Dec 16/Fed raises interest rate by 1/4%/Now we will witness if the mechanics for 1 trillion USA withdrawal is in the cards/USA now allowed to export oil/thus we get to export the glut to Europe et al/Baltic Dry Index crashes to 30 year low on low Chinese demand/Fitch lowers credit rating on Brazil to junk/Brazilian real collapses on the downgrade and US interest rate increase/USA manufacturing and USA industrial production both falter badly/

Gold:  $1078.00 up $15.10    (comex closing time)

Silver $14.22 up 48 cents

In the access market 5:15 pm

Gold $1073.40

Silver:  $14.17

At the gold comex today,  we had a good delivery day, registering 265 notices for 26,500 ounces.Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 195.86 tonnes for a loss of 107 tonnes over that period.

In silver, the open interest fell by 2303 contracts even though silver was up in price by 8 cents with respect to Tuesday’s trading and thus we must have had some short covering. We have an extremely low price of silver and a very high OI coupled with backwardation in silver at the LBMA.  (negative SIFO rates). The total silver OI now rests at 166,864 contracts. In ounces, the OI is still represented by .834 billion oz or 119% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI fell by 4492 contracts to 390,944 contracts as gold was down $1.80 in price with respect to yesterday’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 no changes,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 fall by 2303 contracts down to 166,864 despite the fact that silver was up in price to the tune of 8 cents  with respect to yesterday’s trading.   The total OI for gold fell by 4492 contracts to 390,944 contracts as gold was down $1.80 in price

(report Harvey)

2 a) Gold trading overnight, Goldcore

a very important audio with Grant Williams of Hmmm fame

(Mark OByrne)


Last night, TUESDAY night, WEDNESDAY morning:  Shanghai up barely after last hour sell off,  Hang Sang rise, Chinese yuan devalued again to 6.4748.  Stocks in Asia up waiting the Fed decision. Oil fell.  USA removed its 40 year ban on oil exports.


Denmark is to confiscate jewelry, diamonds and money from refugees

(zero hedge)


i) Assad can stay as Kerry leaves Moscow humiliated:
(courtesy zero hedge)
ii) Just take a look at the huge destruction of the ISIS oil being bombed out by Russia:
(zero hedge)



Brazilian real now almost 4: 1 as their stock market crumbles after the Fitch downgrade to junk:
(courtesy Fitch/zero hedge)


i  Last night:

Oil breaks below 37 dollars again after the huge buildup in API inventories:

(courtesy API/zero hedge)

ii)Today:  DOE also reports a huge December inventory build.  It was the biggest gain in inventory levels in 22 years:

(courtesy DOE/zero hedge)


i) This morning gold and silver jump as the dollar is the most crowded trade in the world at 9 trillion usa:

(courtesy zero hedge)

ii) How the USA forces the world to store USA dollars.  In essence the USA buys stuff and exports only one major thing: USA dollars.

(courtesy Koos Jansen and Willem Middelkoop)


i) Welcome to the world of renters;  USA housing starts rise!!
(zero hedge)
ii) USA Industrial production falters badly equal to levels last seen in 2009: down.6% month over month
(zero hedge)

iii  Markit’s USA Manufacturing PMI plunges to its lowest level since 2012/  Factory orders, a big component collapses to 2009 level.

and the boys are raising rates today?
(courtesy zero hedge/Markit USA Manufacturing PMI)
iv)  TIC report shows foreigners were forced to dump 55 billion USA treasuries from their official reserves
(TIC report/zero hedge)

v)  Here is the next hammer to fall:  Collateratized leverage loans are getting hammers due to the low oil price:(courtesy Idzelis/Bloomberg)

vi)  Bill Ackman of Pershing Square had a awful month as he reports his earnings

(zero hedge)
vii)  Flint Michigan reports huge lead in their drinking water, cause a state of  emergency:

Old rusted pipes in Flint Michigan has caused lead levels in the water to be at disastrous levels

(courtesy Carey Wedler/The

viii) We have been telling you that the Fed would have to drain 800 billion uSA in order to raise rates by 1/4%.  Now Citibank states that it will be as much as one trillion usa per 1/4% rate hike.  If they get to 1% then 4 trillion will have to be removed.  Remember that this money is not inert, it is used in all of the shadow banking sector’s collateral moves:
(courtesy zero hedge)

ix) The Fed is out of dry powder..

 David Stockman explains the pickel the usa is in:
(courtesy David Stockman/ContraCorner)

x) Fed raises rates by 1/4%

(zero hedge)

xi the Mouthpiece, Hilserath explains the above

(Hilsenrath/WallStreet Journal)

xii) Real estate guru Sam Zell warns that the Fed is too late in raising rates:

(courtesy zero hedge)


Let us head over to the comex:


The total gold comex open interest fell to 390,944 for a loss of 4492 contracts despite the fact that gold was down by only $1.80 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, both scenarios were in force but only a very tiny contraction in front month OI. We are now in the big December contract which saw it’s OI fall by 199 contracts from 1768 down to 1569.  We had 186 notices filed yesterday, so we lost a tiny 13 gold contracts or an additional 1300 oz will not stand for delivery in this active delivery month of December. The next contract month of January saw it’s OI rise by 24 contracts up to 647.  The next big active delivery month is February and here the OI fell by 3946 contracts down to 278,288. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 110,059 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 120,211 contracts. The comex was in backwardation in gold up to April

Today we had 265 notices filed for 26,500 oz.
And now for the wild silver comex results. Silver OI fell by 2303 contracts from 169,167 down to 166,864 despite the fact that the price of silver was up 8 cents with respect to yesterday’s trading. We are near multi year lows in silver price and yet extremely high OI which makes no sense at all. The big December contract month saw its OI fall by 2 contracts down to 329. We had 1 contract served yesterday so we lost 1 silver contracts or an additional 5,000 ounces of silver will not stand in this active delivery month of December. The next non active month of January saw it’s OI fall by 66 contracts down to 728.  The next big active contract month is March and here the OI fell by 2053 contracts down to 132,291. The volume on the comex today (just comex) came in at 42,061 , which is good. The confirmed volume yesterday (comex + globex) was very good at 46,132. 
We had 0 notice filed for nil oz.

December contract month:

INITIAL standings for DECEMBER

Dec 16/2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 32,150.000  (1ooo kilobars)
Deposits to the Dealer Inventory in oz  nil
Deposits to the Customer Inventory, in oz  nil
No of oz served (contracts) today 265 contracts

26500 oz

No of oz to be served (notices) 1304 contracts

(130,400 oz)

Total monthly oz gold served (contracts) so far this month 761 contracts(76,100 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 189,048.5 oz
 Today, we had 0 dealer transactions
Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
total dealer deposit:  nil oz
We had 1  customer withdrawals:
 i) Out of JPMorgan:  32,150.000 oz or 1000 kilobars  (very dubious)
total customer withdrawal 32,150.000 oz
We had 0 customer deposits:

Total customer deposits  nil oz

 JPMorgan has a total of 7975.14 oz or 0.2480 tonnes in its dealer or registered account.
***JPMorgan now has 337,121.339 oz or 10.48 tonnes in its customer account.
Today we had 1 adjustment;
 i) Through HSBC:
22,301.706 oz was adjusted out of the customer and into the dealer account of HSBC
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 265 contracts of which 265 notices was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account.
To calculate the final total number of gold ounces standing for the Dec contract month, we take the total number of notices filed so far for the month (761) x 100 oz  or 76,100 oz , to which we  add the difference between the open interest for the front month of December (1569 contracts) minus the number of notices served upon today (265) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the December. contract month:
No of notices served so far (761) x 100 oz  or ounces + {OI for the front month (1569) minus the number of  notices served upon today (261) x 100 oz which equals 206,500 oz standing in this active delivery month of December (6.423 TONNES)
we  lost 13 gold contracts or 1300 ounces will not stand in this active delivery month and we lost a tiny 1300 oz. to cash settlements.
We thus have 6.423 tonnes of gold standing and only 5.24 tonnes of registered gold for sale, waiting to serve upon those standing
Total dealer inventory 146,365.908 oz or 4.5525 tonnes
Total gold inventory (dealer and customer) =6,329,225.334  or 196.86 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 195.86 tonnes for a loss of 107 tonnes over that period.
JPmorgan has only 10.5 tonnes of gold total (both dealer and customer)
Today, more total gold leaves the comex/
And now for silver


