a “wake up call.”
“We have come with our honor to recognize these adverse results, to accept them and tell Venezuela that the constitution and democracy have triumphed,” he declared. “We accept the results just as they have been announced by the electoral body.”
Well that’s nice of him, and we suppose he fully understands that this was essentially a referendum on his mismanagement of the economy and according to at least one observer, this may be Maduro’s “come to Jesus” moment (no pun on the opposition leader’s name intended): “One good thing about this election is that Chavismo will have to face reality,” Michael Penfold, a professor of public policy at Venezuela’s IESA business school told WSJ. “Oil has been the drug that has kept the party going. But now it’s over. They have to take decisions that they have put off.” Here’s Maduro’s speech, which he delivered wearing a Sopranos-style red track suit:
Obviously, we’re a long way away from any kind of meaningful change in Venezuela, so no one should get too excited here. Indeed, even if this ushers in a new era for Venezuelan politics, persistently low crude prices will conspire to keep the economy hamstrung for the foreseeable future. Here’s Barclays on why you should curb your enthusiasm, so to speak:
Even if the election has shown that inaction can have a political cost, we think that, challenged by a reinvigorated opposition, the Maduro administration will not be able to coordinate the necessary economic reforms. This would require moving away from the rhetoric of ‘economic war’, and to admitting that things are not being done well and need to be fixed. However, after the results were announced, President Maduro appeared reluctant to step back, and continued to blame the ‘economic war’ for the country’s situation and government’s election defeat. Even if the government does now move to introduce reforms that could bring improvements, we think it faces a credibility problem that will limit its ability to succeed. The government has spent the past two years talking about reforms but not making any, while distortions in the economy have widened. For reference, the spread between the official and non-official exchange rate moved from around 200% to more than 14,000% during this period. The country’s economic crisis has become systemic and requires comprehensive rather than partial solutions. Therefore, a change in leadership seems to be a precondition for implementing a successful structural reform process. In the absence of significant reforms, the economic situation is likely to keep deteriorating.
Yes, it sure is, but then again, there’s always drug smuggling.
We’ll close with a quote from (who else?) Maduro: “We have lost a battle today, but the struggle to build a new society is just beginning.”
Euro/USA 1.0808 down .0066
USA/JAPAN YEN 123.42 up .338
GBP/USA 1.5074 down .0027
USA/CAN 1.3439 up .0081
Early this morning in Europe, the Euro fell by 66 basis points, trading now just above the 1.08 level rising to 1.0807; 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, Nysmark and the Ukraine, along with rising peripheral bond yield and now further stimulation and moving more into NIRP. Last night the Chinese yuan down in value (onshore). The USA/CNY up in rate at closing last night: 6.4095 / (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 down again in Japan by 39 basis points and trading now well above the all important 120 level to 123.42 yen to the dollar.
The pound was down this morning by 27 basis points as it now trades just below the 1.51 level at 1.5074.
The Canadian dollar is now trading down 81 in basis points to 1.3439 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>
AND NOW WE AWAIT THE DECISION OF THE USA TO RAISE RATES AND THE DILEMMA THEY FACE. SOMEONE ELSE MUST DO QE TO REPLACE LOST LIQUIDITY
The NIKKEI: this MONDAY morning: closed up 193.67 or .99%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses mostly in the green … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai barely in the green with gov’t intervention / (massive bubble ready to burst), Australia in the green (barely): /Nikkei (Japan) green/India’s Sensex in the red/
Gold very early morning trading: $1082.00
Early MONDAY morning USA 10 year bond yield: 2.27% !!! down 1 in basis points from FRIDAY night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 3.00 or down 1 in basis points.
USA dollar index early MONDAY morning: 98.80 up 50 cents from FRIDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers MONDAY MORNING
Crude Carnage Continues – WTI Tumbles To $38 Handle
Following Friday’s plunge after OPEC “held” steady, confirming the strategy of crushing US Shale is here to stay, WTI Crude has continued its carnage and is back to a $38 handle for the first time since the August-month-end meltup… very close once again to cycle lows.
Testing cycle lows…
The global glut of oil is having a devastating effect on the world. Now it seems that OPEC is losing influence:
(courtesy Nick Cunningham/OilPrice.com)
Is OPEC Losing Influence?
Oil prices underwent a wild ride in the lead up to the OPEC meeting in Vienna on December 4, and the markets gyrated as OPEC sent confusing signals on its intentions.
