Gold: $1076.90 up $3.90 (comex closing time)
Silver $13.86 down 23 cents
In the access market 5:15 pm
At the gold comex today, we had an extremely poor delivery day, registering 1 notice for 100 ounces. And this is the biggest delivery month of the year for gold? Silver saw 1 notice for 5,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 196.86 tonnes for a loss of 106 tonnes over that period.
In silver, the open interest rose by a considerable 1659 contracts as silver was par in price with respect to Thursday’s trading. The total silver OI now rests at 164,425 contracts In ounces, the OI is still represented by .822 billion oz or 117% of annual global silver production (ex Russia ex China).
In silver we had 1 notice served upon for 5,000 oz.
In gold, the total comex gold OI rose by a small 617 contracts as the OI rose to 394,735 contracts as gold was down $3.20 in price with respect to Thursday’s trading.
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 a huge change, a deposit of 2.002 million oz, in silver inventory at the SLV/Inventory rests at 323.509 million oz
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 1659 contracts up to 164,425 as silver was at par with respect to Thursday’s trading. The total OI for gold rose by 617 contracts to 394,735 contracts as gold was down $3.20 in price with respect to yesterday’s trading.
2 a) Gold trading overnight, Goldcore
b) COT report
3. ASIAN AFFAIRS
i) Last night, 9:30 pm THURSDAY night, FRIDAY morning Shanghai time. Japan Nikkei closed up , Shanghai finishes deeply in the red / Hang Sang falls,Australia falls. Oil retreats. China devalues their yuan again this time to 6.455 (see below)
ii) First it was China had to borrow to pay interest on their debt. We see that this figure is rising steadily.
iii) a)expect the yuan to devalue more, maybe as high as 20% as China signals that it wants to send deflation to the rest of the world
iv) Tepco reports new Fukushima radiation leeks;
ii) Now it is the turn of the South African rand to crash as all emerging nation’s equity stocks are plunging:
The rand is now 15.8 rand per dollar, a fall from 12.5 in mid year.
(courtesy zero hedge)
iii) Now it is Turkey’s turn to plummet
Chris Powell talks about the huge rigging of gold and currencies:
( Chris Powell/GATA)
ii) Lawrie on Gold: the important Yuan gold fix will begin in April(courtesy Lawrie on Gold/Sharp’s Pixley)
iv) With retail sales plummeting, we now have business inventories to sales ratio surge and it is deep in recession territory:
vi) Oh!1 Oh!! just in: we have another hedge fund suspend redemptions due to poor liquidation in markets: Stone Lion Capital(courtesy zero hedge)
Let us head over to the comex:
The total gold comex open interest rose to 394735 for a gain of 617 contracts despite the fact that gold was down $3.20 in price 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 and the above two scenarios continued in earnest. We are now in the big December contract which saw it’s OI fall by 97 contracts from 2008 down to 1911. We had 0 notices filed upon yesterday, so we lost 97 contracts or an additional 9700 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 17 contracts up to 655. The next big active delivery month is February and here the OI rose by 657 contracts up to 283,226. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 147,560 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 105,399 contracts.
December contract month:
INITIAL standings for DECEMBER
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||2411.25 oz (Scotia)|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||16,075.000 (500 kilobars Scotia)|
|No of oz served (contracts) today||1 contracts
|No of oz to be served (notices)||1910 contracts
|Total monthly oz gold served (contracts) so far this month||245 contracts(24,500 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||156,898.5 oz|
Total customer deposits 16,075.00 oz
DECEMBER INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||570,270.920 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,192,416.780 oz
|No of oz served today (contracts)||1 contract
|No of oz to be served (notices)||379 contracts
|Total monthly oz silver served (contracts)||3516 contracts (17,580,000 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||3,460,462.2 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 2 customer deposits:
i) Into JPMorgan: 592,058.200 oz** jpm has been depositing huge amounts of silver every day
ii) Into CNT 600,358.580
total customer deposits:1,192.416.78 oz
total withdrawals from customer account: 570,370.92 oz
we had two adjustments:
Out of Brinks:
we had 35,095.09 oz leave the dealer account and this landed into the customer account of Brinks
Out of Scotia:
we had 5,242.95 oz leave the dealer account and this landed into the customer account of Scotia
And now the Gold inventory at the GLD:
DEC 11/no change in gold inventory at the GLD/inventory rests at 634.63 tonnes
Dec 10.2015/no change in gold inventory at the GLD/inventory rests at 634.63 tonnes
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
At 3:30 pm we received our COT report. For the past several weeks, we have the commercials continue to go net long per week. Let us see what they did this week:
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, December 08, 2015|
Our large specs;
Those large specs that have been long in gold added 3972 contracts to their long side
Those large specs that have been short started to cover their huge downfall by 5901 contracts.
Those commercials that have been long in gold pitched 5937 contracts from their long side
Those commercials that have been short in gold added 5149 contracts to their short side
Our small specs;
Those small specs that have been long on gold added 15 contracts to their long side
Those small specs that have been short in gold covered 1198 contracts from their short side.
Conclusions: commercials go net short by a large 11,086
are they letting the short specs off the hook? this is bearish!!
And now for our silver COT:
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||137||117|
|Tuesday, December 08, 2015|
Our large specs:
Those large specs that have been long in silver pitched 2318 contracts from their long side
Those large specs that have been short in silver covered 1688 contracts from their short side.
Those commercials that have been long in silver added 2980 contracts to their long side
Those commercials that have been short in silver covered 954 contracts from their short side.
Our small specs;
Those small specs that have been long in silver pitched a tiny 236 contracts from their long side
Those small specs that have been short in silver covered 2072 contracts from their short side.
Conclusions: bullish as commercials go net long again by 3934
And now your overnight trading in gold and also physical stories that may interest you:
Bail-Ins May “Undermine Confidence” In Banks – Bank of Italy
Bank ‘bail-ins’ and the new international bail-in regime that impose losses on bank investors, bondholders and even depositors may undermine the confidence of small savers in the banking system, a senior Bank of Italy official warned on Wednesday.
Protect Your Savings From The Wrecking Ball
“The bail-in can exacerbate – rather than alleviate – the risks of systemic instability caused by the crisis of individual banks,” Carmelo Barbagallo, head of supervision at the central bank, astutely noted during a hearing before the Chamber of Deputies in Italy according to Reuters:
“It can undermine confidence, which is the essence of banking; transfer the costs of the crisis from taxpayers at large to a smaller category of people no less worthy of protection – small investors, pensioners – who directly or indirectly invested in bank liabilities” said Barbagallo.
The comments are notable as they are the first time that a central bank official in the EU, and indeed, internationally has voiced concerns about the coming bail-in regime and the impacts on ordinary citizens – small businesses, investors, savers and pensioners.
Central bank supervisor, Barbagallo is an interesting character in that he does not appear to be your typical central banker – most of whom today seem to be career bankers with Goldman Sachs and other Wall Street or City of London bankers. Indeed, his background is as a worker who rose through the ranks to become a senior trade union official.
In that capacity, he has been courageous and unafraid to take on corrupt vested interests including the mafia in Sicily. He has denounced crime and intimidation by the Mafia which have resulted in attempts on his life according to Wikipedia.
We have long warned of the failure to understand the negative impact that bail-ins will wreak on western society and the real world consequences on middle class savers and investors and even more importantly on the small to medium enterprise sector – the backbone of most economies internationally.
A tragic example of this was seen in Italy in recent days when a pensioner committed suicide after having his life savings wiped out in a bank bail-in.
A pensioner from near Rome, hanged himself after his €100,000 (£72,000; $110,000) investment in Banca Etruria bonds were wiped out in a bail-in. A suicide note was left by the pensioner criticising the bank.
Italian Prime Minister Matteo Renzi has defended his government’s rescue of four Italian banks – but voiced sadness over an elderly investor’s suicide. Mr Renzi said the €4 billion rescue last month had to be done otherwise thousands of jobs would have been lost. About 130,000 bank shareholders and bondholders lost their investments.
The leader of the far-right opposition Northern League, Matteo Salvini, called the pensioner’s death “state suicide” in a tweet.
“A pensioner kills himself because he lost his life savings due to Banca Etruria and the absent government. State suicide,” his tweet said.
Correspondents say Mr Renzi acted quickly because in January, the EU is tightening the rules on bank rescues – they will force losses on depositors holding more than €100,000, as well as bank shareholders and bondholders.
Central bank supervisor Carmelo Barbagallo, quoted by Reuters news agency, said letting the four banks fail under those new EU rules next year would have meant “sacrificing the money of one million savers and the jobs of nearly 6,000 people”.
