Gold: $1081.90 up $15.90 (comex closing time)
Silver $14.30 up 22 cents
In the access market 5:15 pm
At the gold comex today, we had a good delivery day, registering 92 notices for 9200 ounces.Silver saw 17 notices for 85,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 198.88 tonnes for a loss of 104 tonnes over that period.
In silver, the open interest fell by 2632 contracts even though silver was up in price by 40 cents with respect to Friday’s trading and without a doubt we had more 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 163,252 contracts. In ounces, the OI is still represented by .816 billion oz or 116% of annual global silver production (ex Russia ex China).
In silver we had 17 notices served upon for 85,000 oz.
In gold, the total comex gold OI fell 3363 contracts to 399599 contracts despite the fact that gold was up $15.40 in price with respect to yesterday’s trading. Again short covering by the banks was the order of the dday.
We had a huge deposit tonight in gold inventory at the GLD, a total of 15.77 tonnes of gold added/ thus the inventory rests tonight at 645.94 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 withdrawal in inventory at the SLV of 1.43 million oz/Inventory rests at 322.079 million oz
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver fall by 2632 contracts down to 163,252 despite the fact that silver was up in price to the tune of 40 cents with respect to Friday’s trading. The total OI for gold fell by 3,363 contracts to 399,599 contracts despite the fact that gold was up $15.40 in price
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
Last night, SUNDAY night, MONDAY morning: Shanghai up , Hang Sang falls, Chinese yuan finally rises a bit to 6.4874. Stocks in Asia mixed, including a downfall in Japan . Oil falls in the morning,. Stocks in Europe up with the exception of Spain as we have no clear winner and forming a coalition to lead will be difficult:
ii) Huge mud slide in Shenzen causes 33 buildings to disappear as well as 91 people are missing
iii) Fukushima disaster exposed as radiation is spreading towards the west coast of Canada and the uSA
iv) We now have moves from the west trying to curtail the powers of the east.
4. EUROPEAN AFFAIRS
i) Spanish election inconclusive as they will need a coalition government to run the country. Probably we will see another election my March
ii) And the Germans believe that the taking of these migrants is a success?
iii) Let’s move onto Portugal where we now have a second bank in trouble and they are rushing to provide over 3 billion euros in bailout money to save Portugal’s seventh largest bank; Now that we have a left government in power who will not be in sync with Brussels
(courtesy zero hedge)
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i) NATO sends a message of support to Turkey but urges them to be responsible:
( Sputnik news)
ii) We now have 3 alliances set up in the middle east:
i) France, Germany and Great Britain : anti Assad, anti terror,
ii) Turkey, Saudi Arabia, Qatar (pro sunni extremeist and funding terror, anti Assad,
iii) Russia, Iran, Iraq, Syria: pro Assad and anti terror
( zero hedge)
iv) After several years, Turkey finally reaches out to Israel for help
( Shoshana Bryen/Gatestone Institute)
v) The middle east tension gets hotter by the minute. Israel assasinates a notorious terrorist in a big airstrike on Damascus despite the SAM 300 missiles:
( zero hedge)
6. GLOBAL ISSUES
Container volumes falling rapidly. This should give you a good snapshot on global trade and it is getting worse:
( SouthBay Research)
7. EMERGING MARKETS
Argentinians woke up poorer with this massive devaluation
( zero hedge)
8. OIL MARKETS
i)Moody’s just places 29 investment grade oil/natural gas companies on credit watch for possible downgrades.
Moody’s is suggesting that oil/natural gas companies are going to have a terrible time of it in the coming year:
( zero hedge/Moody’s)
ii) Oil plunges into the 33 dollar handle:
9. PHYSICAL MARKETS
i) Koos Jansen gives a good review as to why gold withdrawals from the SGE equate to Chinese demand ex sovereign purchases
ii) Times of India reports on the reluctance of temples to part with their value gold relics
(Times of India)
iii) Rangold departs from the big Ghana gold project
iv Bill Holter’s dynamic piece tonight is entitled:
“In your face “Black Swan”!
v)Gold demand from Russia: a very large 21.8 tonnes
10. IMPORT USA STORIES WHICH WILL INFLUENCE GOLD AND SILVER
i) When the Fed orchestrates QE they always provide liquidity as they purchase securities for cash and put these securities on the Balance Sheet. The cash is the liquidity used by the financial community. When you tighten the opposite must happen in that the Fed always sells securities for cash and thus withdrawing that liquidity. For the first time, the Fed did not drain liquidity save for 3 billion dollars. The interest rates rose by decree and not by any draining…
very important read
ii) Apple stock falters as the company lowers its price of Apple I 6 by 16%/sales are faltering
iii) Huge gas leak (methane gas) in California that is not contained
iv) I guess that the Chicago Fed is not part of your dependent data. It missed expectations again as it tumbled to lows last seen since May/ Strange that they caused interest rates to rise with a lousy national Chicago Fed data!!
v) Money is leaving hedge funds by the bucketful!
vi) Since the USA will be paying up .5% interest per year in excess reserves, it looks like the Fed will be handing out 11 billion USA dollars in riskless profits to foreign banks courtesy of USA taxpayers:
Let us head over to the comex:
The total gold comex open interest fell to 399,599 for a loss of 3363 contracts despite the fact that gold was up by $15.40 in price with respect to Friday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, the latter scenario stopped cold as the outstanding OI in that front month actually rose. We are now in the big December contract which saw it’s OI rose by 8 contracts from 1121 up to 1129. We had 94 notices filed on Friday, so we gained 102 contracts or an additional 10,200 oz will stand for delivery in this active delivery month of December. Somebody was in urgent need of physical gold today. The next contract month of January saw it’s OI fall by 26 contracts down to 566. The next big active delivery month is February and here the OI fell by 4665 contracts down to 280,730. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 120,599 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 126,982 contracts. The comex was in backwardation in gold up to April. The spread from December to January is an unheard of $1.30. It seems that the comex is out of gold to supply longs.
December contract month:
INITIAL standings for DECEMBER
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||6430.000 oz
|Deposits to the Dealer Inventory in oz||
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||92 contracts
|No of oz to be served (notices)||1037 contracts
|Total monthly oz gold served (contracts) so far this month||1130 contracts(113,000 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||200,301.0 oz|
Total customer deposits nil oz
DECEMBER INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||305,244.630 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||594,850.820 oz
|No of oz served today (contracts)||17 contracts
|No of oz to be served (notices)||335 contracts
|Total monthly oz silver served (contracts)||3630 contracts (18,150,000 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||6,024,102.0 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 JPM: 594,850.820 oz
total customer deposits: 594,850.820 oz
total withdrawals from customer account: 305,244.630 oz
we had 1 adjustments:
Out of CNT:
we had 25,153.100 oz leave the customer account and this landed into the dealer account of CNT
And now the Gold inventory at the GLD:
Dec 21/tonight a huge deposit of 15.77 tonnes of gold was added to the GLD/Inventory rests tonight at 645.94 tonnes
(With gold in backwardation it is highly unlikely that physical gold was added/probably a paper gold addition.)
Dec 18.2015: late last night: a huge withdrawal of 4.46 tonnes of gold/Inventory tonight rests at 630.17 tonnes
DEC 17.no changes in gold inventory at the GLD/Inventory rests at 634.63 tonnes/
dec 16/no changes in gold inventory at the GLD/inventory rests at 634.63 tonnes.
Dec 15.2105/no changes in gold inventory at the GLD/Inventory rests at 634.63 tonnes
Dec 14.no 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
And now your overnight trading in gold and also physical stories that may interest you:
5 Key Charts Show Rising Interest Rates Good For Gold Bullion
Gold fell to the lowest level in dollar terms since 2009 yesterday after the Fed’s “historic” 25 basis point interest rate rise on Wednesday. The rate hike has been heralded as the “end of cheap money.” This may or may not be the case but what is more important for precious metal buyers is the impact of potential rising rates on gold prices.
Most pundits on Wall Street are nearly universal in seeing the rate increase as negative for gold. Especially vocal in this regard has been Goldman Sachs. One headline this week, screamed ‘Gold sags as higher U.S. rates are ‘very negative’ for bullion’. However, the consensus is likely once again wrong and it is important to examine the widely held belief that rising rates are bad for gold, by looking at the data and the historical record.
Firstly, let’s look at the basis for the simplistic “rising rates will lead to lower gold prices” narrative. It comes about due to the belief that rising rates will lead to higher yields and thus investors allocating more funds to bonds and deposits. As gold is a non yielding asset, this therefore is negative for gold or so the narrative goes.
Goldman Sachs is the leading propagator of the narrative and is unquestioningly quoted in the media as seen in this article from Bloomberg in October:
“The Federal Reserve will probably raise interest rates in December and follow that with a further 100 basis points of increases over 2016, according to Goldman Sachs Group Inc., which said the shift in U.S. monetary policy will hurt gold”
As with all narratives, there is a small degree of truth to it. However, as ever the devil is in the detail. Janet Yellen increased the Fed’s key interest rate by a meager 25 basis points to between 0.25 percent and 0.50 percent. Thus, ultra loose monetary policies will continue for the foreseeable future – an environment that is unquestionably favourable to gold.
Despite the rate rise, depositors are not getting the benefit of the rate rise. Quite the opposite, immediately after the decision, many of America’s leading banks announced that they were increasing their prime lending rates — the rate at which individual banks lend to their most creditworthy customers — to 3.5 percent effective the following day. Already, many American companies are being impacted by the rate rise. The deposit rate, however, which is the interest rate banks pay to its account holders, will remain unchanged.
The average interest rate on a savings account is a tiny 0.5 percent right now, according to Bankrate. Even after the rate hike, interest on deposits will remain near zero and are negative when inflation is taken into account. Thus, savers are losing money keeping their cash on deposit and today they are also at risk of having their savings expropriated due to the real risk of bail-ins in most G20 nations.
Negative real interest rates is positive for non-yielding, but counterparty risk free gold bullion.
Having looked at the basis for the simplistic narrative, lets now look at the data and historical record.
The most recent example we have of rising interest rates is when the Fed increased interest rates from 2003 to 2006. As can be seen in the charts and table above, in June 2003, the Fed funds rate was at 1% and by June 2006, it had been increased to over 5.5%.
At the time, there was a similar narrative that rising interest rates would scupper the gains gold had seen in 2001 and 2002. Instead, the period of rising interest rates saw gold rise from $361/oz in June 2003 to $633/oz in June 2006 – a gain of 75%.
The other data set and a second clear example of a rising interest rate environment and rising gold prices is from the 1970s. The Federal Funds Rate rose from below 4% in 1971 to over 18% in 1980. During the same period, gold rose by 2,400% – from $35/oz to $850/oz.
In the short term, increases in interest rates can be negative for gold. But, in the medium to long term rising interest rates are positive for gold as they were in the 1970s and the 2003 to 2006 period. When interest rates return to more normal levels – above 5% – and positive real returns, only then gold will be vulnerable to weakness as savers and investors become enticed by higher yields.
We are a long way from there yet and gold is likely to be correlated with rising interest rates and only fall towards the end of an interest rate hiking cycle. It is important to remember that the 1970s gold bull market only ended with interest rates close to 20%.
Also rising interest rates are not positive for margin and debt-dependent, equities and property and volatility or further falls in these asset classes should lead to renewed safe haven demand for gold.
As long as central banks continue to debase their currencies by trying to inflate their way out of weak economic growth and recessions through zero interest rate policies and massive digital currency creation, gold will be supported and should indeed begin to make new gains.
Today, interest rates remain close to zero not just in the U.S but in most major economies. Thus, there is no opportunity cost to owning the non yielding gold. Indeed there remains significant counterparty and systemic risk in keeping one’s savings in a bank and government bonds look like a bubble that is being supported by money printing and debt monetisation.
Today, after a near 50% correction in recent years, gold again has significant potential for substantial capital gains. This and gold’s important safe haven diversification attributes make gold increasingly attractive for investors internationally.
Today’s LBMA Gold Prices: USD 1065.85, EUR 982.71 and GBP 713.06 per ounce.
Yesterday’s LBMA Gold Prices: USD 1065.75, EUR 975.65 and GBP 710.33 per ounce.
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LAWRIE WILLIAMS: Russia adds another 21.8 t gold and 46t more drawn out of China’s SGE
Friday saw two announcements demonstrating that physical gold demand remains at a strong level as the year draws to a close. The Russian central bank continued to expand its gold reserves by just under 22 tonnes in November, while in China another 45.99 tonnes of gold were withdrawn from the Shanghai gold Exchange.
The Russian Central Bank has been the main purchaser of gold for its reserves this year if one disregards China’s announcement of a leap of 604 tonnes in July – but as this was China’s first reported increase in six years we could assume that it had thus been only buying at the rate of eight or nine tonnes a month over the period, However there remain doubts about this rate of buying with many assuming that China’s actual purchases may have been three or four times this amount, maybe more, and that the country’s total holdings are far, far higher than the figure of a little over 1,700 tonnes reported to the IMF, with the balance held in unreported government accounts.
Russia has so far added around 187 tonnes into its reserves this year, while China has added around 70 tonnes since it started announcing monthly increments to its reserves in August. Between them Russia and China are adding to reserves at a rate of close to 400 tonnes of gold a year.
With regard to withdrawals from China’s Shanghai Gold Exchange (SGE), total withdrawals year to December 11th reached 2,451 tonnes – with almost three more weeks to be reported on until the year end. Assuming similar withdrawal levels from now until the New Year the full annual total will likely be in the high 2,500 tonne levels – around 18% higher than the previous record of 2,181 tonnes achieved in 2013 when a further 107 tonnes were taken out of the Exchange over the same period.
While some equate SGE withdrawals to total Chinese gold demand, others disagree coming up with often conflicting reasons why this may not be the case, but as an overall indicator of the strength of Chinese demand the figures have to be revealing. It does indeed look as though the centre of gravity of the global gold market is indeed moving east – and to China in particular and with the latest reports suggesting the SGE will have its own benchmark price setting system in yuan in place by April next year, to rival that of the dollar denominated LBMA Gold Price set in London, this speed of this process will likely be further increased. What this will actually do to the gold price itself obviously remains uncertain, but with the SGE dealing very much in physical gold, while London and New York are primarily paper gold markets, one suspects true supply/demand fundamentals for physical gold may serve to play a bigger role going forwards.
The USA demand for silver eagle coins is now around 48 million oz of silver.
The USA produces 85 metric tones or 27.3 million oz Remember that the demand for silver also includes silver in pharmaceuticals, solar panels, photography etc.
So you can see the huge shortage!!! This is why the comex must import massive amounts of silver from Mexico.
Canada’s silver production is utilized 100% inside Canada.
U.S. Silver Production Plunges by 20%
The U.S. Geological Survey (USGS) released their September silver production numbers this week and the results were incredible. Only 82.6 metric tons (mt) of silver were produced domestically in September versus 103 tons during September of last year. This represents amassive decline of 20% and is part of a greater trend of declining silver supply (-6% YTD).
As you can see from the chart below, 2015 silver production started the year higher than 2014. But in the spring, things started to shift. Production dropped 4% in March and has been declining ever since for six straight months. This trend of falling silver production culminated with the sharpest decline on record during the latest period, down 20%! Indeed, many analysts believe that we may have already seen PEAK SILVER production.