Early media reports suggested that OPEC had decided to raise its production ceiling from 30 million barrels per day (mb/d) to 31.5 mb/d. The reported move was seen as a nod to the inclusion of Indonesia into the group, bringing an additional 900,000 barrels per day of production. It also was seen as a decision to make a bit of room for Iran to bring some output back. Alternatively, raising the ceiling was interpreted as a recognition of reality, that is, that OPEC had been collectively exceeding its stated production target for quite some time.
Oil prices tanked by 3 percent on the news that OPEC would increase output, even though raising the production ceiling would not necessarily change supply dynamics. But the day grew more confusing when OPEC delayed its scheduled news conference and failed to confirm the news reports of a production increase.
At the press conference, OPEC’s President and Nigerian oil minister Emmanuel Ibe Kachikwu said that the group decided to leave production at their current levels. But in follow up questions from the press, he clarified that it would not be the 30 mb/d target that the group had agreed to up until now, but that OPEC agreed to leave actual production levels where they are – that is, somewhere near 31.3 mb/d, give or take a few hundred thousand barrels per day. In other words, the group is now officially not operating under a specific target – all bets are off. It is an unusual move not to operate under a specific targeted number, but OPEC said it would postpone a decision until the next meeting.
The decision is a recognition, on the one hand, that setting specific targets is pointless. All parties are going to do what is in their own interest. For nearly all members, that is producing as much oil as possible in order to make up lost revenue by moving higher volumes. OPEC is now just admitting as much, conceding that it will continue to produce well above the previous target.
The move to shed a production target is also a reflection of the fact that OPEC’s status is in flux. It is bringing Indonesia’s nearly 1 mb/d under its umbrella, but merely lifting the ceiling by 1 mb/d would be a tacit nod to a specific country production quota, something that the group got rid of several years ago. Similarly, Iran is about to bring 500,000 barrels per day of production back to the market, and likely more over the next half year or so, something that the OPEC President said was Iran’s “sovereign right” in his remarks to the press.
As such, OPEC apparently thought it would be useless to set a target right now, when countries are already exceeding that target, and in any event, the group’s collective production is expected to rise quite a bit over the next year.
OPEC left the door cracked on a meeting in January or February, after sanctions on Iran are lifted and the group can better assess market conditions. Similarly, OPEC’s President and Secretary-General issued some positive remarks on the possibility of coordinating with non-OPEC producers such as Russia. It is hard to imagine Russia, so devastated by low oil prices and little room to shoulder the pain of production cuts, would be willing to sign on to a cooperative arrangement. In fact, both Russia and Iranshot down the possibility of coordinated production cuts a few days ago when media rumors suggested that Saudi Arabia proposed a cut of 1 million barrels per day across OPEC and major non-OPEC producers.
Still, OPEC says that it could reconvene before its June meeting, perhaps hoping that it could make more headway with non-OPEC producers like Russia.
The confusing result from Vienna highlights a few key things.
First, while countless overzealous obituaries have been written about OPEC’s vanishing influence, OPEC is indeed acknowledging that it cannot influence prices to the degree that it once could. On December 3, The Wall Street Journal revealed the details of an unpublished internal OPEC document that admitted as much. The document said that oil prices would not rise by much in the near-term even if it decided to cut production, due to the high levels of storage around the world.
Second, the result at least shows that OPEC is going to see its current strategy through to its logical conclusion, to the chagrin of most of its members. Venezuela is facing a financial and political crisis because of the collapse of crude prices but Saudi Arabia is unwilling to reverse course. Since OPEC operates by consensus, nothing will change. OPEC will continue to produce flat out and fight for market share.
That means oil prices will not rebound in the short run. And they are not…
As mentioned, storage levels around the world continue to rise. The EIA’s weekly numbers showed another increase in crude inventories by 1.2 million barrels last week, now just a whisker off the 80-year high hit earlier this year.
With little prospect of a price rebound, more pain is in store for oil companies around the world. High-cost producers in U.S. shale will continue to be under the crushing weigh of low prices, andU.S. oil production, while having proven resilient to date, will get rolled back.