Mr Renzi said he supported a parliament decision to investigate “what has happened in the Italian and European banking systems in the last few years”. He called for “every effort” to “clarify the responsibilities of the past”.
The EU is at an advanced stage in forcing countries to ratify bail-in legislation. The legislation is being devised to protect the larger banks against the interests of depositors, taxpayers and the wider economy.
The various “state guarantees” for deposits or deposit insurance (generally a big round figure of €100,000 in most EU states and £75,000 in the UK) is purely arbitrary and has lulled the public into a false sense of security. The “guaranteed” amount can be adjusted lower with the stroke of a pen.
The ramifications of bail-ins have not been thought through. With central banks taking unprecedented measures ostensibly to fight deflation, it is important to realise that bail-ins would create massive deflation as they would impact hugely on consumer, investor and business confidence.
By taking cash and capital from savers, investors, pensioners – and especially small and medium enterprises – there would be very negative consequences for future spending and investment, consumer confidence, trade and commerce that would likely lead to a another deflationary spiral.
Diversification of savings and investments remains the best way to protect against the coming bail-in regime.
Today’s Gold Prices: USD 1067.20, EUR 973.86 and GBP 704.93 per ounce.
Yesterday’s Gold Prices: USD 1072.00, EUR 979.44 and GBP 706.40 per ounce.
Gold prices are drifting lower today, after closing flat over the last two sessions. Silver is also lower, trading close to $14. Platinum is lower too but palladium has eked out a 1% gain.
Gold fell to a session low of $1,062.90/oz and looks vulnerable to further falls to the recent low of $1,053.20/oz as markets fixate on the Federal Reserve interest rate decision next Wednesday.
Declining activity in the U.S. federal funds futures market in recent weeks signal doubts whether the Fed will be able to achieve a higher target range when it attempts to end its ZIRP (zero interest rate policy) experiment.
Should the much heralded and anticipated 25 basis point rise materialise as is expected, then we expect gold could show further weakness and test support which is likely to be seen at the $1,000/oz level.
Given the very poor technical position, poor sentiment in western markets and momentum – which can be a powerful thing – $1,000/oz gold seems quite possible and gold appears to be gravitating to this big round number.
Chinese New Year looms and demand from China should provide support above the $1,000 level and should spur gains in January. Another pillar of support is very strong demand for bullion – particularly from Germany, India and China.
The current bout of weakness is another opportunity to acquire gold on the dip andgeometrically dollar cost averaging remains the prudent way to acquire an allocation to gold.
Must Read Bail-In Guides:
From Bail-Outs To Bail-Ins: Risks And Ramifications
Protecting Your Savings In The Coming Bail-In Era
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Chris Powell talks about the huge rigging of gold and currencies:
(courtesy Chris Powell/GATA)
Gold and currency market rigging controls the world, GATA secretary tells Daily Coin
Submitted by cpowell on Thu, 2015-12-10 18:52. Section: Daily Dispatches
1:53p ET Thursday, December 10, 2015
Dear Friend of GATA and Gold:
Interviewed yesterday by Rory Hall for The Daily Coin, your secretary/treasurer discussed the decline in gold ready for delivery against futures contracts on the New York Commodities Exchange, China’s hastening acquisition of gold, the unreliability of official gold reserve data, the use of gold by central banks to control the currency markets, the authority U.S. law gives the U.S. government to rig all markets in secret, and the use of currency market rigging to control the world, just as currency market rigging was the primary mechanism by which Nazi Germany exploited occupied Europe during World War II.
The interview is 33 minutes long and can be heard at The Daily Coin’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Lawrie on Gold: the important Yuan gold fix will begin in April
(courtesy Lawrie on Gold/Sharp’s Pixley)
The New York gold price closed at $1,071.70 down from $1,072.70 on yesterday’s close. In Asia prices held at the same level then the dollar strengthened to 97.90 up from 97.67 on the dollar Index. The euro is at $1.0956 down from $1.0975 yesterday against the dollar. The London a.m. LBMA gold price was set at $1,067.20 down from $1,072.00, on Thursday. In the euro the fixing was €972.79 down from yesterday’s $979.00. Ahead of New York’s opening, the gold price was trading at $1,064.40 and in the euro at €970.33.
The silver price in New York closed at $14.11 down 4 cents. Ahead of New York’s opening the silver price stood at $13.92.
The big news of the day is the announcement that the Yuan gold Fix, based on a 1 kilo bar of gold will begin in April. It had been expected by the year’s end but now we have a firm date. It will be based on physical demand and supply, not on futures positioning as on COMEX.
We do see it having a major impact on global gold prices despite London and New York basing prices on ounces, not kilos [to move from one to the other would require re-refining]. Nevertheless, we do expect arbitrage activity to smooth out prices across the world. With suppliers moving their gold more towards the physical markets in Asia and re-refining gold bars into kilos, new supplies will veer more to the metric measurements than ounces. Over time, we do expect both London and New York to accept kilos as well as ounce sized bars and coins. It is the dealing in gold that matters not the weights they are dealt in, that impacts price. Therefore, the shift in pricing power to Shanghai is inevitable.
In the meantime, the flow of re-refined kilo bars continues to rise to Asia and in particular China. The shift is inexorable as Chinese middle classes continue to grow at the expense of those in the developed world. It is only a matter of time before physical deals overwhelm futures and options trading in determining prices.
As we wrote this we saw speculators coming into the market to attack the gold price once more taking the price away from currency moves.
(Correction: The Fed’s announcement is due on Wednesday of next week, not Monday, after the 2-day meeting of the FOMC. So, we expect little drama in the markets until then. This applies to all the world’s financial markets.)
Once again, we saw no sales from the SPDR gold ETF and nothing from the Gold Trust, on Thursday. The holdings of the two gold ETFs, the SPDR gold ETF and the Gold Trust remain at 634.63 tonnes in the SPDR gold ETF and at 157.07 in the Gold Trust.
1 Chinese yuan vs USA dollar/yuan falls in value , this time to 6.455/ Shanghai bourse: in the red , hang sang: red
2 Nikkei closed up 183.93 or .97%
3. Europe stocks all in the red /USA dollar index up to 97.74/Euro up to 1.0975
3b Japan 10 year bond yield: rises to .315% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.43
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 36.22 and Brent: 39.03
3f Gold down /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 down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .572%. German bunds in negative yields from 5 years out
Greece sees its 2 year rate rise to 8.88%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 8.55% (yield curve inverted)
3k Gold at $1064.50/silver $13.94 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 1 in roubles/dollar) 69.78
3m oil into the 36 dollar handle for WTI and 39 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 0.9867 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0831 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation
3r the 5 year German bund now in negative territory with the 10 year rises to + .572%/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 2.21% early this morning. Thirty year rate at 3% at 2.95% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
China ‘Stealth’ Devaluation Continues – Yuan Plunges For 6th Day, Default Risk Soars, Fosun Bonds Crash
USDCNY broke above 6.4500 for the first time since the August devaluation,extending its post-IMF plunge to 6 days. This is the largest and longest streak of weakness since March 2014 as China seems to have taken the SDR-inclusion as blessing to devalue its currency drip by drip. Default risk is once again stomping higher as CDS surge from 94bps to 112bps (2-month highs). The biggest news in China tonight is the disappearance of Fosun International’s Chairman, China’s 17th richest man (and the collapse in the company’s bonds, since stocks are suspended).
For the 6th day in a row (something which has not happened since March 2014), Yuan has plunged, now below the Augsut devaluation lows….
The pressure on onshore Yuan (above) is being driven by even more significant selling pressure in offshore Yuan as outflows appear to be accelerating… and PBOC seems happy to “allow” the onshore Yuan to devalue alongside it
to its lowest since July 2011…
And Chinese default risk is on the rise…
But what everyone is talking about is the disappearance of Fosun International’s chairman.
Its USD 2020 bonds plunged by a record and the company suspended its shares in Hong Kong after Caixin magazine reported that billionaire Chairman Guo Guangchang had gone missing.
The shares declined for a sixth consecutive day on Thursday in Hong Kong, losing 1 percent to close at HK$13.34, and tumbled more than 11 percent to $1.55 in over-the-counter trading in New York. Fosun International dollar bonds fell by a record, with the $400 million of 6.875 percent bonds due in 2020 slumping 16.1 cents to 88.3 cents on the dollar as of 9:10 a.m. in Hong Kong.
Closely held Fosun Group, which controls Fosun International, has “lost contact” with Guo, 48, the magazine said, citing people it didn’t identify.
“The news that the chairman went missing will take a toll on the bond prices and until the company can clarify the situations, we’d expect further weakness in the near term,” Nuj Chiaranussati, a Singapore-based debt analyst at Gimme Credit LLC.