Dec 16/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 159,189.32 oz


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 150,679.17  oz


No of oz served today (contracts) 0 contract

nil oz

No of oz to be served (notices) 329 contracts 

(1,645,000 oz)

Total monthly oz silver served (contracts) 3599 contracts (17,995,000 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 4,631,771.6 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit; nil oz

we had no dealer withdrawals:

total dealer withdrawals:  nil


we had 1 customer deposit:

i) Into Scotia:150,679.17

total customer deposits: 150,679/17 oz

We had 3 customer withdrawals: 
i) Out of Brinks:  61,113.37 oz
ii) Out of CNT: 37,228.35 oz
iii) Out of Scotia: 60,846.60  oz

total withdrawals from customer account: 159,189.320    oz 

 we had 2 adjustments:

Out of CNT:

we had 4983.46 oz leave the customer account and this landed into the dealer account of CNT

Out of Brinks:

4931.300 oz leaves the dealer account and this landed into the customer account of Brinks

The total number of notices filed today for the December contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in Dec., we take the total number of notices filed for the month so far at (3599) x 5,000 oz  = 17,995,000 oz to which we add the difference between the open interest for the front month of December (329) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the December. contract month:
3599 (notices served so far)x 5000 oz +(329) { OI for front month of December ) -number of notices served upon today (0)x 5000 oz or 19,640,000  of silver standing for the December. contract month.
we lost one contract or an additional 5,000 oz will not stand for delivery in this active month of December.
Total number of dealer silver:  39.813 million oz
Total number of dealer and customer silver:  up to 158.905 million oz
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

dec 16/no changes in gold inventory at the GLD/inventory rests at 643.63 tonnes.

Dec 15.2105/no changes in gold inventory at the GLD/Inventory rests at 643.63 tonnes

Dec change in gold inventory at the GLD/Inventory rests at 634.63 tonnes

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 16  inventory 634.63 tonnes
*this is the lowest level in quite some time.  It looks like physical gold acquired in the past few months have now left the GLD vaults heading for China.
Now the SLV:
Dec 16./no changes in silver inventory at the SLV/rests tonight at 323.509 million oz
Dec 15./no changes in silver inventory at the SLV/rests tonight at 323.509 million oz/
Dec 14./2015; no change in silver inventory at the SLV/rests tonight at 323.509 million oz
Dec 11.we had another huge addition at the SLV of 2.002 million oz/inventory rests at 323.509 million oz
Dec 10. no change in silver inventory at he SLV/Inventory rests at 321.507 million oz/
DEC 9/we had no change in silver inventory at the SLV/Inventory rests at 321.507 million oz/
Dec 8.2015:no change in silver inventory at the SLV/rests tonight at 321.507 million oz/
Dec 7./no change in silver inventory at the SLV/rests tonight at 321.507 million oz/
Dec 16/2015:  tonight inventory rests at 323.509million oz***
******Note the difference between the GLD and SLV.  GLD sees liquidation of metal but not SLV. Why?  because the SLV has no real silver behind it only paper silver. Today the addition of silver was a paper silver entry and I extremely doubt that real silver entered the SLV vaults.
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 12.0 percent to NAV usa funds and Negative 11.9% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.9%
Percentage of fund in silver:37.0%
cash .1%( Dec 16/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to  -0.18%!!!! NAV (Dec 16/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to- 0.64% to NAV Dec 16/2015)
Note: Sprott silver trust back  into negative territory at -0.18 /Sprott physical gold trust is back into negative territory at -0.64%/Central fund of Canada’s is still in jail.


And now your overnight trading in gold and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe
First gold/silver trading courtesy of Mark O’Byrne/Goldcore:
i) a must listen to audio from Grant Williams and Chris Martenson

Federal Reserve At End Of Monetary Road

The all important context for Federal Reserve’s interest rate decision, where the Federal Reserve is widely expected to hike interest rates for the first time in nearly a decade has been examined by the insightful Grant Williams. He is very skeptical of the Fed’s ability to continue to control markets much longer … and this is a gross understatement:

None of this has been tried before and, to me, that just demonstrates the dangers. Once you get into a situation like the central banks did in ’08 with this panicking — everyone calls it the Hotel California — you can’t get out. And, so incrementally, they have to keep doing something. Instead of stepping back and letting free markets and business cycles and forces of nature have their way and flush out all of the impurities in the system, this is what happens. And, yet, this time, for whatever reason, I think since post-Volker, Greenspan has basically started this ball rolling with this knee-jerk reaction to slash interest rates. And, you can kind of understand it, because everyone was still traumatized by the high inflation of the ‘70s. But, they started and they started down that road.

Click the play button above to listen to Chris’ interview with Grant Williams (59m:06s)
Today’s LBMA Gold Prices: USD 1065.75, EUR 975.65 and GBP 710.33 per ounce.
Yesterday’s LBMA Gold Prices: USD 1069.15, EUR 969.53 and GBP 705.31  per ounce.

BREAKING GOLD NEWS and COMMENTARY (16 December, 2015) – Click here

GoldCore: 7 Key Storage Must Haves

Download 7 Key Gold and Silver Storage Must Haves

Mark O’Byrne


This morning gold and silver jump as the dollar is the most crowded trade in the world at 9 trillion usa:

(courtesy zero hedge)

Gold & Silver Jump Ahead Of Fed On Concerns About “World’s Most Crowded Trade”

Is this supposed to happen on the day the Fed’s rate hike is “boosting
confidence in the economy” and telegraphs more gains for the dollar?


Or perhaps these are just early hints that the world’s most crowded trade, being long the USD, is starting to crack?

How the USA forces the world to store USA dollars.  In essence the USA buys stuff and exports only one major thing: USA dollars.

(courtesy Koos Jansen and Willem Middelkoop)


Koos Jansen interviews Willem Middelkoop about dollar imperialism


11:36p ET Tuesday, December 15, 2015

Dear Friend of GATA and Gold:

Financial journalist and fund manager Willem Middelkoop, interviewed by gold researcher and GATA consultant Koos Jansen, tonight explains, as GATA long has tried to explain, how control of the currency markets and particularly the world reserve currency remains the primary mechanism of imperialism.

“Because it can print the world currency,” Middelkoop says, “the United States can buy anything it wishes without having to worry about its liabilities. … By ‘obliging’ foreign central banks to keep their monetary reserves in Treasury bonds, the United States in fact forced them to finance U.S. military spending abroad, as Michael Hudson explains in his book ‘Super Imperialism.’

“In this new form of imperialism, the United States is able to rule not through its position as world creditor but as world debtor. … A Chinese market commentator remarked: ‘World trade is now a game in which the United States produces dollars and the rest of the world produces things that dollars can buy … a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the United States. … Everyone accepts dollars because dollars can buy oil.’

“Only when dollar-holding nations decide to buy natural resources instead of U.S. Treasuries is the dollar’s reserve currency status in danger. This is exactly the exit strategy China and Russia seem to be playing right now.”

Jansen’s interview with Middelkoop is headlined “Interview with Willem Middelkoop about the Big Reset” and it’s posted at Bullion Star here:…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.





