Gold: $1076.30 par (comex closing time)
Silver $14.09 par
In the access market 5:15 pm
Gold $1073.00
Silver: $14.17
At the gold comex today, we had an extremely poor delivery day, registering 133 notices for 3,300 ounces. And this is the biggest delivery month of the year for gold? Silver saw 0 notices for nil oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 196.44 tonnes for a loss of 106 tonnes over that period.
In silver, the open interest fell by a smallish 152 contracts as silver was down 31 cents with respect to Tuesday’s trading. The total silver OI now rests at 162,758 contracts In ounces, the OI is still represented by .813 billion oz or 116% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI fell by a small 273 contracts as the OI rose to 394,128 contracts as gold was down by $.10 with respect to Tuesday’s trading. Today the bankers provided the initial HFT and the specs longs continued their assault on the short side but this failed as the bankers continued their assault on the specs by continually buying causing gold to finish in the positive.
We had no changes in gold inventory at the GLD, / 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 152 contracts down to 162,538 as silver was down in price by 19 cents to with respect to Tuesday’s trading. The total OI for gold fell by 273 contracts to 394,128 contracts as gold was down by $.10 with respect to yesterday’s trading.
(report Harvey)
2 a) Gold trading overnight, Goldcore
(Mark OByrne)
3. ASIAN AFFAIRS
i) Last night, 9:30 pm TUESDAY night, WEDNESDAY morning Shanghai time. Japan Nikkei closed down by 191.53 POINTS OR 0.98%, Shanghai finishes barely in the positive / Hang Sang falls,Australia falls. Base metal companies take it on the chin as Anglo American and Freeport suspend their dividend. Oil rebounds a touch. China devalues their yuan the most in quite some time which also causes the dollar to fall/gold and silver rise. Glencore stock at 75 pence and credit default swaps indicate a 50% chance of default.
ii) Later in the evening:
China fixes its yuan at its weakest level since August 2011 which also forces the dollar lower/this is the 45th consecutive month of deflation in China as PPI falls in November by 5.9%/it looks like China is seeking a total of 20% devaluation start to finish!
(courtesy zero hedge)
iii) Zero hedge and Meijer explain the huge deflationary problem that China is bestowing on the world: how we got here and what is going to happen. Take particular care to Raul Meijer’s piece at the end of the commentary:
iii) That did not take long: Greek stocks crash as trading restrictions are lifted:
iv) You will recall that the Danish central bank, the Swedish central bank and the Norwegian central bank, already in NIRP, was ready to increase their NIRP even more, if the ECB made good on its threat for increasing QE. Now that there is a ceasefire in the currency wars as Draghi did not get the OK from the hawks, maybe our Scandinavian central banks will get a little head start ahead of the ECB by increasing NIRP a little(courtesy zero hedge)
i) for the first time, Russia targeted sites in Syria from a submarine!! The defense minister also hinted that there may be a need to nuke ISIS:
ii) a huge story!! Iraq now seeks to cancel that all important security agreement with the USA as they invite Russian to fight the terrorist organization ISIS.
(courtesy zero hedge)
iii) The IMF just broke all of its rules as it funds Ukraine against rebels. It basically “forgave” the Ukraine’s debt to Russia/totally unbelievable/
iv) Five arrests last month and surprisingly they were Israeli Arabs. Generally Israeli Arabs have been quite peaceful until now. To the Shin Beit, it appears that ISIS may shift their strategy and attack Israel from within
“What could be better? Collapsing GDP, double-digit inflation, rising unemployment, an intractable political crisis, and double-digit interest rates. This isn’t even a “sub”merging market anymore. We’re back to “frontier” status in Brazil.”
ii) Andy Hall’s big oil hedge fund looks ready for defeat and they may succumb:
iii) Here is another group of oil men that are in trouble due to oil below 50$: the strippers!!(courtesy Michael McDonald OilPrice.com)
iii) Bill Holter tackles beautifully the problems at the gold comex/as well as the explosive situations surrounding the globe
b) Trading today at the NY: mid afternoon
iii) The last bastion of support for the NY stock market just flew out the window as rail car freights for cars has just tumbled as well as coal shipments. A strong bellwether of coal, feights for autos seems to suggest that the markets have tanked since October:
(courtesy zero hedge)
iv) We have been harping on this for quite some time as public pension funds have a huge liability hole due to the assumptions of controllers that they would be earning 7 to 8 % on pension funds. Many public pension funds have resorted to hedge funds trying to augment their returns. Instead hedge funds have performed miserably and now the funds are really short of funds required to satisfy pensioners in the future
(courtesy zero hedge)
v) a( Three weeks ago, giant Kinder Morgan stated that it was contemplating increasing its dividend by 6 to 10 per cent from its 2 dollars per share budgeted (thus $2.12 to $2.20). Then, shockingly they reduced by 75% its dividend to 50 cents.
vi) We get a sneak preview of the big retail sales number coming on Dec 11.2015. Retail sales show a decline:(Bank of America/zero hedge)
Let us head over to the comex:
The total gold comex open interest fell to 394,128 for a loss of 273 contracts as gold was down by $.10 with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, the boys did it again as OI for the front month fell despite no issuance of paper as both of the above scenarios continued in earnest. We are now in the big December contract which saw it’s OI fall by 1327 contracts from 3603 down to 2276. We had 120 notices filed upon yesterday, so we lost 1207 contracts or an additional 120,700 oz of gold that will not stand for delivery in this active delivery month of December. The next contract month of January saw it’s OI rise by 36 contracts up to 658. The next big active delivery month is February and here the OI rose by 108 contracts up to 282,824. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 135,181 which is poor. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was also poor at 137,077 contracts.
December contract month:
INITIAL standings for DECEMBER
Dec 9/2015
| Gold |
Ounces
|
| Withdrawals from Dealers Inventory in oz | nil |
| Withdrawals from Customer Inventory in oz nil | 1,221.700 oz
Brinks |
| Deposits to the Dealer Inventory in oz | nil |
| Deposits to the Customer Inventory, in oz | nil |
| No of oz served (contracts) today | 33 contracts
3300 oz |
| No of oz to be served (notices) | 2243 contracts
(224,300 oz) |
| Total monthly oz gold served (contracts) so far this month | 244 contracts(24,400 oz) |
| Total accumulative withdrawals of gold from the Dealers inventory this month | nil |
| Total accumulative withdrawal of gold from the Customer inventory this month | 154,487.3 oz |
Total customer deposits nil oz
DECEMBER INITIAL standings/
Dec 9/2015:
| Silver |
Ounces
|
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory | 658,402.000 oz
Brinks,Scotia,JPM), |
| Deposits to the Dealer Inventory | nil |
| Deposits to the Customer Inventory | 599,862.500 oz
jpm |
| No of oz served today (contracts) | 0 contracts
nil oz |
| No of oz to be served (notices) | 380 contracts
(1,900,000 oz) |
| Total monthly oz silver served (contracts) | 3514 contracts (17,570,000 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 | 2,367,406.2 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 JPMorgan: 599,862.500 oz
total customer deposits: 599,862.500 oz
total withdrawals from customer account: 658,402.000 oz ???
And now the Gold inventory at the GLD:
DEC 9/no change in gold inventory at the GLD/inventory rests at 634.63 tonnes
Dec 8/ no change in gold inventory at the GLD/inventory rests at 634.63 tonnes
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
Dear Unitholder,
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.
Sincerely,
John Wilson
CEO, Sprott Asset Management
end
And now your overnight trading in gold and also physical stories that may interest you:
“There Is True Value” and “Bargains” In Silver and Gold – Silver Guru
With blood on the streets across the entire commodities sector, Future Money Trends interviewed ‘Silver Guru’ David Morgan of the Morgan Report about the outlook for markets and why he remains bullish on silver and gold.
David Morgan astutely noted:
“At this moment in time, that we are truly at a level that it is really only the ardent silver bulls and resource investors who truly understand where we are in the market. Not only are we skipping along the lows, perhaps we can go lower, but there is true value here – in all aspects – not only in the gold and silver but also in the natural resource sector as a whole with bargains all over the place”.
People understand nothing lasts forever. The bottom does not last forever. You want to buy low and sell high.”
Futuremoneytrends.com Silver Sumit 2015: David Morgan Silver Update
According to Future Money Trends:
David’s analysis of the Federal Reserve (FED) is that they truly are in a real bind here. They want both a weaker dollar and for the dollar to remain the reserve currency. With a huge multi-year trend out of the dollar for major transactions amongst some of the top countries in the world, like Russia, China, and Brazil, the FED is likely now being forced to raise rates.
Though the rate increase will be meaningless for the most part, the FED needs to shore up support for dollar denominated transactions. An attractive dollar means the FED remains the manager of the top reserve currency of the world.
However, David said to expect the FED to quickly do what they can to weaken the currency later in 2016.
At the core of all of the world’s problems is debt. David believes that it is the ultimate debt bomb that will spark an avalanche of demand into anything precious metals.
He noted the supply and demand concerns for physical metals, but said the real market to watch is the debt market.
Watch:
- Interview with David Morgan at Silver Summit 2015
- David Morgan’s “All You Need To Know About Silver In 60 Minutes” Webinar
DAILY PRICES
Today’s Gold Prices: USD 1078.40, EUR 985.60 and GBP 715.38 per ounce.
Yesterday’s Gold Prices: USD 1071.75, EUR 988.43 and GBP 714.79 per ounce.
(LBMA AM)
Gold price performance
Gold closed up slightly yesterday by $1.70 to $1074.60. Silver was down $0.12 at the end of the day to $14.16. Platinum lost $8 to $841.
Bank of Canada wants to be ready with negative rates just in case
Submitted by cpowell on Tue, 2015-12-08 20:21. Section: Daily Dispatches
Bank of Canada Willing to Resort to Below-Zero Interest Rate in Major Economic Crisis, Poloz Says
By Drew Hasselback
National Post, Toronto
Tuesday, December 8, 2015
TORONTO, Canada — The Bank of Canada would be willing to cut its benchmark interest rate to below zero percent if the country is faced with a major economic shock, says Stephen Poloz, governor of the Bank of Canada.
In a speech to the Empire Club of Canada in Toronto, Poloz described the use of negative interest rates as one of four “unconventional monetary policy measures” it would be willing to deploy if faced with a major economic crisis. Yet he said the bank is unlikely to use such measures as it expects the Canadian economy to grow in 2016 and reach full capacity in mid-2017.
“We don’t need unconventional policies now, and we don’t expect to use them,” Poloz said. “However, it’s prudent to be prepared for every eventuality.” …
… For the remainder of the report:
http://business.financialpost.com/news/economy/major-economic-shock-need..
end
a very big story that we brought to your attention yesterday, but it is worth repeating
(courtesy UKTelegraph/zero hedge)
Anglo American cuts dividend and 85,000 jobs in ‘radical’ restructuring
Submitted by cpowell on Tue, 2015-12-08 16:34. Section: Daily Dispatches
It’s OK. The company and all South Africa are happy to sacrifice through commodity price suppression to help maintain living standards in more developed countries.
* * *
By Jon Yeomans
The Telegraph, London
Tuesday, December 8, 2015
Anglo American is to suspend its dividend payouts, cut jobs, and slash capital expenditure in a “radical” restructuring that will transition it to “a very different company.”
The FTSE 100 miner, which — along with its peers — is battling collapsing commodity prices, will suspend dividends through to the end of the 2016.
Anglo’s assets will shrink from around 50 facilities to the “low 20s” by the end of the restructuring and its workforce will drop to around 50,000, from 135,000 now.
It had already announced cuts that would take its headcount down to 92,000 in July, after announcing the sale of its labour-intensive platinum operations in Rustenburg, South Africa. …
… For the remainder of the report:
http://www.telegraph.co.uk/finance/newsbysector/industry/mining/12038562
end
And today, the world’s second largest copper miner and a huge gold producer, Freeport McMoRan suspends i’ts dividend.
(courtesy zero hedge/Freeport)
Freeport McMoRan, World’s Second Largest Copper Miner, Suspends Dividend
They are dropping like flies. A day after Kinder Morgan announced it would slash its dividend by a more than expected 74% overnight to reflect collapsing commodity prices and a debt-heavy balance sheet, moments ago Freeport McMoRan, the world’s second largest copper miner behind Codelco and one of the world’s biggest producers of gold, just announced it too would suspend its dividend of $0.20, an action expected to save some $240 million per year.
This follows a comparable dividend cut announced in March of 2015 when the company slashed the bulk of its dividend by 84%, from $0.3125 to $0.05 quarterly.
This however may not be sufficient to stem the bleeding and prevent further turmoil for the company which has seen its stock price drop to the lowest level in over a decade, and as a result the company is also slashing its CapEx guidance from $2 billion for 2016 and 2017 to just $1.2 and $1.8 billion respectively.