Broadly speaking, Chinese stocks continue to drift lower after the rescue from carnage into month-end…
Credit Suisse Warns On China: “Some Companies Are Having To Borrow To Pay Staff Salaries”
During October, the credit impulse in China rolled over and died.
To be sure, the writing was on the wall before the data was released. Early in November, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. As we noted at the time, that would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily. “One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI added.
Sure enough, when the numbers came in, new RMB loans to households fell 60% M/M and new loans to corporates declined nearly 40% from September.
To some, this was a shock. After all, multiple rate cuts and round after round of liquidity injections should have given banks plenty of dry powder to lend. But as we discussed at length (see here), liquidity isn’t the issue.
An acute overcapacity problem means corporates don’t need to invest and even if they did, overleveraged borrowers are beginning to have problems servicing their debt which makes banks reluctant to extend credit. Indeed, we really have no idea what the NPL picture really looks like in China thanks to the fact that lenders are encouraged to roll debt and thanks to the fact that some 40% of credit risk is carried off balance sheet or classified as something other than what it is (i.e. carried as an “investment”).
So what did China do? Well, they increased fiscal stimulus by a whopping 36%:
In short, when monetary policy fails to give the economy the defibrillator shock it needs, authorities must resort to fiscal stimulus and if the likes of Citi’s Willem Buiter have their way, China will just print bonds for the PBoC to monetize (nothing like printing a liability and buying it from yourself with another liability that you also print).
For their part, Credit Suisse doesn’t think any of this is going to work. Not the easing, not the fiscal stimulus, nothing. In a note out out today, the bank goes point by meticulous point to explain why “the impact from stimulus is muted.”
First there’s the big picture:
The government has become more active in terms of counter-cyclical measures since late summer. The PBoC has injected liquidity into the policy banks, through its selective easing program, and policy banks have invested in special infrastructure projects approved by planning agency NDRC. On top of the two batches launched at the end of August and October, NDRC is preparing another batch, probably for launch before the end of 2015. However, the impact of these stimulus measures on the real economy has been weak. 1) The private sector has not appeared enthusiastic about following Beijing’s lead. 2) Banks seem reluctant to lend. 3) Government officials and SOE executives have been demoralized by the anti-corruption campaign and salary cuts.
The “weak impact” of stimulus means that although the economy may “stabilize” in Q4, it will “slide again” in Q1 201
Export order flows have been slow while export manufacturers are shutting down factories amid surging costs and the recent threat from the TPP agreement. The private sector does not seem keen to invest because of poor profitability in the manufacturing sector. Private consumption is not weak, but is by no means robust. Property developers have substantially slowed down construction activity in order to cut inventories.
And although Credit Suisse contends that a hard landing isn’t their base case (which is odd because frankly, the hard landing has already occurred), the bank does offer the following rather alarming account of corporate health and the read through for bank balance sheets:
Still, we expect corporate profits to deteriorate significantly in 2016, as indicated by industrial sector nominal GDP growth. Feedback from the ground also suggests that not only are account receivables on the rise, but that some companies are now having to borrow to pay staff salaries. Corporate balance sheet deterioration may well be a theme in 2016, raising market concerns, in our view. A mirror image of that is the rise in bank non- performing loans. Our contacts among the banks seem increasingly concerned about the NPL issue in 2016.
Somehow, Credit Suisse’s takeaway from that assessment is that there’s no “systemic risk,” but we would beg to differ. We’re not at all surprised to learn that Chinese corporates are borrowing to pay employees. It was just three weeks ago when we reported that, just as we predicted in March of 2014, China is reaching its dreaded Minsky Moment, as companies are set to borrow some $1.2 trillion just to service the debt they already have and otherwise remain operational:
As for what comes next, Credit Suisse says “the PBoC is likely to look at a deep cut in RRR in order to create more space for the banks combatting a rise in NPLs.” What counts as “deep” you ask? Up to 400 bps.
Here, courtesy of RBS’ Alberto Gallo, is a look at Chinese NPLs. Note that although the graphics also show special mention loans and doubtful accounts, the “real” numbers are still far, far higher:
Finally, note that Credit Suisse is now “less concerned” about the possibility that Chinese corporates that have borrowed in dollars will run into trouble should a Fed hike and China’s desire to gradually let the yuan depreciate hurt the corporate sector’s ability to service its debt: “Fed tightening may create turbulence for Chinese dollar debt borrowers, but we are less concerned now than we would have been before as the domestic debt market is now available to fund the rollover.” Here’s a chart that shows Chinese corporate USD borrowings – decide for yourself if the domestic market will fund the rollover:
Yuan Slides As PBOC Signals Intent To Further Weaken Currency
We have been almost alone in our exclamations at the collapsing offshore Yuan in the last few days butsince The IMF blessed China’s currency with inclusion in The SDR, CNH is down 13 handles. However, now we appear to have an answer. Overnight saw commentary from CFETS (China’s FX market ‘manager’) that indicated implicitly that Trade-Weighted Yuan was still trading too high.
In late China trading, The China Foreign Exchange Trade System (also known as CFETS) has published CFETS exchange rate index on its website on December 11th.
The CFETS, founded on April 18, 1994, is a sub-institution of the PBC. Its main functions include: providing systems for FX trading, RMB lending, bond trading, and exchange rate and interest rate derivatives trading; organizing FX trading, RMB lending, bond trading, and exchange rate and interest rate derivatives trading; providing clearing, information, risk management, and surveillance services on interbank markets; and engaging in other businesses authorized by the PBC.
In their words, this will help bring about a shift in how the public and the market observe RMB exchange rate movements.
Looking at international experiences, the Federal Reserve, the European Central Bank and the Bank of England all publish their own exchange rate indices, while intermediate institutions also publishes their indices. For example, the U.S. Dollar Index released by the Intercontinental Exchange (ICE) has become a major index in the international market.
Therefore, it is consistent with international practice that CFETS publishes its RMB exchange rate index. Since the beginning of 2015, the trend of this index has been relatively stable. The index is 102.93 on November 30th, appreciated 2.93% from the end of 2014. This shows that, even though RMB has depreciated against USD since the beginning of this year, it has appreciated modestly against a basket of currencies. Therefore, RMB is relatively a strong currency among the major international currencies.
In other non-currency-war-sounding terms – the Trade-Weighted Yuan is still too strong.
And then this morning:
8:53:07 AM DJN – DJ CHINA’S CENTRAL BANK SIGNALS INTENTION TO LOOSEN YUAN’S PEG TO U.S. DOLLAR
The overnight weakness in CNH is now accelerating further…
The currency wars just escalated.
Or is it even easier than that… the last time China unleashed global volatility, The Fed folded like a cheap lawn-chair…
If The Fed folds now, it is a much bigger deal not only in terms of destruction of their credibility but also the fact that they have everyone on the same side of the boat positioned for liftoff. As we noted earlier, “anyone who claims it is not a huge deal is fooling you, as well as themselves.“
What China’s Stunning Announcement Means
One of the catalysts for today’s selloff was the thoroughly unexpected announcement by the Chinese Foreign Exchange Trade System (part of the PBOC), which as we said earlier, hints at substantially more devaluation of the Chinese currency, a currency which as is well-known, is pegged to a dollar which has been soaring in the past year, and which many believe will continue to soar after the Fed hikes rates.
This is what the CFETS said:
… it is consistent with international practice that CFETS publishes its RMB exchange rate index.Since the beginning of 2015, the trend of this index has been relatively stable. The index is 102.93 on November 30th, appreciated 2.93% from the end of 2014. This shows that, even though RMB has depreciated against USD since the beginning of this year, it has appreciated modestly against a basket of currencies. Therefore, RMB is relatively a strong currency among the major international currencies.
Lots of words to say one thing, China has revealed its own trade-weighted index, and this is how we explained why first thing this morning: “the Trade-Weighted Yuan is still too strong.”
Yes, China will henceforth look at the Yuan not only relative to the USD but relative to the currencies of all its trade partners.
Why is this a big deal? Because as frequent readers will recall, as we noted on August 11, just hours after China’s just as stunning one-time devaluation of the Yuan, the reality is that the Yuan… did not devalue much at all.
This is what we said precisely 4 months ago:
This morning’s Chinese record currency devaluation, in which the Yuan was devalued by 1.9% against the USD may sound like a lot… until one considers that the Chinese currency has been pegged to the US dollar, which as reported extensively over the past year, has exploded higher not so much due to the strength of the US economy but due to expectations of what may be the Fed’s biggest mistake in recent years: a rate hike which will assure the US economy’s tailspin into recession.