And now your overnight WEDNESDAY morning trading in bourses, currencies, and interest rates from Europe and Asia

1 Chinese yuan vs USA dollar/yuan falls in value , this  time to  6.4748/ Shanghai bourse: in the green (even though last hr sell off), hang sang: green

2 Nikkei closed up 484.01 or 2.61%

3. Europe stocks all in the green /USA dollar index up to 97.24/Euro down to 1.0921

3b Japan 10 year bond yield: rises to .304   !!!!(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: 37.15  and Brent:   37.90

3f Gold up  /Yen down

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil down for WTI and down for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .643%  German bunds in negative yields from 5 years out

 Greece  sees its 2 year rate fall sharply to 7.65%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield rises to  : 8.62%  (yield curve upward sloping)

3k Gold at $1065.10/silver $13.86 (7:45 am est)

3l USA vs Russian rouble; (Russian rouble down 30/100 in  roubles/dollar) 70.25

3m oil into the 37 dollar handle for WTI and 38 handle for Brent/

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 0.9905 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0822 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  + .643%/German 5 year rate negative%!!!

3s The ELA lowers to  82.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 2.27% early this morning. Thirty year rate at 3% at 2.99% /

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Global Stocks, US Futures Greet Historic Fed Day With Euphoria

The day has come when the boxed-in Fed has no choice: with the vast majority of the market expecting a rate hike, Yellen has to deliver or suffer a crushing confidence blow like no other. And deliver she will, with expectations that said hike will be “as dovish as possible”, which however as we explained yesterday, is not really possible. For now however, the market is desperate to convince itself that just as more easing and more QE were bullish for the market, so rate hikes are just as bullish. Recall from late 2013: “tapering is not tightening,” then the 2015 version of this refrain is “tightening is not tightening.”

It remains to be seen just what happens after the Fed’s announcement but in the last few hours before it, the surge higher in global stocks and equity futures continues as the last ounces of a “dovish rate hike” are fully priced in.  Asian and European stocks, S&P futures all rise ahead of Federal Reserve’s rate decision. The Dollar is little changed vs euro. Oil, however, has held its losses after late news last night that the U.S. plans to lift the 40-year-old ban on crude oil exports, which in itself will have little impact on oil prices, but as Virendra Chauhan at Energy Aspects in Singapore says “The deal to lift the crude ban is a significant change in U.S. policy, but in terms of the near-term impact on prices, we expect that to be blotchy and sentiment driven. All that you’re doing is transferring the glut from the U.S., where most of the storage capacity is, to elsewhere in the world.

So with less than 8 hours until the Fed’s historic announcement – and for the best indicator of how the market will respond to the Fed’s announcement at 2pm just keep an eye on the USDJPY as it will dictate every other class, this is where we stand.

  • S&P 500 futures up 0.6% to 2049
  • Stoxx 600 up 0.5% to 361
  • FTSE 100 up 0.6% to 6055
  • DAX up 0.3% to 10484
  • German 10Yr yield up less than 1bp to 0.64%
  • Italian 10Yr yield down 1bp to 1.67%
  • MSCI Asia Pacific up 2.1% to 129
  • Nikkei 225 up 2.6% to 19050
  • Hang Seng up 2% to 21701
  • Shanghai Composite up 0.2% to 3516
  • S&P/ASX 200 up 2.4% to 5028
  • US 10-yr yield up less than 1bp to 2.27%
  • Dollar Index up 0.09% to 98.31
  • WTI Crude futures down 1.1% to $36.94
  • Brent Futures down 2.3% to $37.55
  • Gold spot up 0.4% to $1,065
  • Silver spot up 0.3% to $13.83

Aside from the Fed countdown, here are some of main overnight news:

  • Congress Reaches Fiscal Agreement That Ends U.S. Oil Export Ban: Plan extends solar, wind energy credits backed by Democrats
  • Global Payments to Buy Heartland Payment for About $4.3b: Stock and cash deal has transaction value of $100 per share
  • Pershing Square Lost 19.7% YTD, Ackman Says in Holder Letter: 3Q net redemptions totaled $39m, or 0.2% of capital
  • Third Avenue Bled Managers, Billions of Assets Before Fund Shut: Assets plunged to $8b from $26b in 2006
  • GE Capital Prepares to Sell Spain Credit Business: Expansion; Business mostly made up of mortgages, volume of ~EU600m
  • Pichai Says Google Making Changes to Suit Non-English Speakers: Google starting program to train 2m Android developers
  • Valeant CEO Said to Be on List for Drug Price Hearing: Lawmaker writes Valeant CEO threatening subpoena for documents
  • Norfolk Southern Says CP Response ‘Flatly Wrong’ on Facts, Law: Canadian Pacific hasn’t sought declaratory order from Surface Transportation Board on proposed voting trust structure, Norfolk Southern says
  • Constant Contact Gets SEC Subpoena: SEC seeks documents on sales, marketing, customer retention practices, disclosure of financial and operating metrics

As noted above, overnight markets were in a euphoric state, starting in Asia where stocks traded higher tracking the positive close on Wall St., following the continued rebound seen in energy prices ahead of the FOMC meeting later on today. The energy sector outperformed across all bourses, particularly in China where the sector rose by more than 6% in the Hang Seng (+2.0%) index.
Nikkei 225 (+2.6%) was led higher by telecom stocks, which were supported after Japan’s communication ministry panel did not push for mobile carrier rate cuts.

“Markets had time to prepare for this day, with investors winding back risks ahead of the event,” Tim Schroeders, a portfolio manager who helps oversee about $1 billion in equities at Pengana Capital Ltd. in Melbourne, said by phone. “What happens after the Fed rate hike is difficult to tell, especially since we’re coming into a quiet period around Christmas and New Year.”

10yr JGBs traded lower as the firm risk sentiment in markets dampened demand for safer assets, while the BoJ entered the market to purchase JPY 1.1trl in government bonds.

Top Asian News

  • MSCI Asia Pacific rises for first time in 7 days. The gauge lost more than 4% in the previous six sessions, reaching the lowest level since Oct. 2.
  • China Growth May Slow to 6.6 Percent in 2016, Researchers Say: Chinese Academy of Social Sciences predicted “slow bull” market
  • Developing Asian Bond Market Set to Top Japan as Funds Go Global: Philippines, Indonesia yield spreads widen versus Japan
  • Rupee Faces Moment of Truth With $2.6 Billion Outflow Before Fed: Currency has weakened 2.4% percent since end of Oct.
  • Saudi Arabia Spends Billions to Get Asia Hooked on Its Crude Oil: Aramco has invested in 3 processing facilities in Asia
  • Packer Said in Talks to Take Crown Resorts Assets Private: Billionaire speaks with PE firms, pension funds on possible bid
  • Piquant Hedge Fund Closes After Failing to Attract Investors: The $20m Singapore quant fund stopped trading in June

In Europe, despite opening in the green, European equities (Euro Stoxx: +0.6%) briefly slipped into the red before then moving higher again in what has been a choppy session so far. In terms of a sector specific breakdown, defensive sectors lead the way higher, namely healthcare, while the energy sector continues to outperform after WTI and Brent managed to avoid fresh multiyear lows in the wake of yesterday’s build in API crude oil inventories.

Despite the early lack of direction in equity markets, with sentiment on edge today Bunds have moved higher throughout the European morning and reside in positive territory with analysts at Informa noting that bund options have been attracting some mixed put interest, while the curve steepening has slowed ahead of the FOMC decision later today. This comes after heavy losses seen in the German benchmark yesterday, and amid light supply today.