The headlines:
- FREEPORT-MCMORAN SUSPENSION OF STOCK DIV
- FCX IN PACT W/ BANK GROUP TO AMEND LEVERAGE RATIO ON TERM LOAN
- FCX IN PACT W/ BANK GROUP TO AMEND LEVERAGE RATIO ON REVOLVER
- FCX EVALUATING SALE OF MINORITY INTERESTS IN SOME MINING ASSETS
- FREEPORT-MCMORAN NOW SEES ’17 CAPEX $1.2B, SAW $2.0B
- FREEPORT-MCMORAN NOW SEES ’16 CAPEX $1.8B, SAW $2.0B
From the release:
Freeport-McMoRan Inc. (FCX) today announced additional actions in response to market conditions, including further revisions to its oil and gas capital spending plans, additional curtailments in copper and molybdenum production and the suspension of its common stock dividend.
Oil & Gas Review. As previously reported on August 5, 2015, Freeport-McMoRan Oil & Gas (FM O&G) is deferring investments in several long-term projects in response to oil and gas market conditions. Following an ongoing review, capital expenditures for 2016 and 2017 have been reduced further from $2.0 billion per year in 2016 and 2017 to $1.8 billion in 2016 and $1.2 billion in 2017, including idle rig costs. The revised plans, together with initiatives to obtain third party financing or other strategic alternatives, will be pursued with the goal of achieving funding for oil and gas capital spending within its cash flows and resources.
The revised plans incorporate a reduction in rig utilization from three Deepwater Gulf of Mexico drillships to one drillship while increasing production from third quarter 2015 rates of 150 barrels of oil equivalents per day (MBOE/d) to an average of 159 MBOE/d in 2016 and 2017. FM O&G expects to bring eight wells on line in late 2015 and 2016 from its successful tie back drilling operations at the Holstein Deep, Horn Mountain and King Projects in the Deepwater Gulf of Mexico. These projects, combined with other initiatives, are expected to add low cost oil production, enabling cash production costs to decline from $19 per barrel of oil equivalents (BOE) in 2015 to less than $16 per BOE in 2016 and 2017. Under the revised plans, FM O&G’s cash flows would substantially fund its capital expenditures at $45 per barrel of Brent crude oil in 2017.
FM O&G is engaged in ongoing discussions with its rig vendors and other service providers to obtain reductions in costs and to evaluate opportunities to market idled equipment to third parties.
As previously reported on October 6, 2015, the FCX Board is engaged in a strategic review of its oil and gas business to evaluate alternative courses of action designed to improve FCX’s financial position, enhance value to FCX shareholders and achieve self-funding of its oil and gas business from its cash flows and resources. FM O&G’s high quality asset base, its substantial underutilized Deepwater Gulf of Mexico infrastructure, its large inventory of low risk development opportunities and its talented and experienced personnel and management team provide alternatives to generate value.
Mining Review. FCX continues to review its capital projects and costs to maximize cash flow in a weak commodity price environment and to preserve its resources for anticipated improved future market conditions. FCX previously announced a 25 percent reduction in its capital spending for its mining business for 2016 (from $2.7 billion to $2.0 billion, including $0.6 billion in sustaining capital) and announced curtailments at its North America and South America mines totaling 250 million pounds of copper and 20 million pounds of molybdenum per year. FCX is undertaking further actions involving plans for a full shut-down of its Sierrita mine in Arizona and adjustments to its operating plans from its primary molybdenum mines, which will increase its curtailments to approximately 350 million pounds of copper and 34 million pounds of molybdenum per annum. FCX is continuing to evaluate its mining operating plans in response to market conditions and will make further adjustments as required.
FCX is also evaluating other financing alternatives, the potential sale of minority interests in certain mining assets and other actions to provide additional proceeds for debt reduction. FCX has a broad set of natural resource assets that provide alternatives for future actions to enhance its financial flexibility.
Dividend on Common Stock. FCX also announced today that its Board has suspended its annual common stock dividend of $0.20 per share. This action will provide cash savings of approximately $240 million per annum and further enhance FCX’s liquidity during this period of weak market conditions. FCX’s Board will review its financial policy on an ongoing basis and authorize cash returns to shareholders as market conditions improve.
Assuming prices of $2.00 per pound for copper and $45 per barrel Brent crude oil for 2016, FCX estimates consolidated operating cash flow would exceed capital expenditures by more than $600 million.
James R. Moffett, FCX’s Chairman of the Board and Richard C. Adkerson, Vice Chairman, President and Chief Executive Officer said, “We are taking further actions to strengthen our financial position during a period of weak and uncertain market conditions. While copper prices have weakened in recent weeks and the near-term copper outlook is uncertain, we view the medium and longer term outlook positively, supported by copper’s important role in the global economy and limitations on global supplies. As we approach 2016, we are positioning the company for free cash flow generation in a weak commodity price environment and remain focused on actions to reduce debt. Our high quality portfolio of long-lived assets, flexible operating structure and experienced management team provide a solid base to address the current market conditions while maintaining an attractive portfolio of assets positioned for long-term success.”
Equity Transactions. Since commencing its $2 billion at-the-market equity programs in August 2015, FCX has sold a total of 154.6 million shares of common stock, generating gross proceeds of $1.6 billion through December 4, 2015. Approximately $0.4 billion remains available under the programs. As of December 4, 2015, FCX had 1.19 billion common shares outstanding.
Amendment to Bank Credit Facility. Following recent declines in prices for its primary products, FCX has reached agreement with its bank group to amend the Leverage Ratio (Net Debt/EBITDA) under its revolving credit facility and $4 billion term loan from the previous limit of 4.75x to 5.5x at December 31, 2015, 5.9x for the first half of 2016, and stepping down to 5.0x by year-end 2016 and 4.25x in 2017. The Leverage Ratio is unchanged at 3.75x thereafter.
FCX is a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX is the world’s largest publicly traded copper producer.
FCX’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America; the Tenke Fungurume minerals district in the DRC; and significant U.S. oil and natural gas assets in the Deepwater GOM, onshore and offshore California and in the Haynesville natural gas shale, and a position in the Inboard Lower Tertiary/Cretaceous natural gas trend onshore in South Louisiana.
Crunch Time?
Financially speaking, FOREX markets are experiencing daily volatility unseen before. The credit markets have become illiquid as spreads have blown out. This “illiquidity” has traders terrified because they know they have no exit door. Even the Treasury market has begun to display the “locked in” feeling of thin markets. We should not forget about the Fed meeting next week, raise rates or hold rates …traders are in fear of the aftermath.
Let’s take a look at what just happened yesterday in COMEX gold since we are talking “crunch time”. The December contract added 881 net contracts standing for delivery. This is another 88,100 ounces of gold that someone just stepped up for and is asking delivery. Some ground work first …we have watched for over two years as COMEX gold contracts outstanding would dwarf deliverable inventory coming into first notice day and decline in a huge way just prior. Then, many of those standing for delivery would just “evaporate”. I have said many times that this did not make any sense. Why would anyone FULLY FUND their account by FDN (first day notice) to pay cash for their contracted gold …only to vanish? It is obvious in my opinion these contracts were cash settled at a premium or bribe to entice these buyers not to take physical delivery because of strained inventory.
I can only remember one month in the past where contracts “standing” actually increased after the first notice day. As I recall there were two days in a row where the open interest increased (after the OI had already declined as it has this month). First, anyone who opens a contract after FDN truly wants the gold. Better said, they probably “need” the gold for whatever reason. These buyers will not be bribed into FRN settlement, only “weight” will do.
COMEX truly has a problem this month. As it stands, there are roughly 11.5 tons standing for delivery while COMEX holds just over 4 tons for delivery. In ounces we are looking at 370,000 versus 130,000. Yesterday’s increase was 88,100 ounces or roughly 2/3rds of deliverable inventory. For well over two months, COMEX has had almost ZERO gold enter the “registered” category. In fact, even the eligible (customer) inventory has been bleeding down and hemorrhaged yesterday with over four tons being withdrawn. The obvious question is “where will the gold come from for delivery”? Yes I know, “don’t worry because they always deliver” …
The additional 88,100 ounces yesterday should really OPEN SOME EYES for several reasons! First, someone obviously NEEDS nearly three tons of gold. Secondly and most importantly, this should display just how tenuous the inventory really is. In just one day, someone stepped up and is demanding TWO THIRD’s of deliverable gold. As I have said all along, with any type of black swan event (not one that is “created” and of the false flag variety) has the ability to clean out what COMEX can supply! What then?
Please think to yourself “what if?”. What if we wake up one day and a big bank somewhere in the world defaults? Or even a sovereign nation? What if we wake up to find Russian and U.S. forces going at it somewhere? The list of potential black swans is long (plus the trolls will go wild saying “it can never happen in our lifetime) so I won’t list them. I would simply ask, what if “something unscripted” happens?
The answer is simple. When something, whatever it may be that is
“unscripted” happens …life as we have known it for so many years is OVER! EVERYTHING will change. Markets, valuations, beliefs, customs, economics/finance and distribution, even the way and “what” you eat …ALL OF IT! The title of “crunch time” is not meant to be U.S. centric or even about the post war “American age”. We are living “crunch time” for a 300 year plus fractional reserve Ponzi banking and monetary scheme. We are at the end of a 300 year plus “credit cycle” where The Great Depression was merely a large and painful belch leading up to a final heart attack. Standing watch,Bill Holter
Holter-Sinclair collaboration
Comments welcome bholter@hotmail.com
end
1 Chinese yuan vs USA dollar/yuan falls in value , this time to 6.4320/ Shanghai bourse: just in the green , hang sang: red
2 Nikkei closed down 191.53 or 0.98%
3. Europe stocks all in the red /USA dollar index down to 98.40/Euro up to 1.0944
3b Japan 10 year bond yield: falls to .312% !!!!(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: 37.74 and Brent: 40.58
3f Gold up /Yen up
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 up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .583%. German bunds in negative yields from 5 years out
Greece sees its 2 year rate fall to 8.11%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 8.23% (yield curve now flat)
3k Gold at $1069.40/silver $14.18 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble up 8/100 in roubles/dollar) 69.38
3m oil into the 37 dollar handle for WTI and 40 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 0.9894 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0882 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 falls to + .583%/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 2.24% early this morning. Thirty year rate at 3% at 2.98% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks Slump As Mining Rout Accelerates, Concerns Grow About Chinese “Stealth Devaluation”
Overnight market action has largely been a continuation of Tuesday’s key themes with European stocks falling as a selloff in mining companies extended to a 7th day, even as metals prices rose and crude oil rallied modestly from a six-year low after yesterday’s API crude inventory draw. U.S. equity futures have rebounded from modest declines, as emerging-market shares extended their losing streak to a 6th day while Asian stocks dropped to 2 month lows.
The top corporate news stories include Dow Chemical and DuPont which are said to be in late-stage merger talks, Yahoo scrapping its Alibaba spinoff, and Electrolux cutting jobs after GE deal collapes, but the key macro story overnight remains China where days after the Yuan’s inauguration into the IMF’s SDR basket, the government has resumed its not so strealthy devaluation of the Yuan, which sank to the lowest level since August 2011 after the central bank cut the currency’s reference rate, despite CPI and PPI (which declined for a record 45th month) data both of which came in fractionally higher than expectations.
Bloomberg believes the move is an attempt to release pent-up depreciation pressure – call it “stealth devaluation” ahead of next week’s Federal Reserve meeting and is probably right: after all, as a result of the Yuan’s peg to the dollar the trade-weighted currency needs another 10% devaluation just to get back to even with the non-USD currencies. The People’s Bank of China cut the yuan’s fixing – which limits onshore moves to 2 percent on either side – by 0.1 percent to 6.4140 a dollar, the lowest in four years. Additionally. the onshore yuan has extended its “staircase-style” moves of past few days and dropped 0.17%, most in a month, to 6.4280; Rabobank says the pattern reflects possibility that policy makers are engineering an “orderly depreciation” before bigger move. The offshore yuan was down 0.07% to 6.4987 per dollar after hitting low of 6.5008.
And while global markets have been largely muted overnight, the one sector that has seen particular weakness are global mining stocks which resumed their sell-off after the biggest one-day drop in over three months. The Bloomberg World Mining Index – a gauge of the world’s 80 biggest mining companies – sank almost 4 percent on Tuesday after weak China trade data.
(harvey: see the story of Anglo American and Freeport)
Yesterday’s slump was compounded by news Anglo American is scrapping its dividend and slashing two-thirds of its workforce to counter a slump in commodities. Anglo shares have fallen a further 14 percent today after sinking 12 percent yesterday. The Bloomberg Commodity Index – which tracks 22 materials – has rebounded from yesterday’s lowest close in 16 years. Crude oil has bounced back from its lowest close since February 2009. It finished Tuesday’s session at $37.51 in New York, bringing the three-day decline to almost 9 percent.