During 2014, production ramped up significantly in the winter months, but this year is shaping up to be quite different. Even if production were to rebound a bit in the coming months, we are still likely to see the gap versus widen comparing this year vs. last year. And if production does not rebound sharply, we are going to see declines of 30% or more in the coming months.
This is a significant development for silver investors, as sharply dropping supply and steady demand is a clear recipe for higher prices. Remember, sales of American Silver Eagles are on pace to set a new record for the third year in a row. Total sales through the end of November stand at 44.7 million ounces passing last year’s record of 44.0 million ounces.
Silver demand has also been hot in Canada, with the most recent quarterly silver sales on pace to break 2014’s record. Silver sales increased 76% year over year from 5.4 million to 9.5 million ounces. Year to date through the third quarter of 2015, the Royal Canadian Mint has sold 25.2 million ounces of silver, on pace to surpass 2014’s record silver sales.
If we haven’t see the bottom in silver yet, these fundamentals factors suggest that we are close.
While silver miners have reduced their costs in recent years, many are still unprofitable at current silver prices. There aren’t many things that you can buy for less than the cost to produce it. There simply wouldn’t be anyone making the product anymore and silver is no different. These conditions can persist in the short-term, particularly with the leverage paper markets having such a large impact on pricing. However, I don’t believe that the silver price can remain below the average cost of production for long. Eventually the fundamentals force prices back to correct equilibrium given the supply and demand in the marketplace.
I have long anticipated that as a growing number of miners would suspend operations, pushing silver supplies down sharply. We are finally seeing this manifest with the latest monthly production data. It holds true for primary silver miners, but also for base metals producers where silver is a by-product. They are also facing plunging prices in industrial metals and are having a hard time remaining profitable. As they are forced to suspend or shutter operations, silver production is going to fall even lower.
The decline in silver supply is not going to be a short-term phenomenon. Not only is current production impacted as miners shut down operations, but future production is also impacted as exploration budgets are slashed. Even if the silver price were to double in 2016 and miners increased cash flows, it would still take a few years to increase exploration back to previous levels and have the type of production pipeline needed to sustain production levels. Anyway that you slice it, the industry is likely to face declining silver production for years to come.
And while the U.S. represents less than 10% of global silver production, the same reversal from growth to contraction has taken place this year in top producers such as Mexico, Peru and Australia. This phenomenon is not unique to the United States.
I am not convinced that we have seen the absolute low in silver prices quite yet. But this type of data is encouraging for silver investors and suggests that the bottom may be near. Rather than attempting to time the exact bottom, I think it makes sense to begin purchasing in tranches around current levels. This is true of physical silver, but also the severely undervalued silver mining stocks that could offer leverage of 3X to 5X during the next upleg.
And although the FED finally pulled the trigger and raised rates by 25 basis points this week, there is plenty of evidence to suggest that silver (and gold) prices can climb higher along with interest rates. There is also the distinct possibility that the FED will not be able to continue raising rates beyond a token amount and will need to reverse course at some point in 2016. So, I do not believe that precious metals investors should fear increases rates.
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A review as to why we state that Chinese withdrawals from Shanghai equals ( or is very close) to Chinese gold demand:
(courtesy Koos Jansen)
Koos Jansen: The Chinese gold market essentials guide
Submitted by cpowell on Sat, 2015-12-19 15:10. Section: Daily Dispatches
10:10a ET Saturday, December 19, 2015
Dear Friend of GATA and Gold:
Gold researcher and GATA consultant Koos Jansen, the foremost expert on China’s gold market, has assembled a guide to that market, perhaps in the hope that fewer people will be misled by the disinformation coming out of the World Gold Council. Jansen’s guide, a compendium of his research, is headlined “The Chinese Gold Market Essentials Guide” and it’s posted at Bullion Star here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
(courtesy Press Trust of India/Times of India
Indian temples not wild about using religious offerings for gold price suppression
Submitted by cpowell on Sun, 2015-12-20 16:54. Section: Daily Dispatches
Gold-Rich Temples Weigh Monetisation Scheme, But ‘Melting’ a Dampener
From the Press Trust of India
via The Times of India, Mumbai
Sunday, December 20, 2015
NEW DELHI, India — As the government seeks to monetise gold worth an estimated $1 trillion lying idle, all eyes are on their biggest repositories — the temples — but many of them fear that “melting” of the ornaments donated by devotees may hurt religious sentiments.
Officials at a number of rich and famous temples across the country said they may not be able to immediately participate in the scheme, while a few others said the scheme was worth exploring but a final decision was yet to be taken.
For some temples, including Sree Padmanabhaswamy Temple in Kerala and the Shirdi Sai Baba temple in Maharashtra, ongoing court cases are getting in the way.
The interest remains lukewarm among major temples in Kerala, Karnataka, Telangana, and Rajasthan among other states, while a few in Andhra Pradesh, West Bengal, and Gujarat have shown initial interest.
However, most of them are concerned about issues like loss of value in the melting process and the religious sentiments of the devotees who donate gold ornaments in the name of the deities of the respective temples. …
… For the remainder of the report:
Rangold pulls out of Ghana project:
Randgold Resources pulls out of Ghana gold mine project
Submitted by cpowell on Mon, 2015-12-21 13:30. Section: Daily Dispatches
By Jon Yeomans
The Telegraph, London
Monday, December 21, 2015
Randgold Resources has abandoned plans to redevelop a gold mine in Ghana, just three months after announcing its interest in the “world-class resource.”
The FTSE 100-listed miner, which operates in central and West Africa, has scrapped a potential joint venture with South African firm AngloGold Ashanti to reopen and expand the Obuasi mine, which has some 5 million ounces of gold reserves below ground, after it failed to pass due diligence.
“We spent more time on it than most people would do on a normal merger and acquisition. But it got to the point where whichever way we cut the cake, we couldn’t get it to pass our criteria,” said Mark Bristow, Randgold’s chief executive. “Anglo has never made any money out of this asset, ever,” he added.
In September, gold mining specialist Randgold said it would fund and lead a plan to modernise the loss-making mine, which was shut down by AngloGold in 2014, with a view to forming a joint venture to manage its output.
AngloGold said it would now continue to operate the mine — which dates to 1907 — on a limited basis. “In the current environment, we believe it is prudent to conserve our resources and to revisit this opportunity when market conditions improve,” said Srinivasan Venkatakrishnan, chief executive. …
… For the remainder of the report:
An extremely powerful piece from Bill Holter tonight:
(courtesy Bill Holter/Holter-Sinclair collaboration)
In your face “Black Swan”!
I believe the “tell” on Friday was a weak dollar. Much of what happened in the markets could have been expected as reaction to the Fed tightening credit conditions …but not a weak dollar. The meeting between Mr. Lavrov, Mr. Putin and John Kerry far overrides anything the Fed could have done or said in my opinion. The foreign policy about face where Mr. Assad no longer “needs to go” and Turkey being ordered to withdraw troops from northern Iraq was astonishing! These statements were followed by Mr. Putin establishing a no fly zone over northern Syria. In another twist, Turkey still maintains Mr. Assad must go and they are refusing to withdraw troops from Iraq http://www.zerohedge.com/news/2015-12-19/turkey-blasts-breakthrough-un-resolution-syria-it-lacks-perspective-assad-must-go . When in your lifetime have you ever seen anything like this? An “ally”, ANY ALLY publicly denying U.S. will? We all saw an IN YOUR FACE BLACK SWAN but few have recognized it yet!
We have no idea what was “told” to Mr. Kerry, we do however know he was “TOLD” something and in no uncertain terms. As you know, I have been in the camp thinking Mr. Putin (supported by China) would drop some sort of “truth bomb”. I originally thought this truth bomb would have at least some ties to 911 because the outrage this would create amongst the U.S. population. No doubt it would create a stir but I’m afraid we are just to dumbed down to really even care anymore. After pondering this further it occurred to me I have missed the obvious. What is the ONLY thing the U.S. has left and the final pillar of support? What is the Achilles heel? The dollar and the ability to issue endless debt!
I believe it is a high probability Mr. Kerry was told what he already knows. Russia and China know, you know, I know, the whole world knows …the U.S. is broke! We have “faked” solvency for many years. The insolvency really appeared in 2007-2008 but “damn the torpedoes, full steam ahead” we went … We were even “aided” in this effort to hide our insolvency by China who bought our debt until the 2011-12 timeframe. In short, we were given enough time and “rope” to hang ourselves!
I believe it is most likely Mr. Kerry was given an ultimatum by Mr. Putin who spoke on the behalf of China …either play the game by our rules or we will pull the plug financially on your shell game. The U.S. has toppled regimes and assassinated rulers over the petrodollar and the recirculation of capital back through our Treasury market. It is highly likely the threat of wholesale dumping of Treasury securities was unveiled! Please do not tell me China would never do this, they know the position is ultimately valueless and the reason they have accumulated so much gold and gone all over the world tying up resource properties http://www.mining.com/feature-chinas-scramble-for-africa/ . China (and Russia as their bulldog) hold the key to exposing the fraudulent financial system of the West. Everything, and I do mean EVERYTHING we in the West believe in as value has “Treasuries” as the foundation. Kill the Treasury market and everything goes. Stocks, bonds, real estate, pensions, retirement accounts …it ALL GOES and “power goes with it. China has the ability to do this!
Think about this for a moment, Russia and China have been stockpiling physical gold for years. China is in the process of “pricing” gold with their equivalent to the London fix …only theirs will be physical where actual physical trades set price as opposed to paper contract shenanigans. We know gold has been in backwardation in London for quite a while, this impossible market scenario finally reached the COMEX last week. We also know the December delivery will take everything the COMEX claims to be able to deliver. Do you really believe Mr. Putin does not know all of this? Do you really believe he doesn’t know the “gold scam” is at the very center of our grand Ponzi scheme? Mr. Kerry now knows, “they know”?
Please do not laugh at this because the gold China has been gobbling up has pushed the supply demand equation into deep deficit for quite a few years now …and the gold had to come from “somewhere”. For the U.S. to all of a sudden acquiesce geopolitically after ruling the world with an iron and immovable fist is a HUGE change. This “change” obviously has a reason behind it. The reason can only be military or financial and could be both? Can a country fight a war if it is bankrupt and cannot finance the war? Was John Kerry informed of this little inconvenience?
Rational minds do not want World War III, those who need to cover up fraud must have it. I can only think the threat of exposure and or destruction of the mechanism (Western financial markets) used to project power has forced the U.S. to back off. The Fed does not have the power to absorb Chinese selling and no amount of market/mind/media manipulation can stand against the destruction of our paper markets should the Chinese choose to do so. The other side of the Treasury dump card is of course breaking the paper metals market. In today’s scheme of things, less than half a ham sandwich could do it! And the irony of it all? They only need threaten to do this …
The above is speculation on my part but it is obvious “something” really HUGE just changed and the U.S. no longer appears to be calling the shots! In my eyes it is also obvious “what” it was. The U.S would not back down for ANY reason other than one financial. Then one must ask where the U.S. vulnerable? The ability to issue the world’s reserve currency the dollar, the ability to issue unlimited debt and the dirty little “empty secret” called Fort Knox! I believe we are seeing the very beginnings of a “new world order”, decisions are being made where the public can deduce were not “made in America”. This could be a very interesting shortened week after the gyrations Thursdayand Friday. I have said for quite some time, once the unravelling begins it will go very quickly. We will soon know for sure whether the great unwinding has truly begun. I believe it has!
Could it be the black swan we have been looking for already landed and in your face fashion but very few have recognized it yet? No one could have foreseen the U.S. being “ordered” to do anything, yet this is exactly what appears happened last week!
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1 Chinese yuan vs USA dollar/yuan rises in value , this time to 6.4874/ Shanghai bourse: in the green , hang sang: red
2 Nikkei closed down 70.78 or 0.38%
3. Europe stocks all in the green except Spain /USA dollar index up to 98.74/Euro up to 1.0865
3b Japan 10 year bond yield: falls to .275 !!!!(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: 35.66 and Brent: 36.34
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 falls to .565% German bunds in negative yields from 5 years out
Greece sees its 2 year rate fall to 7.64%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 8.09% (yield curve flattening)
3k Gold at $1069.35/silver $14.15 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 44/100 in roubles/dollar) 71.19
3m oil into the 35 dollar handle for WTI and 36 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 0.9945 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0808 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation
3r the 5 year German bund now in negative territory with the 10 year falls to + .565%/German 5 year rate negative%!!!
3s The ELA at 75.8 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 2.92% /POLICY ERROR
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Jump After Friday Drubbing, Despite Brent Sliding To Fresh 11 Year Lows, Spanish Political Uncertainty
In a weekend of little macro newsflow facilitated by the release of the latest Star Wars sequel, the biggest political and economic event was the Spanish general election which confirmed the end of the PP-PSOE political duopoly at national level, with Rajoy’s leading block losing the absolute majority it had enjoyed since the last elections while rewarding the anti-austerity Podemos and the liberal Ciudadanos party, who between them took 109 seats in the 350-member parliament. As a result no clear governing majority emerged.
But the main surprise was the extent of the underperformance of liberal-reformist Citizens relative to opinion polls. This changes the post-election scenarios – a center-right coalition cannot reach a majority – and injects even greater political uncertainty. This is unlikely to be a positive development for markets.
“The [Spanish] election outcome failed to provide us a clear picture of who will take power,” said Anders Moller Lumholtz, chief analyst with Danske Bank in Copenhagen. “It is likely to take time before we get clarity, and uncertainty is not a friend of the market. ECB QE buying could cushion some of the knee-jerk reaction, but as Monday is the last day before the QE goes on pause we probably shouldn’t expect much effect from that side.”
As a result, there was some early underperformance in SPGBs and initial equity weakness across European stocks, which however was promptly offset and at last check the Stoxx 600 was up 0.4% to 363, even as China’s Shanghai Composite surged +1.8% with sentiment supported by the PBoC injecting CNY100 billion of funds into the interbank market, and US equity futures were up nearly 1% after Friday’s oversold drubbing.
In other key news, the commodity slide continues with Brent Oil dropping to a fresh 11-year low as futures fell as much as 2.2% in London after a 2.8% drop last week.
This is where markets are right now:
- S&P 500 futures up 0.9% to 2011
- Stoxx 600 up 0.4% to 363
- FTSE 100 up 0.6% to 6091
- DAX up 1.5% to 10762
- German 10Yr yield up 1bp to 0.56%
- Italian 10Yr yield up 2bps to 1.59%
- Spanish 10Yr yield up 9bps to 1.79%
- MSCI Asia Pacific up less than 0.1% to 130
- Nikkei 225 down 0.4% to 18916
- Hang Seng up 0.2% to 21792
- Shanghai Composite up 1.8% to 3642
- US 10-yr yield up 1bp to 2.21%
- Dollar Index up 0.07% to 98.77
- WTI Crude futures down 0.8% to $34.45
- Brent Futures down 0.7% to $36.61
- Gold spot up 0.6% to $1,072
- Silver spot up 1% to $14.24
A closer look at regional markets shows Asian stocks trading mixed as stocks shrugged off Friday’s lacklustre close on Wall St. Nikkei 225 (-0.4%) underperformed albeit off worst levels amid JPY weakness, which pared earlier Toshiba led losses, while gains in energy name WorleyParsons, offset the healthcare sector pressure in the ASX 200 (+0.10%). Shanghai Comp. (+1.8%) traded higher with sentiment supported following reports that regulators approved the first cross-border mutual funds and the PBoC injecting CNY 100 bln of funds into the interbank market. JGBs finished marginally lower with trade lacking any significant price direction ahead of the holiday season, while the BoJ were in the market to purchase JPY 1.08trl in government bonds. Elsewhere, USD/CNH fell after the PBoC firmed the reference for the 1st time in 11 days. Finally, heading into the European open, JPY saw a bout of weakness as risk sentiment picked up.
