Gold: $1074.80 down $7.10 (comex closing time)
Silver $14.30 unchanged
In the access market 5:15 pm
I love Kitco’s headline today:
At the gold comex today, we had a good delivery day, registering 43 notices for 4,300 ounces.Silver saw 126 notices for 630,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 198.93 tonnes for a loss of 104 tonnes over that period.
In silver, the open interest fell by 1156 contracts even though silver was up in price by 22 cents with respect to yesterday’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 and the comex. (negative SIFO rates). The total silver OI now rests at 162,096 contracts. In ounces, the OI is still represented by .810 billion oz or 115% of annual global silver production (ex Russia ex China).
In silver we had 126 notices served upon for 630,000 oz.
In gold, the total comex gold OI rose 3004 contracts to 402,603 contracts as gold was up $15.40 in price with respect to yesterday’s trading.
We had no change tonight in gold inventory at the GLD, / 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 no changes in inventory at the SLV /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 1156 contracts down to 162,096 despite the fact that silver was up in price to the tune of 22 cents with respect to yesterday’s trading. The total OI for gold rose by 3,004 contracts to 402,602 contracts as gold was up $15.90 in price
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i) Last night, MONDAY night, TUESDAY morning: Shanghai up barely , Hang Sang rises, Chinese yuan finally rises a bit to 6.4793. Stocks in Asia mixed, including a downfall in Japan . Oil rises in the morning,. Stocks in Europe mixed. China suspends its private unofficial PMI data release
ii Interesting comments from the Czech President:
RUSSIAN AND MIDDLE EASTERN AFFAIRS
i) a very mixed up USA policy:
USA Military share military secrets with Assad behind Obama’s back.
ii) Your next proxy war is forming: Afghanistan!!
British troops on their way to Helmand province:
ii) Even the rich are feeling the pain: Swiss watch exports plummeting!
i) With the USA allowed to export it did not take long for the WTI to trade at a premium to Brent
(courtesy zero hedge)
ii) Oil gains after API reports a large inventory drawdown!
(courtesy zero hedge)
i) Koos Jansen looks at the huge gold importation from Australia into China
ii) Turd Ferguson/Craig Hemke takes a look at the COT in gold/the bankers are defending $1080.00 like there is no tomorrow
(Craig Hemke/TFMetals/Turd Ferguson)
IMPORTANT USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER
i) USA 3rd quarter GDP comes in as expected at 2.0%
ii) existing home sales plummet by 10.5% far greater than expected
(zero hedge/Dave Kranzler)
iii)Goldman Sachs: 6 grey swans are all rising as global risk indices are worsening:
v) In August we reported on the reputable hedge fund for equities Claren Road receive requests for redemptions. At that time it had 8 billion in AUM in its portfolio. The redemptions would cut its AUM to 4 billion. This past month they received more redemption requests to bring its AUM down to only 1 billion. To stop the redemptions Claren Road gated investor exits. Just take a look at other request for redemption which may force other hedge funds to gate.
vi) Two stunning facts on the 1.2 trillion student loans:
i. At 108 colleges more than 1/2 of the students have not paid even 1 dollar on their loans even after 3 years after graduation
ii) the non payment rate of all student loans from borrowers after 3 yrs of graduation is a stunning 21.3%
(courtesy zero hedge)
Let us head over to the comex:
The total gold comex open interest rose to 402,603 for a gain of 3004 contracts as gold was up by $15.90 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Again today, the latter scenario stopped cold as the outstanding OI dropped just 6 contracts. We are now in the big December contract which saw it’s OI fall by 98 contracts to 1031. We had 92 notices filed upon yesterday, so we lost 6 contracts or an additional 600 oz will not stand for delivery in this active delivery month of December. The next contract month of January saw it’s OI fall by 2 contracts down to 564. The next big active delivery month is February and here the OI rose by 1089 contracts up to 281,829. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 88,530 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 128,607 contracts. The comex is in backwardation in gold up to April. The backwardation from December to January is 70 cents i.e. December is higher by 70 cents.
December contract month:
INITIAL standings for DECEMBER
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||
2732.750 oz (Scotia)
|Deposits to the Dealer Inventory in oz||4,000.000 oz ???
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||43 contracts
|No of oz to be served (notices)||988 contracts
|Total monthly oz gold served (contracts) so far this month||1173 contracts(117,300 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||203,033.8 oz|
Total customer deposits nil oz
DECEMBER INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||487,867.065 oz
|Deposits to the Dealer Inventory||599,841.07 oz
|Deposits to the Customer Inventory||856,871,045 oz
|No of oz served today (contracts)||126 contracts
|No of oz to be served (notices)||208 contracts
|Total monthly oz silver served (contracts)||3756 contracts (18,780,000 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||6,511,969.0 oz|
Today, we had 1 deposit into the dealer account:
i) Into CNT: 599,841.07 oz
total dealer deposit; 599,841.07 oz
we had no dealer withdrawals:
total dealer withdrawals: nil
we had 2 customer deposits:
i) Into Brinks: 600,487.85 oz
ii) Into Delaware: 256,383.195 oz
total customer deposits: 856,871.045 oz
total withdrawals from customer account: 487,867.065 oz
we had 1 adjustments:
Out of CNT:
we had 29,024.140 oz leave the customer account and this landed into the dealer account of CNT
And now the Gold inventory at the GLD:
Dec 22.no change in inventory tonight/inventory rests at 645.94 tonnes/
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:
Russia Gold “Buying Spree” Continues – Buy 22 Tons In November
– Russia adds another 700,000 ounces (22 tonnes) to gold reserves in November
– Russian ally Kazakhstan increased gold reserves for 38th month – 7 Mil ounces (bought .07 tonnes)
– Russia has added 197.1 tonnes in 2015 – Compared with 172 tonnes in all 2014
– November gold buying is Russia’s ninth straight month of increase
– Russia now has sixth largest gold reserves in the world
– Central bank buys all Russian gold production
– Other Russian gold demand imported
– Russia views gold bullion as “100% guarantee from legal and political risks”
Russia continues to add to its gold reserves and added another 700,000 ounces in November or another 22 metric tonnes, and analysts believe this buying will continue and may intensify in the coming months.
Russian ally Kazakhstan increased its gold reserves for a 38th month to 7.03 million ounces in November from 6.96 million ounces a month earlier.(2250 oz or .07 tonnes)
The latest large increase in Russia’s gold reserves – a “buying spree” as reported onReuters Africa has again gone largely unnoticed by most analysts. Indeed, the important monetary and geopolitical ramifications continue to be largely ignored in western media.
Russia’s total gold reserves have now increased to 44.8 million ounces or around 1,392.8 metric tonnes, with a current value of just $48.3 billion. Russia’s total FX reserves are $371.2 billion and their gold allocation remains just 13% of their total reserves.
The share of gold in Russian foreign exchange reserves is much lower than in many other countries such as the U.S., Italy and France. Russian diversification into gold is likely to continue and could intensify if relations with the U.S. and NATO powers further deteriorate.
Russia still have less than a fifth of the gold reserves of the U.S. which are believed to be over 8,400 metric tonnes of gold. However, the U.S. has no foreign exchange reserves and is the largest debtor in the world – indeed it is one of the largest debtors the world has ever seen.
Russia now has the sixth highest gold reserves in the world – behind the U.S., Germany, Italy, France and China.
In 2014, Russia bought more gold in than in any year since the break-up of the Soviet Union. The country acquired over 173 metric tonnes according to World Gold Council figures. Reserve diversification intensified after April — averaging about 20 tonnes per month.
Russia gold buying has intensified in 2015 and now stands at 197 metric tonnes year to date.
Much of the gold bought likely came from Russian gold production which is currently at about 25 metric tonnes per month. In 2014, Russia was the third largest gold miner in the world at 266.2 tonnes, just six tonnes short of Australia in second place and China in first place.
Thus, the Russian central bank is generally consuming all of Russian gold production and sometimes having to import gold. Therefore, all domestic demand for gold and Russia is an increasingly wealthy nation with thousands of millionaires and hundreds of billionaires including mega rich oligarchs.