And while global stocks had spent the bulkof the session in the red, an odd buying wave has emerged as a result of some modest USD strength, as US traders get to their desks this morning, leaving us as follows:
- S&P 500 futures up 0.1% to 2058
- Stoxx 600 down 0.2% to 364
- MSCI Asia Pacific down 0.6% to 130
- US 10-yr yield up less than 1bp to 2.23%
- Dollar Index down 0.43% to 98.05
- WTI Crude futures up 1.4% to $38.05
- Brent Futures up 1.5% to $40.88
- Gold spot up 0.4% to $1,079
- Silver spot up 0.8% to $14.29
A closer look at markets shows that European stocks slid a 2nd day as commodity producers extended their lowest level in 6 years. U.K.’s FTSE 100 outperforms, Sweden and Spain bourses lag. “Sentiment is predominantly negative across markets,” Alex Scott, who helps oversee about $14 billion as Seven Investment Management’s deputy chief investment officer told Bloomberg. “Equities are still digesting further commodity- price weakness. That’s the dominant factor at present. Investors have had a difficult year and they’re struggling to see where a positive catalyst could come from.” 18 out of 19 Stoxx 600 sectors fall with chemicals, banks, basic resources underperforming and utilities outperforming. 78% of Stoxx 600 members decline, 20% gain.
Key European News:
- VW Shares Rise on Lower Figure for Cars in Carbon-Dioxide Probe: Co. and German authorities now believe less than 40,000 cars had inaccurate carbon dioxide emissions readings, down from an initial estimate of 800,000 vehicles, Frankfurter Allgemeine Zeitung reported
- Computer Sciences to Buy U.K.’s Xchanging for About $722m: To pay 190p/shr in cash, tops an offer from Capita, values Xchanging at GBP480m, represents 72% premium to Oct. 2 close
- Adidas’s Hainer Seeks to Build Investor Bridges Amid Turnaround: CCM ice-hockey unit has attracted interested parties, though no active sale process is underway, he said; vowed again to stay until his contract ends in March 2017
- Ashtead Climbs Most in 12 Months as Results Beat Expectations: 2Q pretax profit GBP182m vs est. GBP176m (4 ests.), raises FY guidance and increases capex
- Stagecoach Drops Most in Four Years as Floods, Paris Clip Sales: Said lowering forecast for FY adj EPS after softer than expected rev. in parts of U.K. and European bus, coach and rail rev.
- Anglo’s Shadow Hangs Over Glencore Investor Day as Shorts Circle: Short interest has been rising ahead of Glencore’s shareholder day tomorrow, climbing to a 2-year high of 5.3% of shares outstanding, according to Markit
In Asia, stocks fell to the lowest level in 2 months, with all 10 sectors fall with health care, consumer staples underperforming and consumer discretionary, utilities outperforming, led by declines among health-care and consumer companies, with Japanese equities bearing the brunt of losses. Chinese stocks fall in Hong Kong to lowest level since Sept. after data showed producer prices extended declines and the central bank cut the yuan’s reference rate to the weakest level in 4 years. “You’ve got this massive confluence of events conspiring for a negative outcome,” said Tim Schroeders, a portfolio manager who helps oversee about $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Things are feeding on themselves at the moment as China goes through a period of very weak economic data, overhanging concerns about the Fed raising rates in the next week or so and some company specific things which overall are eroding any positive sentiment.”
Key Asian News:
- PBOC Steps Up Yuan ‘Stress Test’ as Fixing Cut to Four-Year Low: Cut the yuan’s reference rate to the weakest since 2011
- China Said to Plan Rural Subsidies for Passenger Vehicles: The planned subsidies will cover passenger vehicles with engines
- China’s Postal Savings Bank Raises $7b Selling 17% Stake: Stake sale ahead of a planned IPO lured 10 firms including UBS, Canada Pension Plan Investment Board and Temasek
- Goldman Asset Says Sub-$40 Iron Ore Won’t Doom Aussie Resilience: Aussie stands to benefit as concern may ebb over slowdown in China, GSAM fund manager says
- Yellen-Kuroda Divergence Driving Japanese Bond Investor Exodus: Japanese financial institutions bought ~12x more mid-to-long term foreign debt in first 11 mos. this yr vs all of 2014
- Secret of World’s Top-Performing IT Stock? Avoid the Government: NIIT Technologies posted biggest advance globally by an IT co. since March after turning away from domestic projects that don’t always pay on time
Despite softness being seen in material names, the commodity complex has been relatively unreactive over nigh to the latest China news, howeverwith precious metals seeing a bid in a safe haven bid, with gold trading around the USD 1180/oz level. Separately, WTI crude futures saw some reprieve to break above the USD 38/bbl mark in the wake of the latest API crude inventory report, which posted a drawdown of 1.9mln vs. Prey. build of 1.6mln, with this coming ahead of the latest DoE crude oil inventories (Exp. build of 1300k, Prey. build of 1177k).
In FX, the key news was the previously noted decline in the Chinese Yuan, with the CNH/CNY spread continued to widen as markets reacted to some of the recent downbeat data and sources suggesting that PBoC is to suspend their new quota on applications for RQDII offshore yuan investment programme, while China exposed currencies (AUD & NZD) also came under significant selling pressure. However despite the risk off sentiment, USD index failed to benefit, as EUR/USD continued to edge higher on touted carry trade unwind and re-positioning flow following the latest ECB meeting.
Looking at today’s US calendar, we have MBA Mortgage Applications, Dec. 4 (prior -0.2%); Wholesale Inventories (est. 0.2%) and Wholesale Trade Sales (est. 0.2%) and December’s 10 Year auction.
Bulletin Headline Summary from Bloomberg and RanSquawk
- Stocks in Europe failed to hold onto early gains (Euro Stoxx: -0.6%) after the release of the above RQDII source reports saw concerns over China re-emerge with a vengeance. Energy and material names were the notable underperformers on the sector breakdown, with Anglo American down over 8% amid China related concerns and the ongoing slump in base metals market.
- Separately, Volkswagen (+3.4%) saw the most significant stock specific move of the session amid reports in German press that the CO2 emission scandal impacts 40k cars , substantially less than the initial 800k estimate and as such could not be as downbeat for the Co. as initially anticipated.
- Fixed income markets followed the lead from the risk off sentiment seen in equity markets after the release of the China RQDII source reports and resulted in flight to quality trade picking up pace , with Bunds reversing initial weakness.
- Treasuries lower overnight while equity markets continue to sell off; today will see wholesale inventories release along with $21b 10Y auction, WI 2.235%% vs 2.304% seen last month.
- Jeffrey Gundlach said the Federal Reserve may come to regret raising U.S. interest rates amid signs of a fragile economy and a crumbling credit market
- ECB policy maker Ewald Nowotny said the financial community misjudged the state of the euro-area economy and thus had unrealistic expectations for more stimulus last week
- Danske Bank says Denmark’s negative interest rates have lasted longer than anyone could have expected, with the damage to the financial industry growing increasingly burdensome
- Dow Chemical Co. is in late-stage talks to merge with DuPont Co. in what would be the largest deal in the chemicals industry, people with knowledge of the matter said
- Here’s what U.S. state and city pension funds are getting this year for the hundreds of millions of dollars in fees they’re forking over to hedge funds: almost nothing
- No IG or HY priced yesterday. BofAML Corporate Master Index OAS up 2bp to +165, YTD range 180/129. High Yield Master II OAS widens 14bp to +665, YTD range 683/438
- Sovereign 10Y bond yields little changed. Asian, European stocks drop and U.S. equity-index futures fall. Crude oil, copper and gold higher
Top Global News
- Dow Chemical, DuPont Said to Be in Late-Stage Merger Talks: Would be largest deal in the chemicals industry, an accord may be announced as soon as this week; after the merger, would break into 2 or 3 businesses because of regulatory, other issues
- Yahoo Said to Scrap Alibaba Spinoff, Explore Web-Unit Deal: Will instead explore a spinoff of its main Internet businesses
- Kinder Morgan Cuts Dividend by 74% to Conserve Cash: To cut qtr div. to 12.5c/shr from 51c/shr, est. 32c, sees declaring divs. totaling 50c/shr for 2016
- China’s Inflation Stabilizes as Stimulus Supports Demand: CPI +1.5% in Nov. from a yr earlier vs est. +1.4%, Oct. +1.3%
- Electrolux to Cut Costs, Jobs on Collapse of GE Appliance Deal: Will reduce costs at its small appliances division to save expected SEK120m ($14m) annually starting end of next yr, will pay GE a break up fee of $175m
- Apple Said to Suspend Effort to Develop Live Internet TV Service: Is instead focusing on being a platform for media companies to sell directly to customers through its App Store
- China Resources Said to Offer $2.46b for Fairchild: Group led by China Resources’s semiconductor arm and Hua Capital made an offer for Fairchild valuing co. at $2.46b, people familiar with the matter said, topping a previous offer by ON Semiconductor
- Volkswagen Emissions-Cheating Lawsuits Sent to San Francisco: More than 500 lawsuits to be consolidated before federal judge
- Morgan Stanley Appoints Britain’s Alistair Darling to Board: Darling, 62, who was chancellor from 2007 to 2010, will join the board on Jan. 1
- Optimism Among U.S. Companies Eased in Second Half of 2015: Duke University/CFO Global Business Outlook’s latest gauge of sentiment stood at 60.3 in Dec., down from 63.7 at end of 2015
DB’s Jim Reid wraps up the overnight event recap
Before we get to 2016, December’s advent calendar seems to bring us a new low in oil as we open each new window. So far in December WTI oil has only rallied on 2 days and it’s not been much better for US equities, with the S&P 500 closing higher on only 2 days this month as well so far. The moves for both WTI (-0.37%) and Brent (-1.15%) yesterday hid what was another hugely volatile day for the complex. The latter at one stage tumbled below $40 shortly after lunch, plummeting as much as 4% from its peak to hit an intraday low of $39.81/bbl which is near those February 2009 lows. Prices swiftly reversed however and in fact traded back up near its highs for the day again in a matter of hours, before then settling down into the close. There was similar price action for WTI which fell to an intraday low of $36.64 around the same time as the lows in Brent, before then spiking a massive +5.3% in a short period of time to back well above $38, only then to settle into the close and finish not far off unchanged on the day. That fall below $37 also being the lowest level since February 2009. It’s proving difficult to pinpoint the exact reasons for the moves yesterday, with various technical levels being hit along with a cut from the EIA for its US crude production outlook (albeit a modest cut) being attributed for some of the moves.
The S&P 500 swung about with those moves in oil, finishing the session -0.65% which was off the day’s low point while unsurprisingly energy and materials names underperformed again. European equities were harder hit with the Stoxx 600 closing -1.81%. Credit markets had a tough day also, CDX IG finishing +2.5bps wider and Crossover finishing +8bps wider, while it was another day to forget for commodity currencies. Despite the volatility elsewhere, moves were a bit more muted in the Treasury market, as 2y yields continue to hover around 0.931% while the benchmark 10y yield was down 1.1bps to 2.219%. The latest rout in Oil has done little to temper Fed rate hike expectations next week, now up to 80%.
Before we look at the rest of yesterday’s news, it’s off to the latest in Asia this morning and specifically China where the latest slug of data is out. After the soft data so far, there’s some better news out of the November CPI reading where inflation ticked up two-tenths from October to +1.5% yoy (vs. +1.4% expected), albeit still below the levels seen in July and August. PPI stayed unchanged at -5.9% yoy (vs. -6.0% expected), the 45th consecutive month of deflation at the factory gates. The higher than expected numbers have given a lift to Chinese equity markets this morning where the Shanghai Comp is currently +0.33%. Part of that however might be a reflection of the latest Yuan fix, with the onshore currency set at the weakest level since 2011 this morning after a 0.1% weakening.
Elsewhere, and despite oil prices rebounding nearly 2% this morning, it’s a sea of red across the rest of Asia. The Nikkei is -1.17%, while the Hang Seng (-0.45%) and ASX (-0.55%) are also lower – the latter also impacted by yet another drop in iron ore yesterday to below $39.
Unsurprisingly the big commodity names were the most under pressure yesterday. Adding to the tension in the sector was the restructuring news out of Anglo American with the company announcing a dividend suspension, huge cost and headcount reduction and a consolidation of the business through shrinking its asset base. That sent the company’s share price down over 12% while its bonds traded a couple of points lower. Commodity heavyweight Rio Tinto added to the pain, cutting capex guidance for the year ahead.
With the latest rout, it’s worth also taking a look at what US HY spreads have done lately, particularly through the energy names. Using DB’s indices, US HY spreads are currently sitting at 644bps (as of yesterday’s close) which is not far off the YTD wides seen back at the beginning of October at 650bps. If we look at performance since the start of November which is when the latest slide in Oil started, spreads are in fact 77bps wider in that time to yesterday’s close. In fact, over the last three days alone, spreads have moved 32bps. Clearly this is energy driven. Applying the same analysis for US HY energy spreads, the current spread level of 1175bps is now the all time wide on data that we have. Since the start of November, spreads have moved 147bps wider and in the last three days alone, spreads are a whopping 108bps wider. In fact, if we cast our minds back to last year, US HY energy spreads widened 355bps through 2014 with much of that coming in the last two months of the year. As it stands YTD in 2015, spreads have widened 406bps, helped by the latest collapse of the last few days. An all too familiar ending for the asset class and sector as we approach the end of the year.