Top European News

  • Julius Baer Will Buy Commerzbank’s Luxembourg Unit to Add Assets: Adds EU3b in assets under management
  • Casino to Cut Debt by More Than EU2b in 2016: Plans to sell some of its real estate in Thailand and Colombia
  • Rolls-Royce Culls Top Managers as East Responds to Profit Slump: CEO takes direct charge of business divided into five units
  • SSAB Falls to 14-Year Low After Warning of 4Q Loss: European, North America steel volumes significantly weaker than forecast
  • Carney Says Conditions for a U.K. Rate Hike Aren’t Yet in Place: U.K. is in a ‘low-for-long’ interest-rate environment

In FX markets, the USD dictated play this morning, with the greenback gaining against EUR, GBP and JPY, with levels being broken in the form of the 122.00 level to the upside in USD/JPY and 1.5000 to the downside in GBP/USD. This morning has seen a number of data points out of Europe (Manufacturing PMI 53.10 vs. Exp. 52.80) and the UK (Jobless Claims Change 3.9K vs. Exp. 0.8K), however with reactions relatively muted given the focus on the FOMC later.

Asia-Pacific hours saw the continued divergence between CNH and CNY, with analysts at Informa noting that according to Citi data, short positions in CNH fell marginally last week, while contrasting data from BofAML shows that real money names have resumed selling after a brief spell of being net buyers.

The energy complex heads into the North American crossover seeing softness across the board, with WTI and Brent both in the red on the day, with the former residing around the USD 37.00/bbl handle and the latter below the USD 38.00/bbl handle. This comes after API crude oil inventories showed a build of 2300k (Prey. -1900k) and ahead of DoE crude oil inventories later today (Exp. -1500k, Prey. -3568k).

Gold was stable overnight and trades in modest positive territory as participants remained tentative ahead of today’s much awaited, key-risk FOMC decision. Elsewhere, copper and iron prices were mildly supported amid short-covering and an improvement in global risk sentiment. Finally, steel rebar futures showed some signs on stabilising overnight after the May future rose 1 %, although analysts warn that gains could be short-lived due to a lack of demand in China.

As well as the aforementioned Fed rate decision, today sees US housing starts, building permits and manufacturing PMI.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities drift higher after early choppiness to trade in positive territory in line with their US and Asian counterparts
  • USD heads into the North American crossover near intraday highs, with gains seen against GBP and JPY
  • Today sees one of the biggest events of the year in the form of the Fed rate decision, with housing starts, building permits, manufacturing PMI and DoE’s also scheduled from the US
  • Treasuries little changed as market awaits FOMC rate decision and Yellen presser amid expectations Fed will increase interest rates for first time in almost a decade.
  • Barring a shock, investors are about to find out how much stocks are worth in the absence of Fed support that has helped restore $15 trillion to share values since 2009
  • Currency traders are on alert for a repeat of dollar declines that followed the start of tightening cycles in 2004, 1999 and 1994 on speculation that a boost is already in the price
  • Merkel’s party colleagues expressed growing dismay at the prospect of a British exit from the European Union, with one lawmaker portraying Cameron’s planned referendum as an “existential risk” for Europe
  • U.K. wage growth slowed more than economists forecast, reinforcing the case for the Bank of England to keep borrowing costs at a record-low for now
  • Congressional leaders unveiled a broad package of spending and tax legislation that would avert a U.S. government shutdown and lift the 40-year-old ban on crude oil exports
  • Donald Trump’s rivals still haven’t figured out how to land a fatal blow against their party’s front-runner. That was true again on Tuesday, as the New York businessman survived the latest meeting of the party’s White House contenders
  • No IG or HY deals yesterday. BofAML Corporate Master Index OAS holds at +174, YTD range 180/129. High Yield Master II OAS tightens 24bp to +709 after reaching new YTD wide Tuesday; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian stocks gain, European stocks and U.S. equity- index futures rise. Crude oil lower, gold and copper higher

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Dec. 11 (prior 1.2%)
  • 8:30am: Housing Starts, Nov., est. 1.130m (1.060m)
    • Housing Starts m/m, Nov., est. 6.6% (prior -11%)
    • Building Permits, Nov., est. 1.150m (prior 1.150m, revised 1.161m)
    • Building Permits m/m, Nov., est. -1% (prior 4.1%, revised 5.1%)
  • 9:15am: Industrial Production, Nov., est. -0.2% (prior -0.2%)
    • Capacity Utilization, Nov., est. 77.4% (prior 77.5%)
    • Manufacturing (SIC) Production, Nov., est. 0.0% (prior 0.4%)
  • 9:45am: Markit US Manufacturing PMI, Dec. P, est. 52.6 (prior 52.8)
  • 2:00pm: FOMC Rate Decision, est. 0.25% to 0.5% range (prior 0% to 0.25% range)
  • 2:30pm: Fed’s Yellen holds news conference in Washington

DB’s Jim Reid concludes the rest of the overnight wrap


Despite Oil markets down around half a percent this morning, bourses in Asia are following much of the strength from yesterday’s showing in the US and Europe. There are broad-based gains across the bulk of the region with +2% gains for the Nikkei, Hang Seng, Kospi and ASX. Markets in China haven’t quite been as impressive although the Shanghai Comp and CSI 300 are still up +0.71% and +0.41% respectively. Credit markets across Asia, Australia and Japan are generally 2-3bps tighter also. US politics is also attracting a bit of attention with the news that US congressional leaders have agreed on a plan that will see the 40-year old ban on crude oil exports lifted. According to the FT the new spending plan would also avoid a looming possible government shutdown. The House is due to vote on the bill on Thursday.

On another day yesterday’s data would have probably garnered more attention than it perhaps got. That being said, yesterday’s inflation numbers in the US coming in more or less in line with expectations will have given FOMC policymakers one last sigh of relief. Headline CPI for November printed at 0.0% mom which was in-line with expectations, while the YoY rate nudged up to the highest this year at +0.5% (vs. +0.4% expected), a rise of three-tenths from October as some of the energy price reductions rolled out from last year. The monthly core reading also met expectations at +0.2% mom which has helped to push the YoY rate up one-tenth to +2.0%. Meanwhile, the December Empire manufacturing reading improved to -4.6 from -10.7 in November, with the new orders and inventories components also showing improvement. Elsewhere the NAHB housing market index was down 1pt this month to 61 (vs. 63 expected) and has dipped lower for two consecutive months now.

Over in Europe we saw the German ZEW survey for December rise 0.6pts to 55.0 (vs. 54.2) with the expectations survey also up, rising 5.7pts to 16.1. Over in the UK, headline CPI was a bit better than expected last month although still at a lowly 0.0% mom (vs. -0.1% expected). The YoY rate edged up two-tenths to +0.1% while the core was up one-tenth to +1.2% as expected. Sweden also generated a few headlines after the Riksbank made no change to its current policy rate of -0.35% and its current asset purchasing program, while also coming across a bit more hawkish than anticipated in its post-meeting statement.

Looking at the day ahead, the focus in the European session this morning is set to be on the flash December PMI’s where we’ll get the manufacturing, services and composite prints for the Euro area, Germany and France. The latest batch of UK employment indicators are also expected this morning, along with the November Euro area CPI reading. It goes without saying that the focus this afternoon will be on the conclusion of the two-day FOMC meeting where we’ll get the decision at 7pm GMT. The associated dot plots and any potential revisions will be closely scrutinized, while Fed Chair Yellen’s post meeting press-conference will also be in the spotlight. Prior to this, the economic data due out in the US today includes November housing starts and building permits, industrial and manufacturing production, capacity utilization and finally the flash December manufacturing PMI.

See you all on the other side.

Housing Starts Bounce As Permits Surge Most In 5 Years On Multi-Family Spike

Housing Starts rose 10.5% in November (after plunging 12% in October) as it appears weather-weakened construction caught back up with single-family starts recovering from the plunge in October.The South saw the biggest spike (up 21%) and Northeast fell 8.5%. Building Permits rose 11% MoM (after a 5.1% last month) as multi-family spiked from 446 to 566 (driven by a 22% spike in The Midwest and The West). This is the biggest MoM gain since Dec 2010.


Permits spiked most in 5 years, Starts surged…


Starts driven by single-family…


Permits driven by multi-family…


Welcome to the post-Fed rate-hike renter nation?