If any of these oligarchs decide to begin accumulating gold, then the already delicate supply balance in the physical gold market will be impacted resulting in much higher prices. It is worth noting that some of these oligarchs remain close to Putin and the Kremlin and thus this could be a coordinated strategy.
Clearly, Russia puts great strategic importance on its gold reserves. Both President Putin and Prime Minister Medvedev have been photographed on numerous occasions holding gold bars and coins as a display of economic stability and strength and the central bank declared in May 2015 that Russia views gold bullion as “100% guarantee from legal and political risks.”
Prudent investors are following Russia’s lead by diversifying and having an allocation to physical gold coins and bars.
Must-Read Guide: Gold and Silver Storage Must Haves
Today’s LBMA Gold Prices: USD 1077.00, EUR 985.09 and GBP 723.18 per ounce.
Yesterday’s LBMA Gold Prices: USD 1071.15, EUR 987.10 and GBP 719.47 per ounce.
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China’s huge gold appetite continues as we witness a huge 61 tonnes of gold bought from Australia in the first 7 months of the year:
(courtesy Koos Jansen)
Koos Jansen: Australian gold exports to China reach record
A thorough examination of cross-border gold trade between Australia and China mainland.
While withdrawals from the vaults of the Shanghai Gold Exchange (SGE) continue at an unprecedented pace – 46 tonnes in week 48, year to date 2,541 tonnes – our job here at BullionStar is to track where this gold is coming from. The short answer would be it’s mainly supplied by gold imports. But, more important is the question how much is imported and from what country or warehouse? Partially, the gold is being sourced from Australia.
The second largest gold producer globally is Australia with an annual production of 270 tonnes, according the US Geological Survey. The majority of Australia’s mine output is exported, as suggested by foreign trade statistics. In 2014 total gross gold export from the land of down under was valued at 12 billion US dollars, which is roughly 296 tonnes, gross gold import was valued at 3.4 billion US dollars, or 85 tonnes. Australia’s net gold export accounted for 211 tonnes in 2014.
When it comes to Australia’s net gold export to China we’ll have to do some analysis, simply subtracting import from export won’t work in this case. Strangely, Australia discloses gold shipments as “export to China” even when it’s transferred via Hong Kong. Implying Australia records its gold export by country of destination, not the first stop, which is unusual to my knowledge.
First, let’s compare data from COMTRADE on Australia’s gross gold export to Hong Kong with data from the Hong Kong Census And Statistics Department on Hong Kong’s gross gold import from Australia. These two data points should be equal, but they’re not. Have a look at the chart below.
Australia reports to export a lot less to Hong Kong than Hong Kong reports to import from Australia. I should mention these mismatches are not uncommon in global gold trade, though in this instance there is an obvious explanation.
When we compare data from COMTRADE on Australia’s gross gold export to China with data from the Hong Kong Census And Statistics Department on Hong Kong’s gross gold import from Australia, remarkably we can see matching values in nearly all months until January 2015. Have a look at the chart below (please focus on the months until January 2015 for now).
At this point we can conclude that Australia (COMTRADE) disclosed gold shipments as “export to China” from January 2013 until December 2014 even though these first arrived in Hong Kong. How do we know the exports from Australia to Hong Kong were re-exported to China mainland (the SGE system)? Because Australia does make a difference betweenHong Kong and China for its gold export, it just doesn’t reveal the transfer. If Australia’s gold export to Hong Kong wasn’t re-exported to China mainland after its ‘initial arrival’ Australia wouldn’t have disclosed the trade as “export to China”, but as “export to Hong Kong” or “export to XXX”.
Now we know (presumably) all gold Australia exported to China from January 2013 until December 2014 was shipped via Hong Kong. If we would add Hong Kong’s gold “export to China” to Australia’s gold “export to China” in order to compute Chinese gold import, this would result in double counting.
At least for the past decades Hong Kong has been the main entry point for (non-monetary) gold into China. This changed early 2014 when China openly stated to stimulate direct gold imports from all over the world, bypassing Hong Kong. Subsequently, we’ve witnessed the birth of direct gold export to China from the UK in 2014:
The strategic move from Beijing to stimulate direct imports was also mentioned on Chinese state television channel CCTV in early 2014, in the clip below starting from 1:30.
Whenever Australia exported gold to China mainland before 2014 it was shipped via Hong Kong (see exhibit 2). After early 2014 gold exports from Australia to China could travel directly. Not surprisingly, what Australia reported as “export to China” since January 2015 has exceeded what Hong Kong reported as “import from Australia”. According to my analysis the difference reflects what Australia has directly exported to China mainland. Have another look at exhibit 2 for the months after December 2014, when Australia’s direct gold export to China accelerated.
By subtracting Hong Kong’s “import from Australia” from Australia’s “export to China”, what remains is what Australia directly exported to China, which is the figure we were looking for. By and by, Australia’s gross import from China and Hong Kong is close to nil.
According to my calculations Australia directly net exported 13 tonnes of gold in August 2015 to China mainland, which is an all time record. In the first 7 months of 2015 Australia directly net exported 61 tonnes of gold to China mainland, annualized that’s 105 tonnes.
SGE withdrawals were strong in August, hence strong gold import from Australia. Proven Chinese net gold imports in 2015 from Australia (including August) and Hong Kong, Switzerland and the UK (the latter three including October) has reached 1,164 tonnes, which is 1,429 tonnes annualized.
Annual Chinese domestic mine output will reach 476 tonnes this year. Total Chinese physical gold supply in 2015 will thus be (476 + 1,429 = ) 1,905 tonnes (without counting scrap supply!), though the media wants you to believe it’s about a thousand tonnes less. The World Gold Council has reported Chinese gold demand in the first three quarters of 2015 was 736 tonnes, annualized that’s 982 tonnes. Obviously this cannot be when compared to apparent supply. Sadly, the media simply copies the numbers from the World Gold Council, no questions asked.
E-mail Koos Jansen on: email@example.com
1 Chinese yuan vs USA dollar/yuan rises in value , this time to 6.4793/ Shanghai bourse: in the green barely , hang sang: green
2 Nikkei closed down 29.32 or 0.16%
3. Europe stocks mixed/USA dollar index down to 98.24/Euro up to 1.0944
3b Japan 10 year bond yield: falls to .275 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.97
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 35.86 and Brent: 36.31
3f Gold up /Yen up
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .560% German bunds in negative yields from 5 years out
Greece sees its 2 year rate rise to 7.65%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.95% (yield curve flattening)
3k Gold at $1079.35/silver $14.32 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble up 11/100 in roubles/dollar) 71.11
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 0.9902 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0837 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 + .560%/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 2.20% 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 Rise, Drop, Then Rise (And Fall) Again In Illiquid Session After China Promises More Stimulus
It has been a seesaw session with U.S. stock index futures following their dramatic buying burst in the last half hour of market trading yesterday by first rising, then falling, then rising again alongside European equities both driven almost tick for tick with even the smallest move in the carry trade of choice, the USDJPY, even as Asian shares trade near intraday highs after China’s leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown according to statements released at the end of the government’s Central Economic Work Conference by the official Xinhua News Agency on Monday.
Monetary policy must be more “flexible” and fiscal policy more “forceful” as leaders create “appropriate monetary conditions for structural reforms” adding that the fiscal deficit ratio should be raised gradually, as reported by Bloomberg.
While the leadership also endorsed structural reforms and reining in China’s increasing reliance on credit, the macroeconomic policy statements indicated concern about letting the economy’s expansion slow too much.
“Although the overall cyclical policy stance is set to be ’steady’, the tone on fiscal, monetary and other policies was modestly dovish,” economists at Goldman Sachs Group Inc. led by Song Yu wrote in a note. “The more positive cyclical policy tone from this conference makes us somewhat more comfortable with our forecast of only a moderate growth deceleration in 2016.”
Of course, this latest conference promising broad reform, is nothing new and reminds us of the Politburo’s 2013 pledge to cut debt by CNY1 trillion only to unleash a 50% debt/GDP expansion in the next 2 years. And while the market admires China’s best intentions, it too has learned to ignore them.