Wrapping up the rest of yesterday’s news and specifically the data. In the US the October JOLTS job openings were slightly below market expectations at 5.38m (vs. 5.5m expected) which was down from 5.53m in the month prior. The details didn’t offer a whole lot. The quits rate held steady at 1.9% which is just below its pre-recession level, while the hiring rate was also unmoved at 3.6%. The NFIB small business optimism reading fell in November by 1.3pts to 94.8 (vs. 96.4 expected) and the lowest since June, although that was in contrast to the IBD/TIPP economic optimism reading which was up 1.7pts to 47.2 (vs. 45.1 expected).
Prior to this in the European session the preliminary Q3 GDP reading for the Euro area was confirmed at +0.3% qoq as expected, keeping the YoY rate unchanged at +1.6%. In France the latest business sentiment print fell 1pt to 98 (vs. 99). Meanwhile in the UK industrial production rose +0.1% mom in October which was in line with consensus, although manufacturing production (-0.4% mom vs. -0.2% expected) came in softer than expected.
Taking a look at the day ahead now, the early and sole release in the European session this morning is in Germany where we’ll get the October trade numbers. It’s pretty quiet in the US session this afternoon too with just the October wholesale inventories and trade sales data due out. With little in the way of Central Bank speak the focus will likely be back on those moves in the commodity markets.
end
ASIAN AFFAIRS
Something Snaps In China As Bitcoin Takes Out Stops, Soars Higher
At 1815ET, after trading in a very narrow $1 range for hours, Bitcoin suddenly exploded $17 higher on very heavy volume. Normally this wouldn’t warrant an explicit mention, but this time… something odd happened in Chinese currency markets…
Offshore Yuan suddenly snapped 12 pips lower after noise trading in a 1 pip range for hours… just as Bitcoin spiked…
Both moves signal a move away from the USDollar with Bitcoin and Yuan strengthening.
The last time Bitcoin spiked notably like this was at the start of the Chinese crackdown on capital controls.
But… with the spread between Offshore and Onshore Yuan (the former dramatically weaker than the latter), it appears the market is expecting a devaluation sooner rather than later...
Perhaps, just perhaps, that is what Bitcoin is ‘hinting’ at. For sure, a Yuan devaluation now would be enough to spook global markets once again, and force The Fed to put a rate hike on hold… only this time, everyone and their pet rabbit is neck-deep in “priced in” liftoff expectations.
Charts: Bloomberg
end
Later in the evening:
China fixes its yuan at its weakest level since August 2011 which also forces the dollar lower/this is the 45th consecutive month of deflation in China as PPI falls in November by 5.9%/it looks like China is seeking a total of 20% devaluation start to finish!
(courtesy zero hedge)
China Fixes Yuan At Weakest Since August 2011 After 45th Consecutive Month Of Deflation
Chinese Producer Prices have now fallen YoY for 45 consecutive months and November’s 5.9% YoY drop is the largest since the crisis in 2009. Following weak trade data overnight (and with The IMF having blessed any and all currency movements), it appears Chinese authorities have decided to do something about and continue the slowest, quietest, stealthiest currency war in the world. With today’s Yuan fix, PBOC has weakened the Yuan back below the August devaluation lows, back to its weakest against the USD since August 2011. Judging by Offshore Yuan, there is a lot more weakening to come.
PPI dropped the most since 2009…
So China ‘devalued’ the Yuan a little more… to August 2011 lows…
But judging by Offshore Yuan weakness, there’s more ‘devaluation’ to come…
And all with the new blessing of The IMF…
Because if Japan can, then China can too.
Charts: bloomberg
Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities
Between commodity-backed financing deals and the centrally-planned mal-investment boom-driven excess capacity, China has a lot of ‘liquidation’ to do to normalize from a credit-fueled smoke-and-mirrors world to a painful reality. As Bloomberg notes, there’s no let-up in the onslaught of commodities from China. While the country’s total exports are slowing in dollar terms (as we noted last night), shipments of steel, oil products and aluminum are reaching for new highs, flooding the world with unwanted inventories. China’s de-glutting is now the rest of the world’s problem as the deflationary tsunami grows ever higher.
Chinese trade data was ugly with exports down 5 straight months…
But, as Bloomberg notes, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.
That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.
The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.
The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.
Low-cost supply from China in Europe prompted producer ArcelorMittal to reduce its profit forecast and suspend its dividend. India’s government has signaled it’s planning more curbs on steel imports while regulators in the U.S. are planning to lift levies on shipments from some Chinese companies.
And finally, if offshore Yuan rates are to be believed, a devaluation looms (again)…
Finally, as The Automatic Earth’s Raul Ilargi Meijer notes, there’s another side to this, one that not a soul talks about, and it has Washington, London and Brussels very worried. Here goes:
These large mining -including oil- corporations most often operate in regions in the world that are remote and located in countries with at best questionable governments (the corporations like it like that, it’s how they know who to bribe to be able to rape and pillage).
The corporations de facto form a large part of the US/UK/EU political/military control system of these areas. They work in tandem with the CIA, MI5, the US and UK military, to keep the areas ‘friendly’ to western industries and regime.
This has caused unimaginable misery across the globe, in for instance (a good example) the Congo, one of the world’s richest regions when it comes to minerals ‘we’ want, but one of the poorest areas on the planet. No coincidence there.
Untold millions have died as a result. ‘We’ have done a lot more damage there than we are presently doing in Syria, if you can imagine. And many more millions are forced to live out their lives in miserable circumstances on top of the world’s richest riches. But that will now change.
Thing is, with the major miners going belly up, ‘our’ control of these places will also fade. Because it’s all been about money all along, and the US won’t be able to afford the -political and military- control of these places if there are no profits to be made.
They’ll be sinkholes for military budgets, and those will be stretched already ‘protecting’ other places. The demise of commodities is a harbinger of a dramatically changing US position in the world. Washington will be forced to focus on protecting it own soil, and move away from expansionist policies.
Because it can’t afford those without the grotesque profits its corporations have squeezed out of the populations in these ‘forgotten’ lands. That’s going to change global politics a lot.
And it’s not as if China will step in. They can’t afford to take over a losing proposition; the Chinese economy is not only growing at a slower pace, it may well be actually shrinking. Beijing’s new reality is that imports and exports both are falling quite considerably (no matter the ‘official’ numbers), and the cost of a huge expansion into global mining territory makes little sense right now.
With the yuan now part of the IMF ‘basket‘m Beijing can no longer print at will. China must focus on what happens at home. So must the US. They have no choice. Other than going to war.
And, granted, given that choice, they all probably will. But the mining companies will still be mere shells of their former selves by then. There’s no profit left to be made.
This is not going to end well. Not for anybody. Other than the arms lobby. What it will do is change geopolitics forever, and a lot.
Charts: Bloomberg
ECB’s Nowotny Blames “Massive Failure Of Market Analysts” For Last Week’s Unprecedented Hedge Fund Losses
Having jawboned markets beyond a point of no return, and leading to massive hedge funds losses described previously as a result of everyone being on the same (short) side of the EUR trade only for the ECB to disappoint, sending the EUR soaring the most in 6 years, the ECB seems unable to get over what many have dubbed its biggest communication snafu yet and continues to openly insert various feet in its various orifices.
The latest to confirm the ECB is still having nightmares about its Thursday decision was Austrian Ewald Nowotny who said markets failed to assess properly the signals the European Central Bank was sending last week, adding that analysts rather than the ECB were to blame for any misunderstanding.
Which, of course, is ironic since it was both Draghi and Nowotny who well into the leadup to the ECB meeting were aggressively talking down the EUR only to subsequently admit they have no firepower left to actually back up their relentless, and ridiculous, jawboning.
Reuters reports that when asked whether the ECB needed to review its communication strategy in light of the market reaction, Nowotny said the ECB had done nothing wrong.
“I think it was really a massive failure of market analysts,” Nowotny told a news conference, adding that those analysts should have paid more attention to economic fundamentals. Which ones would that be: the -0.1% inflation reported for September “rebounding” to solid 0.1% for October and November? Or the 50% youth unemployment in Spain and Greece?
“I do not think that the communication policy of the ECB sent the wrong signal,” he told reporters, adding: “There were exaggerated expectations in relation to the actions taken by the ECB in this situation. They were clearly exaggerated.”
Yes, thanks to Draghi and, drumroll, Nowotny with such soundbites as the following from November 2:
- NOWOTNY SAYS `ECB HAS TO ACT’ AS INFLATION TARGET TO BE MISSED
While the markets had failed to understand the ECB’s guidance, Nowotny said the ECB should not let itself be influenced by signals sent in the opposite direction.
The comedy continued when Nowotny said that “the ECB can and will not let itself be pushed by the markets,” adding that “it’s not our job to correct wrong expectations of individuals” and “it wasn’t the view of the whole market.“
Which, of course, was a lie because it was his very boss, Mario Draghi who just last Friday launched a massive rally in the market, when asked by Mervyn King the ECB’s chair’s Friday speech was “deliberately designed to try offset some of the reaction yesterday?” to which Draghi had a response that shocked every central bank watcher in its brutal honesty that all that matters to the ECB at this point is the market: “Not really… well, of course.“
Dear ECB, if you can’t get your story straight, please at least coordinate your lies – you are starting to look very much like amateurs.
Glencore CDS Are Soaring Again As Default Risk Rises Above 50%
The trade that has kept on giving ever since it was first presented here in March 2014 as the best way to bet on the Chinese and Commodity collapse, and which has taken place just as predicted, continues to give. As a reminder, nearly two years ago we said to buy GLEN CDS (at 180bps) on expectations of a collapse in the price of copper – the one commodity whose fate is most closely tied to that of China, and to which Glencore had the biggest exposure.
Sure enough, China suffered a hard(ish) landing, copper plunged to decade lows, and Glencore CDS exploded to levels not seen since the financial crisis, prompting management to aggressively promise it will deleverage and cut back on money-losing excess production.
The plan worked, for a few months.
As of today, with Glencore stock once again trading near all time lows sliding as low at 75p, the company’s default risk just hit 54%, the highest in 6 years, as a result of its CDS blowing out past 900 and wider than the intraday spreads hit in September as the following chart from Markit shows.
Why is this important? Because recall that the collapse of Glencore was one of the catalysts for the August/September market swoon; it was never fixed but because it stopped bleeding wider, the “experts” thought it was contained. Alas, it isn’t, and now the market is about to have a rude second wake up call that the world’s most important commodities trader – which may be downgraded to junk any minute – is also facing an all too real probability of bankruptcy unless commodity prices somehow surge in the coming months.
end
Glencore stock at 75 pence
(courtesy London Stock Exchange)
GLEN GLENCORE PLC ORD USD0.01
| Price (GBX) | 83.36 | Var % (+/-) | +4.92% ( +3.91) |
| High | 84.73 | Low | 75.18 |
| Volume | 72,445,244 | Last close | 79.45 on 08-Dec-2015 |
| Bid | 83.36 | Offer | 83.41 |
| Trading status | Regular Trading | Special conditions | NONE |
That did not take long: Greek stocks crash as trading restrictions are lifted:
Greek Stocks Crash To 30-Month Lows As Trading Restrictions Lifted
Since laste June, “local investors” have been restricted to only being allowed to buy shares and disallowed from withdrawing cash from accounts. Those restrictions did not stop the stock market from collapsing further and today authorities have decided to lift those capital controls… the result – ASE has plunged below mid-Summer lows to its lowest since June 2009...
Capital controls have been in effect in Greece since late June 2015. With their imposition came a three week bank holiday and the shutdown of the Athens Stock Exchange (ASE) until early August. Since its reopening, the ASE’s general index has yet to reach the 797.52 basis points it stood at on June 26, the last day of operations before capital controls, having plummeted to 608.96, the lowest since August 2012.
The new measure that Tsakalotos reportedly approved, means that Greek investors will now be able to buy financial instruments like bonds and stocks, among others, with “old money,” meaning that they can use funds they have in their Greek bank accounts as well.
But…
HCMC will push to keep short selling of banking stocks and bonds prohibited until December 20.
end
You will recall that the Danish central bank, the Swedish central bank and the Norwegian central bank, already in NIRP, was ready to increase their NIRP even more, if the ECB made good on its threat for increasing QE. Now that there is a ceasefire in the currency wars as Draghi did not get the OK from the hawks, maybe our Scandinavian central banks will get a little head start ahead of the ECB by increasing NIRP a little
(courtesy zero hedge)
Draghi’s Currency War Ceasefire Faces Test As Sweden, Switzerland, Norway Take Aim
Around an hour before Mario Draghi disappointed, underwhelmed, and under-delivered by failing to meet what the ECB’s Nowotny called “absurd” easing expectations, we said the following:
So what, precisely is everyone pricing in, you ask? Well that’s difficult to say, but the market generally expects a PSPP extension of six months, a PSPP expansion of €15-20 billion in monthly purchases, and a depo cut of 10 or 20 bps. Anything short of those estimates is “hawkish” we suppose (how absurd is that?) and anything beyond that will be enough to make the Riksbank, the SNB, the Nationalbank, and the Norges Bank nauseous.