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 Mencken, 20th century American writer
Kinder Morgan stock is perhaps the reigning poster child for the message being conveyed by the collapsing price of oil as it pertains to the U.S. economy:
It’s too late to recommend shorting this stock, although I do believe it will hit $10 before it hits $25. KMI has been a darling of financial advisors and Wall Street pimps. It sports a big dividend and was billed as a “must own” stock. Of course, the moronic “wealth” advisors can’t analyze their way out of a paper bag and thus were ignoring KMI’s monstrous debt load, which exceeds the Company’s book valued by a significant amount now. If your trusty Schwab or AG Edwards broker calls you up to recommend this stock, hang up the phone. This one’s a goner unless the price of oil does a spectacular U-turn back up. Highly unlikely.
But take a look at that graph. In all probability that is likely the path that the real inflation- adjusted U.S. GDP is about to follow. The price of oil is collapsing, not because supply is flooding the market but because, at the margin, demand for the quantity supplied is falling. It’s falling because basic, grass roots level economic activity is collapsing. Trucking and rail – freight volume – in the U.S. is collapsing at a shocking rate – Heavy Truck Orders Plunge 59% in November; US Freight Shipments In North America Plunge. Freight shipping, both truck and rail, are heavy users of diesel fuel. You can figure out the rest of the narrative from there as it pertains to the demand for oil…
Housing is now rolling over. Notwithstanding the manipulated and highly misleading data reporting from the Census Bureau and the National Association of Realtors, home sales volume is rolling over and it about to go off a cliff. This is exactly why the Federal Government is now trying to roll out zero-down, zero-percent mortgage financing – LINK. I’m not making this up. The Federal Government, backed by the Taxpayer, is now going to fill the void left by Countrywide, Wash Mutual and Wachovia after those banks blew up on subprime crap mortgage paper. Instead of bailing out the big Wall Street banks who choked on this garbage, let the taxpayer make the loans directly. That avoids the political disaster of the next bank bailout.
But the message is desperation. Desperation to force air into a collapsing economic system. The next shoe to drop will be auto sales and the collapse of the related subprime junk debt which has been issued for the purpose of propping up the auto industry and the related manufacturing. Freight shipments tells us this business is collapsing.
Just about anyone with a credit score over 600 can walk into an auto dealer and get a 135% loan to value loan on a used car without any income verification documentation. Most OEM’s are now funding 0%, 72-month loans for new cars. Both flavors of car loans are funded by banks, large and small. Here’s what this looming disaster looks like graphically:
As the pool of potential debt-financed car buyers shrinks, the blue line (auto sales) will do a cliff-dive. As the existing pool of loans age, the default rates will soar and the universe of subprime loans will begin a default-driven death spiral. It’s going to get very ugly over the next 12-24 months in the auto sales and auto finance sector.
The U.S. economy, along with the entire global economy, is collapsing. This is most likely why the volume on “terrorism” has been turned up to eleven on a dial that only goes to ten. The next push will be for sending a lot more ground troops to the Middle East. Obama confirmed this last night when he denied the need to do that. It needs to be denied two more times according to the old political rule of thumb and then it will happen.
And this follow up on KinderMorgan (stock ticket KMI)
Is Kinder Morgan The Next Enron/Bear Stearns?
I’m not saying that Kinder Morgan is a bundle of fraud, like Enron, and I’m not saying that KMI is about to impale itself on subprime mortgages, like Bear Stearns, but this graph is almost identical the graphs of Enron and Bear Stearns before they they went belly-up:
A stock does not have the chart pattern because it’s being attacked by short-sellers. It has the price pattern because there is something extraordinarily wrong with the business model and/or the balance sheet.
KMI has $40 billion in debt on top of $35 billion of stated book value. That book value in no way can possible reflect the plunge in the price of oil. KMI’s asset values have to be written, at the very least. There’s is something else going on. I recommend getting out this stock ASAP. I may be wrong, but it’s not worth taking the risk on a stock with a graph that looks like that.