Elsewhere, the dollar and copper both fall while gold, silver, metals, most food commodities gain. WTI gains outpace Brent to narrow spread between oil benchmarks to smallest since January.
For now, however, keep an eye on the USDJPY and the all important 121 line, which as always must be defended to prevent a further drop in carry-trade linked equities. If the USDJPY is unable to find a support, this post’s title need to add another “… Then Fall Again.”
Here is a snapshot of global markets:
- S&P 500 futures up 0.1% to 2017
- Stoxx 600 up 0.2% to 358
- FTSE 100 up 0.3% to 6051
- DAX down 0.3% to 10465
- German 10Yr yield up 2bps to 0.57%
- Italian 10Yr yield up less than 1bp to 1.59%
- Spanish 10Yr yield up less than 1bp to 1.78%
- MSCI Asia Pacific up 0.4% to 130
- Nikkei 225 down 0.2% to 18887
- Hang Seng up 0.2% to 21830
- Shanghai Composite up 0.3% to 3652
- S&P/ASX 200 up 0.1% to 5117
- US 10-yr yield up less than 1bp to 2.19%
- Dollar Index down 0.05% to 98.31
- WTI Crude futures up 0.7% to $36.05
- Brent Futures up 0.1% to $36.39
- Gold spot up less than 0.1% to $1,078
- Silver spot up 0.2% to $14.28
Looking at regional markets, Asian stocks traded mixed despite the positive close on Wall St. with volumes light heading into the Christmas holiday, while there was a mild reprieve in commodity prices with Brent recovering from 11yr lows. As a result, the energy sector was one of the outperformers in the ASX 200 (-0.1%), while the Shanghai Comp (+0.3%) traded in negative territory for the majority of the session. This came after Chinese investors booked profits following yesterday’s gains and the Chinese Conference Work meeting failing to inspire positive price action the index, however, a bout of buying towards the close saw the index close in the green. Nikkei 225 (-0.2%) was flat for a bulk of the session after gains in Sharp (+9%) offset the continued weakness in Toshiba (-11 %), although price action has been subdued ahead of tomorrow’s Emperor’s Birthday holiday. 10yr JGBs traded marginally lower heading into the aforementioned holiday tomorrow, following the weaker than prior 2yr JGB auction.
Top Asian News
- McDonald’s Japan Plunges After Report U.S. Parent May Sell Stake: Shares fell most in almost five years after Nikkei newspaper reported its U.S. parent plans to cut its stake in the loss-making unit.
- China Said to Ask Banks to Test Longer Yuan Trading Hours: Some banks have also been asked to evaluate their market- making systems.
- Brookfield Commits to Sale of Asciano Assets, Regulator Says: Offers to sell freight service and bulk rail operation.
- UBS Toughens Australian Research Compliance After ASIC Inquiry: Bank restricts e-mails, chat from Australian researchers.
- Funds With $3 Trillion Take Rain Check on Emerging Stocks: 10 out of 12 surveyed say they won’t boost allocations.
- Taiwan Nov. Unemployment Rate at 3.84%; Median Est. 3.8%
- China Nov. Leading Economic Index Rises 0.6% M/m to 342.9
European equities have spent much of the session so far in positive territory, although have come off their best levels in recent trade to reside in negative territory (Euro Stoxx: -0.30%). “It’s effectively job done for [Draghi],” said Gavin Friend of National Australia Bank in London. “He reset the dial. He undid that a little bit by not really delivering in December, but the euro is still lower now because of what he’s done and what the Fed is doing. The ECB will be very content to see activity levels where they are.”
In terms of a sector breakdown, energy and material names are among the best performers amid a period of reprieve in the commodity complex while utilities underperform. As a result of recent commodity strength, the FTSE 100 (+0.20%) is the best performing major European index, while the IBEX 35 (+0.10%) also trades higher today after the significant losses seen yesterday in the wake of the Spanish election.
Top European News
- ECB Diaries Show Investor Meetings Curbed Before Decision: ECB diaries suggest Executive Board members have curbed meetings with banks, asset managers in days, hours before monetary-policy decisions.
- Credit Suisse Filed Claim Against UBS Over Staff, WSJ Says: Credit Suisse filed an arbitration claim with Finra alleging that a UBS unit unfairly poached staff from its U.S. private-banking business over past several months.
- Europe’s Largest Debt Collector Steps Up Takeover Ambitions: Intrum Justitia plans to step up pace of acquisitions as it aims to increase its presence in credit management services in coming years, according to acting CEO Erik Forsberg.
- Swiss Watch Exports Fall in Nov. on Steep Hong Kong Decline: Shipments slid 5.6% to CHF1.95b, according to figures released today.
Fixed income markets have been particularly quiet today with just 66k contracts having been traded so far with no supply due from Europe. Also of note, purchases by the ECB’s PSPP program will be suspended from today up until and including January 1st.
In FX, price action in FX markets has also remained subdued so far today, with EUR/USD having been dictated by around 3Bn of option expiries in the pair at 1.0900, however prices have since moved away from this level towards the North American crossover. Similarly, there is 1.38bIn in USD/JPY at the 121.00 handle which is also set to roll off at the 1500GMT NY cut. Elsewhere, Commodity-linked currencies continued to receive bids following the reprieve seen in metal and crude prices, which have seen AUD/USD extend gains past 0.7200 and NZD/USD recapturing 0.6800.
Gold traded range bound during the European session holding on the gains seen yesterday, where a weaker USD led to a mild reprieve in commodity prices. Elsewhere, copper prices have continued to pull-back from 5-week highs, while Dalian iron ore futures saw mild pressure alongside a resumption of declines in steel prices. WTI and Brent have continued in their upward trend of the past two sessions, with Brent having come off 11year lows and WTI spending much of the session above the USD 36.00 handle.
On Today’s US calendar we have the tertiary reading of US Q3 GDP as well as US existing home sales, while the latest API crude oil inventories are scheduled for release after the close – another dramatic build like last week’s, will quickly end the most recent attempt at a bouncing dead cat.
Top Global News
- China’s Leaders Signal More Stimulus After Top Economic Meeting: Call for more “flexible” monetary policy to support reforms.
- Deutsche Bank Tally of Suspect Russia Trades Said at $10b: Bank has identified up to $4b in suspicious transactions related to its Russian operations, in addition to $6b in so- called mirror trades it is examining, according to people familiar.
- Qatar National Bank to Buy Turkey’s Finansbank for $2.95b: Deal to buy NBG’s 99.8% holding in Finansbank subject to regulatory approvals, expected to close in 1H 2016.
- Japan’s Recruit to Acquire Dutch Employment Firm USG People: Recruit Holdings agreed to buy USG People of the Netherlands for EU1.42b as Japan’s biggest provider of temporary staff seeks to boost growth in Europe.
- NetApp Acquiring SolidFire for $870m to Boost Flash: Co. to buy SolidFire to boost its presence in growing market for systems that can retrieve, store vast amounts of data at rapid speeds.
- Musk Greets SpaceX Reusable Rocket With ‘Welcome Back, Baby’: SpaceX made a Falcon 9 booster first piece of an orbital rocket to land back on Earth after launching satellites into orbit.
- Icahn Takes Lead in Pep Boys Battle With $918.7m Bid: Pep Boys said its board has decided that Icahn’s offer made Friday evening was superior to an earlier bid from Bridgestone Corp.
- Citigroup $1.13b Mortgage Settlement Approved by N.Y. Judge: Court approves settlement reached in April 2014 with Citigroup to resolve liabilities for loans bank packaged, sold in run-up to 2008 financial crisis.
- Apple Says U.K. Surveillance Law Would Endanger All Customers: Co. outlined opposition to proposed U.K. surveillance law, saying threats to national security don’t justify weakening privacy, placing data of hundreds of millions of users at risk.
- Google Teams With Ford to Build Self-Driving Cars: Yahoo Autos: Cos. will establish JV to build vehicles with Google technology.