We were of course referencing the fact that if Draghi had somehow managed to live up to the hype (which would have meant cutting the depo rate by something ridiculous like 30 bps and expanding the pace of monthly asset purchases by €20 billion or so in conjunction with a 12 month PSPP extension), Sweden, Switzerland, Norway, and Denmark would have once again found themselves behind the eightball in the global currency wars. Effectively, Mario Draghi could have forced the hands of his regional counterparts and could have also put quite a bit of pressure on Haruhiko Kuroda to prove that the BoJ is still the looniest loon in the Keynesian funny farm.
Prior to the ECB’s December meeting, Nordea’s Niels Christensen said “Denmark will be forced to cut below -0.75 percent” if the SNB moves after Draghi. Nomura’s Yujiro Goto and Jordan Rochester contended that the Riksbank was more likely than the SNB to cut, noting that “Sweden will likely to be proactive after an expected ECB decision [and there’s a] high possibility of 10-15bps Riksbank rate cut.” “And let’s not forget about the Norges Bank,” we said, who, at +0.75 still has some room to go before NIRP if Oeystein Olsen wants to use monetary policy to combat an economy struggling with “lower for longer” crude.
Well, everyone needn’t have worried because Mario Draghi “only” cut rates by 10 bps, “only” extended QE by six months, and “failed” to expand the monthly pace of asset purchases. Everyone subsequently got some respite:
Now, the SNB (December 10), the Norges Bank (December 17), and the Riksbank (December 14) are all on deck and the question is whether they will use the Draghi’s “hawkish” lapse to get a leg up in the ongoing currency wars.
“I don’t think we’ve seen the last of this trend,” Jes Asmussen, chief economist for Denmark at lender Handelsbanken told WSJ. “When I trained as an economist, negative rates weren’t in the textbooks. But that’s the world we live in now, and it hasn’t stopped turning,” he added.
Still, some are betting that between the Fed and the ECB, everyone has been given the all clear to implement a December cease fire. Nordea, for instance, no longer expects a 10bps cut from Sweden. The reason for the changed forecast: the Fed has telegraphed a hike, and the ECB disappointment on Dec. 3 has eased pressure on SEK. Similarly, SEB is sticking with its forecast that the Riksbank will cut on Dec. 14 but analyst Olle Holmgren told Bloomberg that he was “unsure before and even more uncertain about it now.” As Bloomberg wrote last week, “the overarching message is that central banks outside the euro zone now find themselves in an entirely different situation compared with just a week ago. For Denmark and Switzerland especially, the changed landscape means policy makers are now less likely to cut their benchmark rates below the extreme level of minus 0.75 percent that both countries have had to maintain since the beginning of the year.”
Still, not everyone agrees that the currency wars are over, or even at a temporary standstill. Swedbank says a cut from the Norges Bank may be in the cards as Norway “has to deal with a further slump in oil prices and close to zero GDP growth during 2Q and 3Q.” Meanwhile Bloomberg’s Richard Breslow had the following to say on Wednesday about the SNB:
It was less than a week ago that rates futures were pricing in a full 25bp cut to the SNB’s 3-month libor target, largely seen as meant to be a direct response to the ECB. After the ECB cut by a less than the widely prayed for amount, expectations went to almost zero and remain in single digits. Price action in a market caught badly offside, shouldn’t distract from the fact that the ECB did ease
The best you can say about the economy is it has been relatively resilient despite the over valued currency. A fran(c)er assessment is that the economy is sputtering. GDP at 0% didn’t get better because of a hawkish ECB surprise
The SNB likes quarter point moves. If they do something tomorrow it would be a break from habit to do a tenner. The world gets negative rates, it’s bare-knuckles in a proper currency war
The SNB has another problem to consider. If the Fed fails to find a middle ground and either sets off chaos or overly succeeds in its dovish messaging, the franc may be in demand with renewed vigor
And here are some excerpts from Goldman’s preview:
Broadly speaking, market expectations of the SNB’s likely reaction to the ECB’s December decision fall into two camps: (i) the SNB will seek to manage the consequences of the ECB’s move or (ii) the SNB will undertake more aggressive rate cuts in order to get ahead of the ECB and ring-fence the interest rate differential.
In our view, the increasingly large (economic and political) cost associated with deeply negative policy rates (and provided the SNB sticks with incremental rate cuts of 25bp) raises the option value of waiting before engaging in additional rate cuts. Therefore, we think the Governing Board will view any further rate cut as a measure of last resort. The two-pronged monetary policy strategy offers a degree of flexibility in setting interest rates, and the SNB may wish to wait for the Fed to start normalizing its monetary policy in December before it ponders any additional measures.
The problem of course is that the eurozone recently fell back into deflation and economic growth is anemic. It’s not at all clear that Draghi is done and indeed he telegraphed as much with last Friday’s “well, of course” moment.
That means if “competing” central banks want to get out ahead of further ECB easing, now is the time to do it, so don’t be surprised if you get still more monetary insanity out of Europe over the next 10 days. After all, we know that if you can catch Draghi off guard, he tends to crumble under the pressure:
“Europe’s negative-rate adventure has only just begun, and it is far from clear how it will end,” WSJ wrote on Wednesday, before noting precisely what we said above: “The ECB’s negative deposit rate has helped bring down the value of the euro, but Europe’s economy still musters only meager growth, and inflation is still stuck near zero.”
To be sure, it’s not clear how much longer banks can hold out in the NIRP regime without passing the costs along to depositors. As we reported late last month, Swiss lender Alternative Bank Schweiz will begin charging for deposits starting in January after NIRP cost the bank “its entire annual profit” during the previous year. Of course that’s good news if you’ve got a mortgage. “In Denmark, thousands of homeowners have ended up with negative-interest mortgages,” WSJ reminds us, a nod to what we first reported back in January. “Instead of paying the bank principal plus interest each month, they pay principal minus interest.”
Where does all of this insanity end you ask? Nowhere good, and on that note, we’ll close with one last quote from The Journal:
Is there economic salvation in negative rates? If central banks push deeper, will growth return? Or is the weird nature of negative rates a prelude to perverse consequences—to hoarding of cash, bubbles in assets like housing, and uncontrolled inflation?
Putin Hopes “There Will Be No Need To Nuke” The Islamic State
Earlier today, in a clear advance notice to the French and US navies which are both set to arrive just off the coast of Syria in the coming weeks, Russia for the first time targeted Islamic State targets in Syria with Kalibr land-attack cruise missiles launched from a submarine in the Mediterranean Sea off the Syrian coastline, according to Russia’s Defense Minister.
According to RT, the 3M-54 Kalibr missiles were launched from the Kilo-class diesel-electric submarine “Rostov-on-Don”, Defense Minister Sergey Shoigu told President Vladimir Putin on Tuesday.
While as reported here before, Russian warships based in the Caspian and Mediterranean seas had launched similar missiles targeting ISIS positions in late November, this was the first time that Russia has targeted IS in Syria from a submarine.
The submarine cruise missile launch and subsequent strikes are shown in the clip below:
According to a Kremlin transcript of the conversation, Shoigu told Putin that the missiles successfully targeted two major terrorist positions in the territory of Raqqa, adding that “we can say with absolute confidence that significant damage has been inflicted upon ammunition warehouses and a mine production plant, as well as the oil infrastructure.”
In addition to the submarine, a Russian Ministry of Defense source revealed that the Rostov-on-Don, equipped with modern Russian Kalibr cruise missiles, had appeared near the Syrian coast. Additionally, just before the USS Harry S. Truman carrier arrives, the Russian cruiser Varyag, which is currently off India’s coast for Exercise Indra till Dec. 12, will set sail for the Mediterranean to replace the cruiser Moskva.
However, what was most notable in today’s update by the Russian defense ministry was neither the news about the sub, or the second ship deployment, but what Putin told Shoigu during their conversation according to the Kremlin’s transcript. Which is as follows:
Regarding the submarine strikes we must, of course, analyze everything that happens on the battlefield, how the weapons acts. Both the “Kalibrs” and the X-101 rockets as a whole proved to be very good. This new, modern, highly efficient, and highly precise weapon can be equipped with both a conventional warhead as well as a special, nuclear warhead. Naturally, in the fight against terrorism that is unnecessary, and I hope there will be no need [to use nukes against the Islamic State].
But, if it is…. which of course was the unsaid message: Russia not only can deploy tactical nuclear warheads to Syria overnight, but it may, “not now”, but eventually be forced to use them against “the Islamic State.”
And just like that Putin hinted that the Syrian proxy war, as it escalates ever wider and drags in increasingly more countries in true “world war” fashion, may just have one or more mushroom clouds in its near future; clouds which will will target none other than the CIA’s pet project designed to take down Assad – the Islamic State. We are not sure if this particular cloud will have a silver lining, but we are confident that not even Turkey will want to buy ISIS oil if it happens to have the same radioactivity profile as Fukushima.
END
a huge story!! Iraq now seeks to cancel that all important security agreement with the USA as they invite Russian to fight the terrorist organization ISIS.
the middle east is heating up again
(courtesy zero hedge)
Iraq Seeks To Cancel Security Agreement With US, Will Invite Russia To Fight ISIS
Most Iraqis, be they civilians, military personnel, or government officials, do not trust Americans.
At a base level, that makes all kinds of sense. After all, the US did launch what amounted to a unilateral invasion of the country just a little over a decade ago, and when it was all said and done, a dictator was deposed but it’s not entirely clear that Iraqis are better off for it.
ISIS controls key cities including the Mosul, the country’s second largest, and security is a daily concern for the populace. The Americans are still seen – rightly – as occupiers, and Washington’s unwillingness inability to effectively counter ISIS has created a culture of suspicion in which most Iraqis believe the US is in cahoots with the militants for what WaPo described as “a variety of pernicious reasons that have to do with asserting U.S. control over Iraq, the wider Middle East and, perhaps, its oil.”
Some of the distrust, the US contends, is fostered by Iran. Tehran wields considerable influence both within the Iraqi military and in political circles in Baghdad. When Ash Carter announced that the US was set to send an “expeditionary targeting force” to the country to assist in raids on Islamic State targets, PM Haider al-Abadi flatly rejected the proposal, saying that “Iraq does not need foreign ground combat forces on Iraqi land.” Abadi rejected a similar Pentagon trial balloon involving Apaches helicopters last month.
(Abadi)
Meanwhile, Tehran’s Shiite militias threatened to attack any US soldiers operating on Iraqi soil. “We will chase and fight any American force deployed in Iraq. Any such American force will become a primary target for our group. We fought them before and we are ready to resume fighting,” a spokesman for Kata’ib Hezbollah said. Similarly,influential Shiite lawmakers like the infamous Hakim al-Zamili have called on Abadi to seek direct military intervention from Moscow to expel foreign forces from the country.
Now, in the latest example of just how tenuous Washington’s grip on the region has become,the Iraqi parliament’s Security and Defense Committee is calling for the review and cancellation of Baghdad’s security agreement with the US.
“The government and parliament need to review the agreement signed with the United States on security because the United States does not seriously care about its fulfillment,” committee member Hamid al-Mutlaq, a senior Sunni lawmaker told Sputnik on Wednesday. “We demand that it be annulled,” he added.
Who will fill the void you ask? You guessed it:
“Soon, a meeting [of the committee] with Prime Minister Haider Abadi will be held, at which we will propose cooperating with Russia in carrying out airstrikes against IS and in the fight against terrorism in Iraq,” another committee member said earlier this week.
Recall that this is precisely what we said would happen once we learned in September that Russia, Iran, Iraq, and Syria had set up a joint intelligence sharing cell in Baghdad.
It was clear from the beginning that Tehran saw an opportunity to consolidate its power in Iraq and preserve its influence in Syria by convincing Vladimir Putin that Russia could replace the US as Mid-East superpower puppet master by helping Tehran to defeat the insurgency in Syria and boot the US from Iraq once and for all. Moscow will of course get a warm reception from Iraqi lawmakers thanks to the fact that many MPs are loyal to Iran.
This makes sense logistically as well. Once the Russians and Iranians have retaken Aleppo (which admittedly is taking a while), they can push east towards Raqqa and from there, move straight across the border, effectively pinching ISIS between an advance from the west and Iran’s Shiite militias already operating in Iraq. Of course that will entail some measure of cooperation with the US, France, Britain, and, once in Iraq, the Peshmerga. It is at that point that Washington’s resolve when it comes to preserving whatever charade is being perpetrated in Raqqa will be put to the ultimate test.
In the meantime, it will be interesting to see how the US responds to a move by Baghdad to nullify the security agreement.
Washington knows it can land troops in Iraq by simply going through Erbil which is precisely what Turkey did last Friday. The KRG/ Barzani end-around serves to give the troop deployments a kind of quasi-legitimacy. That is, the Kurds control the territory and are self governing, so when Erdogan (and, soon Obama) drop troops in northern Iraq against Baghdad’s wishes, they can claim it’s not a violation of sovereignty. As we saw over the weekend, Iraqi officials aren’t going to stand for it going forward although now that it’s become clear that NATO and the Security Council aren’t going to be any help (just as we said), Iraq’s ambassador to the UN is striking a concilliatory tone, saying Baghdad will try to settle the dispute with Turkey “bilaterally.”