In effect what the PBOC did earlier today is inform the world it would no longer stay pegged to a Fed whose monetary intentions are complete lunacy for a mercantilist exporter, one whose economy is getting crushed as a result of the tight linkage between the USD and CNY, and even if it means massive capital flight as the opportunity cost, so be it. Furthermore, considering that the CNY was until recently the second most expensive currency according to Barclays, it is amazing it took Beijing this long to pull the plug.
We then accused the PBOC, which sought to assuage fears that it too was doing a “one and done” of lying:
how much more devaluation is in store for the CNY? Well, if one believes the PBOC, today’s intervention was a “one off.” The problem is that just like every central bank in modern history, the Chinese central bank is lying.
We proceeded to give a quick observation of what one can expect:
According to the PBOC press release, the unexpected change in fixing mechanism today was in response to the prospective Fed liftoff, which has the potential to cause further strengthening in the USD and capital flow volatility. The CNY on a trade weighted basis has appreciated sharply alongside the USD strength, and is still about 15% higher than a year ago after today’s move. However, we think a FX move of today’s scale, while significant by the standard of CNY’s historical movement, is unlikely to give a strong boost to growth.
In other words, today’s “devaluation” is a tiny pinprick in the grand scheme of the CNY’s revaluation since the USD surge started in 2014. This becomes especially apparent when one sees the impact of the CNY’s peg to the soaring USD, and last night’s shocking announcement, in context.
We then answered how much more downside in the CNY there is: “now that the PBOC has thrown in the towel and will aggressively devalue the currency, the answer is somewhere between 10 and 15% more if China wishes to regain its competitive status as of just last summer!”
Finally, this is how the CNY devaluation looked like in the context of the trade-weighted Yuan as of August 11.
* * *
Fast forward to today, when China basically said that going forward it will consider the (de)valuation of its currency not only to the USD but to all key currencies.
So how does the trade-weighted Yuan look like today? Behold:
What the chart above shows is that for all the talk about a Yuan devaluation, it is basically unchanged from where it was this August if looked at on a trade-weighted basis… which is precisely how China will be looking at it now!
What this also means is that for anyone who thought the Yuan devaluation is over, now that the currency is at the lowest level relative to the dollar since 2011, the reality is that the devaluation relative to everyone else is only just starting.
And, with the PBOC’s warning that the “RMB is relatively a strong currency among the major international currencies” the real devaluation is, just as we warned four months ago, about to be unleashed. Expect at least a 15% reduction in Trade-Weighted terms in the coming weeks and months, especially if the Fed hikes.
Finally, the real purpose of the PBOC’s exercise in FX management today was, just like in August, to fire a warning shot at the Fed’s rate-hiking plans. Only this time the warning shot is far, far louder.
In September the Fed postponed its rate hike as a result of China’s devaluation. Will it do the same again next week? Because if China is about to unleash a 15% deval of the CNY against the entire world, expect a flood of Chinese FX reserves as the PBOC tries to control the glidepath of its currency, and avoid an all out collapse driven by soaring capital outflows.
In other words, we are now right back where we were in mid-August, just before the bottom fell out of the market.
TEPCO Admits Fukushima Radiation Leaks Have Spiked Sharply
Just weeks after the completion (and failure) of one supposed ‘containment’ wall (and as the construction of the “ice wall” begins), TEPCO, the operator of the crippled Fukushima nuclear plant, has admitted that the levels of radioactivity in underground tunnels has risen sharply (4000x last year’s levels). As NHKWorld reports, TEPCO officials have stated that they plan to investigate what caused the spike in radiation… yes, that would seem like a good idea.
With the newly constructed 780-meter ‘containment’ wall “already leaning,” news that the radiation leaks are growing is a grave concern. As NHKWorld details,
Tokyo Electric Power Company has detected 482,000 becquerels per liter of radioactive cesium in water samples taken from the tunnels on December 3rd. That’s 4000 times higher than data taken in December last year.
The samples also contained 500,000 becquerels of a beta-ray-emitting substance, up 4,100 times from the same period.
Around 400 to 500 tons of radioactive water, including seawater washed ashore in the March 2011 tsunami, is still pooled in the tunnels.
The tunnels lie next to a structure used to temporarily store highly radioactive water, which cooled melted nuclear fuel inside the damaged reactors.
TEPCO officials say it is unlikely the wastewater stored in the building has seeped into the tunnels.
They say the water level in the tunnels is higher than that in the building and measures are in place to stop the toxic water from leaking out.
They plan to investigate what caused the spike in radiation.
Do not panic though, since…
They say there has been no leakage out of the tunnels as radiation levels in underground water nearby have not risen.
Because why would they lie (again)?
FT Bombshell: EU Unveils Standing Border Force That Will Act “Even If A Government Objects”
Last weekend we wrote that in Europe’s attempt to contain the greatest refugee crisis since WWII, it would directly take control over the border control of the one country which over the summer lost its sovereignty (but at least it still has the euro), and which serves as a springboard for tens of thousands of migrants to proceed onward with their journey to Germany (where as reported earlier, they are no longer desired, as their continued arrival results in a plunging approval rating for Angela Merkel).
We added that the deployment of additional officers will begin next week, and noted that as our friends at Keep Talking Greece wrote:
“the masks have fallen. Hand in hand, the European Union and the Frontex want to cancel national sovereignty and take over border controls in the pretext of “safeguarding the Schengen borders”. With controversial claims, they use the case of Greece to create an example that could soon happen “in the border area near you.” And the plan is all German.”
Finally, we asked whether this was merely Paranoia…
“or just another confirmation that the Eurozone is using every incremental, and produced, crisis to cement its power over discrete European state sovereignty and wipe out the cultural and religious borders the prevent the amalgamation of Europe into a Brussels, Berlin and Frankfurt-controlled superstate? “
It was not paranoia, because according to blockbuster FT report released moments ago, “Brussels is to propose the creation of a standing European border force that could take control of the bloc’s external frontiers — even if a government objected.“
As even the otherwise pro-EU FT cautiously notes, “The move would arguably represent the biggest transfer of sovereignty since the creation of the single currency.”
We agree, because this is precisely what we said would happen.
… the European Commission will unveil plans next week to replace the Frontex border agency with a permanent border force and coastguard — deployed with the final say of the commission, according to EU officials and documents seen by the Financial Times.
The blueprint represents a last-ditch attempt to save the Schengen passport-free travel zone, by introducing the kind of common border policing repeatedly demanded by Paris and Berlin. Britain and Ireland have opt-outs from EU migration policy, and would not be obliged to take part in the scheme.
Naturally, the first guniea pig wil be Greece: the state which has already lost its sovereignty courtesy of capital controls that will likely persist in some form in perpetuity, and which is most distressed and thus least equipped to say no. It will spread from there and promptly become the norm for a “project” which the European apparatchiks think is long overdue.
Indeed, as the FT adds, “European leaders have discussed a common border force for more than 15 years, but always struggled to overcome deep-seated objections to yielding national powers to monitor or enforce borders — one of the core functions of a sovereign state. Greece, for instance, only recently agreed to accept EU offers to send border teams, after months of wrangling over their remit.”
However now in the aftermath of the Paris suicide bombings and the indefinite emergency “pre-crime” laws instituted in France, conventional wisdom in Brussels is that Europeans’ eagerness to trade sovereignty (and thus liberty) in exchange for (border) security, is far greater.
The result: a loss of border sovereignty, which would effectively make the customs union one big superstate controlled by Brussels:
One of the most contentious elements of the regulation would hand the commission the power to authorise a deployment to a frontier, on the recommendation of the management board of the newly formed European Border and Coast Guard. This would also apply to non-EU members of Schengen, such as Norway.
And the absolute kicker:
Although member states would be consulted, they would not have the power to veto a deployment unilaterally.
And just like that, goodbye sovereignty... all in the name of halting the endless onslaught of Syrian refugees, which ironically was unleashed in the first place just so Europe could get its supplies of natural gas from Qatar instead of Russia.
Europe has a prepared response, of course, saying that individual states are clearly unable to defend themselves against the barbarian refugee hordes:
“Dimitris Avramopoulos, who is responsible for EU migration policy, said: “The refugee crisis has shown the limitations of the current EU border agency, Frontex, to effectively address and remedy the situation created by . . . the pressure on Europe’s external borders.” He said the EBCG would be a way to “protect and strengthen Schengen”.
Actually, it would be a way to hand over all military control to a body of unelected bureaucrats. Here’s why:
If the plan is approved by EU states, Frontex’s replacement will have a slew of new powers, including the ability to hire and control its own border guards and buy its own equipment. It will also be allowed to operate in non-EU countries — such as Serbia and Macedonia, which have become transit countries for people trying to reach northern Europe — if requested.
One doesn’t have to even be a member of the EU any more to become a vassal state of Brussels. But the scariest aspect is the following:
The new agency will be able to deport people who do not have the right to remain in Europe — a power Frontex lacked.