Charts: Bloomberg


A huge drop in industrial uSA production down .6% month over month
(courtesy zero hedge)

Industrial Production Crashes Most Since 2009, Weather Blamed

For the third month in a row US Industrial Production dropped MoM, crashing 0.6% in November (against expectations of a mere 0.2% drop). This is the 9th month of 2015 with no MoM increase in industrial production and is the biggest MoM drop since March 2012. However, for the first time since Dec 2009, Industrial Production fell YoY (down 1.2%) signalling America is deep in recession. The excuse, blame, is “unusually warm weather” which sent the utilities index down 4.3% as demand for heating tumbled.



So if the wealther was to blame for November, what was to blame for January, February, March, April, May, June, September, and October?

Charts: Bloomberg

Markit’s USA Manufacturing PMI plunges to its lowest level since 2012/  Factory orders, a big component collapses to 2009 level.
and the boys are raising rates today?
(courtesy zero hedge/Markit USA Manufacturing PMI)

US Manufacturing PMI Plunges To Lowest Since 2012 As Factory Orders Collapse To 2009 Lows

Following the collapse in industrial production, it is no surprise that Markit’s Manufacturing PMI has plunged to 51.3, its lowest since October 2012. Under the surface it is a disaster with production volume growth the softest since October 2013, and new orders crashed to worst since September 2009.


But do not ignore manufacturing because, as Markit notes,

Although manufacturing only accounts for around one-tenth of the economy, theManufacturing PMI exhibits a high correlation of 77% with GDP as industrial activity has an important cyclical impact on other parts of the economy.


With many sectors such as transport and business services dependent upon the manufacturing economy’s health, the downturn in the survey data sends a warning signal that the US upturn appears to be rapidly losing momentum as we move into 2016. However, the picture will become clearer with the publication of services PMI numbers on Friday.”

Seems like the perfect time to raise rates.

Charts: Bloomberg

Although  China remained relatively flat with respect to treasury holdings in October, other foreigners decided to liquidate a record 55 billion in USA treasuries as deficits were killing emerging markets which forced the above said liquidation.  Now that China has received confirmation that they are included into the SDR’s , they will continue to devalue their yuan and we should see continual liquidation of USA treasuries from her from this point in time onward.
(courtesy zero hedge)

Foreigners Sell A Record $55.2 Billion In US Treasuries In October

After several months of significant reserves liquidations by China (specifically by its Euroclear proxy “Belgium”) which tracked the drop in China’s reserves practically tick for tick, in October Chinese+Belgian holdings were virtually unchanged according to the latest TIC data, as China moderated its defense of its sliding currency. Of course, putting this in context still shows a China which has sold $600 billion of US paper since 2014, as this website was first to note over half a year ago.


And while we expect a prompt resumption of Treasury selling in the coming months following China’s recent aggressive devaluation of its currency, what was more notable in today’s TIC data was the consolidated total change of all foreign US Treasury holdings.

As shown in the chart below, following an increase of $17.4 billion in September, foreign net sales of Treasuries hit an all time high of $55.2 billion, surpassing the previous record of $55.0 billion set in January. In absolute terms, October’s total foreign holdings by major holders declined to $6,046.3 trillion the lowest since the summer of 2014.


What is the reason? There are two possible explanations, the first being that foreigners are unloading US paper (ostensibly to domestic accounts) ahead of what they perceive an imminent Fed rate hike which would pressure prices lower, or more likely, the ongoing surge in the dollar and collapse in commodity prices continues to pressures foreign reserve managers to liquidate US  Treasury holdings as they scramble to satisfy surging dollar demand domestically and unable to obtain this much needed USD-denominated funding, are selling what US assets they have.

Should this selling continue or accelerate in the coming months and if it has an adverse impact on TSY yields, it may also force the Fed’s tightening hand if, as some expect, the liquidation of foreign reserves becomes a self-fulfilling prophecy and leads to a material drop in Treasury prices.

Source: Treasury International Capital


Here is the next hammer to fall:  Collateratized leverage loans are getting hammers due to the low oil price:


(courtesy Idzelis/Bloomberg)

CLOs Hammered as Energy Rout Plays Havoc With Other Markets

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By Christine Idzelis at Bloomberg

The bust in commodities that’s roiling junk bonds is also taking its toll on funds that bundle corporate loans used to finance buyouts.

The riskiest slices of collateralized loan obligations raised after the financial crisis plunged 9 cents on the dollar since September to about 58 cents at the end of last month, down from 84 cents a year ago, according to JPMorgan Chase & Co. Intensifying price declines in recent months have led to one of the “more challenging years in recent memory,” JPMorgan analysts Rishad Ahluwalia and Jacob Kurosaki wrote in a Dec. 11 note to clients.

-1x-1 (10)

CLOs purchase high-yield, high-risk loans and bundle them into securities of varying risk and return. Investors in the lowest-ranked CLO slices, also called the equity tranche, are first in line to absorb any potential losses. The sell-off comes amid concern about the creditworthiness of speculative-grade borrowers as volatility spreads beyond the energy sector.

“The price declines are alarming and worrying,” Ahluwalia, JPMorgan’s head of global CLO research, said in a telephone interview.

While CLO equity holders have continued to receive cash flow payments, the price drop signals investors are worried that their returns are imperiled by “stress” in the corporate credit markets, according to London-based Ahluwalia.

Commodity Exposure

Since the end of October, loans have seen losses in all but the chemicals sector, according to JPMorgan. A typical portfolio of hardest-hit CLO managers has “above-average exposure to commodity sectors and potentially also low-priced credits in other sectors including healthcare and technology,” the analysts wrote.

Oil has tumbled below $37 a barrel, down more than 65 percent from last year’s peak.

Leveraged loans have lost 2.6 percent this year in the U.S. and are heading for their first annual decline since 2008, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index. U.S. junk bonds have tumbled about 4.7 percent, Bank of America Merrill Lynch index data show.

A retreat by CLO equity investors, who typically include hedge funds, will make it more difficult for managers to raise new investments, Ahluwalia said.

CLOs have pooled about $96 billion in the U.S. this year, according to JPMorgan. The bank has forecast issuance will drop to as low as $60 billion in 2016 due in part to risk-retention rules and an expected decline in loan supply.

“Investors are concerned about credit risk,” Ahluwalia said. “December seems likely to be another challenging month.”

We have been telling you that the Fed would have to drain 800 billion uSA in order to raise rates by 1/4%.  Now Citibank states that it will be as much as one trillion usa per 1/4% rate hike.  If they get to 1% then 4 trillion will have to be removed.  Remember that this money is not inert, it is used in all of the shadow banking sector’s collateral moves:
(courtesy zero hedge)

Fed May Have To Drain As Much As $1 Trillion In Liquidity To Push Rates 25 bps Higher

It’s 2:00:01 pm and the Fed has just announced it will hike rates by 25 bps while using very dovish language to convey that just like “tapering was not tightening” in 2013, so “tightening isn’t really tightening”, and unleashing a massive buying order.

So far so good. But the real question is what does this mean for post-kneejerk market dynamics, and the one most important variable of all: liquidity.

The all too crucial, and overdue, answer to this question will be delivered when the Fed releases its “implementation note” concurrently with the FOMC statement which should explain all the nuances of just how the Fed will adjust the IOER-Reverse Repo piping that will be crucial to pull of the rate hike in practice, something which has been stumping

Two weeks ago, we cited repo-market expert E.D. Skyrm who calculated that moving general collateral higher by 25bps would require the Fed draining up to $800 billion in liquidity: “In 2013 on my website, I calculated that QE2 moved Repo rates, on average, 2.7 basis points for every $100B in QE. So, one very rough estimate moved GC 8 basis points and the other 2.7 basis points per hundred billion. In order to move GC 25 basis points higher, in a very rough estimate, the Fed needs to drain between $310B and $800B in liquidity.