It now appears that the stage is set for Baghdad to claim that the US, like Turkey, is illegitimately occupying the country (again). If Iraq nullifies the security agreement and moves to invite the Russians into the country, the US will be forced to either pack up and leave, cooperate with Moscow, or fight for the right to preserve American influence.
Decisions, decisions.
* * *
Read more about the official relationship between Washington and Baghdad below.
The IMF Just Entered The Cold War – Forgives Ukraine’s Debt To Russia
Authored by Michael Hudson, originally posted by The Saker, author of The Essential Saker: from the trenches of the emerging multipolar world,
On December 8, the IMF’s Chief Spokesman Gerry Rice sent a note saying:
“The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors. We will provide details on the scope and rationale for this policy change in the next day or so.”
Since 1947 when it really started operations, the World Bank has acted as a branch of the U.S. Defense Department, from its first major chairman John J. McCloy through Robert McNamara to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it has promoted U.S. exports – especially farm exports – by steering Third World countries to produce plantation crops rather than feeding their own populations. (They are to import U.S. grain.) But it has felt obliged to wrap its U.S. export promotion and support for the dollar area in an ostensibly internationalist rhetoric, as if what’s good for the United States is good for the world.
The IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it made a radical decision to dismantle the condition that had integrated the global financial system for the past half century. In the past, it has been able to take the lead in organizing bailout packages for governments by getting other creditor nations – headed by the United States, Germany and Japan – to participate. The creditor leverage that the IMF has used is that if a nation is in financial arrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments.
This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.
But on Tuesday, the IMF joined the New Cold War. It has been lending money to Ukraine despite the Fund’s rules blocking it from lending to countries with no visible chance of paying (the “No More Argentinas” rule from 2001). When IMF head Christine Lagarde made the last IMF loan to Ukraine in the spring, she expressed the hope that there would be peace. But President Porochenko immediately announced that he would use the proceeds to step up his nation’s civil war with the Russian-speaking population in the East – the Donbass.
That is the region where most IMF exports have been made – mainly to Russia. This market is now lost for the foreseeable future. It may be a long break, because the country is run by the U.S.-backed junta put in place after the right-wing coup of winter 2014. Ukraine has refused to pay not only private-sector bondholders, but the Russian Government as well.
This should have blocked Ukraine from receiving further IMF aid. Refusal to pay for Ukrainian military belligerence in its New Cold War against Russia would have been a major step forcing peace, and also forcing a clean-up of the country’s endemic corruption.
Instead, the IMF is backing Ukrainian policy, its kleptocracy and its Right Sector leading the attacks that recently cut off Crimea’s electricity. The only condition on which the IMF insists is continued austerity. Ukraine’s currency, the hryvnia, has fallen by a third this years, pensions have been slashed (largely as a result of being inflated away), while corruption continues unabated.
Despite this the IMF announced its intention to extend new loans to finance Ukraine’s dependency and payoffs to the oligarchs who are in control of its parliament and justice departments to block any real cleanup of corruption.
For over half a year there was a semi-public discussion with U.S. Treasury advisors and Cold Warriors about how to stiff Russia on the $3 billion owed by Ukraine to Russia’s Sovereign Wealth Fund. There was some talk of declaring this an “odious debt,” but it was decided that this ploy might backfire against U.S. supported dictatorships.
In the end, the IMF simply lent Ukraine the money.
By doing so, it announced its new policy: “We only enforce debts owed in US dollars to US allies.” This means that what was simmering as a Cold War against Russia has now turned into a full-blown division of the world into the Dollar Bloc (with its satellite Euro and other pro-U.S. currencies) and the BRICS or other countries not in the U.S. financial and military orbit.
What should Russia do? For that matter, what should China and other BRICS countries do? The IMF and U.S. neocons have sent the world a message: you don’t have to honor debts to countries outside of the dollar area and its satellites.
Why then should these non-dollarized countries remain in the IMF – or the World Bank, for that matter. The IMF move effectively splits the global system in half,between the BRICS and the US-European neoliberalized financial system.
Should Russia withdraw from the IMF? Should other countries?
The mirror-image response would be for the new Asian Development Bank to announce that countries that joined the ruble-yuan area did not have to pay US dollar or euro-denominated debts. That is implicitly where the IMF’s break is leading.
In Strategy Shift, ISIS Attack Against Israel Looming Closer
As ISIS takes over more swaths of Syria each day, an Israeli official warned this week that an attack against Israel by ISIS is only a matter of time.
The unnamed senior defense official, speaking to the Hebrew language daily Yedioth Ahronoth, said that the jihadist group is increasing its global reach and ability to conduct attacks outside of Iraq and Syria, the boundaries of its declared caliphate.
The recent terror attacks in France and the US are a major indication of this shift in tactics by the Islamist group, the official explained.
However, what makes ISIS unlike most terror groups that attack Israel, such as Hezbollah and Hamas, is the lack of a central, organized structure. An Israeli response to an ISIS attack therefore become all the more difficult, the official said.
“Who would we even attack in Syria that the international coalition and the Russians aren’t attacking already?” he pointed out.
In October, ISIS released its first Hebrew speaking video threatening Israel directly and vowing that “not a single Jew would remain in Jerusalem.”
The Israeli military, aware of the growing threat posed by ISIS to Israel in both its northern border and the Sinai Peninsula, has been conducting surprise drills in preparation for “extreme” scenarios with jihadists.
While many Israeli officials have attempted to downplay the threat posed by ISIS, on Tuesday the Shin Bet announced that it had arrested five Israeli Arabs from Nazareth on suspicion of having ties with ISIS.
The cell members, who all hailed from the same family, were planning on carrying out a terror attack in Israel. They were arrested in a joint operation with Israel Police in October and November.
The ISIS terrorists were named as Abd al Karim Ihab Abdel Rahman Suleiman, 22; Mohammed Ihab Abdel Rahman Suleiman, 18; Abdel Karim Jamal Ali Suleiman, 23; Mohammed Salah Mohammed Suleiman, 19 and Murad Mohammed Salim Suleiman, 27.
image: http://www.breakingisraelnews.com/wp-content/uploads/2015/01/ISIS-terror-cell-seven-israel.jpg
The 7 men arrested by the Shin Bet for forming an ISIS terror cell in Israel and planning to carry out attacks against the state. (Photo: Israel Security Agency)
The 7 men arrested by the Shin Bet for forming an ISIS terror cell in Israel and planning to carry out attacks against the state. (Photo: Israel Security Agency)
According to the Shin Bet, the five men became more religious and self-radicalized, expressing growing support for ISIS and jihad. They held secret meetings and trained in the use of weapons in a grove outside Nazareth. Upon arrest, officials discovered two rifles, a Swedish Carl Gustav and a Russian SKS hidden by the cell.
Earlier this year, Israeli Defense Minister Moshe Ya’alon official declared ISIS an illegal organization, thereby making membership in the jihadist group or expressing support prohibited by law.
The latest arrest is not the first time ISIS-linked terror cells were busted inside Israel. In November, six Arab Israelis from Jaljulia were arrested for planning to join ISIS. A seventh member of the cell managed to hang-glide from Israel into Syria.
In October, seven men were charged with planning terror attacks against Israel in the name of ISIS, acquiring illegal weapons and surveilling police and army bases.
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“What could be better? Collapsing GDP, double-digit inflation, rising unemployment, an intractable political crisis, and double-digit interest rates. This isn’t even a “sub”merging market anymore. We’re back to “frontier” status in Brazil.”
Inflation Soars To 12-Year High In Brazil As Supreme Court Jumps Into Impeachment Fight
On Tuesday, we highlighted what WSJ called an “extraordinary” turn of events in Brazil’s ongoing political crises.
An angry letter penned by VP Michel Temer was published in its entirety by virtually all local media, in what amounted to a very public display of Temer’s disaffection with embattled President Dilma Rousseff. Over the course of some 1,000 words, Temer accuses Rousseff of everything from demeaning the position of the Vice President to deliberately excluding him from a meeting with Joe Biden on the way to concluding that the Brazilian President does not and never will trust the opposition PMDB (of which Temer is a member).
Gabriel Petrus, a political analyst at business consulting firm Barral M Jorge told Bloomberg that Temer is “opening the door for a possible break with the government,” and although “he may not be actively promoting impeachment, this could well heighten the chances of her ouster.”
We went on to outline the impeachment process before speculating on how the market would react to a variety of political outcomes.
Rousseff got some respite late Tuesday when the Supreme Court suspended impeachment proceedings pending a December 16 debate on their constitutional validity and an examination of a controversial house vote that nearly caused yesterday’s session to “collapse into chaos,”as Reuters puts it.
“The Communist Party of Brazil, a small party in Rousseff’s coalition, raised the constitutional issue in an injunction filed last week,” Reuters goes on to report, adding that “the injunction said a 1950 law laying out impeachable crimes by a president was not compatible with Brazil’s 1985 constitution.”
The court says it’s attempting “to avoid acts that could eventually be invalidated.” Rousseff appointed Justice Luiz Edson Fachin who made the decision.
Of course as with all things Brazil, there’s no telling who this actually benefits and it is thus impossible to determine how the market “should” react. The “delay may be seen as positive to the opposition, which prefers to push proceedings further into 2016 as economic deterioration outlook may further hurt Rousseff’s support,” Bloomberg’s Davison Santana writes. In other words, the longer this takes the better, because the economy is only going to get worse in the meantime which reflects poorly on Rousseff, increasing the chances she gets the boot and thus calming markets – or something.
While we’re not sure that longer is actually better here given that Speaker Eduardo Cunha’s fate hangs in the balance, we certainly agree that the economic situation is set to deteriorate further and on Wednesday, we got a look at full-month IPCA which showed annual headline inflation jumping 10.48% Y/Y. This wasn’t exactly a surprise. Mid-month we got a 10.3% print and the country has been stuck in stagflationary nightmare for the better part of 2015. Still, the number is “disquieting” (to use on of Goldman’s favorite adjectives for abysmal data out of Brazil).
Here’s Goldman’s take on Wednesday’s data:
IPCA inflation accelerated to a higher-than-expected 1.01% in November, up from 0.80% in October and 0.85% in the mid-November IPCA-15. Annual headline IPCA inflation accelerated to 10.48% yoy, up from the October 9.93% full-month IPCA reading.
Inflation has admittedly been under pressure from the large increase in a number of administered prices, but we stress that despite the ongoing recession and labor market deterioration, inflation in the set of freely determined prices is tracking at a high 8.3% yoy (up from 6.7% in December 2014) with services inflation sticky above 7.5% for four consecutive years.
We expect annual headline inflation to end 2015 in double digits (10.6%).
In short: inflation is at 12-year highs just as GDP is collapsing and unemployment is soaring.
As we’ve documented extensively, Copom’s hands are tied. When you’ve got double-digit inflation, you can’t very well cut rates to boost the economy especially when the full effect of the BRL’s decline hasn’t yet worked its way through to prices.
In fact, today’s IPCA print virtually ensures a hike in January and probably another in March. “Above-est. CPI released today reinforces expectations that BCB will need to resume rate increases to take Selic to 16.25% from current 14.25%,” Daniel Weeks, chief economist at Garde Asset Management, told Bloomberg via phone.
What could be better? Collapsing GDP, double-digit inflation, rising unemployment, an intractable political crisis, and double-digit interest rates. This isn’t even a “sub”merging market anymore. We’re back to “frontier” status in Brazil.
Euro/USA 1.0944 up .0052
USA/JAPAN YEN 122.48 down .468
GBP/USA 1.50872 up .0078
USA/CAN 1.3567 down .0012
Early this morning in Europe, the Euro rose by 52 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 as the EU is moving more into NIRP and moving in the opposite direction that they were suppose to with the USA tightening on Dec 16. Last night the Chinese yuan down in value (onshore). The USA/CNY up in rate at closing last night: 6.4320 / (yuan down)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a northbound trajectory as settled up again in Japan by 47 basis points and trading now well above the all important 120 level to 122.48 yen to the dollar.
The pound was up this morning by 78 basis points as it now trades just above the 1.50 level at 1.5087.
The Canadian dollar is now trading up 12 in basis points to 1.3567 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 (800 billion of liquidity will be withdrawn on a 1/4% rise in rates)
The NIKKEI: this TUESDAY morning: closed down 191.53 or 0.98%
Trading from Europe and Asia:
1. Europe stocks all in the red
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai just in the green with gov’t intervention / (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) green/India’s Sensex in the red/
Gold very early morning trading: $1080.00
silver:$14.28
Early WEDNESDAY morning USA 10 year bond yield: 2.24% !!! up 2 in basis points from TUESDAY night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.98 or up 2 in basis points.