Top Asian News:
- Yuan Crunch Spurs Banks to Hoard Abroad as China Curbs Outflows: Lenders from H.K. to London sell certificates of deposit
- Kuroda Sparks a Bond-Market Rally and Keeps His Powder Dry, Too: 2-year JGB yield falls to record
- Stevens Gets Aussie Christmas Wish as Westpac Sees Jawboning End: RBA Governor declines to nominate weaker level for currency
- Rajan’s 2015 Rate Cuts Offer No Cheer for Bonds Battered by Modi: Record govt borrowing plan, Fed rate bets capped gains
- Packer Quits Crown Board, Raising Expectations of Offer: Standing aside gives him freedom to mount bid
- Toshiba Sees Record $4.5 Billion Loss, Plans More Job Cuts: Plans up to 6,800 job cuts in segment for TVs, PCs, appliances
- Taiwan’s Nov. Export Orders Fall 6.3% Y/y; Est. -5.3%
- BOJ: Japan Output Gap Shrank to -0.44% in 3Q from -0.67% in 2Q
The week has kicked off with much of the focus in Europe on the Spanish elections and, as such, has seen notable underperformance in Spanish asset classes . The Spanish election results failed to provide an outright majority, with the Spanish Popular party likely set to try and form a coalition. However, this remains a particularly difficult task with the second place Socialist party seemingly unwilling to enter such a deal. In terms of the market fall out, the IBEX resides in firm negative territory (-1.70%), while Euro Stoxx (+0.80%) resides in the green to pare some of the losses seen on Friday.
In line with the underperformance in the IBEX, the SP/GE spread is wider by 8.7bps this morning, while the 10yr yield resides near November highs. Bunds have pared opening losses to now trade flat with analysts suggesting that the initial move lower in German paper was amid thin volumes and no significant fundamental factors that would warrant testing notable support levels to the downside. Elsewhere in fixed income markets, Gilts marginally outperform their
Top European News:
- Banks to Face Tough Loss-Absorbing Requirement: Europe’s largest banks may need to build up more loss-absorbing capacity under EU rules, Single Resolution Board President Elke Koenig says
- Syngenta Advances After ChemChina Said to Improve Takeover Offer: ChemChina offered to buy 70% of Syngenta now, with option to acquire remaining 30% later, according to people familiar.
- TeliaSonera to Exit Nepal in $1 Billion Ncell Sale to Axiata: Co. sold its stake in Nepalese phone carrier Ncell to Axiata Group for more than $1b in move to retrench in core mkts
- French Grocer Casino Rejects Block’s Claims as Quarrel Escalates: “Casino strongly rejects all arguments put forward by Muddy Waters Capital,” co. said earlier today.
- Santander Buys Portugal’s Banif for $163m Amid Resolution: Acquisition is chairman Ana Botin’s first since taking over last year
- Germany Nov. PPI -2.5% y/y vs survey -2.4%
- Netherlands Nov. housing price index +3.8% y/y
FX markets have seen a relatively subdued start to the week, with touted light volumes due to Christmas seeing relatively limited price action. However the European session has seen the USD move higher gradually, with EUR and GBP paring their modest overnight gains against the greenback. BoE’s Weale said that further downward pressure on inflation and a ‘pause’ in wage growth means there is less urgency for the BoE to raise rates. UK interest rates could stay low for even longer because of David Cameron’s referendum timetable, economists have warned. The in-out referendum looks likely to be held in June or September — close to when the BoE, is expected to start raising rates.
Fed’s Powell (voter, hawk) stated that the Fed rate lift-off should be seen as a vote of confidence in the economy and that gradual small hikes would be the correct action to take, but also added a return to zero is possible if conditions change. Fed’s Williams (voter, hawk) said that every meeting is live in regards to a possible rate increase and that he expects 4 further hikes in 2016 which is inline with what Fed members forecast. Fed’s Lacker (voter, hawk) stated that public thinking should be that a rate increase could occur at any meeting and that he is in favour of decreasing the Fed’s balance sheet ASAP.
In commodities, Brent continued to see weakness in early European trade, however now trades off 11 year lows reached overnight and has been gradually grinding higher towards the North American crossover . WTI has also continued its recent trend of weakness however is currently trading off recently-reached 6 year lows. Gold trades higher (USD + 6.20) amid no new fundamental news following last weeks Fed hike in line with a relatively flat USD Index (+0.10%). Elsewhere, copper prices held Friday’s highs amid prospects of further output cuts from Chinese smelters, while Dalian iron ore futures rallied around 4% alongside a continued recovery in steel prices.
There is no tier 1 data scheduled for release today ASIA
* * *
Top Global News
- Spain Uncertainty Looms as Rajoy Has First Shot at Governing: PM Mariano Rajoy’s People’s Party lost 1/3 of its seats while still beating out Socialists to take most votes, earning first shot at forging a govt
- Panasonic to Pay $1.5b for U.S. Fridge Maker Hussmann: Co. buying U.S.-based maker of refrigeration systems to bolster housing operations, move further away from consumer electronics
- Nomura Said to Seek Stake in American Century for $1b: Nomura plans to pay ~$1b for stake of ~40% in U.S. money manager American Century Investments, according to people familiar
- Shire to Offer GBP8b Cash in Baxalta Bid: Sunday Times: As much as 40% of offer may be cash after little progress made on all-share bid made 5 months ago
- Goldman Fund Said Buying $750m of Debt for Petco Takeover: Fund agreeing to buy bonds that will help finance deal for Petco Animal Supplies by CVC Capital, Canada Pension Plan Investment Board, according to a person familiar.
- ‘Star Wars’ collected $238m in U.S. and Canadian ticket sales, topping $208.8m hauled in by Universal Studios’ “Jurassic World” in June, market researcher Rentrak says
- Brent Oil Slides to 11-Yr Low as Producers Seen Worsening Glut: Futures fell as much as 2.2% in London after a 2.8% drop last week.
- Amazon Said to Mull Leasing Planes to Control Delivery Chain: Co. considering leasing 20 Boeing Co. 767 freighter jets to help gain more control over delivery methods, costs, according to a person familiar.
- China Loses Another Economic Indicator as Minxin Suspends PMI: Publishers of China Minxin PMI said they will stop updating that gauge to make “major adjustment” to their calculations
- FIFA Panel Bans Blatter, Platini From Soccer for 8 Years: Blatter was fined CHF50,000, Platini fine CHF80,000, adjudicatory chamber of FIFA’s Ethics Committee said earlier
Bulletin Headline Summary from Bloomberg and RanSquawk
- The week has kicked off with much of the focus in Europe on the Spanish elections and, as such, has seen notable underperformance in Spanish asset classes
- FX markets have seen a relatively subdued start to the week, with touted light volumes in the run up to Christmas
- No tier 1 data scheduled for release today
- Treasuries little changed, curve flattens in quiet trading, as Christmas holiday and year-end approaches; Brent crude tumbled to lowest level in 11 years while Spanish bonds slid after an indecisive election.
- Spanish voters rewarded the anti-austerity Podemos and the liberal Ciudadanos party, who between them took 109 seats in the 350-member parliament, no clear governing majority emerged
- Germany said too early for Merkel for call Rajoy as standard practice is to congratulate election victors after new government is in place and that’s not the case yet in Spain, German government spokeswoman Christiane Wirtz said
- China’s leaders intend to boost the deficit and make monetary policy more “flexible,” according to a statement from a meeting of top economic policy makers, in a sign the government is preparing more stimulus
- Publishers of the China Minxin PMI said they will stop updating the gauge to make a “major adjustment’’ to their calculations, dealing a second setback in recent months to investors looking for an early read on the economy
- The offshore yuan climbed for a second day, after the PBOC raised its fixing for the onshore currency for the first time in two weeks
- Sovereign 10Y bond yields higher. Asian stocks mostly higher, European stocks and U.S. equity-index futures gain. Crude oil lower, gold and copper gain
US Event Calendar
- 8:30am: Chicago Fed Nat Activity Index, Nov., est. 0.2 (prior -0.04)
- 11:00am: U.S. to announce plans for auction of 4W bills
- 11:30am: U.S. to sell $28b 3M bills, $26b 6M bills
DB’s Jim Reid concludes the overnight and weekend event wrap
As our in-house expert Marco Stringa pointed out in his overnight note, the Spanish general election confirmed the end of the PP-PSOE political duopoly at national level. But the main surprise was the extent of the underperformance of liberal-reformist Citizens relative to opinion polls. This changes the post-election scenarios – a centre-right coalition cannot reach a majority – and injects even greater political uncertainty. This is unlikely to be a positive development for markets. Overall the main risk remains political impasse due to the unprecedentedly fragmented parliament. Even if a new government is formed the DB economics team here doubt it would last the full legislature. The note provides a timetable and the mechanics of government formation. Avoiding chronic politically uncertainty will become increasingly important.
Asian markets are a bit of a mixed bag this morning with the Nikkei (-3.1%) largely following the US lead on Friday but equities in Greater China generally doing better. Japanese markets are weaker in response to some confusing signaling from the BoJ on Friday after initial hope it would herald in fresh easing. The BoJ issued a statement saying it would start buying longer dated JGBs and would buy an additional JPY300bn of equities a year however Kuroda later said that these changes were no more than a technicality and does not represent additional easing.
Back to China, the Shanghai Composite (+1.4%) and Hang Seng (+0.27%) are up on the day as we type. The Shanghai Composite is up at a 3 week high led by property developers and consumer related stocks. It is an old theme but SOE reforms in China seem to be a renewed focus overnight. Asian credit spreads are weak with the iTraxx index 3bp wider on the day and IG corporate cash spreads also modestly wider across the board.
Recapping Friday’s session briefly now. The fall in US equities coincided what was again another bad day for commodities. Brent and WTI were down -0.49% and -0.63%, respectively. For the record the pair are down by another -1.44% and -0.58% overnight as we go to print. Brent is now trading at an 11-year low for the first time this cycle. The decline in S&P 500 on Friday was pretty broad based with all ten major sector groups finishing the day in the red. Losses were led by Financials (-2.5%), IT (-2.0%) and Consumer staples (-1.8%). Credit spreads also drifted wider with CDX IG and HY index +1bp and +6bp wider, respectively.
Looking at this week’s holiday shortened calendar now. Of note in the European session this morning will be the latest German PPI and Euro area consumer confidence data. In the US this afternoon the November Chicago Fed national activity index reading is the sole release there. Turning to Tuesday the early interest out of Asia will be China’s conference board leading economic index for November. In the UK we’ll get the latest public sector net borrowing data out of the UK along with German and UK consumer confidence data. In the US the main interest will be on the third reading for Q3 GDP (expected to be revised down to +1.9% from +2.1%), while also expected are existing home sales for November and the December Richmond Fed manufacturing activity print. Wednesday kicks off in Japan with the BoJ minutes from the November meeting. In France we get the final Q3 GDP print and consumer spending report. We’ll also see the third Q3 GDP read for the UK. In the US the main focus will be on the preliminary November prints for durable and capital goods orders (both expected to weaken) while the November PCE core and deflator readings will also be important to watch out for as well as personal income and spending. November new home sales data is also due along with the final December University of Michigan consumer sentiment print. There’s no data of note in Asia or Europe on Thursday, while initial jobless claims are expected in the US. We close the week on Friday with a bumper set of data in Japan including CPI, the jobless rate, PPI, leading index and housing starts.
let us begin:
Last night, SUNDAY night, MONDAY morning: Shanghai up , Hang Sang falls, Chinese yuan finally rises a bit to 6.4874. Stocks in Asia mixed, including a downfall in Japan . Oil falls in the morning,. Stocks in Europe up with the exception of Spain as we have no clear winner and forming a coalition to lead will be difficult:
Below is the streak of 10 devaluations is temporarily halted: Here is the pattern!
(courtesy zero hedge)
After Record 10-Day Devaluation Streak China Fixes Yuan Stronger
Since The IMF ‘blessed’ the Yuan with the same ambivalence-to-currency-manipulation as the rest of the world’s competitive devaluers, China weakened the currency for 10 straight days (a record streak). But the streak is over as tonight PBOC has decided to strengthen the Yuan fix (although admittedly by a small amount) to 6.4753 (barely off the 4 year lows).
It appears a pattern is developing…
10 days down and 1 day up… is the new “stability’
In the important southern Chinese city Shenzen (located over the border of Hong Kong) a deadly landslide buries buildings and 91 people are missing:
(courtesy zero hedge)
Dramatic Amateur Video Captures Moment Deadly Landslide Buries 33 Buildings In Shenzhen
In a year marked by numerous dramatic (and often deadly) infrastructure failures in China’s industrial sector, culminating with several deadly explosions at its port towns, the latest tragedy to strike took place yesterday in China’s southern town of Shenzhen where at least 91 people were missing after a giant mound of mud and construction waste spewed out of an overfull dump site in a southern China boomtown and buried 33 buildings in the country’s latest industrial disaster.
As Reuters reports, the site should have been closed down in February, but according to local workers, mud and waste had continued to be dumped there, a news portal run by the city government in Shenzhen said. The latest incident takes place over a year after a government-run newspaper warned Shenzhen would run out of space to dump the waste left behind from a building frenzy.
The mudslide at the business park had covered an area of more than 380,000 square meters (94 acres) and was 10 metres (11 yards) deep in parts, Shenzhen Vice Mayor Liu Qingsheng told reporters, according to Xinhua. Almost 3,000 rescuers were at the scene, Xinhua said, with sniffer dogs and drones. Rescuers were focusing on several areas where sensors had detected signs of life, it added.
Fourteen factories, 13 low-rise buildings and three dormitories were among the buildings flattened. Xinhua said 14 people had been rescued and more than 900 people had been evacuated from the site by Sunday evening. State television said the 91 missing included 59 men and 32 women.
A nearby section of China’s major West-East natural gas pipeline exploded, state television added, though it was not clear if this had any impact on the landslide. Xinhua said the pipeline was owned by PetroChina, China’s top oil and gas producer, that the 400-meter-long ruptured pipe “has been emptied” and a temporary pipe will be built.
Premier Li Keqiang ordered an official investigation into Sunday’s landslide in Shenzhen, just across the border from Hong Kong. The mudslide smashed into multi-storey buildings at the Hengtaiyu industrial park in the city’s northwestern Guangming New District, toppling them within seconds in collisions that sent rivers of earth skyward. Villager Peng Jinxin said the mud came like “huge waves”, as residents ran out of the way.
“At one point the running mud was only ten meters away from me,” Peng told the official Xinhua news agency.