And just like that, the decision of who can and who can’t stay in any one European country will be delegated to some faceless bureaucrat in Brussels, circumventing all sovereign laws.
The new force will also be able to call on a pool of border guards set aside by member states in reserve, as well as its own guards. National capitals will retain day-to-day control of their borders, but the new agency will be able to monitor their efforts and step in if it feels the protection on offer is inadequate.
* * *
Now we admit that some of this may come as a shock to some naive Europhiles, who still do not realize that all of this was preplanned, and predicted as long ago as 2008 when an internal AIG presentation answered the simple question: What Europe Wants. The answer:
To use global issues as excuses to extend its power:
- environmental issues: increase control over member countries; advance idea of global governance
- terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
- global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
- EMU: create a crisis to force introduction of “European economic government”
All have been spot on, but not even this aggressive and accurate forecast predicted that Europe would be so bold as to effectively take over border and population control sovereignty across the entire continent. It is about to do just that.
Putin Orders Military To “Immediately Destroy” Any Threat To Russian Forces
Russian President Vladimir Putin has ratcheted up the rhetoric in what appears to be one step closer to the potential for direct conflict with The West. While not detailing ‘who’ he was focued on, amid the obvious Turkey-Russia tensions, Putin told a session of the Defense Ministry’s collegium that “I order to act extremely tough. Any targets that threaten Russian forces or our infrastructure on the ground should be immediately destroyed.”
During the meeting of the most senior defense officials, ITAR TASS reports that Putin also warned against “those who will again try to organize any provocations against our servicemen.”
“We have already taken additional measures to ensure security of Russian servicemen and air base. It was strengthened by new aviation groups and missile defense systems. Strike aircraft will now carry out operations under cover of fighter jets,”
Putin said that the Russian military have caused a substantial damage to terrorists in Syria, adding that the actions of the Russian Armed Forces are worthy of praise.
“The combined operation of the Aerospace Defence Forces and the Navy, the use of newest high precision weapons systems has caused a serious damage to the terrorist infrastructure, thus qualitatively changing the situation in Syria,” the president said.
The president also ordered the defense ministry to coordinate actions in Syria with Israel’s command post and the US-led international coalition.
“It’s important to develop cooperation with all countries really interested in destroying terrorists. I am talking about contacts on ensuring flight safety with the command post of Israel’s air force and forces of the US-led coalition,” Putin said.
According to the official, terrorists in Syria pose a direct threat to Russia and Moscow’s actions are carried out to protect the country rather than due to abstract interests.
“Our soldiers in Syria are, first and foremost, defending their country. Our actions there aren’t motivated by some obscure and abstract geopolitical interests or a desire to train our forces and test new weapons – which is of course an important goal as well. Our main objective is to avert a threat to the Russian Federation,”
As we noted previously, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub).
On that note, we present the following update graphic prepared by Louis Martin-Vézian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.
Caught On Tape: Ukraine Premier Assaulted In Parliament
Fighting broke out in parliament among members of Ukraine’s ruling coalition on Friday after a member of President Petro Poroshenko’s bloc physically picked up Prime Minister Arseny Yatseniuk and pulled him from the podium.
Yatseniuk was defending his embattled government’s record when lawmaker Oleh Barna walked over to him with a bunch of red roses and then grabbed him around the waist and groin, lifting him off his feet and dragging him from the rostrum.
Members of Yatseniuk’s People Front party waded in, pushing Barna and throwing punches, sparking a brawl in the assembly.
You just can’t make this up…
The PM later said there were “a lot of morons,” so he would not comment on the incident.
* * *
Ukraine’s parliament has indefinitely postponed a vote of no-confidence in the government of Arseniy Yatseniuk, but not without highlighting the fragility of the country’s pro-western coalition.
Citing a flurry of corruption scandals and the lacklustre pace of reforms, an increasing number of MPs — even within the ruling majority — have in recent weeks called for the ousting of Mr Yatseniuk via a no-confidence vote on Friday.
Ukraine’s western backers, namely the US and EU, feared such a move could plunge the war-torn and recession-ravaged country into a deep political crisis as it continues to battle Russian-backed separatists in eastern regions — and jeopardise a $40bn international bailout led by the International Monetary Fund.
Such concerns are believed to have been expressed by US vice president Joe Biden in closed door discussions during a visit to Kiev early this week in which he publicly called for political unity, swifter reforms and deeper anti-corruption efforts.
And this is the nation’s government who US-taxpayer-backed IMF just forgave their debt, implicitly backing them, and entering The Cold War…
Instead, the IMF is backing Ukrainian policy, its kleptocracy and its Right Sectorleading 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.
“Let’s Just Hope Shipping Isn’t Telling the Real Story of China”
One of the recurring topics we have focused on extensively in the past few months has been the dramatic collapse of all shipping-related metrics when it comes to seaborne trade with China, from the recent record plunge in the Baltic Dry index…
… to Shanghai Containerized Freight…
… both of which are taking place even as China exports record amount of commodities to the outside world…
We have also repeatedly noted that the implications for both China, and the entire world, from these charts are dire because they suggest that not only is China not growing, but the entire world is now gripped in not only an earnings and GDP (in USD-denominated terms, global GDP is set to decline by several trillion dollars) recession, but also suffering its first trade contraction since the financial crisis.
And now, Bloomberg has turned its attention to just these, and other comparable charts, and published an article titled “Let’s Just Hope Shipping Isn’t Telling the Real Story of China“, prudently adding that investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news.
For the first time in at least a decade, combined seaborne imports of iron ore and coal – commodities that helped fuel a manufacturing boom in the world’s second-largest economy — are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong.
The article notes that China accounts for two in every three iron-ore cargoes in the world, and is the largest importer of soybeans and rice. But this year, demand has slowed to the point where any speculation that China may be growing at anything near to 7% is a joke.
Combined seaborne imports of iron ore and coal will drop 4.8 percent to 1.097 billion metric tons, the first decline since at least 2003, according to data from Clarkson Plc, the biggest shipbroker. A year ago, Clarkson was anticipating a 5.5 percent increase for 2015. The broker expects growth to increase just 0.04 percent next year.
It will get worse: “The China Iron and Steel Association predicted crude-steel output will tumble by 23 million tons to 783 million tons next year. That lost output is more than a quarter of what U.S. steelmakers produce.”
A big reason for the collapse in Chinese demand are Beijing’s attempts to crack down on excess leverage.
Imports are weakening even as China’s economy keeps expanding because of reduced spending by local governments that are dominant players in the economy, according to Fielding Chen, a Hong Kong-based economist for Bloomberg Intelligence. The central government in January withdrew guarantees for Local Government Financing Vehicles used to finance infrastructure projects during the country’s boom years, when domestic capacity surged over the past decade, he said.
“This has reduced China’s appetite for steel and copper and other commodities that are used to build roads, subways and reservoirs,” Chen said. “It is not good for the economy and is one of the main reasons China cannot import more.”
While China has attempted to boost the economy using monetary (cutting RRR ratios and interest rates) and fiscal (boosting spending at the local government level) stimulus, for now it appears to have cut back on the traditional growth dynamo which propelled China as the focus of global growth during the financial crisis – its relentless debt creation, which has doubled its total debt/EBITDA from just over 150% in 2007 to over 300% as of this year (282% as of 2014).
It is this slowdown in China’s debt creation that is the true reason behind the global growth slowdown experienced both in China and around the globe.
Bloomberg offers a ray of hope when it notes that the rout in buying showed signs of easing last month. China’s iron-ore imports rose to 82.13 million tons, a jump of 22 percent compared with a year earlier. Even so, the extra shipments are mostly because of rising Chinese steel exports, or tolling, rather than the nation’s own demand, according to Andy Xie who predicted in February that iron-ore prices would sink into the $30s this year, compared with $71 at the start of the year.
Unfortunately, there is only so much time China can buy: Chinese steel mills have been pressured by losses, low prices and overcapacity as demand drops to levels unseen since 2009, cutting profits and reducing incentive for re-stocking. Worse, as we first showed two months ago, as a result of until recently soaring debt levels and collapsing commodity prices, more than half of indebted Chinese commodity companies are facing the grim prospect of imminent bankruptcy as they can’t even cover one year of interest with their existing cash flows.
As a result, the commentary is downright disastrous:
“For dry bulk, China has gone completely belly up,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, talking about ships that haul everything from coal to iron ore to grain. “Present Chinese demand is insufficient to service dry-bulk production, which is driving down rates and subsequently asset values as they follow each other.”