- CBS CEO Moonves Said in Line to Become Chairman After Redstone: Leslie Moonves would become broadcaster’s chairman upon death of Sumner Redstone under agreement with Redstone’s daughter Shari, according to person familiar.
- Goldman Sachs Names Three Bankers to Management Committee: Gregg Lemkau, Marc Nachmann, Jim Esposito were appointed to panel, according to memo
Overnight Media Digest from Bloomberg and RanSquawk
- As a result of recent commodity strength, the FTSE 100 (+0.20%) is the best performing major European index
- Commodity-linked currencies continued to receive bids following the reprieve seen in metal and crude prices, which have seen AUD/USD extend gains past 0.7200 and NZD/USD recapturing 0.6800
- Looking ahead, this afternoon sees the Turkish rate decision, the tertiary reading of US Q3 GDP as well as US existing home sales, while aftermarket the latest API crude oil inventories are also scheduled for release.
- Treasuries little changed in quiet overnight trade amid gains in crude oil, headed for a yearly gain amid global growth concern even as the Fed has increased interest rates.
- China’s leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown; PBOC auctioned CNY30b of 7-day reverse repos at at a yield of 2.25%, up from CNY10b a week earlier
- The world’s biggest iron ore exporter cut its price forecast for next year by 19% as supply continues to swell and slowing growth in China hurts demand in the biggest user
- Amid the uncertainty over Spain’s political future after Sunday’s inconclusive election result, one thing is clear: the country’s budget-deficit targets are at risk as 3 of the 4 biggest parties in the new parliament promised voters they’d persuade the EC to ease Spain’s budget limits
- Finland should never have joined the euro, according to foreign minister Timo Soini, who is also the leader of The Finns party; says the country could have resorted to devaluations had it not been for its membership
- Authorities investigating a fake bomb left in the lavatory of an Air France jet released a man who had been held for questioning over the hoax
- No IG or HY deals expected for remainder of year. BofAML Corporate Master Index OAS +1 to +175, YTD range 180/129. High Yield Master II OAS widens 5bp to +725 after reaching +733, new YTD wide, last week; YTD low 438
- Sovereign 10Y bond yields increase. Asian stocks mostly higher, European stocks mixed, U.S. equity-index futures decline. Crude oil higher, gold little changed, copper falls
let us begin:
Last night, MONDAY night, TUESDAY morning: Shanghai up barely , Hang Sang rises, Chinese yuan finally rises a bit to 6.4793. Stocks in Asia mixed, including a downfall in Japan . Oil rises in the morning,. Stocks in Europe mixed. China suspends its private unofficial PMI data release (see below)
China “Suspends” Another Unofficial PMI Data Release To Make “Major Adjustment”
For the second time in two months, an economic data series that indicate drastically weak performance in China has been “suspended.” Having seen Markit/Caixin’s flash gauge of China’s manufacturing discontinued in October (having plunged notably divergently from the government’s official data), Bloomberg reports that the publishers of the alternativeChina Minxin PMI will stop updating the series to make a “major adjustment.”
Guess which time series was just “suspended”…
Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.
Minxin’s suspension is the second in recent months as policy makers in the world’s second-largest economy struggle to arrest a deceleration in growth. Another early estimate of China’s manufacturing sector, a flash gauge of a purchasing managers index compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1.
Minxin’s PMI readings are based on a monthly survey covering more than 4,000 companies, about 70 percent of which are smaller enterprises. The private gauges have shown a more volatile picture than the official PMIs in the past year.
The manufacturing PMI declined to 42.4 in November from 43.3 in October, while the non-manufacturing reading fell to 42.9 from 44.2, according the the latest release. The factory gauge fell to a record low of 41.9 in August. China’s official PMI from the National Bureau of Statistics fell to a three-year low of 49.6 in November.
For September, the now-discontinued flash Markit/Caixin PMI fell to a six-year low, while the official PMI reading showed a modest improvement.
* * *
Because nothing inspires confidence like removing transparency of just the worst data series. We assume the “major adjustment” needed is akin to America’s “double-seasonal adjustment” because how could it be possible that official figures remain so ‘healthy’ when every private survey (pre-discontinuation) has shown utter collapse…?
Finland’s Foreign Minister Says Country Should Have Never Joined The Euro
Back in August, we brought you “One Country’s Grim Assessment Of Greece’s Future” in which we highlighted comments from Finnish Foreign Minister Timo Soini.
“Truth is the strongest force. We should admit that this isn’t going to work,” Soini said, criticizing Brussels’ decision to back a third bailout program for Athens after a summer of fraught negotiations. “I hope that the EU and euro zone, that in due course, we can face the facts and say enough is enough and that we must do something else,” he continued.
Well as it turns out, Soini thinks Finland “must do something else” when it comes to its participation in the single currency. Echoing sentiments espoused by Center Party politician Paavo Vayrynen – a former foreign minister who has pushed for Finland to exit the euro – Soini bemoans the fact that his country can’t resort to currency devaluation to boost competitiveness.
“Debate on the subject will gather steam,” Soini said in Helsinki on Tuesday, before noting that unfortunately, a referendum on a euro exit “wouldn’t provide [short-term] solutions [because] the fact is that Finland is a member of the euro area.”
That “fact”, Soini says, is to blame for Finland’s slumping economy, which has contracted for three years running and turned in a decidedly bad Q3 in route to what may well end up being a fourth consecutive year of recession.
“This might seem an odd record for a country whose sovereign debt still enjoys the rare accolade of a Triple-A rating, whose government debt-to-GDP ratio remains a relatively modest 62%, and which didn’t experience a banking bust,” WSJ opined last month. “The simplistic answer is to blame the euro[because if] Finland had retained its own currency, it could have responded to shocks by devaluing to regain competitiveness, as it did in the aftermath of its financial crisis in the 1990s,” The Journal adds.
“Without the option of currency devaluation, the government has calculated that Finland needs to lower its labor costs as much as 15 percent to catch up with its main trade partners, Sweden and Germany,”Bloomberg writes, adding that “Finland will be the weakest EU economy by 2017, when it will grow at less than half the pace of Greece, according to the European Commission.”
Even if, as The Journal and others have suggested, Finland’s economic problems stem more from a lack of free market reforms than from the country’s adoption of a currency it doesn’t print, Soini has other bones to pick with Europe.
“Schengen will probably not be declared dead, but it probably won’t be followed anymore,” he says, effectively writing the EU’s obituary in the wake of the flood of refugees that have inundated the bloc. Although Soini has said that “terrorism and the refugee crisis should not be confused with one another [as] there is a danger that innocent people fleeing tyranny and terrorism will come under suspicion,” his Finns Party isn’t exactly known for its compassion towards immigrants and on that note, we’ll close with one last rather ominous quote from Soini:
“If the influx of illegal asylum seekers isn’t brought under control in Greece, or in other countries, that will cause national states to take matters into their own hands.”
(courtesy Keep Talking Greece)
Athens Recalls Ambassador To Prague After Czech President Says He Is “Disappointed Greece Did Not Leave Euro Area”
Greece Recalls Its Ambassador To Prague, After Czech President’s Unacceptable Remarks On Grexit
A diplomatic incident with unknown outcome has occurred between Greece and the Czech Republic after the provocative statements made against Greece by President Milos Zeman. As consequence to Zeman’s statements, the Greek Foreign Ministry ordered its its Ambassador to the Czech Republic to return back to Athens “for consultations” as it is nicely said in diplomatic language. The Czech President has recently expressed his disappointed “because Greece has not exit the Eurozone yet.”
Speaking to Slovak news agency TASR on December 15h, President Milos Zeman said that he was“extremely disappointed that the summer negotiations between Greece and creditors did not ultimately lead to Greece’s exit from the euro area, although it looked quite possible.“
He added that “the Czech Republic will join the euro area on the first day after Greece departs the eurozone.“
Right after Zeman’s statements, the Czech Ambassador to Athens was invited by the office of Greek Foreign Minister Nikos Kotzias for a protest note and a “diplomatic chat” during which the Greek side expressed its discomfort about the unacceptable statements of the highest Czech official.