The frequency of industrial accidents in China has raised questions about safety standards following three decades of breakneck growth in the world’s second-largest economy. Just four months ago, more than 160 people were killed in huge chemical blasts in the northern port city of Tianjin.
State television showed scenes of devastation in Shenzhen, with crumpled buildings sticking up from heaps of brown mud which stretched out across the industrial park.
Besides new buildings, a network of subway lines is being built in Shenzhen, and mounds of earth are being excavated and dumped at waste sites. “Shenzhen has 12 waste sites and they can only hold out until next year,” the official Shenzhen Evening Post, published by the city government, said in October, 2014.
Once a quiet fishing village, Shenzhen was chosen by Beijing three decades ago to help pioneer landmark economic reforms, and it has boomed ever since.
The Ministry of Land Resources said the accumulation of a large amount of waste meant that mud was stacked too steep, “causing instability and collapse, resulting in the collapse of buildings”.
* * *
And in this age of ubiquitous cell phone use, there was an immediate amateur video recording capturing the landslide as it happened:
Exclusive: Japan’s far-flung island defense plan seeks to turn tables on China
japan is fortifying its far-flung island chain in the East China Sea under an evolving strategy that aims to turn the tables on China’s navy and keep it from ever dominating the Western Pacific Ocean, Japanese military and government sources said.
The United States, believing its Asian allies – and Japan in particular – must help contain growing Chinese military power, has pushed Japan to abandon its decades-old bare-bones home island defense in favor of exerting its military power in Asia.
Tokyo is responding by stringing a line of anti-ship, anti-aircraft missile batteries along 200 islands in the East China Sea stretching 1,400 km (870 miles) from the country’s mainland toward Taiwan.
Interviews with a dozen military planners and government policymakers reveal that Prime Minister Shinzo Abe’s broader goal to beef up the military has evolved to include a strategy to dominate the sea and air surrounding the remote islands.
While the installations are not secret, it is the first time such officials have spelled out that the deployment will help keep China at bay in the Western Pacific and amounts to a Japanese version of the “anti-access/area denial” doctrine, known as “A2/AD” in military jargon, that China is using to try to push the United States and its allies out of the region.
Chinese ships sailing from their eastern seaboard must pass through this seamless barrier of Japanese missile batteries to reach the Western Pacific, access to which is vital to Beijing both as a supply line to the rest of the world’s oceans and for the projection of its naval power.
China’s President Xi Jinping has set great store in developing an ocean-going “blue water” navy capable of defending the country’s growing global interests.
To be sure, there is nothing to stop Chinese warships from sailing through under international law, but they will have to do so in within the crosshairs of Japanese missiles, the officials told Reuters.
FIRST ISLAND CHAIN
As Beijing asserts more control across the nearby South China Sea with almost completed island bases, the string of islands stretching through Japan’s East China Sea territory and south through the Philippines may come to define a boundary between U.S. and Chinese spheres of influence. Military planners dub this the line the “first island chain”.
“In the next five or six years the first island chain will be crucial in the military balance between China and the U.S.- Japan,” said Satoshi Morimoto, a Takushoku University professor who was defense minister in 2012 and advises the current defense chief, Gen Nakatani.
A U.S. warship in late October challenged territorial limits that China is asserting around its new man-made island bases in the Spratly archipelago.
But Beijing may already have established “facts on the ground” in securing military control of the South China Sea, some officials and experts say.
“We may delay the inevitable, but that train left the station some time ago,” a senior U.S. military source familiar with Asia told Reuters, on condition he was not identified because he was not authorized to talk to the media.
China’s “ultimate objective is hegemony over the South China Sea, hegemony over the East China Sea”, said Kevin Maher, who headed the U.S. State Department’s Office of Japan Affairs for two years until 2011. “To try and appease the Chinese would just encourage the Chinese to be more provocative,” said Maher, now a consultant at NMV Consulting in Washington.
TURNING THE TABLES
Japan’s counter to China in the East China Sea began in 2010, two years before Abe took power.
The predecessor Democratic Party of Japan government pivoted away from protecting the northern island of Hokkaido against a Soviet invasion that never came to defending the southwest island chain.
“The growing influence of China and the relative decline of the U.S. was a factor,” said Akihisa Nagashima, a DPJ lawmaker who as vice minister of defense helped craft that change. “We wanted to do what we could and help ensure the sustainability of the U.S. forward deployment.”
China is investing in precision missiles as it seeks to deter the technologically superior U.S. Navy from plying waters or flying near Taiwan or in the South China Sea.
Beijing in September gave friends and potential foes a peek at that growing firepower in its biggest ever military parade, which commemorated Japan’s World War Two defeat. Making its debut was the Dongfeng-21D, a still untested anti-ship ballistic missile that could potentially destroy a $5 billion U.S. aircraft carrier..
It joins an arsenal the U.S. Congress estimates at 1,200 short-range missiles and intermediate missiles that can strike anywhere along the first island chain. China is also developing submarine- and land-launched radar-evading cruise missiles.
“Rather than A2/AD, we use the phrase ‘maritime supremacy and air superiority’,” said Yosuke Isozaki, Abe’s first security adviser until September and a key author of a national defense strategy published in 2013 that included this phrase for the first time.
“Our thinking was that we wanted to be able to ensure maritime supremacy and air superiority that fit with the U.S. military,” he added.
Toshi Yoshihara, a U.S. Naval War College professor, said Tokyo could play an important role in limiting China’s room for maneuver through the East China Sea to the Western Pacific, enhancing U.S. freedom of movement and buying time for the alliance to respond in the event of war with China.
“You could say Japan is turning the tables on China,” Yoshihara said.
Memories of Japanese aggression in World War Two still haunt Tokyo’s relations with its near neighbors, and tensions have sharpened since the return to power of Abe, who critics view as a revisionist who wants to downplay Japan’s wartime past.
“Any Japanese military trend will elicit close attention and misgivings from Asian neighboring countries,” China’s National Defense Ministry told Reuters by email in reply to questions about Japan’s island strategy.
“We urge the Japanese side to take history as a mirror, and take more actions in the interests of growing mutual trust.”
Vice Admiral Joseph Aucoin, commander of the U.S. Seventh Fleet, cast Japan’s build-up in the East China Sea as complementary to a broader U.S. strategy.
“The U.S. planning process for any theater takes into consideration the capabilities and forces of friends and potential adversaries,” Aucoin told Reuters. “The U.S plans with the ultimate objective of maintaining peace and stability not only for Japan, but also for the region.”
MISSILES BATTERIES, RADAR STATIONS
Over the next five years, Japan will increase its Self-Defense Forces on islands in the East China Sea by about a fifth to almost 10,000 personnel.
Those troops, manning missile batteries and radar stations, will be backed up by marine units on the mainland, stealthy submarines, F-35 warplanes, amphibious fighting vehicles, aircraft carriers as big as World War Two flat-tops and ultimately the U.S. Seventh Fleet headquartered at Yokosuka, south of Tokyo.
Already cooperating closely, the Japanese and U.S. navies will draw closer than ever after Abe’s new security legislation legitimized collective self-defense, allowing Japan to come to the aid of allies under attack.
One crucial change, said Maher: the U.S. and Japanese military can now plan and practice for war together and deliver a “force multiplier”.
Bigger defense outlays are adding potency. Japan’s military is seeking spending in the next fiscal year’s budget that would top 5 trillion yen ($40 billion) for the first time, including money for longer-range anti-ship missiles, sub-hunting aircraft, early-warning planes, Global Hawk drones, Osprey tiltrotor aircraft and a new heavy-lift, long-range transport jet.
In some areas, however, Japan’s military is making do. Anti-ship missiles designed 30 years ago to destroy Soviet landing craft heading for Hokkaido are being deployed to draw the defensive curtain along the southwest island chain.
Able to lob a 225-kg (500-lb) warhead 180 km, they have enough range to cover the gaps between the islands along the chain, said Noboru Yamaguchi, a Sasakawa Peace Foundation adviser and former general who procured them three decades ago.
Japan’s military planners must also figure out how to transform an army used to sticking close to its bases into a more mobile, expeditionary force.
Decades of under-investment in logistics means Japan has too few naval transport ships and military aircraft to carry large numbers of troops and equipment.
A more delicate task for Japan’s government, however, may be persuading people living along the islands to accept a bigger military footprint. After decades hosting the biggest concentration of U.S. troops in Asia, people on Okinawa are voicing greater opposition to the bases.
For now, communities on the long chain of islands, home to 1.5 million people, that have been asked to host Japanese troops are happy to do so, said Ryota Takeda, a lawmaker who as vice defense minister until Sept. 2014 traveled there frequently to win residents’ approval for new deployments.
“Unlike officials sitting in the Ministry of Defense in Tokyo they are more attuned to the threat they face every day.”
In Japan, we learn that the Fukushima cover up has been exposed. Details on where the contamination is headed:
(courtesy Sean Adl Tabatabai/InestmentWatchblog.com)
Huge Fukushima Cover-Up Exposed, Government Scientists In Meltdown
Fukushima radiation just off the North American coast is higher now than it has ever been, and government scientists and mainstream press are scrambling to cover-up and downplay the ever-increasing deadly threat that looms for millions of Americans.
Following the March 2011 meltdown at Japan’s Fukushima Daiichi nuclear power plant, reactors have sprayed immeasurable amounts of radioactive material into the air, most of which settled into the Pacific Ocean. A study by the American Geophysical Union has found that radiation levels from Alaska to California have increased and continue to increase since they were last taken.
The highest levels yet of radiation from the disaster were found in a sample taken 2,500 kilometers (approx. 1,550 miles) west of San Francisco.
“Safe” according to whom?
Lead researcher Ken Buesseler of Woods Hole Oceanographic Institution was one of the first people to begin monitoring Fukushima radiation in the Pacific Ocean, with his first samples taken three months after the disaster started. In 2014, he launched a citizen monitoring effort – Our Radioactive Ocean – to help collect more data on ocean-borne radioactivity.
The researchers track Fukushima radiation by focusing on the isotope Cesium-134, which has a half-life of only two years. All Cesium-134 in the ocean likely comes from the Fukushima disaster. In contrast, Cesium-137 – also released in huge quantities from Fukushima – has a half-life of 30 years, and persists in the ocean, not just from Fukushima, but also from nuclear tests conducted as far back as the 1950s.
The most recent study added 110 new Cesium-134 samples to the ongoing studies. These samples were an average of 11 Becquerels per cubic meter of sea water, a level 50 percent higher than other samples taken so far.
Instead of presenting the findings as an alarming sign of growing radiation, however, Buesseler emphasizes that the Cesium-134 levels detected are still 500 times lower than the drinking water limits set by the U.S. government. The news site The Big Wobble questions whether Buesseler and Woods Hole’s heavy financial reliance on the U.S. government – Woods Hole has received nearly $8 million in research funding from several government agencies – plays any role in this emphasis.
Situation still worsening
The reality, however, is that radiation along the West Coast is expected to keep getting worse. According to a 2013 study by the Nansen Environmental and Remote Sensing Center in Norway, the oceanic radiation plume released by Fukushima is likely to hit the North American West Coast in force in 2017, with levels peaking in 2018. Most of the radioactive material from the disaster is likely to stay concentrated on the western coast through at least 2026.
According to professor Michio Aoyama of Japan’s Fukushima University Institute of Environmental Radioactivity, the amount of radiation from Fukushima that has now reached North America is probably nearly as much as was spread over Japan during the initial disaster.
The recent Woods Hole study also confirmed that radioactive material is still leaking into the Pacific Ocean from the crippled Fukushima plant. Cesium-134 levels off the Japanese coast are between 10 and 100 times higher than those detected off the coast of California.
Without directly challenging the U.S. government’s “safe” radiation limits, Buesseler obliquely references the fact that any radioactive contamination of the ocean is cause for concern.
“Despite the fact that the levels of contamination off our shores remain well below government-established safety limits for human health or to marine life,” he said,“the changing values underscore the need to more closely monitor contamination levels across the Pacific.”
* * *
Don’t worry though Olympians, everything will be fine in a few billion or so years.
China Now Has So Much Bad Debt, It’s Selling Soured Loans On Alibaba
As those who frequent these pages are no doubt aware, NPLs at Chinese banks are rising.
Here’s a kind of 30,000 -foot view from RBS’ Alberto Gallo:
As we documented last month after data on new RMB loans showed that the credit impulse in China simply rolled over and died in October, part of the problem is that banks are becoming increasingly concerned about sour loans, as an acute overcapacity problem, a decelerating economy, and sluggish global growth and trade have conspired to create an environment in which borrowers are now taking on more debt just to service the loans they took out in the past.
As Credit Suisse noted earlier this month, some firms are now borrowing just to pay salaries. Indeed, more than 50% of debt in the commodities space was EBIT-uncovered in 2014. The takeaway: China’s Minksy Moment is nigh.
Still, the official numbers on NPLs (shown above) look surprisingly low for an economy which is supposedly careening towards a debt crisis. There’s a simple explanation for this apparent discrepancy: the numbers, like China’s official GDP prints, are fabricated.
There are a number of strategies China uses to depress the official NPL figures including compelling banks to roll bad debt, but as Fitch outlined in detail back in May, Asset Management Companies play an important role.
“China’s four major AMCs were set up in 1999 to absorb CNY1.4trn in bad assets at par value from China Development Bank and the big four banks (Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China) before their restructuring. NPL disposals to AMCs have increased in recent years as more banks have come under pressure to manage their reported NPL levels,” Fitch wrote, adding that “AMCs’ strategic importance [should] increase with China’s economic rebalancing,”
Bank loan disposals to AMCs also mask underlying NPL increases, and direct asset purchases by AMCs from borrowers mean bad assets may never be formally recognised as NPLs within the banking system.
AMCs have only been granted licences from the CBRC to acquire restructured DAs directly from non-financial enterprises (NFE) since 2011. DAs purchased from these enterprises have since constantly increased as a share of the total. Fitch’s International Public Finance team estimates that 60%-70% of DAs restructured in 2010-2014 relate to the real estate sector. Many of the distressed property assets could be directly offloaded to AMCs without ever being recognised as bad loans through the banking system. This partly explains how reported NPL ratios for property loans are kept so low in China.
The primary source of traditional DAs is banks. Upon completion of debt acquisition, the AMC assumes the pre-existing rights and obligations between the banks and debtors, and realises or enhances the value of the assets primarily through debt restructuring, litigation and sales. However, most of the DAs acquired by AMCs since 2011 have come from NFEs. AMCs also buy restructured DAs from banks and non-bank financial institutions.
When AMCs acquire restructured DAs, they enter into an agreement with the creditor and debtor to confirm the contractual rights and obligations, and then acquire the debt from the creditor. The AMC, the debtor and its related parties also enter into a restructuring agreement that details the repayment amounts, the repayment method, repayment schedule, and any collateral and guarantee agreements. The restructuring returns and payment schedule are fixed at the time the restructuring agreements are made.
Yes, “upon completion of debt acquisition, the AMC assumes the pre-existing rights and obligations between the banks and debtors, and realises or enhances the value of the assetsprimarily through debt restructuring.”
Unless of course they decide they’d rather just sell them to the highest bidder online.
As WSJ reports, China’s AMCs are now so flush with “duds” they’re finding it easier to auction the “assets” on Taobao.