USA dollar index early WEDNESDAY morning: 98.01 down 40 cents from TUESDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers WEDNESDAY MORNING
Crude Surges After DOE Reports Biggest Inventory Draw In 4 Months
Following last night’s unexpected inventory draw reported by API, DOE reported an even bigger draw of 3.568 million barrel (against expectations of a 1.3mm barrel build). The biggest draw in almost 4 months sent crude surging back to $39. Cushing continues to fill up, with a 423k build – the 5th week in a row. Production dropped the most in 2 months (with both Alaska and The Lower 48 dropping).
Biggest crude inventory draw in 4 months…
Cushing continues to fill up
And finally, production dropped most in 2 months..
Sends crude higher still, extending overnight API gains…
Stock Bulls better hope these oil levels hold…
Charts: Bloomberg
Whispers Of Liquidation As Oil Trading “God” Loses 10% In November; Down 26% In 2015
Today, one person is following the gyrations in the oil market, which first rebounded after the DOE crude storage data only to tumble immediately thereafter after all the upside stops had been taken out…
… with very close attention: the same person many had dubbed the oil trading “god”, former Citi and Phibro trader, Andy Hall.
Andy Hall’s story has been closely documented here: about a year ago, we learned that as a result of the dramatic move lower in oil and other commodities, 113-year-old Phibro, where Hall worked, would shut down after it was unable to find a buyer.
Since then things have gone from bad to worse for Hall, who suffered his second biggest monthly loss ever in July when he was down a whopping $500 million. The next month many thought could be Hall’s last, with oil continuing its drop until the very end of the month, before a mysterious and completely unexpected surge in oil (driven by a collapse in OVX, or the oil VIX) send oil soaring on the last few days of trading.
As oil spiked in August to save Hall’s month, it was clear that someone was buying calls in massive size – sending volatility soaring (which would typically sync with lower prices). However, as those calls matured and “real'” weakness resumed so unmanipulated prices fell back to reality and Oil vol once again surged.
But while the late August ramp may have delayed judgment day for Hall, it may still be coming in the next few weeks, which would mean the erstwhile oil-trading “god” could be facing two blow ups in the span of one year.
According to the Journal, Andy Hall’s Astenbeck hedge-fund lost 9.7% in November, bringing 2015 losses to more than 26%. As a result of capital losses and mounting redemptions, Astenbeck’s assets under management fell to $2.4 billion, down from $3 billion at the start of the year and nearly $5 billion less than three years ago.
The fund is on track for its worst year since its inception in 2008.
Not surprisingly, the WSJ adds, Hall has remained bullish on oil throughout the deep downturn in the crude market this year and last.
In a letter to clients dated Dec. 1, Mr. Hall showed no sign of altering his views on the market.Throughout crude’s 30% fall this year, he has continued to cite data points that suggest a turnaround in prices soon.
Oil companies’ hedges, used to lock in prices, are beginning to expire, Mr. Hall noted in his letter. By next year, most companies will be fully exposed to low prices, with oil futures trading at nearly seven-year lows and the U.S. benchmark contract around $37 a barrel on Tuesday.
”The longer term story regarding oil remains very much intact,” Mr. Hall wrote. “Indeed the longer prices remain at current levels, the more powerful the ultimate recovery will likely be. The oil industry simply cannot function with oil prices stuck at current levels.
”Now is not the time to exit the market,” Mr. Hall added.
Sadly, OPEC did not get Hall’s letter to clients. As for Hall himself, unless he can recreate his dramatic option play from the end of August and send oil spiking, the time when the oil trader has to exit the market for good could be in a few weeks when LPs in his fund send in their terminal redemption requests, and lead to an even greater plunge in the price of oil as Hall is forced to unwind all of his massively levered bullish bets.
In fact, according to several traders, some of the heavy offers in the market in recent days have come from the Soutport, CT-based firm itself which may be beyond the point of no return, and which if true, would explain why Goldman is expecting a $20-handle print in crude in the coming weeks.
end
Here is another group of oil men that are in trouble: the strippers!!
(courtesy Michael McDonald OilPrice.com)
Strippers Suffering From Low Oil Prices
Submitted by Michael McDonald via OilPrice.com,
With Prices Below $50, what is a stripper to do?
With OPEC breaking down and any kind of coordination among its members on price cuts looking increasingly unlikely, it now appears that oil prices could remain below $50 a barrel for a year or more. As producers confront this unpleasant reality, some will finally start to significantly curtail or even shut down operations. And that is going to severely hurt an all but invisible group; strippers in the United States.
A stripper is a small operator of very old oil wells that frequently produce less than five barrels per day of oil. These wells may not seem consequential, but there are roughly 410,000 of them in the U.S. Since 2002, according to the industry association for strippers, these marginal wells have generated more than 2.9 billion barrels of oil and 18.8 Mcf of natural gas. These wells account for roughly 11.3 percent of the U.S. oil output, so they are a non-trivial source of U.S. production. Stripper-operated wells account for all of the oil production in the state of Illinois for instance.
These stripper wells are ones that are mostly likely to start shutting down over the next few months as hope for a fast rebound in oil prices finally goes out of the markets.
Stripper wells cost very little to drill, often as little as $300,000 versus millions for a conventional well. Stripper wells also don’t cost a lot to operate – perhaps $2,000 a month by some estimates, mostly for electricity and water disposal. Of course those costs will vary widely from state to state depending on local electricity and water costs. Stripper wells don’t produce enough oil to have an efficient transportation delivery system so the strippers often earn $5-$10 less than the NYMEX price after deducting transportation costs. With U.S. crude at $38 a barrel right now, the average stripper might be earning around $30 per barrel.
With average monthly costs of around $2,000, that means that a stripper has to pump at least 2.33 barrels per well per day just to break even. And that does not include the cost of capital or the cost of employees (these are more than 150,000 jobs in the stripper business across the US according to the industry association). At current prices, essentially all U.S. stripper wells are at best break-even and the majority are probably losing money.
The supply of oil may already be more constrained than many market participants realize as a result of stripper shutdowns. Once a stripper well is closed, it is often apermanent decision as reopening wells makes little economic sense given their miniscule production. At the same time, because there are over 400,000 wells across the U.S. and they are often operated by very tiny firms, there is no good way to track production from this market segment.
Stripper well shutdowns could increase significantly as 2016 gears up. The last time there was an oil price crash this severe was in the mid-1980s. In 1986, half of the country’s stripper well production was shut down as a result.
It’s unclear if the same magnitude of shutdowns will happen this time around given low interest rates and the years of high oil prices may have helped build stripper’s cash reserves (interest rates in the 1980s were significantly higher). Yet it is definitely worth keeping an eye out for signs of strippers shutting down. If they do so en masse, it could cut half-a-million barrels of production from U.S. output and help drive an oil recovery faster than many expect.
The Nasdaq down 73.38 or 1,48%
Carnage In Currency-Land – Dollar Dump Sparks Stock Slump
Well that escalated quickly…
The big story of the day – as long as you don’t watch CNBC – was the bloodbath in currencies. China’s devaluation to 4 year lows overnight…
Appears to have acccelerated a shift away from the USDollar across all the majors… (biggest USD drop ex-ECB since the post-China devaluation collapse) – the only thing saving the USD modestly was weakness in commodity currencies (AUD and CAD)…
Slamming the USD to 6-week lows… with the biggest 5-day drop since China devalued
Some context for that move are evident in the world’s most used carry currency – USDJPY crashed…
And in EURUSD, which had its biggest (ex ECB) jump since the China devaluation….
In case you were wondering what “fundamentals” were weighing on stocks…
Focusing on stocks, futures provides the cleearest view of the last few days/weeks…
On the day, it was extremely volatile… with stocks ending up back to pre-payrolls levels…
Nasdaq was the worst on the day… Dow was saved by DuPont which added 50 points…
S&P broke below its 50- and 200-DMA…
As FANGs faded…
With Trannies worst on the week…
Leaving all the major indices back in the red for 2015 (apart from Nasdaq)…
Since The ECB let the world down (and implicitly left The Fed set to remove up to $800 bn of liquidity next week)… Gold and EUR are the winners, stocks and Crude the losers…
Stocks played nicely with crude all day…
What happens next?
Treasury yields were mixed today with the short-end rallying, long-end flat (dragging yields below pre-ECB levels…
Commodities ignored the USD dump as once again the 8ET to 12ET period saw dramatic volatility across all…
The post-DOE data ramp perfectly tagged $39 stops and then dumped back below $37 finding support there again…
Charts: Bloomberg
Bonus Chart: What happens next?
end
Something Did Blow Up In Junk
Submitted by Jeffrey Snider via Alhambra Investment Partners,
Now that Kinder Morgan has come out with a massive dividend cut, I think it will get harder to ignore that this isn’t just about crude oil prices and the death of “transitory.”There is a financial element here that is perhaps even more important.
Kinder Morgan Inc., the biggest North American oil pipeline operator, cut its 2016 dividend by 74 percent as the free-fall in crude markets reduced cash flow needed to cover payments on $41 billion of debt.
Kinder Morgan stockholders will receive a payouts totaling 50 cents per share next year, the Houston-based oil and natural gas shipper said Tuesday in a statement.As recently as Nov. 18, the company was promising investors a 6 percent to 10 percent increase from the $2 per share it budgeted for this year, which would have meant payouts of $2.12 to $2.20. [emphasis added]
In the space of just three weeks, the company went from expanding its dividend to cutting it by three-quarters? That is far, far more serious than just oil trading below $40 once more. Again, as noted from Anglo American’s earlier statement, you have to believe that the huge and dramatic turmoil in junk right now is playing a role in these decisions. That includes not just 2008-level prices recently, but also much, much more discrimination in trying to float anything (cov-lite of 2014 is as dead as transitory).
The huge spike in the BofAML High Yield CCC’s that we noted last week is proving to be a real event, real trading and possibly a wholesale reset of the whole funding and liquidity environment.
“Something” didn’t just blow up in junk, it may have been the whole prior financial paradigm. This has, again, not just financial after effects but also deep economic consequences as more and more actual businesses turn toward actively managing a very real combined economic and financial threat, instead of desperately trying to ignore it all as Yellen still demands.
What was theoretical before is becoming active circumstances; the media and economists will spin this as “just oil” or “just commodities”, but they also said that oil prices were “transitory”, beneficial and non-concerning in any way. It will be interesting, and vitally important, to see how long manufacturing and general industrial companies can resist marking these same kinds of adjustments with funding and credit applying as much to them.
end
Kinder Morgan: Dead-Cat Bounce Coming – Sell, Do Not Buy
It was inevitable that Kinder Morgan stock was going to bounce at some point. Nothing goes straight down without a dead-cat bounce. There has been a lot of money made on the short side of this stock and prudent traders will take at least 70% of it off the table for now. This catalyst alone could stimulate a $3-4 bounce in the stock.
As you can see from this graph, the RSI/MACD momentum indicators are deeply oversold and need to bounce for a bit. Retail investors “doubling down” and professional short covering will fuel most of the bounce. Additionally, I am expecting a short bounce in the price of oil, which will help push KMI stock higher.
Again, I am not recommending shorting this stock yet. I need to complete my research and will be publishing a full-blown report. I will say that the more I dig, the more I find highly troublesome red flags with its accounting and its business. To say the least, the idea that this company is strictly a fixed, fee-based revenue model with no risk on either end of its pipelines is completely misleading, if not a fraudulent claim by analysts.
I have introduced a new subscription-based newsletter service called SHORT SELLER’S JOURNAL. It’s a weekly report delivered to your email inbox with: 1) a brief comment on the previous week’s trading action plus any thoughts on the upcoming week; 2) I will feature 1 or 2 short-sell, trading, or investment ideas – the investment ideas will be primarily junior mining stocks; 3) trading recommendations, charts and put/call option ideas.
Here’s what Enron’s stock did before it completely collapsed. To reiterate, I am not making a strict
comparison between Enron and KMI. However, I will suggest there is a strong possibility that the intrinsic value of KMI’s business is below $20, if not $10. Furthermore, in this era of insane liquidity and insane valuations being paid for anything that moves, there’s always a possibility that KMI will be bought by private equity firm before the U.S. systemic bubble bursts.
A reader left this comment on here last night. It illustrates perfectly the thought-process of the typical retail investor, reinforcing my assertion that the story-line being pimped by Wall Street that the sell-off is from the irrational behavior of frightened retail investors is pure misleading propaganda:
Dave, good stuff here on Kinder Morgan. My Dad is way overexposed there and he will not sell…..He has rode the market up and now riding it down and downer. Swears he will not sell this cheap. Oh well…
end
The Dollar Is Dumping
The USD is getting pummeled this morning (following China’s ‘devaluation’ to the weakest Yuan since 2011 overnight) as all the majors are bid against the greenback. USD Index is now below the post-ECB lows from last week… The USD is now at its weakest since early November.
The Yuan has weakened notably…
Having been blessed by The IMF…
Dollar weakness is accelerating…
Crude Traders Puke Production Cut Gains, Stocks Follow
Who could have seen that coming?