The Greek Foreign Ministry reminded the Czech Republic that it was also Greece that had approved its entrance to the European Union.
The Czech Republic was given four days time to refute its President’s statements but Prague decided to insist on the tough line against Athens.
The Greek diplomacy could not but proceed to the next step which was to “call its ambassador for consultations.” In practice this means, that Ambassador Panayiotis Sarris has been withdrawn from the Czech Republic and he will remain in Athens until the issue is solved.
“We have requested our ambassador to return to Athens for consultation. This is in relation to the unacceptable statements made by the Czech president,” Konstantinos Koutras, spokesman of the Greek Foreign Ministry told dpa, adding that the Czech Republic had become a member of the European Union in 2004 thanks to Greece‘s backing among others.”
For better understanding of the “ambassador’s withdrawal”, note the similar incident in May 2010, when Turkey withdrew its ambassador to Israel after the assault of Mavi Marmara vessel where several Turkish citizens lost their lives.
The Pentagon deliberately subverted American policy toward Syria, sabotaging US efforts to aid Syrian rebels and even sending US intelligence to Syrian President Bashar al-Assad, according to journalist Seymour Hersh.
In a nearly 7,000-word piece in the London Review of Books, Hersh says that the Joint Chiefs of Staff, America’s top military leaders, decided to deliberately subvert American foreign policy and form a secret alliance with Assad and Russian President Vladimir Putin.
As his source, Hersh cites one anonymous “former senior adviser” to the Joint Chiefs.
In summer 2013, the Joint Chiefs discovered that Turkey had “co-opted” the CIA’s program to arm so-called “moderate” Syrian rebels. Ankara decided to redirect US aid to extremists, including Daesh and al-Qaeda affiliate Nusra Front, Hersh writes.
The Joint Chiefs also discovered that viable moderate Syrian rebels did not exist and that the opposition consisted nearly uniformly of extremists.
So, in the fall of 2013, the Joint Chiefs decided to start secretly “providing US intelligence to the militaries of other nations, on the understanding that it would be passed on to the Syrian army,” Hersh writes. They sent US intelligence to Germany, Russia, and Israel, which sent it to Assad.
The goal of their secret alliance with Assad was to subvert Obama’s Syria efforts, prop up Assad, and aid him in destroying Daesh and other extremists, according to Hersh.
In return, the Joint Chiefs asked that Assad “restrain” Hezbollah from attacking Israel; renew negotiations with Israel over the Golan Heights, a territory that Israel had seized from Syria decades earlier; agree to accept any Russian assistance; and hold elections after the war ended.
In summer 2013, the Joint Chiefs tricked the CIA into shipping obsolete weapons to Syrian rebels, Hersh writes. The journalist says this was intended as a show of good faith to Assad, to convince him to accept their offer.
The secret Joint Chiefs alliance with Putin and Assad, Hersh writes, ended this September when its chief architect, Chairman of the Joint Chiefs Martin Dempsey, retired.
Seymour Hersh Bombshell: US Military Shared Intelligence With Assad In Defiance Of Obama, CIA
Back in May, Seymour Hersh upended the “official” narrative surrounding the death of Osama bin Laden and in the process created a media firestorm prompting a response from the White House.
The explosive revelations about the events that ultimately led to bin Laden’s demise came a year-and-a-half after Hersh accused the Obama administration of not telling the whole story with regard to an infamous sarin gas attack that nearly served as an excuse for airstrikes against the Assad regime in 2013.
In the six months since Hersh’s bin Laden story made international headlines, the war in Syria has escalated meaningfully. Indeed, the country is now the theatre for what amounts to World War III with the US, France, Britain, Russia, Iran, Turkey, Saudi Arabia, Qatar, and Iraq all involved either directly or indirectly.
As we noted just three days ago, we’re beginning to see 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. Here’s how we described the situation:
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.
Well, if you believe Seymour Hersh’s latest expose, we were even more right than we knew because as it turns out, some elements within the US military began tacitly cooperating with Assad two years ago after becoming concerned with Turkey and Saudi Arabia’s support for Sunni extremists.
In a new 6,600 word piece, Hersh details what he says was a covert plot by the Joint Chiefs of Staff to undercut the “Assad must go” line promoted and pursued by the Obama administration and the CIA on the way to sharing valuable intelligence with the Assad government. The report also verifies the role of Saudi Arabia, Qatar, and especially Turkey in arming and financing al-Nusra and ISIS.
Hersh begins by recounting a secret assessment of the security situation in Syria that dates from 2013 :
The military’s resistance dates back to the summer of 2013, when a highly classified assessment, put together by the Defense Intelligence Agency (DIA) and the Joint Chiefs of Staff, then led by General Martin Dempsey, forecast that the fall of the Assad regime would lead to chaos and, potentially, to Syria’s takeover by jihadi extremists, much as was then happening in Libya. A former senior adviser to the Joint Chiefs told me that the document was an ‘all-source’ appraisal, drawing on information from signals, satellite and human intelligence, and took a dim view of the Obama administration’s insistence on continuing to finance and arm the so-called moderate rebel groups. By then, the CIA had been conspiring for more than a year with allies in the UK, Saudi Arabia and Qatar to ship guns and goods – to be used for the overthrow of Assad – from Libya, via Turkey, into Syria. The new intelligence estimate singled out Turkey as a major impediment to Obama’s Syria policy. The document showed, the adviser said, ‘that what was started as a covert US programme to arm and support the moderate rebels fighting Assad had been co-opted by Turkey, and had morphed into an across-the-board technical, arms and logistical programme for all of the opposition, including Jabhat al-Nusra and Islamic State.
He then moves immediately to indict Ankara:
Lieutenant General Michael Flynn, director of the DIA between 2012 and 2014, confirmed that his agency had sent a constant stream of classified warnings to the civilian leadership about the dire consequences of toppling Assad. The jihadists, he said, were in control of the opposition. Turkey wasn’t doing enough to stop the smuggling of foreign fighters and weapons across the border. ‘If the American public saw the intelligence we were producing daily, at the most sensitive level, they would go ballistic,’Flynn told me. ‘We understood Isis’s long-term strategy and its campaign plans, and we also discussed the fact that Turkey was looking the other way when it came to the growth of the Islamic State inside Syria.
And here, according to Hersh, is how the plan was hatched:
‘Our policy of arming the opposition to Assad was unsuccessful and actually having a negative impact,’ the former JCS adviser said. ‘The Joint Chiefs believed that Assad should not be replaced by fundamentalists. The administration’s policy was contradictory. They wanted Assad to go but the opposition was dominated by extremists. So who was going to replace him? To say Assad’s got to go is fine, but if you follow that through – therefore anyone is better. It’s the “anybody else is better” issue that the JCS had with Obama’s policy.’ The Joint Chiefs felt that a direct challenge to Obama’s policy would have ‘had a zero chance of success’. So in the autumn of 2013 they decided to take steps against the extremists without going through political channels, by providing US intelligence to the militaries of other nations, on the understanding that it would be passed on to the Syrian army and used against the common enemy, Jabhat al-Nusra and Islamic State.
Germany, Israel and Russia were in contact with the Syrian army, and able to exercise some influence over Assad’s decisions – it was through them that US intelligence would be shared.
Once the flow of US intelligence began, Germany, Israel and Russia started passing on information about the whereabouts and intent of radical jihadist groups to the Syrian army; in return, Syria provided information about its own capabilities and intentions. There was no direct contact between the US and the Syrian military; instead, the adviser said, ‘we provided the information – including long-range analyses on Syria’s future put together by contractors or one of our war colleges – and these countries could do with it what they chose, including sharing it with Assad. We were saying to the Germans and the others: “Here’s some information that’s pretty interesting and our interest is mutual.” End of conversation.
But the intelligence didn’t come without conditions:
The Joint Chiefs let it be known that in return the US would require four things: Assad must restrain Hizbullah from attacking Israel; he must renew the stalled negotiations with Israel to reach a settlement on the Golan Heights; he must agree to accept Russian and other outside military advisers; and he must commit to holding open elections after the war with a wide range of factions included.