“These ‘bad banks’ nowadays would rather auction their inventory wholesale than restructure it the more traditional, painstaking way,” The Journal says, adding that “the latest round is a giant dump of soured loans on Alibaba Group’s popular Taobao e-commerce platform by China Huarong Asset Management Co., the nation’s largest distressed-debt buyer by asset size.”
Huarong intends to sell some CNY51.5 billion worth of nonperforming loans on Taobao. This follows Cinda’s listing of CNY4 billion worth DAs and as Barclays notes, is “in line with [the] view that AMCs in general will more frequently resort to a “wholesaling model” for distressed asset disposal (i.e. quick sale of acquired NPL to other parties, thereby earning slimmer margins as opposed to gains on asset value appreciation), given the increasing NPL supply amid the current credit cycle.”
In other words, loans are going bad so quickly in China that AMCs need to resort to “wholesaling” in order to keep pace.;Here’s Barclays full take on the news:
- We believe most of the reported distressed assets should be NPL from banks to be disposed of under the TDA model. According to media report (cnfol.com, 12 Dec 2015),the RMB51.5bn worth of distressed assets consist of debt claims to over 2,360 borrowers and 97% of these assets are lending secured by pledges, collaterals or guarantee. In terms of geographical distribution, 60% of the assets are from Zhejiang, Guangdong and Jiangsu province, according to the news report, consistent with the overall NPL formation trend we have observed in recent years.
- The size of Huarong’s reported Taoba listing (RMB51.5bn) is larger than its outstanding TDA (RMB34.6bn) by the end of 1H15. According to news reports, it represents Huarong’s entire distressed asset book — which is unlikely to include the restructured distressed assets (RDA), in our view. Even if the company had not disposed of any TDA since 1H15, it would imply that it had acquired RMB16.9bn TDA so far in 2H15, exceeding the amount of RMB16.5bn acquired in 1H15. In comparison, Cinda’s listing of RMB4bn worth of distressed assets accounted for only 7% of its TDA balance as of 1H15 (RMB60bn).
- We believe such a “wholesaling model” should reduce inventory risks for AMCs, thanks to the much faster asset turnover rate. In addition, it may provide more visibility on the operating trend of the business. As noted in our report (China Cinda Asset Management Co., Ltd.: Oversold high growth story, 13 Oct 2015), out of the RMB1bn worth of distressed assets Cinda auctioned on Taobao, 87% were successfully sold. However, given little disclosure on the acquisition cost, it is difficult to estimate the realized return rate on the disposed assets, which is quite sensitive to the assumption of acquisition cost (Figures 1 and 2).
- In our view, the much larger size of Huarong’s reported Taobao TDA auction size compared to Cinda’s suggests that Huarong has a relatively weak franchise in the traditional NPL disposal business, as it may lack other means to dispose of the bulk of distressed assets acquired in recent years. Moreover, we believe AMCs should only dispose of assets that have relatively low appreciation potential under the new “wholesaling model” and aim to realize higher return rate on assets that have higher appreciation gain potential, which would generate sustainable income in the future even as it takes a longer time to dispose them of. As noted, we believe Cinda has a stronger franchise and strategic focus in the traditional NPL disposal business than Huarong in terms of both volume and return rate, thus we prefer Cinda given its higher probability of positive earnings surprise amid the NPL cycle.
Apparently, business is good if you’re one of China’s big four bad banks. “Cinda said its first-half profit this year rose 47.7% to 7.8 billion yuan from a year earlier,” WSJ notes, while “Huarong’s net profit in the same period rose 39.4% to 9.87 billion.” In all, “profit at China’s Big Four asset management firms rose 27.6% last year.”
Of course all of this is completely opaque. There’s no way to determine what price the AMCs get at auction and although WSJ says “there are few signs that [AMC purchases from banks] have been outright bailouts of state lenders [given that] analysts estimate bad banks have been buying distressed assets at 40 cents on the dollar or less,” there’s no question that these operations are part of the larger effort to artificially suppress the offical bad loans data.
The takeaway, of course, is that NPLs are soaring in China which is a harbinger of more trouble to come in 2016. On the bright side, you now know where to go if you want to bid on $8 billion is nonperforming loans to Chinese corporates.
I think I have just about everything!!
would you believe this???
The BoJ Just Promised To Buy $2.5 Billion In Make-Believe ETFs: What It Means For Japanese Corporates
Submitted by Tyler D
Spain may need a second election after the antiausterity party Podemos scores a higher number of seats that originally forecasted:
(courtesy zero hedge)
Spain May Need Second Election After Anti-Austerity Party Scores Big At Ballot Box
“Today sees the start of a new political era,” Podemos leader Pablo Iglesias told supporters gathered in Madrid after Sunday’s largely inconclusive elections in Spain. “The forces of change are making a historic advance.”
Iglesias is certainly correct that things have changed. Spain’s three-decade old political duopoly was toppled over the weekend with PP and PSOE garnering their lowest combined share of the vote since the eighties.
Iglesias’ Podemos – the anti-austerity party that many equate with Syriza – polled stronger than expected, winning 69 seats in Parliament and 21% of the vote. Here’s a look at the results compared to projections:
Needless to say, this is bad news for Brussels and bad news for markets (at least in the short-term). The fragmented outcome means the coalition building process will be arduous to say the least and that means the process will be plagued with uncertainty. The worst possible scenario from Berlin’s perspective would be for Spain to go the way of Portugal – that is, with a left-of-center alliance moving to topple the PM. Admittedly that outcome looks less than likely here, but as Deutsche Bank puts it, “there is no obvious solution” in terms of forming a stable government. Here’s a look at several possible coalitions:
Below, find some commentary from sellside desks that underscores just how convoluted the situation has become followed by some additional color from our end.
* * *
From Deutsche Bank
1) A PP and PSOE grand coalition: numerically strong, politically unlikely
A grand coalition would have a large majority (213 seats). However, such a grand coalition would be unprecedented in Spain. We can draw a comparison with Greece rather than Germany. Politically, but not economically, there are several similarities. After the dictatorship Greece was dominated by two parties, the centre-right New Democracy and centre-left PASOK from 1977 to 2012. But since 2011 PASOK suffered the emergency of radical-left SYRIZA as the country battled through the debt crisis. In the June 2012 general election, PASOK won just 12.3% of the votes versus 43.9% in 2009. The government alliance with centre-right New Democracy further damaged the centre-left party. Last September PASOK obtained just 6.3% of the votes.
We think PSOE will keep in mind what happened to the centre-left in Greece. Their incentive in formation a coalition with PP would be to avoid a new election given the recent positive momentum of Podemos. A change of leadership in PSOE could also bring a less confrontational relationship between the two traditional Spanish parties. Still, we think that via such a coalition the PSOE would run a greater risk of losing further votes than returning to elections in the short term. Hence, a PP-PSOE coalition could become feasible only when the other options are exhausted. Were a grand coalition to be formed, the two parties would struggle to agree on material structural reforms.
2) A Citizens-PSOE-Podemos “alliance”
In theory, a Citizens-PSOE-Podemos coalition would have a large majority. That said, such a coalition would probably damage Citizens as its electorate comes largely from previous centre-right voters. Indeed, after the May regional election support for Citizens in polls temporarily dropped. We think this was due to a disappointment of centre-right voters who either abstained or switched from the PP to Citizens but then saw the left gaining control of several local governments.
Even if we are wrong, we do not think that such a heterogeneous coalition would be stable. We are also concerned that the government would struggle to successfully tackle Spain’s challenges of lowering unemployment while reducing the large net external debt. While, we do not see Citizens supporting policies such as a reversal of the labour market reform, the three parties could target a material slowdown in the fiscal consolidation, with significant risk of fiscal slippage.
3) Stalemate and a second general election
There no obvious solution in our view. This is why we think that a second election around March 2016 is as likely as any of the above two alternatives. Indeed, we do not feel that we have enough elements to conclude which of three alternatives – grand-coalition, a tripartite agreement or a new election – is the most likely. That said, even if a new government is formed we doubt it would last the full legislature. An early election in the short or medium term seems the most likely outcome. Still a new round of election would not necessarily guarantee a solution.
* * *
The provisional overnight result from the Spanish parliamentary elections suggests that Partido Popular, led by Mr. Rajoy, has won the election with 123 seats (29% of the vote). However, the number of seats is not sufficient in the 350-member parliament to form a majority government – not even with the support of Ciudadanos, the newly- formed centrist party, which has secured 40 seats (14% of the vote). A potential alliance between PSOE and Podemos, including the regional parties (ERC…), may afford the larger majority, which may form the new government.
The outcome is highly uncertain
The new parliament will be formed on 14 January 2016 and will have up to two months to elect the new government. Negotiations will be necessary since PSOE and Podemos would need the support of the local regional parties to form a government. Ciudadanos has stated recently that it would not support the other minority parties. A “German style” coalition PP-PSOE is possible but seems unlikely as there are no precedents. Therefore, at the moment, a coalition between PSOE, Podemos and the regional parties seems the most likely outcome to us but could be somewhat unstable.
Instability not discounted; possible retreat on reforms, less budget control
With the election outcome unexpected relative to the latest polls and despite the possibility of the formation of a stable government in the future, we think this scenario is not fully discounted by the market. Consequently, we expect debt and equity markets to react unfavourably. The near-term bond market reaction is likely to consist of a widening of 10-year yield spreads by as much as 30bp or more. However, we would view this as a likely buying opportunity over the medium/long term.
* * *
In our preview of the elections, we expected a minority (centre-right) PP government that gained support from the centrist Ciudadanos party. While PP gained the expected level of support, Ciudadanos gained less support than we had expected. Taken together the two parties fall significantly short of a majority (163 versus 176 required). While the PP will try to form a government first and there are other right-of-centre parties in Congress these are regional nationalist parties. For historical reasons, these parties are by no means natural allies of the PP. Mr Rajoy has acknowledged that forming a stable government will not be easy.
Relative to most polls and our own views, Podemos exceeded expectations and Ciudadanos fell short. The two established parties did broadly as expected. But the surprises in terms of Podemos and Ciudadanos change the arithmetic of the parliament quite significantly.
The most feasible coalitions are insufficient to deliver a majority
We do not believe a ‘grand coalition’ of the centre-right PP and centre-left PSOE is likely. Ahead of the election, Ciudadanos also indicated that it would find it difficult to form a coalition with Podemos. It is possible that some of that resistance changes after the election – especially one that leaves the country struggling to form a government. Yet we continue to believe these outcomes are unlikely to deliver a stable coalition.
A coalition between PSOE and Podemos has already emerged in some municipalities. They share anti-austerity views and are opposed to market-oriented reforms, although earlier momentum behind these in Spain had already waned ahead of the election. Yet these two parties will require further support from several other regional parties, including those on the right of centre, to deliver a majority. Regional nationalist parties, including those on the right of centre, are more natural allies of PSOE and Podemos than of the PP with PSOE and Podemos is more inclined to grant additional powers to the regions. Given these changes, it is worth recalling that politics in Spain remains strongly pro-European and yesterday’s election result has not changed that.
Overall, we conclude that reaching a coalition agreement will be difficult since it will require parties with significantly different political views to set those aside. Any coalition seems prone to instability as and when it needs to respond to unforeseen events. This raises the likelihood of repeat elections, although these cannot be held within two months of yesterday’s election.
* * *
The bottom line is that there is no obvious alliance that would add up to the 176 seats needed for an absolute majority in the 350-seat Parliament.
A PP-PSOE alliance is highly unlikely based on the statements by the leaders of the two largest parties.
PP and Ciudadanos would get 163 seats, and PSOE and Ciudadanos would get 130.
PSOE and Podemos would get 159 seats.
Ciudadanos has ruled out joining Podemos in any multi-party alliance.
As for the rest of the parties, practically all are nationalist parties from either Catalonia or the Basque Country, which makes them unlikely coalition partners for either PP or PSOE:
ERC: 9 MPs (Catalonia, leftist party, pro-independence).
DL: 8 MPs (Catalonia, conservative party, pro-independence).
PNV: 6 MPs (Basque Country, conservative)
IU: 2 MPs (radical-left party).
Bildu: 2 MPs (Basque Country, radical -left, pro-independence).
CCA: 1 MP (Canary Islands).
What are the next steps?
1. The new parliament will be formed on 13 January 2016.
2. PP will get the first chance to form a government and will submit its proposal to a vote by the parliament. If it does not get an absolute majority of MPs (at least 176 MPs), which seems highly likely, then two days later there would be a second vote where a simple majority would suffice. If PP fails to win support, then PSOE would get the opportunity to form government, following a similar procedure to the one described above.
3. Following the first vote in parliament, the government approval process cannot take more than two months. If no government is approved within two months, the parliament would be dissolved and new elections would need to be held.
* * *
Meanwhile, as political analysts struggle to predict what comes next, the market has already rendered its judgement. Spanish 10s and 30s opened sharply lower as yields spiked 11 and 10 bps, respectively. SPGBs subsequently recovered, but the message is clear: the market, as always, hates uncertainty and this is a highly uncertain situation.
For their part, JP Morgan recommends you stay short Spanish 5s versus Italian govies and Danske is out with a similar call. Additionally, it’s worth noting that ECB QE pauses tomorrow and won’t resume until January, which could put more pressure on EU government debt (of course if Podemos were to end up holding sway over Spanish politics, PSPP purchases of SPGBs might just end up “pausing” permanently).
Above we said that the nightmare scenario for Brussels and Berlin would be for a left-of-center coalition to topple the Rajoy government. While that would be decidedly bad for pro-austerity eurocrats there’s actually a worse outcome: a second election that sees Podemos win outright. On that note, we’ll close with the following from Pablo Iglesias:
“Neither actively or passively will Podemos allow the People’s Party to govern. We’d be well placed if new elections held.”
Germans Scramble To Buy Weapons Amid Nationwide Spike In Migrant-Driven Crime
- The scramble to acquire weapons comes amid an indisputable nationwide spike in migrant-driven crime, including rapes of German women and girls on a shocking scale, as well as physical assaults, stabbings, home invasions, robberies and burglaries — in cities and towns throughout the country.
- German authorities, however, are going to great lengths to argue that the German citizenry’s sudden interest in self-defense has nothing whatsoever to do with mass migration into the country, despite ample evidence to the contrary.
- The spike in violent crimes committed by migrants has been corroborated by a leaked confidential police report, which reveals that a record-breaking 38,000 asylum seekers were accused of committing crimes in the country in 2014. Analysts believe this figure — which works out to more than 100 crimes a day — is only a fragment: many crimes are not reported.
- “Anyone who asks for the reasons for the surge in weapons purchases encounters silence.” — Süddeutsche Zeitung
Germans, facing an influx of more than one million asylum seekers from Africa, Asia and the Middle East, are rushing to arm themselves.
All across Germany, a country with some of the most stringent gun-control laws in Europe, demand is skyrocketing for non-lethal self-defense weapons, including pepper sprays, gas pistols, flare guns, electroshock weapons and animal repellants. Germans are also applying for weapons permits in record numbers.
German authorities, however, are going to great lengths to argue that the German citizenry’s sudden interest in self-defense has nothing whatsoever to do with mass migration into the country, despite ample evidence to the contrary.