That may be conservative.

According to Citigroup’s latest estimate, the liquidity drain could be substantially greater. Here is the take of Jabaz Mathai

There will be a separate document from the NY Fed with details around the operational aspects of the liftoff. Of primary interest will be the size of the overnight reverse repo facilitythat the Fed will put in place to pull short rates higher. We don’t think it will be unlimited, but a size large enough that will keep short rates from falling below the 25bp floor – and the size could be as high as $1tn.

Putting this liquidity drain in context, the entire QE2 injected “only” $600 billion in liquidity in the span of many months, suggesting that as of tomorrow, the Fed may drain as much as 166% of its entire second quantitative easing operation overnight.

Whether that liquidity is inert and can be easily released by banks, and more importantly, non-banks without resulting in any additional risk tremors is the first $640 billion question that the Fed is facing. The second, third and fourth? Assuming a linear relationship and another 3 rate hikes until the end of 2014, this means that by the time short term rates hit 1%, the Fed may have soaked up as much $4 trillion in liquidity. Here one thing is certain: a $1 trillion drain may not have a material impact when starting from a $2.6 trillion excess reserve base. $4 trillion, however, will leave a mark (the Fed’s entire balance sheet is $4.5 trillion) especially once the market starts to discount just how the rate hike plumbing takes place.

 Another hedge fund, Bill Ackman’s Pershing square did not have a good year:
(courtesy zero hedge)

Bill Ackman Warns 2015 May Be “The Worst Performance Year In Pershing Square’s History”

With Bill Ackman’s Pershing Square increasingly becoming a levered bet on the fate of Valeant, which moments ago, ahead of its investor day, cut both its revenue and profit forecasts for both the quarter and the full year as follows:

Q4 2015 Revised Guidance

  • Total Revenues previously $3.25 – $3.45 billion now $2.7 – $2.8 billion
  • Adjusted EPS* previously $4.00 – $4.20 now $2.55 -$2.65
  • Adjusted Cash Flow from Operations* previously greater than $1.0 billion, now greater than $600 million

Full Year 2015 Revised Guidance

  • Total Revenue previously $11.0 – $11.2 billion now $10.4 -$10.5 billion
  • Adjusted EPS* previously $11.67 – $11.87 now $10.23 -$10.33
  • Adjusted Cash Flow from Operations* previously greater than $3.35 billion, now greater than $2.95 billion

… overnight the silver-haired manager released a letter with an appropriate warning: “If the year finishes with our portfolio holdings at or around current values, 2015 will be the worst performance year in Pershing Square’s history, even worse than 2008 during the financial crisis when the funds declined by 12% to 13%. You might therefore find it surprising that we believe that 2015 has been a good year for our portfolio companies.”

He then, rhetorically asks, “how can this be?

Here is his full answer from his December 15 letter to investors:

We have often described our strategy as the implementation of a private equity approach to the public markets – with nearly all of the control-oriented benefits of private equity without the negatives, i.e., the requirement to pay large premiums for control, the necessity of using large amount of leverage in order to win competitive auctions, and the inherent illiquidity of private investments.

In light of the liquidity of our publicly traded portfolio, we receive a minute-by-minute indication of the market value of our holdings. Over the long-term, the portfolio’s mark-tomarket value is by far the most appropriate measure of our success. In the short term, however, it can create a misleading perception of our progress.

While we certainly observe and monitor the daily prices of our holdings, our principal focus is the underlying business progress of our portfolio companies and their changes in intrinsic value, which we determine largely based on our assessment of the discounted cash flows we expect them to generate over time. By this measure, we believe that the intrinsic value of the portfolio increased materially over the course of the year. Growth in the intrinsic value of our holdings is the most important determinant of our long-term success.

While we believe that the portfolio’s intrinsic value increased, the mark-to-market value of our portfolio has declined substantially since the beginning of the year. As a result of this divergence, we believe that the Pershing Square funds are trading at perhaps the greatest discount to their intrinsic value that we have seen since the inception of the firm.

With a large and growing divergence between intrinsic value and market value, the stability of our capital becomes an even more important factor in our long-term success. In recent years, we have made material improvements to the stability of our capital. With the launch of Pershing Square Holdings, Ltd. (PSH), substantial growth in employee investments in the funds, and the $1.0 billion bond offering by PSH, nearly half of our capital is effectively permanent. The balance of our funds is also quite stable as the substantial majority of our private funds has one-eighth per quarter liquidity and is held by investors (other than several new investors who joined in the last year), who have made large profits over many years of investment in Pershing Square.

Despite the substantial decline in the funds’ performance from August to the present, our net redemptions were nominal at $39 million or 0.2% of capital for the third quarter, and $13 million or 0.1% in the fourth quarter. As a result, we have not been forced to raise cash as the portfolio declined, but have been able to be opportunistic. The recent substantial increase in our economic exposure to Valeant at recent lows in the stock is a good such example.

As the largest investors in the funds, we viscerally experience the mark-to-market decline in the portfolio along with our investors. That said, we believe it is a useful exercise to think about the Pershing Square portfolio as if it were comprised of private companies. If our holdings were solely private companies, one would be focused almost exclusively on the companies’ underlying business progress. Judged on this basis, the companies that represent the substantial majority of our capital have delivered strong year-to-date results which have contributed to significant increases in their intrinsic values. As you will read in the detailed summaries of each investment below – Mondelez, Valeant, Air Products, Canadian Pacific, Zoetis, Howard Hughes, and Restaurant Brands – all have reported strong results, and we expect them to continue to do so. The company we are short, Herbalife, reported poor results, substantially reduced earnings guidance for 2016, and large quarter-on-quarter increases in regulatory defense costs.

Platform Specialty Products which represents a small portion of the portfolio (currently 3.5%, at peak valuation, 6.3%), generated results that were below our expectations due to execution issues, foreign currency effects, as well as other factors specific to certain of its business units. While disappointing, we view these factors as generally short-term in nature and addressable over the short to intermediate term.

In summary, we believe the portfolio increased in intrinsic value over the course of the year while substantially declining in market value. We much prefer growth in intrinsic value than short-term increases in market value without corresponding progress in intrinsic value. Market value declines during periods of intrinsic value growth create opportunities for long-term profits, as our funds and our portfolio companies are able to purchase shares at attractive valuations.

You might be surprised to see Valeant on our list of companies whose intrinsic value increased this year in light of the controversy around Valeant’s specialty pharmacy distribution channel, regulatory subpoenas, and drug pricing. When we first began acquiring our stake in Valeant for approximately $160 per share (our initial position’s average cost was $196), analyst cash earnings estimates for 2016 were $11.89 per share. Over the course of the year, Valeant made a number of small acquisitions in addition to its large opportunistic purchase of Salix. The result of these transactions and the related synergies increased our estimates for cash earnings to about $15.90 per share for 2016 and larger amounts in later years, substantially increasing our estimate of Valeant’s intrinsic value.

When Valeant’s specialty pharmacy (Philidor) and drug pricing controversies came to light, we assessed the impact of these developments on future revenues, earnings and cash flows. While we believe that 2016 cash earnings will likely be somewhat lower than our initial estimate, we do not believe that Valeant’s long-term earnings prospects have materially changed. While there remains uncertainty with respect to Valeant’s business, we believe the company’s business value has grown considerably since our initial investment despite recent negative developments, unfavorable press, some reputational damage, and short-term disruption to the company’s distribution of dermatology products.

Had Valeant been a private company, we believe that the controversy surrounding its specialty pharmacy and drug pricing issues would not have been as newsworthy nor perceived as material to the company’s intrinsic value. As a public company, Valeant’s stock price precipitous decline gave credence to the short sellers’ attacks on the company, and the corresponding media coverage caused some reputational damage. That said, we believe the impact on intrinsic value will ultimately be modest and the reputational damage can be mitigated. Valeant has begun to address these reputational issues with greater transparency and responsiveness to short seller attacks and inaccurate press, and will continue to do so at an analyst day tomorrow where senior management will spend more than four hours with investors and analysts.