Portuguese 10 year bond yield: 2.43% down 6 in basis points from FRIDAY
The Nasdaq down 40.46 or .79%
Traders Buy Bonds & Guns, Dump Stocks & Credit As Crude Crashes To 7-Year Lows
While the US equity market is addicted to central bank heroine – as evident by Friday’s response to Draghi and Monday’s give back – it does not compare to this 73-year-old man who tried to snort cocaine while being arrested in Seattle…
Crude was today’s biggest news…
Total and uttter carnage to February 2009 lows…
With no central banker to explain that one should the fucking dip, stock investors were listless… Small Caps wer worst on the day… But The Dow’s drop put it back into the red for 2015
As Trannies and Small Caps gave back Draghi/Payrolls gains…
Futures show the craziness of the last few days…
It seems GUNS is the news FANGs…
Energy stocks were worst…
Energy Stocks were extremely ugly – biggest 4-day drop since Black Monday…
Biotechs gave back the Draghi gains…
Credit markets puked…
With HYG closing at fresh 4-year lows…
Flashing the loudest warning of all…
Treasury yields tumbled…
And the curve flattened significantly (2s30s screaming that financials should be sold)
The USDollar drifted higher…
Commodities all limped lower…apart from the carnage in crude…
Crude’s biggest 2-day drop since Jan 2015…
Sending Bloomberg’s Commodity Index to fresh 16-year lows…(and are 22% below the trough in 2009).
Bonus Chart: This Won’t End Well…
This “Jobs Friday” ritual is getting truly absurd. So it can’t be repeated often enough: These artifacts of the BLS’ seasonally maladjusted, trend-cycle modeled, heavily imputed/crafted and five times revised “jobs” numbers have precious little to do with the real health of the main street economy.
Indeed, the six-year run of job gains since early 2010 primarily represent “born-again jobs” and part-time gigs. In economic terms, they do not remotely resemble your grandfather’s industrial era economy when a “job” lasted 40 to 50 hours per week all year round; and most of what the BLS survey counted as “jobs” paid a living wage.
Not now. Not even close.
The Wall Street fools who bought the dip still another time on Friday do not have the slightest clue that the US jobs market is actually quite dead.
The chart below is also generated by the BLS but it measures actual labor hours employed, not job slots. It self-evidently puts the lie to the establishment survey fiction upon which the robo-machines and day traders are so slavishly focussed.
The fact is, labor hour inputs utilized by the US nonfarm business economy have “grown” at the microscopic annualized rate of 0.08% since the turn of the century. That’s as close as you can get to zero even by the standards of sell-side hair splitters, and it compares to a 2.02% CAGR during the 17 years period to Q3 2000.
So let’s see. Prior to the era of full frontal money printing, labor utilization grew 25X faster than it has since the turn of the century. Yet the casino gamblers bought Friday’s more of the same jobs report hand-over-fist—-apparently on the premise that this giant monetary fraud is actually working.
Not a chance. The contrast between the two periods shown in the chart could not be more dramatic. Nor do these contrasting trends encompass a mere short-term aberration. The death of the US jobs market has been underway for a decade and one-half!
Even in the establishment survey itself, the evidence of a failing jobs market is there if you separate the gigs and the low-end service jobs from the categories which represent more traditional full-pay, full-time employment.
The latter includes energy and mining, construction, manufacturing, the white collar professions like architects, accountants and lawyers and the finance, insurance and real estate sectors. It also includes designers and engineers, information technology, transportation and warehousing and about 11 million full-time government employees outside of the education sector.
We have labeled this as the “breadwinner economy” because the work week averages just under 40 hours in these categories and annualized pay rates average just under $50k. These kinds of family supporting jobs were what the Labor Department bureaucrats had in mind back in the 1930s and 1940s when the current employment surveys and reports were originally fashioned.
Notwithstanding all of the present era crafting, however, even the BLS establishment survey figures leave no doubt about the retreat of breadwinner jobs. At the peak in January 2001 there were 72.7 million of these genuine “jobs”, but that figure has never been seen again in this century!
In fact, after 95 Jobs Friday’s the count is still 1.3 million below the interim peak of December 2007 and 3% below the turn of the century level.
As a statistical matter, these 70.66 million breadwinner jobs account for just under 50% of the establishment survey’s 142.9 million jobs reported for November. By contrast, they account for upwards of 75% of total wages and salaries paid.
Needless to say, the stagnation of the breadwinner jobs market is the reason that wage and salary income growth has been so anemic. For more than 15 years the jobs mix has been steadily deteriorating, dragging the average annual earnings down with it.
Thus, since the year 2000 the number of jobs in what we have termed the Part-Time Economy has steadily increased. But these jobs in retail, bars, restaurants, hotels, amusement parks, stadiums and temp agencies average less than 30 hours per week and generate annual pay of less than $20,000. From an economic viewpoint, they are gigs, not jobs.
The same can be said for the balance of the establishment survey—-or what we have called the HES Complex (health, education and social services). While these jobs average about $35k of annual compensation, that figure is heavily skewed by a small number of highly paid health and education professionals such as doctors and administrators.