“China’s slowdown has come as a major shock to the system,” said Hartland Shipping’s Prentis. “We are now caught in the twilight zone between shifts in China’s economy, and it is uncomfortable as it’s causing unexpected slowing of demand.”
So what can one do?
There are two options: do as the Blooomberg article sarcastically suggests, and Hope Shipping Isn’t Telling the Real Story of China, or one can prepare for the mother of all mean reversions: after all it was China that dragged the world out of the second great depression (if only temporarily) when it unleashed the biggest debt-creation spree in history (one putting the Fed and all its peers to shame as we showed previously). It will be only fitting that China’s drags it back in.
Peso Pounded To Record Lows
Brazil Faces Disastrous Downgrade Debacle: Here’s What You Need To Know
Back on September 9, S&P threw Brazil in the junk bin.
“We anticipate that within the next year [another] downgrade could stem in particular from a further deterioration of Brazil’s fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet,” the ratings agency noted, explaining its negative outlook. “A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment.”
Suffice to say that the political “dynamics” have not become more favorable despite some observers’ contention that the further we move down the road to a Rousseff impeachment, the happier the market will be given her track record. House Speaker Eduardo Cunha faces an investigation by the ethics committee in connection with his alleged role in the Carwash scandal while the relationship between Rousseff and VP Michel Temer looks increasingly tenuous. Meanwhile, the arrest of Delcidio Amaral seemed to have ushered in a new era wherein sitting lawmakers aren’t above the law and may be too busy looking over their shoulders going forward to legislate. All of this casts considerable doubt on the country’s ability to overcome fractious politics on the way to adopting some semblance of fiscal rectitude.
As for “economic turmoil,” well, Brazil has effectively descended into a depression since S&P’s downgrade. GDP is collapsing, inflation is sitting at 10.5%, a 12-year high, and unemployment is soaring. Everything that could possibly go wrong economically is going wrong and thanks to rising prices and the incipient threat of lagged FX pass through, Copom is powerless to adopt counter-cyclical policies and will in fact be forced to hike in January.
Against this backdrop, Moody’s put the country’s investment grade rating on review Wednesday, suggesting it may not be long before Brazil gets junked again (don’t worry, Cunha says it’s priced in).
For those wondering how long it will be before the “B” in BRICS gets junked by everyone, look no further than the following slides from Credit Suisse who notes that “the continuation of unfavorable fiscal balances, prolonged recession, high inflation, and continued rise in public debt as a percentage of GDP are compatible with the expectation of additional downgrades in 2016 and 2017.”
And it’s not just the sovereign. Brazilian corporates are in trouble as well. As Bloomberg reports, “Fitch Ratings estimates it may slash the ratings of as many as 10 companies for every one it upgrades in 2016.” Here’s more:
Fitch has a negative outlook on Brazil and on the grades of more than half of the Brazilian companies it rates. Its BBB- ranking for sovereign bonds is the lowest possible investment grade. Standard & Poor’s cut the country to junk in September.
Brazilian companies have accounted for 11 of 15 bond defaults in Latin America this year as a widening bribery probe into Petroleo Brasileiro SA roils the nation’s construction and banking industries.
Rising yields threaten to make it harder for Brazil’s debt-laden businesses to refinance obligations as $30 billion of overseas bonds come due in the next two years.
Needless to say, if the BRL continues to weaken in the face of still depressed commodity prices and a worsening political situation, it will become more and more difficult for Brazilian corporates that have borrowed in dollars to service their debt. Don’t forget, Brazil has some $89 billion in USD bonds trading above 9% (a large chunk is Petrobras paper). Here’s the full breakdown: Petrobras (USD37bn), USD20bn of industrials, USD15bn of banks (mostly subordinated), USD6bn of rigs, USD3bn of royalty-backed bonds and USD8bn of other sectors.
We’ll close with two tables. One from Deutsche Bank and one from the BIS. The first gives you an idea of what Brazil is facing in terms of USD bond maturities going forward and the second shows you the aggregate burden.
Now it is the turn of the South African rand to crash as all emerging nation’s equity stocks are plunging:
The rand is now 15.8 rand per dollar, a fall from 12.5 in mid year. When I was in South Africa in 2011 it was 7 rand/dollar so it has been quite a downfall.
(courtesy zero hedge)
Rand Crashes, EM Stocks Plunge As Trader Warns, Absolutely Ignore The “It’s-Priced-In” Meme
Extending its losses from yesterday, following the untimely sacking of a fiscally responsible finance minister, South Africa is in freefall – Rang crashed above 16 (record lows), stocks have crashed, and bond yields exploded:
China’s Yuan hit a fresh 4 year low…
EM Stocks are plunging…
And of course US High Yield Bonds…
And as Bloomberg’s Richard Breslow notes, there’s nothing chauvinistic in saying that, after a slew of monetary policy meetings by major economies, the opening acts are over.
It’s time to focus on the only one that matters. Since the financial crisis exploded in the face of the global economy, we have been living in an age of central bank coordination. Keep rates low and headed lower. And make sure speculative assets know they have friends in high places. Next week, for the first time in a long time, central banks will experiment with going their own ways
It is entirely ambiguous, based on the numbers and global economy, whether this is the right move at the right time. Opinions differ strongly among very strong thinkers
The Fed has made the decision that the imperatives of trying to creep toward some sort of monetary policy sanity outweigh the risk. Taking it back will be next to impossible
Multiple hundreds of billions of dollar-denominated debt issued by emerging market countries will come due in each of the next few years. Just how difficult will that be to repay? What will it be replaced with, at what interest rate?
The Chinese yuan hit another multi-year low today, the MSCI Emerging Market Index looks awful
So many unknowns, good and bad. Maybe this revives animal spirits and global capex spending takes off. The hysterical for hysteresis school of thought. Either way, absolutely ignore the “it’s priced in” claims
The Fed will drive home the lower and slower mantra. That is all spin, signifying nothing. Dot plots have proven to be bad guesses. They are strictly event dependent, in either direction. Volatility will be king as each economic miss will be over interpreted.
What happens on Dec. 16 or during the balance of 2015, will make good headlines, but tells us nothing about how the best trade ideas for 2016 will fare. The Fed is going to raise rates next week, and anyone who claims it is not a huge deal is fooling you, as well as themselves.
Turkey Is Tanking – Lira Plunges Most In 6 Months; Stocks, Bonds Hammered
While one could take their pick of bloodbathery today, Turkey seemed like an appropriate place to focus as its bond yields are exploding higher, currency collapsing, and stocks plunging to the lowest since March 2014. How long before Erdogan decrees all of this impossible and fires another ‘dependent’ central banker?
The Lira is plunging at its fastest in 6 months…
Stocks are getting hammered…
And Turkish bond yields are spiking across the entire complex…
Given Russian sanctions, it would appear Bilal is going to have to transport a lot more ISIS oil (allegedly) to keep the economic dream alive in Turkey.
Euro/USA 1.0975 up .0029
USA/JAPAN YEN 121.35 down .342
GBP/USA 1.5151 down .0008
USA/CAN 1.3570 up .0037
Early this morning in Europe, the Euro rose by 29 basis points, trading now just above the 1.09 level rising to 1.0975; 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: 6.4550 / (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 34 basis points and trading now closer to that all important 120 level to 121.35 yen to the dollar. However the yen carry trade is ceasing!
The pound was down this morning by 8 basis points as it now trades just above the 1.51 level at 1.5151.
The Canadian dollar is now trading down 37 in basis points to 1.3670 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 FRIDAY morning: closed up 183.93 or .97%
Trading from Europe and Asia:
1. Europe stocks all in the red
2/ Asian bourses all in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the red even with gov’t intervention / (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) red/India’s Sensex in the red/
Gold very early morning trading: $1066.00
Early FRIDAY morning USA 10 year bond yield: 2.21% !!! down 1 in basis points from THURSDAY night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.95 or down 2 in basis points.
USA dollar index early FRIDAY morning: 97.74 down 19 cents from THURSDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers FRIDAY MORNING
Venezuela Oil Prices Crashes To 2004 Lows
Crude Barely Notices After Oil Rig Count Plunges Most In 2 Months
Amid the carnage in crude markets today, Baker Hughes just reported a 21 rig drop in oil rigs – the biggest absolute drop in 2 months. The total rig count dropped 28 to 709 – the lowest since 1999.