In recent weeks, German newspapers have published dozens of stories with headlines such as:“Germany is Afraid — And Grabs for the Weapon,” “Germans are Arming Themselves: The Demand for Weapons Explodes,” “More and More People are Buying a Weapon,” “Security: Hands Up!” “The Need for Security Increases,” “Boom in Weapons Stores,” and “Bavarians are Arming Themselves— Afraid of Refugees?“
The German daily newspaper Die Welt recently produced a video report about Germany’s surge in sales of self-defense weapons, which was titled “The Weapons Business is Profiting from the Refugee Crisis.” (Image source: Die Welt video screenshot)
Since Germany’s migration crisis exploded in August 2015, nationwide sales of pepper spray have jumped by 600%,according to the German newsmagazine, Focus. Supplies of the product are now completely sold out in many parts of the country and additional stocks will not become available until 2016. “Manufacturers and distributors say the huge influx of foreigners in recent weeks has apparently frightened many people,” Focus reports.
According to KH Security, a German manufacturer of self-defense products, demand is up by a factor of five, and sales in September 2015 — the month when the implications of German Chancellor Angela Merkel’s open-door migration policy began to dawn on many Germans — were the highest since the company was founded 25 years ago. The company says there is an increased demand not only for self-defense weapons, but also for home alarm systems.
Another manufacturer of self-defense products, the Frankfurt-based company DEF-TEC Defense Technology, has reported a 600% increase in sales this fall. According to CEO Kai Prase:
“Things took off beginning in September. Since then, our dealers have been totally overrun. We have never experienced anything like this in the 21 years of our corporate history. Fear: This is not rational. The important term is: ‘refugee crisis.'”
The same story is being repeated across Germany. According to the public broadcaster, Mitteldeutscher Rundfunk, citizens in Saxony can regularly be seen queuing up in large numbers waiting for gun shops to open.
A store owner in the Saxon town of Pirna said he is now selling up to 200 cans of pepper spray each day, compared to five cans a week before the migrant crisis began. He said he is seeing many new customers who are not the typical clientele, including women of all ages and men who are buying weapons for their wives.
Günter Fritz, the owner of a gun shop in Ebersbach, another town in Saxony, told RTL News, “Since September, all over Germany, also at my shop, sales of self-defense products have exploded.” He added that his clients come from all walks of life, ranging “from the professor to the retired lady. All are afraid.”
Andreas Reinhardt, a gun shop owner in the northern German town of Eutin, said he now sells four to five self-defense weapons each day, compared to around two per month before the recent influx of asylum seekers. “The current social upheaval is clearly driving the current rush to self-defense,” he said. “I never thought that fear would spread so quickly,” he added.
Eric Thiel, the owner of a gun shop in Flensburg, a city on the Baltic Sea coast, said that pepper spray is no longer available: “Everything is sold out. New supplies will not arrive until March. Everything that has to do with self-defense is booming enormously.”
Wolfgang Mayer, the owner of a gun shop in Nördlingen, a town in Bavaria, said he has an explanation for the surge in gun licenses: “I think with the influx of refugees, the rise in break-ins and the many tricksters, the people are demanding greater protection.”
Mayer added that there is a growing sense within German society that the state cannot adequately protect its citizens and therefore they have to better protect themselves. “Since the summer, sales of pepper spray have increased by 50%,” Mayer said, adding that buyers are mainly women, of all ages — from the student in the city up to the widowed grandmother.
Pepper spray and other types of non-lethal self-defense weapons are legal in Germany, but a permit is required to carry and use some categories of them. Officials in all of Germany’s 16 federal states are reporting a spike in applications for such permits, known as the small weapons license (kleinen Waffenschein).
In the northern German state of Schleswig-Holstein, nearly 10,000 people now hold a small weapons license, an “all-time record level,” according to the regional interior ministry. Retailers in the state are also reporting an “unprecedented surge” in sales of self-defense weapons, with supplies of pepper spray sold out until the spring of 2016.
In Saxony, retailers are reporting an unprecedented boom in sales of pepper spray, tear gas, gas pistols and even cross bows. Some stores are now selling more self-defense weapons in one day than they did in an entire month before the migrant crisis began.
Saxon officials are also reporting a jump in the number of people applying for the full-fledged firearms license (großen Waffenschein). The rush to arms can be attributed to a “subjective decline in the people’s sense of security,” Saxon Interior Minister Markus Ulbig said.
In Berlin, the number of people holding a small weapons license increased by 30% during the first ten months of 2015 compared to the same period in 2014, while the number of those holding the full-fledged firearms license jumped by some 50%, according to local police.
In Bavaria, more than 45,000 people now hold a small weapons license, 3,000 more than in 2014. This represents a “significant increase,” according to the regional interior ministry. As in other parts of Germany, Bavarian retailers are also reporting a boom in sales of self-defense weapons, including gas pistols, flare guns and pepper spray.
In Stuttgart, the capital city of Baden-Württemberg, local gun shops are reporting a four-fold increase in sales of self-defense weapons since August. One shop owner said she now sells more weapons in one week than she normally sells in one month. She added that she has never seen such high demand.
In Heilbronn, another city in Baden-Württemberg, local officials report that sales of pepper spray have doubled in 2015. According to one shopkeeper, the demand for pepper spray began surging in August, when many mothers started purchasing the product for their school-aged daughters. “Our clients are extremely afraid,” the shopkeeper said. “We are seeing this everywhere.”
In Gera, a city in Thuringia, local media reported that at one store, the entire inventory of 120 cans of pepper spray was sold out within three hours. The store, which subsequently sold out of another batch of 144 cans, is now on a waiting list to obtain more because of supplier shortfalls.
A woman in Gera who bought pepper spray for her 16-year-old daughter said:
“I think it is fundamentally proper for me to protect my daughter. She is at that age where she is out alone in the evening. If she says she needs this for protection, I think this is not unjustified. Of course, due to the current situation that we now have in Germany. We just do not know who is here. There are quite a lot of people who are not registered.”
The same trend toward self-defense is being repeated in the German states of Brandenburg,Mecklenburg-Vorpommern, Saxony-Anhalt and North Rhine-Westphalia, where spiraling levels of violent crime perpetrated by migrants is turning some neighborhoods into no-go zones.
Apologists for mass migration are accusing German citizens of overreacting. Some point to recent studies — commissioned by pro-migration groups — which claim, implausibly, that the number of crimes committed by migrants is decreasing, not increasing.
Others deny that the rush to self-defense has anything to do with migrants at all. They blame a variety of different factors, including the early darkness associated with the end of daylight savings time, the jihadist attacks in Paris (which occurred in November, three months after sales of self-defense weapons began to spike), and the need for protection from wild wolves in parts of northern Germany.
The Süddeutsche Zeitungdescribed the deception this way:
“Anyone who asks for the reasons for the surge in weapons purchases encounters silence. Officially, the regulatory agencies say that anyone who applies for the small weapons license does not need to provide a justification and therefore the government offices have no explanation. ‘But it is true that sometimes we clearly get the message that they are afraid because of the refugees,’ says one, on condition that his name and office will not be mentioned in the newspaper. ‘People have already told me: I want to protect my family.’ We have reported this to the Ministry…
“The retailers also say nothing officially about the reasons for the increase in sales. Call a small gun shop. Many refugees arrived at the end of August, and since September the numbers are up, can there not be a connection? ‘If you do not use my name: Sure, what else?’ Says the man on the phone. The people who come to the store are afraid. They believe that among the refugees there are ‘black sheep.’ Some customers openly admit it.”
Empirical evidence shows an indisputable nationwide spike in migrant-driven crime, includingrapes of German women and girls on a shocking scale, as well as sexual and physical assaults, stabbings, home invasions, robberies, burglaries and drug trafficking.
The spike in violent crimes committed by migrants has been corroborated by a confidential police report leaked to a German newspaper. The document reveals that a record-breaking 38,000 asylum seekers were accused of committing crimes in the country in 2014. Analysts believe this figure — which works out to more than 100 crimes a day — is only a fragment: many crimes are not reported.
Not surprisingly, a new poll shows that 55% of Germans are pessimistic about the future, up from 31% in 2014 and 28% in 2013. The poll shows that 42% of those between the ages of 14 and 34 believe their future will be bleak; this is more than double the number of those (19%) who felt this way in 2013. At the same time, 64% of those aged 55 and above are fearful about the future.
The poll also shows that four-fifths (79%) of the German population believe the economy will deteriorate in 2016 due to the financial burdens created by the migration crisis, and 70% believe that member states of the European Union will drift further apart in the coming year. The most predictable finding of all: 87% of Germans believe their politicians will experience a decline in public support during 2016.
Let’s move onto Portugal where we now have a second bank in trouble and they are rushing to provide over 3 billion euros in bailout money to save Portugal’s seventh largest bank; Now that we have a left government in power who will not be in sync with Brussels
(courtesy zero hedge)
“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years
Back in August of 2014, Portugal had an idea.
Lisbon would use some €5 billion from the country’s Resolution Fund to shore up (read: bailout) Portugal’s second largest bank by assets, Banco Espirito Santo. The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) in relatively short order and use the proceeds to pay back the Resolution Fun. That way, the cost to taxpayers would be zero.
You didn’t have to be a financial wizard or a fortune teller to predict what was likely to happen next.
Unsurprisingly, the auction process didn’t go so well. As we recounted in September, there were any number of reasons why Portugal had trouble selling Novo, not the least of which was that two potential bidders – Anbang Insurance Group and Fosun International which, you’re reminded, is run by the recently “disappeared” Chinese Warren Buffett – suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs. Now, the auction process has been mothballed and will restart in January.
This matters because if the bank can’t be sold, the cost of the bailout ends up being tacked onto Lisbon’s budget. The impact is substantial. In September, when the effort to sell Novo collapsed, the government restated its 2014 deficit which, after accounting for the bailout, ballooned to 7.2% of GDP from 4.5%. Portugal will tell you that this is only “temporary,” but let’s face it, if they haven’t managed to sell it by now, then one has to believe the prospects are grim – at least in terms of fetching anything that looks like a decent price.
Well don’t look now, but Portugal’s seventh-largest bank, Banco Internacional do Funchal, now needs a bailout too. Banif (as it’s known) will be split into a “good” and “bad” bank, and its “healthy” assets will be sold to Banco Santander for €150 million. The government will inject up to €2.2 billion the European Commission said on Monday, to cover “future contingencies.”
Hilariously, the bailout was necessary because the bank was unable to repay a previous government cash injection. “The government injected €1.1 billion of fresh capital into the lender in January 2013 to allow it to meet minimum capital thresholds imposed by the banking regulator,” WSJ writes. For its trouble, Lisbon got a 60% stake in the bank and several hundred million worth of CoCos which the bank missed a payment on last year. “That,” WSJ goes on to note, “triggered close scrutiny by the European Commission, which opened an investigation into the legality of the state aid.”
“The commission had said that Banif’s restructuring plan might not be enough to allow the bank to repay the state,” Bloomberg adds. “The Bank of Portugal said in the statement on Sunday that a ‘probable’ decision from the commission declaring the state aid illegal would create a shortage of capital at the bank.”
The “problem” had to be resolved urgently because if the government hadn’t figured it out by January, senior bondholders and depositors with more than €100,000 in the bank would have been at risk under new EU rules governing bank resolutions.
Needless to say, this isn’t good for Portugal’s books. “Finance Minister Mario Centeno said the cash injection would have an impact on this year’s budget deficit equivalent to over 1 percentage point of GDP,” Reuters notes.
So between the bailouts for Banif and Novo Banco, Lisbon has managed to bascially double the country’s budget deficit. But don’t worry, the money spent on the bailouts actually doesn’t count. Here’s Retuers again: “Brussels should not factor in that aid when considering its 3 percent threshold for excessive deficits, Centeno said.”
Of course not. Everything is always fine if you just ignore all the bad stuff.
The Left Bloc which, along with the Communists, helped new PM Antonio Costa and the Socialists take power early last month after October’s inconclusive election, blames the Passos Coelho government for procrastinating in order to avoid taking a hit on the budget. “The Bank of Portugal has once again failed to live up to its responsibilities. We believe that Gov. Carlos Costa does not have the minimum conditions to stay in his position,” one senior Left Bloc MP said.
“Last week, Banif Chief Executive Jorge Tome said the previous government delayed looking for a new private investor to take over its majority stake because it didn’t want the process to clash with the sale of Novo Banco,” WSJ adds.
As for PM Costa, he concedes that Portuguese taxpayers are taking a rather substantial hit on this one. “The costs of the bailout are very high for taxpayers,” he said, adding that the resolution was the only way to protect depositors and avoid triggering some kind of dramatic meltdown.
Amusingly, implementing the resolution will cost more than half a billion euros. Transfering the bad assets to a separate vehicle will apparently cost taxpayers another €422 million, and on top of that, the state will cover any “potential recent changes of values” on the assets sold to Santander (which incidentally had considered bidding for Novo Banco).
So just to be clear: taxpayers not only have to pay €2.2 billion to bail Banif out, they also have to pay €422 million for the privilege of paying that €2.2 billion and then they’ll need to backstop any M2M losses that Santander finds once it goes through its new assets with a fine-tooth comb. And all of this for a lender which received €1.1 billion in taxpayer money not even two years ago.
Additionally, it’s worth noting that Brussels isn’t likely to be as forgiving towards Costa and his leftist coalition as it was towards to the Coelho government, which means that no one is going to be pleased with a deficit that’s nearly three times larger than the EU-mandated target.
If Centeno is wrong and Brussels does factor the bailouts in when considering Portugal’s excessive deficit (or even if they don’t do so openly but decide behind closed doors to give Lisbon less leeway should the deficit minus the bailouts remain above 3%), the troika could push back, demanding still more austerity. That would set the stage for a clash between Lisbon and Brussels, an event we’ve been predicting since October’s elections.
As for Portuguese taxpayers, you’re reminded that there’s “power” in “believing”…
RUSSIAN AND MIDDLE EASTERN AFFAIRS
NATO sends a message of support to Turkey but urges them to be responsible:
(courtesy Sputnik news)
‘Volatile Situation’: NATO to Send Air Defense Package to Turkey
Despite Turkey’s recent spate of aggressive military maneuvers, NATO allies agreed on Friday to provide Ankara with an air defense package.
As part of an agreement to defend NATO-member Turkey, the alliance has approved a plan to deploy aircraft and ships to Ankara.
“We have agreed on a package of assurance measures for Turkey in view of the volatile situation in the region,” NATO Secretary-General Jens Stoltenberg told Reuters.
The package will include AWACS surveillance planes and “enhanced air policing, and increased naval presence including maritime patrol aircraft,” according to Stoltenberg. Ships will also be provided by Germany and Denmark.
When asked if the decision was about tightening control over Turkey’s haphazard management of its own airspace, Stoltenberg told Reuters: “This will give us a better situational awareness…more transparency, more predictability and that will contribute to stabilizing the situation in the region and also calm tensions.”
Last month, Turkey came under international criticism after shooting down a Russian bomber in Syrian airspace. The incident left two Russian soldiers dead and threatened to derail relations between NATO and Russia.
Diplomats familiar with the latest decision told Reuters that the package is partly aimed at preventing similarly reckless incidents in the future. Military experts alluded to this reasoning on Thursday.