The Joint Chiefs then allegedly pulled a fast one on the CIA:
By the late summer of 2013, the DIA’s assessment had been circulated widely, but although many in the American intelligence community were aware that the Syrian opposition was dominated by extremists the CIA-sponsored weapons kept coming, presenting a continuing problem for Assad’s army. Gaddafi’s stockpile had created an international arms bazaar, though prices were high. ‘There was no way to stop the arms shipments that had been authorised by the president,’ the JCS adviser said. ‘The solution involved an appeal to the pocketbook. The CIA was approached by a representative from the Joint Chiefs with a suggestion: there were far less costly weapons available in Turkish arsenals that could reach the Syrian rebels within days, and without a boat ride.’ But it wasn’t only the CIA that benefited. ‘We worked with Turks we trusted who were not loyal to Erdo?an,’ the adviser said, ‘and got them to ship the jihadists in Syria all the obsolete weapons in the arsenal, including M1 carbines that hadn’t been seen since the Korean War and lots of Soviet arms. It was a message Assad could understand: “We have the power to diminish a presidential policy in its tracks.”’
Then comes yet another damning indictment of the Erdogan government:
But the Saudis were far from the only problem: American intelligence had accumulated intercept and human intelligence demonstrating that the Erdogan government had been supporting Jabhat al-Nusra for years, and was now doing the same for Islamic State. ‘We can handle the Saudis,’ the adviser said. ‘We can handle the Muslim Brotherhood. You can argue that the whole balance in the Middle East is based on a form of mutually assured destruction between Israel and the rest of the Middle East, and Turkey can disrupt the balance – which is Erdogan’s dream. We told him we wanted him to shut down the pipeline of foreign jihadists flowing into Turkey. But he is dreaming big – of restoring the Ottoman Empire – and he did not realise the extent to which he could be successful in this.’
Gabbard later told me that many of her colleagues in Congress, Democrats and Republicans, have thanked her privately for speaking out. ‘There are a lot of people in the general public, and even in the Congress, who need to have things clearly explained to them,’ Gabbard said. ‘But it’s hard when there’s so much deception about what is going on. The truth is not out.’
Ultimately, Hersh says the effort to assist Assad died with Dempsey’s retirement:
The military’s indirect pathway to Assad disappeared with Dempsey’s retirement in September. His replacement as chairman of the Joint Chiefs, General Joseph Dunford, testified before the Senate Armed Services Committee in July, two months before assuming office. ‘If you want to talk about a nation that could pose an existential threat to the United States, I’d have to point to Russia,’ Dunford said. ‘If you look at their behaviour, it’s nothing short of alarming.’ In October, as chairman, Dunford dismissed the Russian bombing efforts in Syria, telling the same committee that Russia ‘is not fighting’ IS. He added that America must ‘work with Turkish partners to secure the northern border of Syria’ and ‘do all we can to enable vetted Syrian opposition forces’ – i.e. the ‘moderates’ – to fight the extremists.
Obama now has a more compliant Pentagon. There will be no more indirect challenges from the military leadership to his policy of disdain for Assad and support for Erdogan. Dempsey and his associates remain mystified by Obama’s continued public defence of Erdogan, given the American intelligence community’s strong case against him – and the evidence that Obama, in private, accepts that case. ‘We know what you’re doing with the radicals in Syria,’ the president told Erdogan’s intelligence chief at a tense meeting at the White House (as I reported in the LRB of 17 April 2014). The Joint Chiefs and the DIA were constantly telling Washington’s leadership of the jihadist threat in Syria, and of Turkey’s support for it. The message was never listened to. Why not?
Read the full report below.
* * *
“Military to Military”, Seymour M. Hersh on US intelligence sharing in the Syrian war courtesy of the London Review of Books
British troops on their way to Helmand province:
UK To Deploy More Boots To Afghanistan After Suicide Bomber Kills Six US Troops
In October, President Obama “surprised” America by deciding to halt a troop withdrawal from Afghanistan.
Under the President’s previous plan, Washington would withdraw most of the 9,800 troops operating in the country by the end of next year, leaving a force of just 1,000. Now, all 9,800 troops will remain for “most” of next year and 5,500 troops will remain in 2017.
The decision came amid calls for stepped up action against the Taliban which briefly controlled Kunduz in September (a situation the US “corrected” by launching a brutal AC-130 gunship attack on a hospital) and are now operating in more parts of the country than at any time since 2001.
On Monday, The Pentagon said six Americans – including an NYPD detective – were killed in the country when a suicide bomber on a motorcycle detonated near Bagram.
“All six of the NATO service members killed Monday in a motorcycle bomb attack in Bagram, Afghanistan, were American,” CNN reports. “A suicide bomber on a motorbike carried out the attack on a joint patrol of Afghan and coalition forces at about 1:30 p.m. in the Bajawri area of Bagram district.”
“As I saw firsthand during my visit to Afghanistan last Friday, our troops are working diligently alongside our Afghan partners to build a brighter future for the Afghan people,” Defense Secretary Ash Carter said in a statement. “Their dedicated efforts will continue despite this tragic event.”
Yes, the “dedicated efforts” of US personnel will “continue”, despite the fact that no one has any idea what they’re doing in Afghanistan at this juncture. Granted, the Taliban is resurgent. Have a look at the following map:
Of course if you wait around long enough (like say, 14 years) insurgent elements are bound to resurface and attempt to recapture lost territory. In short, using a reinvigorated Taliban as an excuse to keep troops in Afghanistan nearly four years after the death of Osama Bin Laden is asinine. The Taliban will always be there and at a certain point, you have to leave it to Kabul to protect their own territorial integrity.
So why stick around, you ask? Because there are bigger fish to fry (so to speak) in the region.
Turkey, Qatar, and Saudi Arabia are already skittish about America’s perceived withdrawal from the Mid-East and just about the last thing Washington wants to do is reinforce the idea that America is “leading from behind” by pulling thousands of troops from Afghanistan just as the conflicts in Syria and Iraq escalate.
As usual, Britain is along for the ride.
In the wake of a Taliban offensive that resulted in the fall of Sangin, the UK is sending in more “advisors” to assist in Helmand. “The Afghan government has suffered a serious setback after a Taliban offensive succeeded in taking control of much of Sangin, the Helmand town that became totemic for British forces, accounting for a third of their casualties,” The Guardian writes, adding that “The Ministry of Defence said British troops had been deployed to help local forces, but would not take any combat role and would only provide advisory support.”
Yes, the infamous “advisory” role. That’s the same role US SpecOps were playing in the northern Iraqi town of Huwija when they jumped into a gun battle which led to the first US ground combat death in Iraq since 2011.
“As part of the UK’s ongoing contribution to Nato’s Resolute Support mission, a small number of UK personnel have deployed to Camp Shorabak in Helmand province in an advisory role,” the MoD said. “These personnel are part of a larger Nato team which is providing advice to the Afghan national army. They are not deployed in a combat role and will not deploy outside the camp.”
This comes less than a week after US and British SpecOps were deployed to the area in the wake of the Taliban advance. “At least 2,000 Afghan forces have been killed or wounded in Helmand in the past year [and] reventing the provincial capital from falling into the hands of the Taliban is a priority for U.S. Army Gen. John Campbell, the commander of the North Atlantic Treaty Organization-led military coalition in Afghanistan,” WSJ noted last week.
The situation is complicated by Iran’s alleged support for the Taliban, an alliance that makes for strange bedfellows. Although Tehran has long been opposed to the group, checking the spread of Islamic State in Afghanistan and keeping US troops off guard has apparently taken precedence. According to Western media, Tehran is now arming and funding the Taliban in Afghanistan. The aid has been instrumental to the Sunni extremist group’s recent string of military successes.
All of the above is further evidence that Afghanistan will once again become a key battleground in the Mid-East. As we’ve said on a number of occasions (including late last month when we learned that Russia has sent 10,000 AK-47s to Kabul), the proxy wars unfolding in Syria, Yemen, and Iraq will likely soon include Afghanistan as both the West and the Russia-Iran-Iraq nexus contemplate how best to check Islamic State’s advance while simultaneously keeping a lid on the Taliban’s ambitions.