- *U.S. OIL RIG COUNT DOWN 21 TO 524, BAKER HUGHES SAYS
Oil barely budged…
Here’s why… because production has barely budged…
Portuguese 10 year bond yield: 2.45% up 1 in basis points from THURSDAY
The Nasdaq down 111.71 or 2. 21%
Stocks Slammed To Worst Week Since Black Monday Amid Crude & Credit Carnage
Some folks were suddenly forced to sell…
And for those “shocked” that credit markets sparked this…
Before we start, summarizing the bloodbath…
- Russell 2000 (Small Caps) Down 4.8% – worst week since May 2012
- Trannies Down 4.8% – worst week in 4 months (Black Monday)
- S&P 500 Down 3.5% – worst week in 4 months (Black Monday)
- FANGs Down 3.75% – worst week in 3 months
- HYG (HY Bond ETF) Down 3.75% – worst week since March 2009
- HY CDX Up 60bps – biggest weekly spike in spreads since Dec 2014
- USD Index Down 2.5% – worst 2-week drop in 4 months
- JPY Stronger by 1.9% – worst week in 4 months
- CAD Weaker by 2.75% – worst week in 5 months
- EUR Stronger by 3.75% – best 2 week gain since Sept 2012
- Yuan down 6 weeks in a row to weakest since July 2011 – longest losing streak in history
- WTI Crude Down 10.9% – worst week since Dec 2014
- 5Y Yield Drops 13bps – biggest absolute drop in 2 months
- 30Y Yield Drops 13bps – biggest absolute drop since March 2015
The biggest news of the day/week was the sudden awakening of the rest of the world that credit’s collapse is real…
This was the biggest weekly collapse in High-Yield Bonds since March 2009… with today’s move, HYG wipes out all total return back to 12/12/2012 (assuming divs reinvested)
Weakness in US equities began early this morning after the IEA report sent crude crashing…Dow Futs down 400 from overnight highs!
Ugly day with high beta Nasdaq and Small Caps smashed lower…
On the week Trannies and Small Caps were the biggest losers…
Financials and Energy were butchered this week…
Dow joins S&P, Russell, and Trannies in red post-Paris… we’re gonna need more radicals!!
Small Caps were monkey-hammered…
FANGs had their worst week in 3 months…
Led by NFLX..
But Guns were in great demand…
VIX term structure inverted short-term…
HYG had its worst day since Aug2011…
Treasury yields collaped…
2Y Yields dropped 6.5bps today… the biggest drop in 3 months…
The FX markets also turmoiled… USD weakness against all the majors (but EM FX and commodity producers crushed)…
The Yuan plunged for the 6th week in a row…
EM FX crashed by most since June 2013 (Taper Tantrum)…
Gold rallied today, but ended the week lower (along with silver) despite a weaker dollar. Copper rallied, crude didn’t…
Black Gold Baumgartner’d…
Bonus Chart: What Happens Next?
Dow, DuPont To Merge In $130 Billion Deal; 10% Of DowDuPont’s Workforce To Be Fired
It’s official: two of America oldest publicly traded companies will combine, with Dow and DuPoint merging as equals in a combined company that will have a $130 billion market cap and will be named DowDuPont. And while shareholders already benefited from the deal with shares of both consitutents rising by 10% in the days preceding the official announcement, the biggest loser are once again the employees: the combined company announced that as part of the $700 million in restructuring efforts, 10% of the combined company’s employees will be laid off.
Here are the details:
- DuPont and Dow will each own about 50% of combined firm, excluding preferred shrs
- Sees separation into three public companies; sees 18-24 months post merger
- Edward Breen will be named CEO of combined co.; Andrew Liveris will be named Executive Chairman
- Dow holders to get fixed exchange ratio of 1.00 shr DowDupont
- DuPont shareholders will receive fixed exchange ratio of 1.282 shares in DowDuPont
- Sees run-rate cost synergies of $3b, projected to create $30b of market value; about $1b in growth synergies expected
- Sees deal closing 2H; to have headquarters in Midland, Mi, Wilmington, DE
- DuPont sees 10% job cuts; sees pretax charge $780m, including $650m of employee separation costs
- DuPont sees currency headwinds 25c/shr; sees 5c-10c/shr pressure from higher base tax rate
From the press release:
DuPont and Dow to Combine in Merger of Equals
- Will Create Highly Focused Leading Businesses in Agriculture, Material Science and Specialty Products; Intend to Subsequently Spin Into Three Independent, Publicly Traded Companies
- Highly synergistic transaction expected to result in run-rate cost synergies of approximately $3 billion, which are projected to create approximately $30 billion of market value
- Approximately $1 billion in growth synergies are also expected to be achieved
- Combined market capitalization will be approximately $130 billion at announcement
- Andrew N. Liveris will be named Executive Chairman and Edward D. Breen will be named CEO of combined company; Advisory Committees will be established for each business
- Dow and DuPont shareholders will each own approximately 50 percent of the combined company, on a fully diluted basis, excluding preferred shares
WILMINGTON, Del. and MIDLAND, Mich., Dec. 11, 2015 /PRNewswire/ — DuPont (NYSE: DD) and The Dow Chemical Company (NYSE: DOW) today announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals. The combined company will be named DowDuPont. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-free spin-offs. This would occur as soon as feasible, which is expected to be 18-24 months following the closing of the merger, subject to regulatory and board approval.
The companies will include a leading global pure-play Agriculture company; a leading global pure-play Material Science company; and a leading technology and innovation-driven Specialty Products company. Each of the businesses will have clear focus, an appropriate capital structure, a distinct and compelling investment thesis, scale advantages, and focused investments in innovation to better deliver superior solutions and choices for customers.
“This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders,” said Andrew N. Liveris, Dow’s chairman and chief executive officer. “Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities – requiring each company to exercise foresight, agility and focus on execution. This transaction is a major accelerator in Dow’s ongoing transformation, and through this we are creating significant value and three powerful new companies. This merger of equals significantly enhances the growth profile for both companies, while driving value for all of our shareholders and our customers.”
“This is an extraordinary opportunity to deliver long-term, sustainable shareholder value through the combination of two highly complementary global leaders and the creation of three strong, focused, industry-leading businesses. Each of these businesses will be able to allocate capital more effectively, apply its powerful innovation more productively, and extend its value-added products and solutions to more customers worldwide,” said Edward D. Breen, chairman and chief executive officer of DuPont. “For DuPont, this is a definitive leap forward on our path to higher growth and higher value. This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies. Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each business will be a leader in attractive segments where global challenges are driving demand for these businesses’ distinctive offerings.”
HIGHLY SYNERGISTIC TRANSACTION
Upon closing of the transaction, the combined company would be named DowDuPont and have a combined market capitalization of approximately $130 billion at announcement. Under the terms of the transaction, Dow shareholders will receive a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share. Dow and DuPont shareholders will each own approximately 50 percent of the combined company, on a fully diluted basis, excluding preferred shares.
The transaction is expected to deliver approximately $3 billion in cost synergies, with 100 percent of the run-rate cost synergies achieved within the first 24 months following the closing of the transaction. Additional upside of approximately $1 billion is expected from growth synergies.
INTENDED SEPARATION INTO THREE INDEPENDENT, PUBLICLY TRADED COMPANIES
It is the intention of both companies’ boards of directors that, following the merger, DowDuPont would pursue a tax-free separation into three independent, publicly traded companies with each targeting an investment grade credit rating. Each would be a strong, focused business with powerful innovation capabilities, enhanced global scale and product portfolios, focused capital allocation, and a distinct competitive position. The three businesses that the boards intend to separate are:
Agriculture Company: Leading global pure-play agriculture company that unites DuPont’s and Dow’s seed and crop protection businesses. The combined entity will have the most comprehensive and diverse portfolio and a robust pipeline with exceptional growth opportunities in the near-, mid- and long-term. The complementary offerings of the two companies will provide growers across geographies with a broad portfolio of solutions and greater choice. Combined pro forma 2014 revenue for Agriculture is approximately $19 billion.
Material Science Company: A pure-play industrial leader, consisting of DuPont’s Performance Materials segment, as well as Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions, and Consumer Solutions (excluding the Dow Electronic Materials business) operating segments. The combination of complementary capabilities will create a low-cost, innovation-driven leader that can provide customers in high-growth, high-value industry segments in packaging, transportation, and infrastructure solutions, among others with a broad and deep portfolio of cost-effective offerings. Combined pro forma 2014 revenue for Material Science is approximately $51 billion.
Specialty Products Company: A technology driven innovative leader, focused on unique businesses that share similar investment characteristics and specialty market focus. The businesses will include DuPont’s Nutrition & Health, Industrial Biosciences, Safety & Protection and Electronics & Communications, as well as the Dow Electronic Materials business. Together, their complementary offerings create a new global leader in Electronics Products, and each business will benefit from more targeted investment in their productive technology development and innovation capabilities. Combined pro forma 2014 revenue for Specialty Products is approximately $13 billion.
Advisory Committees will be established for each of the businesses. Breen will lead the Agriculture and Specialty Products Committees, and Liveris will lead the Material Science Committee. These Committees will oversee the respective businesses, and will work with Liveris and Breen on the intended separation of the businesses into independent, standalone entities.