The overwhelming number of jobs in the HES Complex, in fact, pay well less than $30,000 per year.
At the end of the day growth in real wealth and living standards requires expansion of full-time employment and rising productivity per employee. The hard truth is that the debt-saturated US economy is not producing either of these essential ingredients of real main street prosperity.
Another angle on what can be described as the “atomization of work” is evident in the detailed breakout of wage and salary income that is published annually by the social security administration. This data on payroll earnings by annual income bracket is about as close to an honest measure of the US jobs market as you can find.
That’s because they are based not on surveys, estimates, imputations and models like the BLS figures, but reflect actual individual payroll records. It goes without saying that no employer sends withholding taxes to the IRS based on phantom jobs slots.
Here’s the thing. Last year 158.2 million workers had payroll records and withholding taxes and earned $7.1 trillion in compensation. Yet nearly 49 million or 31% if these workers earned less than $15,000 per year.
In fact, this massive cohort of part-timers and gig based workers generated only $300 billion of wages or only 4% of the national total. On average they earned just $6,200 during the entire year.
What Jobs Friday is about, therefore, is the cycling up-and-down of part-time jobs and gigs on the margins of the economy. These undulations occur in the intervals between the serial financial market booms and busts which result from Fed policy. Without so much as a fleeting acknowledgement, bubblevision indulges in the farce of counting slots mainly in the bottom 48 million of payroll records.
In fact, virtually all of the change in BLS job count occurs among the bottom 81 million payroll records reported by the social security administration. During 2014 these workers all earned under $30,000 per year, with an average of just $12,600.
That’s right. The bottom 51% of the work force earned less than 15% of reported wage and salary income, and clearly worked limited hours and exceedingly low hourly rates. Either that or the IRS is collecting taxes from employers who wantonly violate the minimum wage laws since the average wage for the bottom 81 million workers computes to $6.30 per hour on a standard work year!
In contrast to zero growth in hours worked and 0.4% annual growth in the BLS’ measure of full-time employment since the turn of the century, the ultimate category of gigs and episodic work——waiters and bartenders——has grown at a 1.9% annual rate. Accordingly, they accounted for 30% of all the “jobs” created in the American economy since the turn of the century, as reported in the BLS monthly establishment survey.
Call it the “Bread and Circuses” economy. The picture below is essentially what the talking heads work themselves into a bullish tizzy about——–that is, until the bubbles burst purportedly owing to one-time accident and contagions that will never be repeated .
(to be completed)
Your humour dept:
If they cannot destroy an unorganized group, what is going to happen if they run up against the nation like Russia:
(courtesy zero hedge)
US Air Force Running Out Of Bombs To Drop On ISIS
Things must be going well in the “war on terror,” as the US Air Force just admitted that it is fast running out of bombs to drop on ISIS after “B-1s have dropped bombs in record numbers.” As ZeeNews reports, Air Force chief of staff General Mark Welsh said as America ramps up its military campaign against the Islamist terror group, the Air Force is now “expending munitions faster than we can replenish them.”
The US Air Force is fast running out of bombs to drop on ISIS targets in Syria and Iraq after its pilots fired off over 20,000 missiles and bombs since the US bombing campaign against the terror group began 15 months ago, its chief has said. As ZeeNews reports,
“B-1s have dropped bombs in record numbers. F-15Es are in the fight because they are able to employ a wide range of weapons and do so with great flexibility. We need the funding in place to ensure we’re prepared for the long fight,” Welsh said in the statement.
“This is a critical need,” he said.
The bombing campaign has left the US Air Force with what an Air Force official described as munitions depot stocks “below our desired objective.”
The Air Force has requested additional funding for Hellfire missiles and is developing plans to ramp up weapons production to replenish its stocks more quickly. But replenishing that stock can take “up to four years from time of expenditure to asset resupply,” the official told CNN.
“The precision today’s wars requires demands the right equipment and capability to achieve desired effects. We need to ensure the necessary funding is in place to not only execute today’s wars, but also tomorrow’s challenges,”the official said.
As The Washington Times concludes, Russia has been bombing ISIS positions sporadically while France and Great Britain are now active in the American-led coalition which could relieve some pressure.
Much larger potential adversaries like Russia or China most surely are following this development carefully. If the USAF cannot sustain a trickling battle against a poorly armed, medieval enemy, fighting a superpower military is obviously beyond its capability.