To this…
Or in more detail… when USDJPY stopped going up, algos flipped to crude – the other thing that was going up… but once the stops had been run to $39… it was over…
Add to that, liquidation fears, and WTO is testing a $36 handle once again.
Charts: Bloomberg
Wholesale Inventories Sink Q4 GDP Hope, Sales-Ratio Signals Looming Recession
Q4 GDP expectations are off to a bad start as October wholesale inventories dropped 0.1%(missing expectations of a 0.2% rise and well down from the September surge of 0.5%). Wholesale inventories rose only 3.7% YoY, the lowest since Sept 2013 but sales have now been negative YoY since December. This leaves the crucial inventories-to-sales ratio at 1.31 – post-crisis highs, and deep in recession territory.
Leaving the absolute level of inventories over sales just shy of all-time record highs..
and the inventories to sales ratio at cycle highs…
Time for a Fed rate-hike!?
Charts: Bloomberg
end
The last bastion of support for the NY stock market just flew out the window as rail car freights for cars has just tumbled as well as coal shipments. A strong bellwether of coal, feights for autos seems to suggest that the markets have tanked since October:
(courtesy zero hedge)
Pains For Trains From Automobiles
With global freight costs collapsing, as China trade dries up, status-quo-hugging talking heads have point to America’s car sales and picture some islandic isolation that means investors in US equities are immune. Well that little dream just burst. Rail freight carloads tumbled 5.1% in October, dramatically accelerating the 1.6% drop in Q3 as a strong dollar crimps exports, retailers whittle down excess inventory and energy investment stalls. Until recebtly, the one bright spot in rail traffic was auto shipments… but even that just plunged and is now at the seasonally weakest since 2008.
Everything was awesome… then October hit and a decline in consumer-related cargo this quarter is adding to weakness in industrial and energy traffic.
While it’s too early to tell if something “drastic” is happening to the economy, “it does feel kind of like a soft, flat, sort of wait-and-see environment,” said Union Pacific Chief Financial Officer Rob Knight at a Credit Suisse Group AG conference last week. The rail industry provides detailed weekly carload reports with only a three-day lag, giving one of the most current looks at shipping demand.
The railroad weakness adds to U.S. economic indicators that have been sending mixed signals.
Railroad intermodal traffic, which rose in the previous two quarters, has fallen 1.3 percent since the beginning of October. Intermodal consists mostly of consumer goods that are moved in containers that can be switched between ships, trains and trucks, and accounts for almost half of the industry’s carloads.
The excess inventory that’s dragging on intermodal carloads is also hurting U.S. growth, said Tim Quinlan, an economist at Wells Fargo & Co. The economy in the fourth quarter may expand about 1.5 percent at an annualized rate, he said. Growth was 2.2 percent in the third quarter from a year earlier.
“That slowing is due mostly to a drag from net exports and a significant drag from inventories,” Quinlan said.
* * *
One of the few bright spots for railroads has been automobile shipments… but seasonally, it is now at its weakest since 2008 on a percentage change basis…
Rail and truck stocks have pointed to economic weakness the entire year, said Jason Seidl, a railroad and trucking analyst at Cowen & Co…
“The economy is sluggish. That’s clear,” Seidl said. “We’ve seen a slowdown for sure.”
end
We get a sneak preview of the big retail sales number coming on Dec 11.2015. Retail sales show a decline:
(Bank of America/zero hedge)
Credit Card Data Reveals First Core Retail Sales Decline Since The Recession
While we await the government’s retail sales data on December 11, the last official economic report the Fed will see before its December 16 FOMC decision, Bank of America has been kind enough to provide its own full-month credit card spending data.
And while a week ago the same Bank of America disclosed the first holiday spending decline since the recession, in today’s follow up report BofA reveals that if one goes off actual credit card spending – which conveniently resolves the debate if one spends online or in brick and mortar stores as it is all funded by the same credit card – the picture is even more dire.
According to the bank’s credit and debit card spending data, core retail sales (those excluding autos which are mostly non-revolving credit funded) just dropped by 0.2% in November, the first annual decline since the financial crisis!
At this point, BofA which recently laid out its bullish 2016 year-end forecast which sees the S&P rising almost as high as 2,300, and is thus conflicted from presenting a version of events that does not foot with its erroenous economic narrative, engages in a desperate attempt to cover up the ugly reality with the following verbiage, which ironically confirms that a Fed hike here would be a major policy error and lead to even more downside once it is digested by the market.
- Retail sales ex-autos are down 0.2% yoy. However, part of this weakness owes to a decline in prices. After controlling for deflation, real retail sales ex-autos are up 1.3% yoy in November, revealing a slowing trend but not an outright decline.
- Much of the decline in the deflator is due to the drop in gasoline prices. The most recent drop in oil prices could imply there is another leg lower in gasoline prices as well.
- Moreover, there are disinflationary pressures elsewhere, presumably reflecting pass-through from the stronger dollar, which could continue.
In other words, nominal spending down for the first time, and while “much” of the decline is due to gas prices, these are a tiny fraction of the overall spending basket. And then the punchline BofA throws in: “disinflationary pressures elsewhere.”
To sum up: retail spending is now negative, and one can add deflation on top.
Can someone please explain to us again just what “data” the “data” dependent Fed is looking at, because we are lost…
We have been harping on this for quite some time as public pension funds have a huge liability hole due to the assumptions of controllers that they would be earning 7 to 8 % on pension funds. Many public pension funds have resorted to hedge funds trying to augment their returns. Instead hedge funds have performed miserably and now the funds are really short of funds required to satisfy pensioners in the future
(courtesy zero hedge)
US Pensions Squander Retirees’ Cash On Fees For Underperforming Hedge Funds
As you might be aware, America’s state and local governments are facing a series of fiscal crises that are inextricably bound to public sector pension funds.
This is something we’ve spent quite a bit of time documenting over the years, and especially since May, when the Illinois State Supreme Court struck down a pension reform bid, triggering a Moody’s downgrade for the city of Chicago and thrusting the state’s budget crisis into the national spotlight.
In October, Comptroller Leslie Geissler Munger admitted that Springfield would have to forego a $566 million pension payment in November.
And it’s not just Chicago. There’s also Houston, where a $3.2 billion pension-funding gapimperils the city’s credit rating and threatens to hurt demand for the city’s debt. “Among other concerns, the city’s plans assume relatively high investment returns of 8% or above, meaning the funding gap may be understated,” Marc Watts, chairman of the Greater Houston Partnership’s Municipal Finance Task Force, told WSJ. “Yes, ‘relatively high investment returns,’ as in, ‘returns that in today’s world can’t possibly be generated by anything that even approximates a conservative mix of assets,’” we said.
This is a persistent problem with public pension funds. In order to keep the present value of the liability from ballooning, managers need to cling to a 7-8% return assumption. Of course in a NIRP world, that’s next to impossible to achieve unless you reach for yield by “diversifying” into riskier asset classes. Here’s a graphic from a 2014 report from a panel commissioned by the Society of Actuaries:
As you can see, the percentage of funds dedicated to “alternatives” has risen steadily. Consider another chart, this one from Bloomberg which shows that pension funds have essentially doubled their allocation to hedge funds over the past four years:
This is in part an effort to offset the inexorable declines in fixed income yields but regular readers will no doubt immediately identify the problem with this strategy. For those who need a reminder, here’s what we said in the wake of the flash-crashing nightmare that hit markets in late August:
Incidentally, here’s what “hedge” funds should do: protect against massive, “fat tail” days like this Monday; instead they merely ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles. Needless to say this makes most of them utterly useless, especially since one can just buy the SPY for almost nothing, and avoid paying the hefty 2 and 20 (or 3 and 45) fee.
Well, public sector pension fund managers have apparently been completely oblivious to that point for the better part of a half decade and as Bloomberg reports, it’s cost them dearly.
“The investment pools gained 0.4 percent through November, putting them on pace for the worst year since 2011,” Bloomberg says, before reminding the world that these things are blowing up faster than an ISIS oil convoy caught in the crosshairs of a Russian Su-34. “The industry’s struggle was underscored over the past two months as BlackRock Inc., Fortress Investment Group and Bain Capital closed hedge funds after running up losses.”
Here’s more:
The low returns are dealing a setback to governments that boosted exposure to hedge funds, seeking windfalls to help close a $1.4 trillion shortfall that’s facing public-employee retirement systems nationwide. The investment funds have underperformed stocks since 2008 as share prices rallied and volatility whipsawed global financial markets.
Public pensions count on investment returns of more than 7 percent a year, so anything less puts pressure on governments to set aside more to ensure they can cover all the benefits promised to employees.
With their investments faltering, funds with more than $16 billion of assets have announced plans to shut down this year, including those run by some of Wall Street’s most well-known firms, according to data compiled by Bloomberg. BlackRock decided to close its Global Ascent hedge fund following losses that triggered withdrawals by investors including the Arizona Public Safety Personnel Retirement System, Fort Worth Employees’ Retirement Fund and the Maryland State Retirement and Pension System.
The California Public Employees’ Retirement System, the U.S.’s largest public pension, said last year it would liquidate its $4 billion hedge-fund portfolio because of the cost and complexity.
Underscoring just how poorly these investments have performed especially considering the fee structure, Jeff Hooke, a managing director with Focus Investment Banking in Washington conducted a study with five state pension funds over five years which showed that the median return on hedge-fund investments a full 6 percentage points lower than a 60/40 equity-fixed income index fund managed by Vanguard. The expense ratio on the Vanguard fund: 0.23%. That’s a hell of a long way away from 2 and 20.
Hooke’s conclusion: “Hedge funds have cost the states tens of billions in opportunity costs the last five years.”
So amusingly, public pension funds probably could have closed their funding gap by just buying the S&P and watching the Bernanke/Yellen put work its magic, but instead, they went out and plowed retirees’ money into hedge funds that ended up massively underperforming and now, it’s too late to take advantage of the equity gravy train because the FOMC is about the yank the punchbowl.
We hope someone has learned a lesson here, but we seriously doubt it, because as Donald Boyd, senior fellow at the Nelson A. Rockefeller Institute of Government told Bloomberg, the longer pension fund managers cling to unrealistic return assumptions in a ZIRP and NIRP world, the more they’ll reach and the more they’ll likely lose which means “taxpayers and those who count on government services and investments will pay the price.”
Blow Off Event Will Change Financial Universe Forever-Rob Kirby
By Greg Hunter’s USAWatchdog.com
Macroeconomic analyst Rob Kirby says the U.S. dollar is constantly manipulated by the Treasury. Kirby contends, “I think we are palpably close to major dislocations in the market. . . . China has been selling U.S. securities on an all-out basis. So, the U.S. Treasury market is weak. So, when the Treasury sees this, it runs counter-intuitive to the strong U.S. dollar which has been a rig job from the get go. . . . The strong dollar and swap spreads trading negative are absolutely in opposition to each other. It exposes that something is tragically wrong, and it is something that doesn’t make sense. It’s like shining light on cockroaches.”
Kirby is also an expert on gold and helps attain gold for his ultra-wealthy clients by the ton. Kirby says, “They can’t get enough of precious metals. They scour the earth looking for large amounts of metal. . . . People that I work with represent money so large that they know they’re going to end up in the very end game, that they are going to end up with a whole lot of dollars that are going to be worth nothing. They accept that, but in the meantime, they are going to convert as many of those dollars as they can into things that are tangible and are going to maintain value once the world gets it and realizes the U.S. dollar is tapioca and is worth nothing.”
So, is this why the art market is exploding in value and some paintings are selling for tens of millions of dollars? Kirby says, “That’s exactly what is going on. You know why? Because the artwork market is a market that doesn’t have a futures complex connected to it where price riggers can keep the price of it under control. It’s an unbridled market, and it’s telling what’s coming in the rest of the world for tangible items. Gold has a derivative complex, futures and options connected to it where price discovery is nonexistent. People who have an interest in making the dollar look strong can sell paper contracts and keep the price of real gold suppressed.”
Can the “powers that be” do this indefinitely? Kirby says, “Not a chance in a finite world. You see, to keep the game running, they need an endless supply of physical precious metal which they don’t have. When they run out of physical metal to back up the fraudulent paper exchange, the game runs out.”
How long do we have until the game is up? Kirby predicts, “I’m guessing the window is four or five months. We are certainly working our way to a blow off event that is going to change our financial universe forever. . . . These are end game machinations. This is like going to see David Copperfield and he ends with the biggest illusion of the night. That’s what this is. That’s what we are seeing. The Lear jet is about to disappear.”
Join Greg Hunter as he goes One-on-One with Rob Kirby of KirbyAnalytics.com.
(There is much more in the video interview.)
end
See you tomorrow night
harvey
harveyorganblog.com 
Not sure if anyone is paying attention to the SHFE and the number of silver contracts, which could potentially stand for delivery on December 15th. 33K contracts (15Kg each) standing with 4 trading days left. That’s 495 metric Tons. Their current inventory is just about 509 metric Tons, which means that the SHFE silver warehouses could easily get depleted is those 33K contracts stood for delivery. Where is China going to get it Silver next? At the Comex , perhaps?
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