“It’s a face-saving show of allied support for Turkey, while trying to get them to behave more intelligently,” Nick Witney, a former head of the European Defense Agency told Euractiv.com.
“We are concerned about the military build-up in the region,” Stoltenberg said on Friday, adding that he hoped to incorporate air policing policies similar to those employed over the Baltics, “without incidents and accidents.”
Turkey has also come under fire for its decision to deploy hundreds of troops into northern Iraq, a move the Iraqi government views as a breach of international law.
“The government is committed to maintain good neighborly relations, but at the same time reiterates its right to take measures to protect national sovereignty,” the Iraqi government said in a statement.
Iraqi Prime Minister Haider al-Abadi gave Ankara 48 hours to remove its troops, but Turkey has failed to comply. The United Nations Security Council is currently reviewing a formal complaint lodged by Baghdad.
We now have 3 alliances set up in the middle east:
i) France, Germany and Great Britain : anti Assad, anti terror,
ii) Turkey, Saudi Arabia, Qatar (pro sunni extremeist and funding terror, anti Assad,
iii) Russia, Iran, Iraq, Syria: pro Assad and anti terror
and that is your scorecard:
(courtesy zero hedge)
Turkey Blasts “Breakthrough” UN Resolution On Syria: “It Lacks Perspective. Assad Must Go!”
Following June elections in which AKP lost its absolute parliamentary majority thanks in part to a stronger than expected showing at the polls by the pro-Kurdish HDP, Turkish President Recip Tayyip Erdogan began to lose his mind.
The vote put in jeopardy Erdogan’s bid to effectively rewrite the country’s constitution on the way to consolidating his power in an executive presidency. That decisively undesirable outcome could not stand and so Erdogan did what any respectable autocrat would do: he nullified the election. First, the President undermined the coalition building process so he could call for new elections. Next, he fanned the flames of civil war and reignited a long-simmering conflict with the PKK. The idea was to scare the electorate into believing that a “strong” AKP government was the only antidote to domestic and international terror. Finally, Erdogan cracked down on the press and anyone else critical of his rule. AKP was also suspected of covertly backing attacks on HDP offices and newspapers. Some (i.e. the PKK) went so far as to suggest that Erdogan secretly worked with Sunni extremists to orchestrate suicide bombings – in other words, there’s speculation Erdogan terrorized his own people.
Sure enough, AKP had a better showing at re-do elections last month, but by that point, Erdogan was on the fast track to dictatorial delirium. On November 24, he shot down a Russian fighter jet near the border with Syria in the first such direct military confrontation between Russia and a NATO member in at least six decades. And the madness didn’t stop there. After Putin and the Russian MoD laid out their case against Ankara’s role in financing Islamic State via Turkey’s complicity in the group’s lucrative oil trafficking business, Turkey sent hundreds of troops and around two dozen tanks to Bashiqa in Iraq which is right on the crude smuggling route. The deployment infuriated Baghdad and after Turkey refused to pull the troops out, Iraq went to the UN Security Council. Subsequently, Turkish troops were “attacked” by Islamic State.
The Turks claim that Iraq invited them in the past, a contention Baghdad vehemently denies. Thanks to Barzani and the Kurds, Ankara gets to claim that at least someone welcomes the Turkish troop presence (remember, despite Erdogan’s hatred of the PKK and the YPG, Turkey is friendly with Erbil, which relies on Turkey to get some 630,000 b/d of what is technically illegal crude to market).
Well, for anyone who thought Turkey might be set to bow to international pressure by moving its troops north and thus back towards the Turkey-Iraq border, think again because on Saturday, Turkish PM Ahmet Davutoglu was out with a series of declarations that seem to suggest Turkey is going full-belligerent-retard as Erdogan scrambles to preserve the “Assad must go” narrative on the way to securing whatever Ankara’s interests are in both Iraq and Syria.
First, Davutoglu said that the provision of training to the Peshmerga and Mosul militiamen is“in line with a request from Iraq authorities and as such, the mission in Iraq will continue “until Mosul is freed” from ISIS.
Ok, so two things there. The deployment is not “in line with a request from Iraq.” At this point, Turkey’s position has moved from comically absurd to maddeningly obstinate. How many times does Baghdad have to say that Turkey isn’t invited before NATO forces Turkey to drop the “they told us we could be here” line? Further, the idea that Turkey will stay until Mosul “is liberated” from ISIS, means Erdogan plans to remain in Iraq indefinitely. As we’ve documented on several occasions, an operation to retake Mosul is for all intents and purposes a pipe dream and if Turkey intends to wait it out, the troops and tanks could be there for years.
Next, Davutoglu claims that the Islamic State attacks on Turkish positions in Bashiqa prove Turkey “is right.” “Right” about what, it’s not clear, but what’s interesting is that the attacks came just as ISIS launched its first major offensive in northern Iraq since July in a move that US officials say was likely designed to disrupt preparations for an assault on Mosul. The point: all of this is rather conveniently timed.
Davutoglu then slammed a UN Security Council resolution agreed in New York on Friday. The meeting of foreign ministers was tipped by John Kerry in Moscow on Tuesday and when discussions ended, diplomats adopted a resolution which purports to draw a road map for ending the war in Syria. As WSJ notes, the resolution “left unresolved divisions among world powers on key issues in the conflict.”
Which “key issues”, you ask? Well, the only ones that matter – namely, i) the fate of Bashar al-Assad and ii) which groups should be recognized as “terrorists” and which should be awarded the “moderate opposition” badge.
“Both issues were left out of the resolution after an hourslong meeting of foreign ministers in New York on Friday failed to reach a compromise and at one point verged on collapse,” WSJ goes on the recount, adding that “Russian and Iranian diplomats said the question of Mr. Assad wasn’t discussed on Friday because neither of their countries would accept a deal that calls for Mr. Assad’s exit, even at the end of a political transition period.”
As we’ve said on too many occasions to count, Syria is absolutely critical for Tehran when it comes to preserving Iranian influence and ensuring that the so-called “Shiite crescent” doesn’t wane. For Russia, this is a chance to supplant the US as Mid-East superpower puppet master and Moscow isn’t about to see it slip away by agreeing to a resolution that makes Assad’s ouster a foregone conclusion.
For Turkey, the absence of a decision on Assad’s future is maddening. The Security Council resolution “lacks realistic perspective,” Davutoglu said on Saturday, before adding that the “Syria crisis can only be solved if Bashar al-Assad leaves power.”
Consider that, and consider the fact that, as we reported yesterday, Ankara is now establishing a military base in Qatar in order that the two country’s might work more closely on tackling “common enemies.”
What we’re beginning to see here is the formation of three alliances in the Mid-East: 1) Russia, Iran, Syria, and Iraq; 2) Turkey, Saudi Arabia, and Qatar; 3) Britain, France, and Germany. The first alliance is pro-Assad, anti-terror. The second is anti-Assad, pro-Sunni extremist. The third is anti-Assad (although less vehemently so), anti-terror (conspiracy theories aside). Note that we’ve left the US out. Why? Because Washington is now stuck. The US wants desperately to maintain coordination with Ankara, Riyadh, and Doha, but between stepped up media coverage of Saudi Arabia’s role in underwriting extremism (via the promotion of Wahhabism) and hightened scrutiny on Erdogan’s role in financing terrorists, the position is becoming increasingly untenable. But aligning solely with the UK, France, and Germany entails adopting a more conciliatory approach to Assad – just ask Berlin which, as we reported on Friday, is now working with Assad’s intelligence police and may soon establish a base in Damascus.
With that in mind, we’ll close with the following from Obama, which underscores the extent to which the US is now thoroughly confused as to what to do next:
“Now, is there a way of us constructing a bridge, creating a political transition, that allows those who are allied with Assad right now, allows the Russians, allows the Iranians to ensure that their equities are respected, that minorities like the Alawites are not crushed or retribution is not the order of the day? I think that’s going to be very important as well.”
After several years, Turkey finally reaches out to Israel for help
(courtesy Shoshana Bryen/Gatestone Institute)
When All Else Fails, Erdogan Calls Israel
- Erdogan came to office in 2003 with a policy of “zero problems with neighbors,” but has since led Turkey to problems with most, if not all, of them.
- Turkey’s foreign policy choices and current crises have combined to make Erdogan reach out to Israel for help.
- Israel has weighed the price and found it acceptable: Israel will pay Turkey $20 million; Turkey will expel the Hamas leadership from Istanbul and will buy Israeli gas.
- The restoration of relations with Israel is less a political reconciliation than an admission of the utter bankruptcy of Turkey’s last five years of diplomatic endeavor.
The announcement of the restoration of Israel-Turkish relations should be seen in the context of Turkey having nowhere else to go.
Turkey’s relations with Israel have been strained, to put it mildly, since 2010 when, through a non-profit organization, Turkey funded the 2010 Gaza Flotilla aimed at breaking the Israeli-Egyptian blockade of the Hamas-ruled Gaza Strip.
After a bloody confrontation, which ended in the deaths of nine Turks, Turkey demanded that Israel be tried in the International Criminal Court (ICC) and subjected to UN sanction. The ICC ruled that Israel’s actions did not constitute war crimes. In addition, the UN’s Palmer Commission concluded that the blockade of Gaza was legal, and that the IDF commandos who boarded the Mavi Marmara ship had faced “organized and violent resistance from a group of passengers,” and were therefore required to use force for their own protection. The commission, however, did label the commandos’ force “excessive and unreasonable.”
Turkey’s President Recep Tayyip Erdogan had already in the past show hostility towards Israel. Already in 2009, then Prime Minister Erdogan denounced Israel’s President Shimon Peres publicly at the Davos World Economic Forum. “When it comes to killing, you know very well how to kill. You know very well how to kill.” When Hamas was thrown out of Damascus, Erdogan invited Hamas leaders Khaled Mashaal and Ismail Haniyeh to put the terrorist organization’s “West Bank and Jerusalem Headquarters” in Istanbul.
Speaking at the Paris rally in January 2015, after the murderous attack on the Charlie Hebdooffices and the terrorist murder of four Jews in a kosher supermarket, Turkey’s Foreign Minister Ahmet Davutoglu said, “Just as the massacre in Paris committed by terrorists is a crime against humanity, Netanyahu… has committed crimes against humanity.” Erdogan, speaking in Ankara, said he could “hardly understand how he (Netanyahu) dared to go” to the march in the French capital. Just last month, Davutoglu told an audience, “Israel kneels down to us.”
Turkey’s foreign policy choices and current crises have combined to make Erdogan reach out to Israel for help. Erdogan came to office as Prime Minister in 2003 with a policy of “zero problems with neighbors,” but has since led Turkey to problems with most, if not all, of them. Alon Liel, former Director General of the Israeli Foreign Ministry said, “Turkey didn’t do very well in the last five years in the region. Turkey needs friends.”
That is an understatement.
Turkey helped Iran evade international sanctions, but has since fallen out with the Islamic Republic of Iran over its support of Syria’s Bashar Assad. A Muslim Brotherhood supporter, Erdogan was close to Egypt’s former President, Muslim Brotherhood member Mohamed Morsi, and has been an outspoken adversary of President Abdel Fattah el-Sisi. Turkey was and remains a conduit for arms and money for various parties to the Syrian civil war. The U.S. has demanded that Erdogan seal Turkey’s border with Syria, which he has not done. Turkey also has bombed Kurdish fighters; deployed its forces to Iraqi territory and declined to remove them; and sold ISIS oil on the black market. There are allegations that the Turkish government knew sarin gas was transferred to ISIS across Turkish territory. In November, Turkey shot down a Russian military jet, in the biggest move down the current slide of Turkish-Russian relations, which began when Vladimir Putin stepped in to prevent the collapse of Syria. [This is on top of historical animosity between Turkey, the successor to Muslim Ottoman rule, and Russia, the self-proclaimed defender of the Christian Orthodox Church.]
Russia, furious at the downing of its plane, instituted a series of economic sanctions against Turkey, the most important of which is suspension of the TurkStream project, designed to boost Russian gas exports to Turkey. Turkey is the second-largest importer of Russian gas, after Germany.
As a corrective to all of Turkey’s “problems with neighbors,” Erdogan raised the possibility of renewed relations with Israel — which is currently finalizing the mechanism for developing large offshore natural gas fields. Erdogan told Turkish media last week that normalization of ties with Israel would have benefits for Turkey. Insisting that Israel must still end the blockade of Gaza (not happening), apologize, and pay reparations for the flotilla, Erdogan nevertheless made clear his desire for progress — or at least for Israeli gas.
Which way will Turkish President Erdogan go on Israel?
Left: Erdogan (then Prime Minister) shakes hands with then Israeli Prime Minister Ariel Sharon, on May 1, 2005. Right: Erdogan shakes hands with Hamas leader Ismail Haniyeh on January 3, 2012.
It’s not as if Turkish-Israel relations were ever entirely severed. Since the flotilla confrontation, Turkey-Israel trade doubled in the past five years, to $5.6 billion. While arms deals signed prior to 2010 have been put on hold, trade in civilian chemicals, agricultural products, and manufactured goods has increased. And, in one of those “only in the Middle East” stories, Turkish businesses have been shipping goods to Israel by sea, then trucking them across the country to Jordan and beyond, in order to avoid having to ship overland through Syria.
The basis for increased trade, including gas sales, is there, and Israel has weighed the price and found it acceptable. Israel will pay Turkey $20 million; Turkey will expel the Hamas leadership from Istanbul and will purchase Israeli gas.
After entering office in 2003, Erdogan offered Turkey as a model for democratic governance in a Muslim country. President Obama called him one of the foreign leaders with whom he wasmost comfortable. But Turkey’s was always a double game. The restoration of relations with Israel is less a political reconciliation than an admission of the utter bankruptcy of Turkey’s last five years of diplomatic endeavor.
The middle east tension gets hotter by the minute. Israel assasinates a notorious terrorist in a big airstrike on Damascus despite the SAM 300 missiles:
(courtesy zero hedge)
Israel Assassinates Notorious “Terrorist” In Airstrike On Damascus
Earlier this month, in “Israel Conducts Secret Training Exercises Against Russian Air Defense Systems,” we highlighted a Reuters report which suggested that Israel has been conducting tests against an S-300 missile system in Crete.
“Israel has quietly tested ways of defeating an advanced air-defence system that Russia has deployed in the Middle East and that could limit Israel’s ability to strike in Syria or Iran,”Reuters wrote, adding that “a Russian S-300 anti-aircraft system, sold to Cyprus 18 years ago but now located on the Greek island of Crete, had been activated during joint drills between the Greek and Israeli air forces in April-May this year.”
This is significant for a number of reasons.
First, Russia is set to supply Iran with S-300s. The deal – worth some $800 million – was signed in 2007, before being mothballed by Russia three years later due to international sanctions. Putin unfroze it in April. As BBC wrote last month, “Israel and the US fear the missiles could be used to protect Iranian nuclear sites from air strikes.”
The IAF test against the S-300 is also notable due to Russia’s deployment of S-400 missile defense systems in Syria following Turkey’s brazen move to shoot down a Russian Su-24 near the border late last month. Here’s what we said three weeks ago:
When it comes to battling Hezbollah, there’s no question that the Russian and Iranian presence is hindersome. Israel can’t, after all, simply fly over Latakia and bomb Iran’s militias as Hezbollah is effectively operating as Moscow’s ground force. Additionally, the Russians are now hyper-sensitive about potentially hostile aircraft which is why The Kremlin sent the Moskva to the coast and deployed the S-400s.