In summary, while it is important to monitor mark-to-market developments in the short term, growth in long-term intrinsic value will ultimately be determinative of our success or failure. To paraphrase Benjamin Graham, in the short term, the market is a voting machine, representing the short-term whims of investors. Over the long term, the market is a weighing machine when market prices become a better representative of intrinsic value. While we cannot guarantee returns, we can guarantee that we will implement an investment strategy and process that we believe will continue to lead to long-term attractive rates of return.

* * *

More in the full letter below


Old rusted pipes in Flint Michigan has caused lead levels in the water to be at disastrous levels

(courtesy Carey Wedler/The

State Of Emergency Declared In Michigan City After Lead Found In Children’s Blood

Submitted by Carey Wedler via,

The City of Flint has experienced a Manmade disaster,” said the city’s mayor Monday evening, as she declared a state of emergency over evidently staggering levels of lead in the city’s tap water. Mayor Karen M. Weaver has requested federal assistance to deal with the fallout from over a year’s worth of tainted water delivered to Flint residents and, allegedly, falsely declared safe by government officials.

In September, news broke that lead contamination was on the rise in Flint. Dr. Mona Hanna-Attisha of the Hurley Medical Center concluded that since the water supply switched from the Detroit system to Flint River in April 2014, the number of infants and children with elevated levels of lead in their blood haddoubled, from 2.1% to 4%. While the rise seems small, it is statistically significant. Even so, Attishawarned:My research shows that lead levels have gone up. I cannot say it’s from the water. But that’s, you know, the thing that has happened.

The World Health Organization sayslead affects children’s brain development resulting in reduced intelligence quotient (IQ), behavioral changes such as shortening of attention span and increased antisocial behavior, and reduced educational attainment. Lead exposure also causes anemia, hypertension, renal impairment, immunotoxicity and toxicity to the reproductive organs. The neurological and behavioral effects of lead are believed to be irreversible.

The high levels of lead have been attributed to old pipes and plumbing, which researchers say rubs off more into Flint River water than it does other sources. Because the water itself is more corrosive than other supplies, it erodes the pipes it flows through, picking up lead along the way.

Flint River is one of the filthiest rivers in Michigan. Over the years, it has housed raw sewage, tires, old refrigerators — which residents have attempted to sift out — and lead. In spite of this, officials declared it safe to drink in April 2014, when they switched the supply to the tainted river.

The change was widely attributed to the city’s switch from Detroit’s water system to the Flint River under the leadership of the city’s previous mayor, Dayne Walling. The shift in supply was a result of failed procedures and negotiations to continue purchasing the water.

Shortly after the April switch, residents complained the water emitted a foul odor and was cloudy in appearance, but local and state officials insisted the water was safe. In spite of these assurances, in January 2015, MLive reported the State Department of Environmental Quality had “issued a notice of violation of the Safe Drinking Water Act for maximum contaminant levels for trihalomethanes — or TTHM — a group of four chemicals that are formed as a byproduct of disinfecting water.

These chemical byproducts are linked to cancer and other diseases, and presented a separate issue from the lead.

The water was so dirty that in October 2014, General Motors announced it would no longer use treated Flint River water at its engine plant out of fears it would cause corrosion.

Amid growing concerns, parents started buying gallons of bottled water to avoid the Flint River supply. Those who couldn’t afford it, as the Washington Post noted, “drank it straight from the tap all the same, knowing that they would be paying for it later. When it came to bathing, some slowly filled bathtubs with pots of boiled water for their children.

By October 2015, protests, petitions, and public outrage led Governor Rick Snyder to promptly switch the water supply back to the Detroit System, until Lake Huron’s Karegnondi Water Authority pipeline is ready for use. It is estimated to be operating by the end of 2016.

According to the governor’s press secretary, David Murray, an “action plan” created by Snyder amid the protests provides “free water testing, free water filters and the accelerating of corrosion controls in the drinking water system.

Even so, concerns over lead poisoning remain at the forefront of many resident’s lives. In November, a class-action suit representing tens of thousands of residents was filed against Snyder, the city, the state, and 13 other public officials. It claims that “For more than 18 months, state and local government officials ignored irrefutable evidence that the water pumped from the Flint River exposed [residents] to extreme toxicity. The deliberately false denials about the safety of the Flint River water was as deadly as it was arrogant.” The suit claims officials deprived residents of their 14th amendment rights by deliberately providing them with water they knew to be toxic.

The plaintiffs allege their health complications include “skin lesions, hair loss, chemical-induced hypertension, vision loss and depression.” Four families are described in the complaint, two of which say they ceased using the water and still suffered medical hardship.

Murray said the governor’s office disagreed with points in the suit but declined to comment further.

As a result of the apparent health ramifications, Mayor Weaver anticipates an increased need for certain services in the years to come. In her declaration of emergency on Monday, she argued increased learning disabilities and lower IQs caused by lead will require increased special education services, among other resources. She called for a Special Meeting of the Genesee County Board of Commissioners no later than this month.

Her declaration received mixed reviews from city councilmen. Scott Kincaid praised the move for alerting federal authorities of the dire situation. Josh Freeman, however, warned residents not to expect immediate change because of the mayor’s statement. “We need to find a way to actually fix the problem,” Freeman said. “This declaration does not [fix the problem].“

Either way, one sentiment remains consistent: As the class-action suit alleges, authorities “violated the constitutional rights of Plaintiffs and Plaintiff Class members by acting in a manner that shocks the conscience and was deliberately indifferent to the those constitutional rights, as well as to the health and well-being of the Plaintiffs.

 The Fed is out of dry powder..
(courtesy David Stockman/ContraCorner)

a must read

Today Will Be A Watershed Moment For Financial Markets

Submitted by David Stockman via Contra Corner blog,

I believe the world is at the greatest financial market inflection point since 1929. One that calls for a basic truism:

You can make a profit in a rising market if you are long. And you can profit in falling market if you are short.

The $64 million question is: How can you know the market’s direction?

There are all kinds of financial advisors, market seers, chart readers and fancy investment formulas. Each purports to answer that question. But all of these assume some kind of steady state world in which the future unfolds in a grand cycle based on past history.

“Just get some good pattern recognition software” a financial TV advertisement might tell you, and “you’re all set to make a killing.”

I don’t believe that for a second. We are in uncharted waters after nearly 20 years of madcap money printing by the Fed and other central banks.

Everything has been wildly inflated – stocks, bonds, real estate – and also the entire real economy as measured by global GDP. That includes trade volumes, capital spending, commodity prices, energy and mining capacity, manufacturing investment, bulk carriers and containerships. Also, warehouse and distribution facilities, brick and mortar retail space and much, much more.

But before we get to some of the facts about this great financial deformation, let me get right to the investment thesis. The world’s central banks are finally out of dry powder. They no longer have the means to inflate the global credit and financial bubble.

That’s why I’m calling today’s FOMC meeting the most crucial inflection point since 1929.

We have reached the apogee of history’s greatest credit inflation. Now we’re hurtling into a prolonged worldwide deflation. You can already see this deflation in the plunge of oil, iron ore, copper and other commodity prices.

The Bloomberg Commodity index has fallen 70% since its 2008 peak. And it has now reverted to levels not seen since 1999 — while falling lower by the day.

For a while Wall Street trumpeted all of this as the “commodity supercycle.” They insisted that $120/barrel oil and $200 per ton iron ore were a sign of unprecedented growth and prosperity.

But that’s nonsense. It was the manifestation of an orgy of credit expansion that was unsustainable, and destined to end in a fiery crash. The one happening now.