We’ll close with a quote from a police commander in Helmand:
“We are in the front line but we haven’t received our salaries for two months and don’t have food. We knock on people’s door to ask them to provide us food.”
Something Crazy Is Going On In Swedish Money Markets
It appears Swedish banks are falling over themselves to get rid of excess cash. We noted Swedish banks refusing to open bank accounts in September, and warned in October of a “giant wave of money” heading into Sweden thanks to the Riksbank-ECB policy divergence, and now, Swedish banks are paying each other to take cash off their balance sheets into year-end, as 1-week STIBOR crashes to -1.792%.
In other words, “reverse window-dressing” as no one wants to show a negative carry asset on their balance sheet.
Or put another way…
It is these kind of nonsense disclocations that extreme monetary policy-makers create with their unintended consequences.
Even The Rich Are Cutting Back – Swiss Watch Exports Continue Collapse Despite Price Cuts
You know it’s bad when… Following a dismal October, Swiss watch exports continued to collapse in November. As we noted previously, not only are luxury jet values dropping for the first time since 2009, London mansion prices plunging, San Francisco home sales collapsing, and Sotheby’s laying people off, but, despite desperate major price cuts, Swiss watch exports tumbled 11% YoY (in USD terms), the worst November since 2008.
In Swiss Francs, this is the biggest November plunge in Swiss watches since 2009…
And in USD, the largest collapse since 2008…
As RBC’s Rogerio Rujimori reports, it appears driven by the collapsing Chinese wealth bubble outflows via Hong Kong…
By region, the focus is likely to be on Hong Kong which registered declines of -28% despite the comparative easing by 19ppt (vs. -39% in Hong Kong, -18% in September and -18% in August), which suggests an underlying deceleration of 11 ppt. China expanded by 17% given the comparative also eased by 19ppt (vs. +5% in October, -13% in September and -39% in August), whilst USA declined by 5% and the UK expanded by 14% and Japan expanded by 9%.
All major regions experienced value and volume decline: Asia exports declined by 6.8% by value and 2.3% by volume implying ASP declines of c5%, whilst Americas value declined by 5.5% and volume declined by 7.9% implying ASP declines of 2-3%. Europe value declined by 4.5% and volume by 1.6% implying ASP declines of 3%.
All price points declined with CHF 200-500 and CHF 3000+ registering the most significant contraction (~10%).
Stock implications: We were expecting some improvement in export trends largely owing to easing comparatives, however the deceleration in Hong Kong comes as a surprise, illustrating continued pressure on the luxury watch segment in Asia and read-across to Swatch Group and Richemont is negative.
But, as we recently pointed out, aside from Swiss Watches, it appears only one thing has really benefited from The Fed’s largesse (as demand for Diamonds and Fine Wine has crashed)…
The rich appear to be cinching up the purse strings, and as we concluded previously, that is not a good sign…
So the rich are becoming less rich? To an extent, yes. Recent declines in commodity prices and emerging market debt have no doubt taken a bite out of some big portfolios. Meanwhile hedge funds, the preferred investment management vehicle of the uber-wealthy, have done badly for the past couple of years, with some high-profile implosions generating headlines.
These disappointments have lowered the net worth of some big players and made others more cautious. Hence the lessened demand for the most pretentious assets.
The impact on the global economy? Almost certainly bad, since the 1% are the marginal buyers of so many reference assets like blue-chip stocks and government bonds. To the extent that they grow cautious, the bid for a lot of things will be lower, cutting corporate profits, equity valuations and high-end asset prices.
Put another way, when the only healthy part of an already-impaired system turns negative, everyone will feel the resulting pain.
your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/TUESDAY morning 7:00 am
Euro/USA 1.0944 up .0033
USA/JAPAN YEN 120.97 down .236
GBP/USA 1.4867 down .0024
USA/CAN 1.3929 down .0020
Early this morning in Europe, the Euro rose by 33 basis points, trading now just above the 1.09 level rising to 1.09644; 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 / Last night the Chinese yuan was up in value (onshore). The USA/CNY down in rate at closing last night: 6.4793 / (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 northbound trajectory as settled down again in Japan by 24 basis points and trading now closer to that all important 120 level to 120.97 yen to the dollar.
The pound was down this morning by 24 basis points as it now trades just below the 1.49 level at 1.4867.
The Canadian dollar is now trading up 20 in basis points to 1.3929 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 29.32 or .16%
Trading from Europe and Asia:
1. Europe stocks mixed
2/ Asian bourses mixed/ Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai in the green barely last minute rally / (massive bubble ready to burst), Australia in the green: /Nikkei (Japan) red/India’s Sensex in the red /
Gold very early morning trading: $1078.00
Early TUESDAY morning USA 10 year bond yield: 2.20% !!! up 1 in basis points from MONDAY night and it is trading at resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.92 par in basis points. ( still policy error)
USA dollar index early TUESDAY morning: 98.24 down 23 cents from MONDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers TUESDAY MORNING
OIL RELATED STORIES
With the USA allowed to export it did not take long for the WTI to trade at a premium to Brent
(courtesy zero hedge)
WTI Crude Trades At Premium To Brent For First Time In Over 11 Months
Just as we warned, since the US export ban ‘lift’ loomed, so WTI prices have shifted notably, having todayconverged to Brent’s price for first time since January. It may have a lot further to fall as some analysts suggest the lifting of the export ban “is going to end up ultimately being bearish everything.”
Last week we said…
And 5 days later…
Brent-WTI has converged…
As for the impact on global markets, OPEC’s Secretary-General Abdalla El-Badri said Tuesday that “any change in U.S. oil policy will have ‘zero’ impact on global mkts because the country remains an importer.”
In the grand scheme of things, you’re really just shifting inventory around, Virendra Chauhan at Energy Aspects in Singapore says: “The deal to lift the crude ban is a significant change in U.S. policy, but in terms of the near-term impact on prices, we expect that to be blotchy and sentiment driven. All that you’re doing is transferring the glut from the U.S., where most of the storage capacity is, to elsewhere in the world.”
“Large volumes of crude are unlikely to flow out of the US as soon as the restrictions are lifted,” FT writes. “The spread between the price of West Texas Intermediate crude, for delivery in Oklahoma, and internationally traded Brent is only about $1.25 per barrel,meaning that any benefit for US producers from selling in world markets would be swallowed up in transport costs.”
“WTI would have to be at least $4 below Brent for exports to work, depending on the cost of shipping,” Bloomberg wrote earlier this week, citing Energy Aspects analysts. That means spreads would have to widen to make exports economical. “This is going to end up ultimately being bearish everything,” Citi’s Seth Kleinman says. “You’re losing on the Brent side, and it’s not clear to me what you’re gaining on the WTI side. In oversupplied market, opening up the export arb changes not exactly nothing, but not far off from nothing.”
In any case, “it’s definitely a negative for Brent,” Kleinman concludes, “as U.S. crude enters [and already] oversupplied global market.”
‘Terrorists’ Almost Spoil Traders’ “Dash-For-Trash” As Volume Disappears
The slow-motion wreck continues…
Trannies are now up over 2% from the start of the ramp at 330ET yesterday… It was all nearly ruined by a late-day “credible threat” headline… but there’s no way that’s breaking this Santa Claus rally…
With stocks having retraced 50% of the post-Fed plunge…
With crude failing.. and JPY fading… all that was left was to crush VIX (via VXX selling)
Volume was terrible… And so was breadth…but The Long-Bond continues to outperform post-Fed (along with gold) as WTI and stocks lag…
“Most-Shorted” stocks were smashed higher after Europe closed today (same as yesterday)…
And The “dash-for-trash” is most clearly seen here… as Weak Balance Sheet stocks suddenly surge relative to Strong Balance Sheet stocks…
Today’s dash-for-trash appears to be a desperate high-beta run for the Santa Claus rally into year-end as they reverse the biggest losers of the year…
But The S&P and Dow remain red for the year… in other words 1% more in this rally for The S&P before we see selling pressure
Chipotlecoli is now down 35% from October highs…
Credit’s decoupling yesterday was crushed today…
Corporate bonds rallied (but only retraced around half of the plunge post-Fed)…
But while energy stocks find support at the year’s lows, the energy sector’s credit risk is continuing to dive… (very late on Energy spreads below even further out to 1406bps – record wides)
Who do you think is right? A 28x Fwd P/E equity market.. or credit professionals?