Around the time Russia began flying sorties from Latakia at the end of September, Putin met with Netanyahu in an effort to ensure that there would be no “accidents” in the skies above Syria. Predictably, the Israeli PM reiterated concerns about advanced weaponry falling into the hands of Hezbollah.
Needless to say, this is a decisively delicate situation for the Israelis. There’s no question that Hezbollah will be better armed now that they are effectively operating as a Russian ground unit. Moscow’s alliance with Tehran (and hence with Hezbollah) is a thorny issue but Netanyahu isn’t particularly keen on antagonizing The Kremlin.
Officially, Israel is “neutral” when it comes to the conflict in Syria, but make no mistake, there’s nothing “neutral” about Netanyahu’s stance on Iran, the Quds, and Hezbollah.
“What is our policy in Syria? We say: We do not intervene. We have an opinion as to what we would like to be there. But we are not in a position nor do we have the status, for sensitive reasons, to say we are in favor of Assad or against Assad,” defense minister Moshe Ya’alon said in November. He also claimed that Israel had armed no side in the civil war.
Whether that’s true of not is certainly up for debate, but when it comes to Israel and Syria’s five-year old civil war, the question has always been how Netanyahu intends to reconcile Tehran’s powerplay with Israel’s desire to check Iranian influence anywhere and everywhere it manifests itself. As noted above, Russia’s alliance with Iran has complicated this immeasurably. Indeed, the tests agains the S-300 appear to be (in part anyway) an effort to determine whether the IAF could hit Hezbollah in Syria without getting shot down by the Russians.
On Sunday, we got the latest bit of evidence which supports the notion that Netanyahu’s trigger finger may be getting itchy the closer Hezbollah and Iran get to cementing control of Syria’s major urban centers in the western part of the country. As mutliple wires reported earlier today, infamous Lebanese militant Samir Qantar was killed in Damascus by a suspected Israeli airstrike on Saturday evening.
“At 10:15 p.m. on Saturday December 19, Zionist warplanes struck a residential building in Jaramana city in Damascus countryside. The dean of liberated detainees from Israeli prisons, brother Mujahid Samir Kuntar was martyred along with several Syrian citizens in the strike,” Hezbollah said, in a statement.
As Reuters notes, Kuntar was “jailed in Israel for his part in a 1979 raid in Israel that killed four people [and] was repatriated to Lebanon in 2008 in a prisoner swap with Hezbollah, which he is then believed to have joined.”
As CNN recounts, “an Israeli court sentenced him to 542 years. He was age 16 at the time of the attack. Among the Israelis killed was a 4-year-old girl and her father.”
Here’s an account of Kuntar’s crime from The Times of Israel:
A Lebanese Druze, Kuntar became infamous for a brutal 1979 raid from Lebanon in which he helped kidnap an Israeli family from Nahariya, then smashed the head of a four-year-old Israeli girl, Einat Haran, with his rifle butt, killing her. Three other Israelis, including her father, Danny Haran, were killed in the attack. Kuntar was 16 at the time, a member of the Palestine Liberation Front.
He spent 29 years in an Israeli prison before being traded to Hezbollah in 2008 in exchange for the bodies of IDF soldiers Eldad Regev and Ehud Goldwasser. After that, he took on a senior role in the group, was honored by then-Iranian president Mahmoud Ahmadinejad and by Syrian President Bashar Assad, and helped to organize Syrian Druze on the Golan Heights and elsewhere into terror cells charged with carrying out attacks against Israel.
ToI goes on to say “Kuntar had an apartment in the building that was targeted and he had been in the building for at least 12 hours” at the time of the attack. Here’s a video of the aftermath:
The attack was reportedly carried out from within Israel, but Israeli officials declined to confirm the strike. “Israel has formally kept out of Syria’s civil war which started almost five years ago but has bombed Hezbollah targets there without publicly acknowledging these sorties,” Reuters notes. The National Defence Forces in Jaramana, an Assad support network, said “two Israeli warplanes carried out the raid which targeted the building in Jaramana and struck the designated place with four long-range missiles.”
“I am not confirming or denying anything to do with this matter, but it is good that people like Samir Qantar will not be part of our world,” Israeli Housing and Construction Minister Yoav Gallant said on Sunday. Israeli Justice Minister Ayelet Shaked, who Reuters notes has “accused Qantar of overseeing covert Hezbollah entrenchment on the Golan Heights” said the following: “He set up a broad terror network on the Golan, and it is good that he returned his soul to his creator.”
Right. So Israel assassinated him, plain and simple. The question now is what Hassan Nasrallah plans to do about it.
“Kuntar is considered an important symbol for Hezbollah as was evidenced by the much-attended ceremony in which he was welcomed in Beirut in 2008 after he was released from prison in Israel in a prisoner swap, by his personal audience with Nasrallah and his meeting with then-Iranian president Mahmoud Ahmadinejad,” the Jerusalem Post says.
Here’s more from The Post:
In addition to Kuntar, Farho Sha’alan, his partner in his terror enterprise and additional field commanders were also killed. In the last two years, the pair established a frontline group called the “National Syrian Opposition in the Golan,” backed by Hezbollah, the Quds Force and Bashar Assad’s Syrian Intelligence.
The belief is that even if Nasrallah and the commander of the Iranian Revolutionary Guards’ Quds Force, General Qassem Suleimani (who is responsible for operating Hezbollah) decide that they cannot let the attack go unanswered, it is not in their interest to do so on the Israel-Lebanon border, because Israel would respond with great force.
Actually no. It is “not in their interest to do so” because Hezbollah and Iran won’t want to open a two front war.
Of course the most amusing thing about all of this is that both sides accuse the other of being “terrorists”. Kuntar’s actions (both past and present) are branded “terrorism” by Israel while Iranian Foreign Minstry spokesperson Hossein Jaber Ansari said the strike represents “the most dangerous form of state terrorism.”
If Hezbollah and the Quds do indeed decide to retaliate, it will be interesting to see how far Israel is willing to go in terms of hitting back. Russia is fully aware of Israel’s desire to hit Hezbollah targets and as long as that doesn’t hinder Moscow’s efforts to restore the Assad government, The Kremlin will likely look the other way. However, if Kuntar’s assassination leads to a wider conflict between Israel, Iran, and Hezbollah and that conflict spills over from Lebanon into Syria, Putin may decide it’s time to adopt a less conciliatory position vis-a-vis the Israelis.
Container volumes falling rapidly. This should give you a good snapshot on global trade and it is getting worse:
(courtesy SouthBay Research)
Global Trade Snapshot – “The Pain Is Getting Worse”
Whether measured in volumes (container throughput via Hong Kong) or in dollars (US Import/Exports), the pain is the same: 16 months of steady collapse in global trade.
The pain is getting worse.
More containers are leaving the US and going back to China empty. From the Port of Long Beach (a major US/China trade port):
- After unloading cargo in the US, over 60% of inbound containers are leaving empty
- The rate is the highest since the recession began in 2007
- More empty containers than export containers: since June 2014, every month with only one exception, there have been more empty outbound containers than loaded export containers
The global trade slowdown was kicked off in late 2013 when the Chinese government took steps to cool the credit markets. The bursting of the credit bubble drove a collapse in commodity prices. Copper, for example, quickly tumbled because 60%~80% of copper imports were used as collateral for loans.
And not just copper. Commodity-backed loans quickly fell out of favor and physical demand began to drop. In 2013 iron ore imports to China surged 20%+. They have fallen -5% since then.
The bubble was popped, taking demand – and global trade – down with it.
Put differently, China was on a super cycle fueled by a combination of (1) a capital-intensive infrastructure build-out, (2) increasing penetration of global manufacturing, (3) a credit bubble, and (4) corporate gambling on real estate, commodities, and other assets. Government measures popped the hot-money and flattened public sector spending. Commodities and other assets have crashed back to earth, with much pain on the way.
Signs of a Bottom. But what comes next?
From China (Hong Kong) to Europe, Taiwan and Korea a bottom has formed.
For the US: No Bottom
- Materials and Agriculture in bad shape
- Other Exports contracting at faster pace ($ and units)
A strong dollar contributes to further US trade deterioration.
Separating the materials pain from other export pain
US export headline figures are bad…
- YTD (-$87B) Y/Y
- For 2015, likely to contract (-$100B) Y/Y
- Cuts GDP by -0.7%
…But concentrates on commodities
Of the (-$87B drop), most is materials and commodity (i.e. price drops are the big issue)
- Food/Petroleum/Steel: 70% or (-$61B)
- Related equipment: 8% or (-$7B).
US Exports (ex Food, Autos & Oil) are shrinking Faster
Strip out Food, Petroleum & even Auto exports. Food & Petroleum because price collapses distort the value of trade. Autos because auto exports are mostly sub-assemblies shipped to Canada and Mexico and re-imported to the US as cars and trucks. What remains is a true view of demand by US trading partners.
Strong dollar dulls trade
While total US exports have steadily contracted Y/Y every month in 2015 (except for January), the pace accelerated beginning in August, when the dollar strengthened against global currencies: o Jan-July (7 months): -$27B o Aug-Oct (3 months): -$23B
Going Forward: Trade Remains Under Pressure
The two engines of growth – China and the US – are stalling again.
Chinese demand is falling back again
The most recent US-China trade data comes out of the Port of Long Beach (November cargo data). Long Beach is a primary port for China/US trade. We’ve already noted the acceleration in empty containers, indicative of even lower China imports from the US.
Further analysis shows:
- Trend reversal: export growth has shifted from slight growth to contraction
- Nominal export volumes are below last year’s levels and the lowest since 2011.
- Best case: A bottom has formed and current activity reflects bouncing off the bottom
- Worst case: China demand is slowing again, with no change likely until late 1Q 2016
US Private Sector demand: No Longer Just Stalling
- US core goods demand growth has stalled
- Signs of contraction are popping up
In a sign of falling consumer and factory demand, US imports (ex Autos, Oil & Cell Phones) have contracted for the 1st time in 2.5 years. The trend has shifted from stalling to contraction. No wonder the BDI has fallen again
Charting US ‘demand’ for stuff
From railcar shipments to truck freight, the story is consistent: once we remove the impact of high volume commodities like oil and coal, cargo shipments are heading below last year’s levels.
The railcar shipment story reflects the overall global slowdown that began May 2014.
The recent contraction is mostly driven by a collapse in coal shipments, but the general story is no growth in demand.
The slowdown is also echoed in truck shipping activity.
Trucking activity is a critical data point because ~70% of all goods in the US move by truck. It is a window into near-term (30~60 day) demand.
Offered here are two different views of trucking conditions today.
Cass is a company providing logistical support to truckers. Their Freight Index measures cargo shipments.
Note that 2015 shipments have been less than last year’s, and have fallen to 2013 levels as of August.
Another view comes from DAT (another trucking support company). They measure demand in terms of a Load-to-Truck ratio (cargo shipment volumes relative to available truck capacity).
Again, evidence of decelerating domestic demand and at 2013 levels.
Taken together, the trucking data is consistent with 4Q 2015 GDP of < 1%.
Argentinians woke up poorer with this massive devaluation
(courtesy zero hedge)
Argentinians Are Now Poorer Than Citizens Of Equatorial Guinea After Massive Devaluation
On Wednesday evening, Argentina’s FinMin (and former head of global FX research at JP Morgan) Alfonso Prat-Gay abolished currency controls, fulfilling new President Mauricio Macri’s promise to unify the official and black market peso rates.
The move came on the heels of central bank governor Alejandro Vanoli’s forced resignation. Macri has accused Vanoli of endangering the country’s finances by racking up some $17 billion in dollar futures which the new government attempted to renegotiate ahead of the deval.
“For those interested in a case study of what happens after a dramatic devaluation, you now have front row seats for what is likely to be a 25-30% peso plunge,” we said two days ago.Yesterday, the peso did indeed take a nosedive as the parallel rates converged on 14 ARS/USD.
What does this mean for Argentinians, you ask?
Well, as FT reports, “Argentines woke up on Thursday richer than Poles, Chileans and Hungarians [but] by bedtime they were not only poorer than all three, but also more pecunious than Mexicans, Costa Ricans and the good people of Equatorial Guinea.”
In dollar terms, the sharp peso plunge pushed the country down eleven slots on the list of richest nations in GDP per capita terms. As the following table shows, Argentineans are now worse off than citizens of Chile, Poland, Equatorial Guinea, Hungary, Lebanon, Panama, Croatia, Kazakhstan, Costa Rica, Malaysia, and Mexico.
More generally, the devaluation will cost the country some $167 billion in GDP. “[This is] just the latest ignominy to hit the seemingly accident-prone nation, which just over a century ago was the seventh-wealthiest country in the world on a per capita basis, ahead of the likes of Denmark, Canada and the Netherlands and five times wealthier than Brazil,” FT goes on to say.
While the devaluation is likely the right move from a long-term perspective, in the short-run things will be painful. “The peso devaluation is a bitter pill for Argentinian households who kept their savings in pesos and for multinationals who had reported peso cash balances at the official exchange rate on financial disclosures,” Bill Adams, senior international economist at PNC Financial Services Group says.
And with that, we’ll close with a few passages from one of the world’s greatest economic minds. This is from May 3, 2012:
“…press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right.
Articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly.
Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar ‘convertibility law’. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.”
your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/MONDAY morning 7:00 am
Euro/USA 1.0865 up .0093
USA/JAPAN YEN 121.39 up .249
GBP/USA 1.4897 up .0012
USA/CAN 1.3956 down .0002
Early this morning in Europe, the Euro rose by 2 basis points, trading now just below the 1.09 level rising to 1.0865; 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, further stimulation as the EU is moving more into NIRP and the USA tightening by raising their interest rate and finally today/ Last night the Chinese yuan was down in value (onshore). The USA/CNY down in rate at closing last night: 6.4874 / (yuan up)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a southbound trajectory as settled down again in Japan by 25 basis points and trading now further to that all important 120 level to 121.39 yen to the dollar.
The pound was up this morning by 12 basis points as it now trades just below the 1.49 level at 1.4897.
The Canadian dollar is now trading up 2 in basis points to 1.3955 to the dollar.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this MONDAY morning: down 366.76 of 1.9%
Trading from Europe and Asia:
1. Europe stocks all in the green except Spain
2/ Asian bourses mixed/ Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green / (massive bubble ready to burst), Australia in the green: /Nikkei (Japan) red/India’s Sensex in the green /
Gold very early morning trading: $1072.00
Early MONDAY morning USA 10 year bond yield: 2.21% !!! up 1 in basis points from FRIDAY night and it is trading at resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.92 up 2 in basis points. ( still policy error)
USA dollar index early MONDAY morning: 98.74 up 5 cents from FRIDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers MONDAY MORNING
OIL RELATED STORIES
Moody’s just places 29 investment grade oil/natural gas companies on credit watch for possible downgrades.
Moody’s is suggesting that oil/natural gas companies are going to have a terrible time of it in the coming year:
(courtesy zero hedge)