Central banks are pushing on a string. They can’t generate more credit no matter how hard they try because most of the world is at what I call “peak debt.” That’s the point where households, companies, governments and even countries are tapped out. They’re stuck with such monumental debt burdens that they can’t service any additional debt no matter what the interest rate — even zero or below.

Case in point: The European Central Bank (ECB) has pushed deposit rates in Europe to negative 0.3%. Yet, private credit to households and business remains flat. That’s because they are already swamped with more debt than they can handle in an economic context of virtually no real growth.

Likewise, Japan is off the charts with public and private debt equal to 450% of GDP. But despite years of zero interest rates and massive money printing by the Bank of Japan (BOJ), credit stopped growing long ago. Japan is now in its fifth recession in seven years.

And now the Fed is pinned between that kind of rock and hard place, too. It has kept the money market interest rate pinned at zero for 84 months running. It has been truly lunatic.

You can’t have free short-term money forever. It would allow financial gamblers to fund their speculations — so-called carry trades –with zero cost money indefinitely. You don’t need to know much about human nature to know that’s a recipe for a speculative mania and a subsequent bust.

At the same time, this so-called business expansion is getting long in the tooth. It’s been 78 months since the June 2009 bottom. The average post-war economic expansion lasted only 60 months. And only one lasted appreciably more than the present cycle. That was in the 1990s, before we had $19 trillion of public debt and nearly $60 trillion of total credit outstanding including households, business, finance and government.

The Fed has dithered and equivocated itself right into an impossible corner. When it raises interest rates — even by 25 basis points — tomorrow, it will begin tightening right in the teeth of the next recession. The economic downturn is already gathering force throughout the world. And, in my judgment, it will hit American shores next year or shortly thereafter.

Of course, our clueless Keynesian money printers at the Fed think the U.S. economy is looking just peachy. That’s because they track the wrong indicators. Especially the heavily manipulated, seasonally maladjusted and constantly revised jobs numbers published by the Bureau of Labor Statistics (BLS).

Most of the jobs they keep reporting are what I call “born again” jobs that were lost in two recessions so far this century and then temporarily recovered again. Or they are part-time jobs in bars, restaurants, retail stores and temp agencies that pay less than $20,000 at an annualized rate.

By contrast, if you look at full-time, full pay jobs in manufacturing, energy, mining, white collar professions, information technology, business management and services or finance and real estate, there are currently 70.5 million of these breadwinner jobs. That’s 3% less than 16 years ago when Bill Clinton was still in the White House.

The Fed is looking at the illusion of recovery, not the real thing. If it were real, we would not have 102 million adult Americans without jobs. Or a real median household income of only $54,000 — a level originally reached way back in 1989.

And we would not still have 46 million citizens on foods stamps compared to 18 million at the turn of the century. Or 35% of the population receiving some form of public assistance.

We can cut to the chase: The Fed’s drastic spree of so-called extraordinary policies – zero interest rates (ZIRP) and quantitative easing (QE) – have backfired. They inflated the Wall Street casino and crushed honest savers and retirees. They’ve also left the Main Street economy stranded in the weakest recovery since World War II.

That’s not hyperbole. Other than on a very short run basis due to the plunge of oil and commodity prices, consumer inflation has been running about 2% per year. Based on historic patterns and the principles of sound money, nominal interest rates should be in the 4-5% range to allow for a real return for risk, illiquidity and deferral of consumption by savers.

The difference between that and current zero rates is astonishing when viewed at the macro level.

Since there are upwards of $10 trillion of bank deposits and like savings in the US economy, the Fed’s ZIRP or zero interest policy results in the arbitrary and unjust transfer of some $400 billion per year of interest from savers to borrowers, banks and Wall Street speculators.

Consider a working American who spent 40 years at the median wage, lived frugally, and managed to accumulate a nest egg of $250,000. If he is now retired and needs to stay liquid for health or family reasons or out of prudence and therefore has his money invested in CDs or treasury bills, here’s what he gets: $750 annually. That’s less than one Starbucks cappuccino per day! That’s right. One cappuccino for a lifetime of thrift.

The point here is not to harp about the injustice of it all. The point is that this very same injustice has massively distorted the financial system and created the set-up for the next stock market crash.

But another stock market meltdown does not mean that you need take it on the chin again… maybe for the third time in the century.

The markets are not remotely prepared for the deflationary recession that is now engulfing the world economy. That’s why today’s action by the Fed is going to be such a shock. While there may at first be a dead cat bounce or an effort by the robo-traders and hedge fund speculators to spark a relief rally, it will be short lived.

Then the morning after will set in. As the signs of global deflation and recession become increasingly frequent and obvious, the casino gamblers will come to realize that the Fed is out of dry powder. It will be powerless in the face of the coming downturn.

That’s where my event recording and brand-new project will make all the difference. Its purpose is to help you spot the most compelling opportunities to profit from a falling market. Please view both the video and my special invitation  now by clicking here.


Let us close with this conversation between Michael Pento and Greg Hunter

(courtesy Greg Hunter/USAWatchdog)


Worldwide Credit Bubble Bursting Now-Michael Pento

4Greg Hunter’s

Analyst/money manager Michael Pento says the Fed plans on raising interest rates multiple times. Pento explains, “The Fed isn’t going to do a one-and-done rate hike scenario like Wall Street would like you to believe. The Fed publishes . . . where they think the Fed Funds Rate . . . will be at a certain point in time. . . . At the end of next year, the median ‘dot plot’ is 1.5% on the overnight lending rate. So, the Fed is not going to raise one time and retire and go home, and that is not even the most important point. The most important point is we have reached a point where we are entering into a global recession, and this global recession is going to occur even if the Fed did not raise interest rates more than one time. It’s happening now.”

Pento, who wrote the 2013 book “The Coming Bond Market Collapse,” says almost every country in the world is in deep financial trouble and contends, “You’re seeing the bursting of this worldwide credit bubble, and the first cracks are appearing in junk debt. . . . Global debt is up to $230 trillion. That is a $60 trillion increase since the Great Recession. All of this debt has been issued at artificially low prices. . . . The global economy has never been more addicted to 0% interest rates ever before in the history of economics or the history of the world. You are starting to see that crack, and that crack is going to occur . . . all the metrics I look at are screaming recession outside of the Fed’s rate hike.”

So, if the global economy is slowing down no matter what, why raise interest rates? Pento says, “Yellen has boxed herself into a corner . . . she wants to make people confident in the economy. She wants to fulfill that confidence by going off zero. . . . They are going off zero to maintain the illusion of credibility.”

If the global economy tanks in 2016, what will Fed Head Janet Yellen do then? Pento contends, “It doesn’t change the intractable motion towards a recession. So, she’s going to have to take back that interest rate hike. She goes back into QE sometime in 2016. . . . I think the U.S. dollar is really in jeopardy here because the ‘dot plots’ say we are going to be at 1.5%, and I don’t think we ever get there without completely flattening out the yield curve and sending the U.S. economy into a depression. If that’s the case, how can the U.S. dollar maintain where it is? I think it rolls over, and I think it rolls over hard. . . .The U.S. dollar has been king for the past several years. I think that all comes crashing down, and gold will once again come to the fore . . . As far as I know, God is not making any more elements that are beautiful, rare and indestructible. So, gold is real and honest money, and it will be once again thought of as that even from the ‘robo’ day traders.”

Join Greg Hunter as he goes One-on-One with Michael Pento of Pento Portfolio Strategies.

(There is much more in the video interview.)


See you tomorrow

One comment

  1. Dyslexia reigns…
    dec 16/no changes in gold inventory at the GLD/inventory rests at 643.63 tonnes.

    Dec 15.2105/no changes in gold inventory at the GLD/Inventory rests at 643.63 tonnes

    Dec change in gold inventory at the GLD/Inventory rests at 634.63 tonnes


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