MANAGEMENT, GOVERNANCE AND CORPORATE HEADQUARTERS
Upon completion of the transaction, Liveris, President, Chairman and CEO of Dow, will become Executive Chairman of the newly formed DowDuPont Board of Directors and Breen, Chair and CEO of DuPont, will become Chief Executive Officer of DowDuPont. In these roles, both Liveris and Breen will report to the Board of Directors. In addition, when named, the chief financial officer will report to Breen.
DowDuPont’s board is expected to have 16 directors, consisting of eight current DuPont directors and eight current Dow directors. The full list of directors will be announced prior to or in conjunction with the closing of the merger. The Committees of each company will appoint the leaders of the three new standalone companies prior to a contemplated spin-off.
Following the closing of the transaction, DowDuPont will be dual headquartered in Midland, Michigan and Wilmington, Delaware.
APPROVALS AND TIME TO CLOSE
The merger transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals, and approval by both Dow and DuPont shareholders. The subsequent separation of DowDuPont, which the companies intend to pursue, would be expected to occur 18-24 months following the closing of the merger.
CONFERENCE CALL AND WEBCAST DETAILS
Dow and DuPont will host a joint conference call and webcast today at 8:00 a.m. Eastern Time (U.S.) to discuss the proposed merger. Participants will include Dow’s chairman and CEO and DuPont’s chairman and CEO. To access the audio webcast please visit the Investor Relations sections of Dow or DuPont’s websites. For those unable to listen to the live broadcast, a replay will be available on both websites.
A copy of the investor presentation will be made available on both companies’ Investor Relations websites. Additional information regarding the transaction can be found onwww.DowDuPontUnlockingValue.com.
Klein and Company, Lazard, and Morgan Stanley & Co. LLC are serving as Dow’s financial advisors for the transaction with Weil, Gotshal & Manges LLP acting as its legal advisor.
Evercore and Goldman, Sachs & Co. are serving as DuPont’s financial advisors for the transaction, with Skadden, Arps, Slate, Meagher & Flom LLP acting as its legal advisor.
* * *
And then the less pleasant find print:
Today DuPont announced a 2016 global cost savings and restructuring plan designed to reduce $700 million in costs compared with 2015. The 2016 cost reductions include a range of structural actions across all businesses and staff functions globally to operate more efficiently by further consolidating businesses and aligning staff functions more closely with the businesses. The new plan builds on the company’s previous operational redesign initiative.
The plan further simplifies the company’s structure into fewer, larger businesses with integrated functions, leading to sustainable cost reductions, faster decision making and closer connections to end markets. The company will begin implementation of these changes immediately.
As a result of these actions, the company expects to record a pre-tax charge to earnings of approximately $780 million, consisting of approximately $650 million of employee separation costs and about $130 million of asset-related charges and contract terminations.Approximately 10 percent of DuPont’s global workforce will be impacted.
DuPont also highlighted 2016 macroeconomic expectations. Given global economic conditions in agriculture and emerging markets, the company expects sales growth in 2016 to be challenging. Currency headwinds are expected to be about $0.25 per share, due to the continued strengthening of the U.S. dollar primarily against the Brazilian Real. The company also expects $0.05 to $0.10 per share of pressure from a higher base tax rate, reflecting expectations of the geographic mix of earnings and cost savings that will be recognized primarily in the United States. The company plans to provide full-year 2016 guidance during its fourth-quarter 2015 earnings announcement scheduled for Jan. 27, 2016.
Retail Sales Growth Tumbles To Weakest In 6 Years As Auto Sales Drop
Despite all the industry’s exuberance over auto sales in America, the government’s retail sales data shows vehicle sales dropped 0.4% in October (in other words, automakers are channel-stuffing). This rolled through the various headline data leaving a 4th miss in a row MoM and the weakest YoY growth for retail sales since Nov 2009 – deep in recession territory.
This is the 4th miss in a row for the headline retail sales data…
And sends the annual growth rate well into recession territory…
And even Ex-Autos the annual change is awkwardly low for a rate hike…
The full breakdown has something for everyone…
Although a solid PPI, still the final demand is still in negative territory
(courtesy PPI/zero hedge)
Producer Prices Rises Most In Five Months, Service Inflation Highest In Over A Year
Following a miss in retail sales (if slight beat in core spending), the final key economic update the Fed will look at before its “first rate hike in nine years” meeting next week is today’s Producer Price Inflation report which rose 0.3%, above the expected unchanged print and even higher compared to October’s -0.4% decline.
The report showed that while the decline in energy prices continued as expected, sliding 0.6% in the Final Demand Goods category, there was a surprising pickup in final demand services, which rebounded by 0.5% driven by Trade which rose 1.2% from the prior month, driven by an unexpected pickup in margins for apparel, jewelry, footwear, and accessories retailing.
However, while on a monthly basis the rebound was solid and matched the PPI growth seen in June, on a year over year basis, final demand continues to trend in negative territory, where it has been throughout 2015.
Here is where the bulk of the PPI service growth came from:
Over 40 percent of the November advance in prices for final demand services is attributable to a 6.2-percent increase in margins for apparel, jewelry, footwear, and accessories retailing. The indexes for machinery and equipment wholesaling, loan services (partial), fuels and lubricants retailing, portfolio management, and long-distance motor carrying also moved higher. Conversely, prices for securities brokerage, dealing, investment advice, and related services fell 3.9 percent. The indexes for food and alcohol retailing and for water transportation of freight also fell. (See table 4.)
We wonder just where the BLS is seeing apparel inflation in an environment where every single retailer is dumping prices and slashing margins just to make up for lost pricing in volume (aka the OPEC strategy), but we are happy to wait for the upcoming revisions.
As for goods:
Half of the November decrease in the index for final demand goods is attributable to prices for gasoline, which fell 1.3 percent. The indexes for residential natural gas, electric power, carbon steel scrap, and corn also moved lower. Conversely, prices for fresh fruits and melons jumped 11.6 percent. The indexes for eggs for fresh use, jet fuel, and pharmaceutical preparations also increased.
Excluding food, energy and trade, the index inched up 0.1 percent in November. For the 12 months ended in November, prices for final demand less foods, energy, and trade services advanced 0.3 percent.
Finally, one item that caught our attention: eggs, which in the past few months have soared to unprecedented levels.
Business Inventories-To-Sales Surge To Cycle Highs, Deep In Recession Territory
Following the wholesale inventories-to-sales jump, business inventories-to-sales just shifted once again to cycle highs, deep in recessionary territory. With inventories unchanged in October, slightkly lower than thge expected 0.1% increase, Q4 GDP will start to be affected (and Q3 as prior data was revised lower). Nevertheless, with sales dropping 0.2%, with manufacturers tumbling 0.5% MoM,the looming production cuts set up The Fed for an epic policy error.
“It’s Clearly Time For A Rate Hike”
Below we present total business sales, which just dropped another 0.2% in October to $1.317 trillion – the lowest since March and down 2.7% from a year ago – without a comment (we have said all there is to say about the US already being in a recession), suffice to say: clearly the time for a rate hike that “boosts confidence in the economy” has come.
Oh!1 Oh!! just in: we have another hedge fund suspend redemptions due to poor liquidation in markets: Stone Lion Capital
(courtesy zero hedge)
Here Is “Gate” #2: $1.3 Billion Stone Lion Capital Just Suspended Redemptions
Yesterday, in the aftermath of the shocking news that the Third Avenue Focused Credit Fund was liquidating and had gated investors due to its “illiquid” portfolio, we had one simple prediction:
“What this means is that now that the dreaded “gates” are back, investors in all other junk bond-focused hedge funds, fearing they too will be gated, will rush to pull what funds they can and submit redemption requests, in the process potentially unleashing a liquidity – and liquidation – scramble within the hedge fund community, which will first impact bonds and then, if the liquidity demands continue, equities as well.“
We had to wait just over 24 hours to be proven correct, because moments ago Dow Jones reported that the $1.3 billion Manhattan-based Stone Lion Capital, a distress-focused hedge fund, has just suspended redemptions after “”substantial requests.”
The WSJ adds:
It is the latest example of the sudden crunch facing traders across Wall Street looking to sell beaten-down positions.
Stone Lion manages around $1.3 billion and specializes in distressed debt and other risky investments that have plunged in value lately.
It received “substantial redemption requests” in its oldest hedge fund, the $400 million Stone Lion Portfolio LP, precipitating the decision, the firm said.
At least the had a pretty logo:
The management team via CapIQ:
And now we wait for #3, #4, #5 and so on as the snowball becomes an avalanche.