Treasury yields surged today (led by the long-end) as the curve steepened 3bps or so
Cable plunged today but it was EUR weakness after the european close that sparked a modest recovery in the USD (which closed red)…
Despite the USD Index weakness, commodities drifted lower (with copper worst)…
But WTI rallied as Brent sold off, driving the spread to zero for the first time since January… with Brent hitting cycle lows…
US Economy Grew At 2.0% In Q3 In Final Estimate; Massive Inventory Overhang Remains A Risk For Future Growth
In today’s anticlimatic economic print of the day, moments ago the BEA reported that Q3 GDP declined from 2.1% as per the first revision reported a month ago to 1.97%, fractionally higher than the 1.9% expected, as a result of a modest decline in Personal Consumption Expenditures as well as Private Inventories and Net Trade, offset by a fractional pick up in Fixed Investment, a category which will see far more downside in the quarters to come unless oil prices rebound, and the smallest possible increase in government spending.
As the detailed breakdown chart below shows, there were no material changes among the key GDP categories.
PCE printed at 3.0% in the final revision, same as a month ago, and above the 2.9% expected. Looking at the personal consumption components shows where the changes were: while Financial Services and Insurance saw an annualized drop of $9.4 billion to $729.5 billion, this was offset by another increase in recreation services ($3.1BN), Furnishings and Durable Household Equipment ($2.9BN), and Gasoline and energy goods which rose $1.5 billion.
That said, the biggest risk remains in the one category we have flagged since the summer: Private Inventories, which while revised modestly lower from a change of $100BN in Q3 to $95.3BN, still suggest there is a massive inventory overhang heading into Q4 and 2016, one which will likely impact GDP by at least 1.5%-2% if not more once this long overdue inventory liquidation takes place.
Existing Home Sales Collapse – Worst November In History
The 10.5% crash in existing home sales is the worst November drop ever. Against expectations of a mere 0.2% drop, this is the largest miss in history asnd tumbles SAAR sales to the weakest since March 2014. The collapse in sales was across all regions, and ironically was accompanied by a rise in median home prices across all regions. Of course there was plenty of blame to go around, from inventory constraints to weather but most of all – paperwork – as new regulations – Know Before You Owe initiative, has meant longer closing times. In other words, wait til next month, it will all be great!?
The biggest MoM drop since July 2010.. and worst November ever…
Pushing the Annualized sales rate near 2 year lows…
As home prices rose…
Regionally, the weakness is widespread…as home prices rose everywhere…
November existing-home sales in the Northeast declined 9.2 percent to an annual rate of 690,000, but are still 1.5 percent above a year ago. The median price in the Northeast was $254,800, which is 3.2 percent above November 2014.
In the Midwest, existing-home sales descended 15.4 percent to an annual rate of 1.10 million in November, and are now 2.7 percent below November 2014. The median price in the Midwest was $169,300, up 5.3 percent from a year ago.
Existing-home sales in the South decreased 6.2 percent to an annual rate of 1.98 million in November, and are now 5.7 percent below November 2014. The median price in the South was $189,400, up 6.3 percent from a year ago.
Existing-home sales in the West dropped 13.9 percent to an annual rate of 990,000 in November, and are now 4.8 percent lower than a year ago. The median price in the West was $319,700, which is 8.3 percent above November 2014.
Of course, there were excuses… Lawrence Yun, NAR chief economist, says multiple factors led to November’s sales decline, but the primary reason could be an anomaly as the industry adjusts to the new Know Before You Owe rule.
“Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,” he said. “However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it’s highly possible the stark sales decline wasn’t because of sudden, withering demand.”
According to Yun, although Realtors® are adjusting accordingly to the Know Before You Owe initiative, the main takeaway so far has been the need for longer closing times.According to NAR’s Realtors® Confidence Index, 47 percent of respondents in November reported that they are experiencing a longer time to close compared to a year ago, up from 37 percent in October.
“It’s possible the longer timeframes pushed a latter portion of would-be November transactions into December,” says Yun. “As long as closing timeframes don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier.”
“Realtors® worked hard to prepare for Know Before You Owe, and we knew there would be some near-term challenges as the industry continues to adapt,” says NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. “Nonetheless, an early trend of longer lead times to closings is cause for concern.”
* * *
Seems like the perfect time to hike rates?
Dave Kranzler of IRD comments on the above
(courtesy Dave Kranzler IRD)
Something we’ve seen in just the last month should make you worried about the housing market. – Redfin CEO on Bloomberg, August 5, 2015
November existing home sales, according to the National Association of Realtors, plunged 10.5% from October to November. Note that this metric, as calculated, is the NAR’s “seasonally adjusted, annualized rate (SAAR)” metric. The point here is that the plunge in sales can’t be blamed on seasonality or the weather.
I have been showing in detail in previous posts on this blog that the NAR’s SAAR metric is more than likely overstating the actual number of sales. Please see previous posts for details. You can examine this month’s report here: Nov existing home sales.
Incidentally, one of the trading ideas in my Short Seller’s Journal weekly report this week details a homebuilder short sell idea and it includes a copy of one of my recent homebuilder reports. Subscribers received this on Sunday evening. You can subscribe to my weekly report here: SHORT SELLER’S JOURNAL. The other weekly idea suggests a way to short the bond market, especially the demise of the corporate bond market.
A look beneath the headline report reveals that November’s existing home sales report is worse than reflected in the headlines. The NAR chief economist, Larry Yun, is claiming that the “Know Before You Owe” (KYBO) initiative implemented by Consumer Financial Protection Bureau on October 3 is one of the primary causes for the drop in November sales. However, as is typical of Yun’s apologies for disappointing sales reports, his explanation is unequivocally wrong, if not an intentional lie.
The KBYO rules do nothing more than make it easier to understand the costs involved with financing a home with a mortgage. Buyers get a disclosure statement three days before closing and, theoretically, can walk away if they can prove they were misled. In fact, this law will do little if anything to discourage most, if not all, buyers. Most of them are basing their decision to buy on the availability of 0-3% down payments and record low mortgage rates.
However, November existing sales are based on closings. it typically takes 30-45 days to close a signed contract. This means that homes closed in November were based on contracts signed in mid-September to mid-October. “Enterprising” real estate brokers would use the “threat” of the KBYO event as a selling tool to herd buyers into signing by October 2. If anything, November sales (closings) should have been boosted by this.
In addition, the reported result for November missed the Wall Street “brain trust” consensus estimate by 10.5%. If the KBYO event was at all going to affect November home sales, doesn’t it seem highly likely that Wall Street professionals would have factored this into their estimates? Wall Street analysts like to appear intelligent and they also like to set the bar slightly low. A 10.5% forecasting miss is a disaster. But it also reflects the fact that market’s expectations for the housing market are exceedingly wrong.
This housing market is set up to crash. We are seeing the same things going on in the mortgage market as we saw in the housing bubble years. – South Florida mortgage processor
Furthermore, everyone was aware that the Fed might raise interest rates in December. This is another event that our “enterprising” house salesmen would have been pushing hard in order to “incentivize” prospective buyers into signing contracts “before rates go up.” I’m still hearing mortgage ads continuously on the radio from mortgage brokers making this pitch. This too should have boosted the number of homes that closed in November, ahead of “rates going up.” It seems that a pre-interest hike rush to close a mortgage did not occur.
Finally, Larry Yun has been making the case since early this year that “low inventory” is affecting the rate of home sales. Once again this pathetic apology ignores the long history of data which shows the contrary. The historical data shows that there is an inverse correlation between the level of inventory and the rate of home sales. In other word, lower inventory stimulates a high rate of sales and vice versa. I detailed this fact in this Seeking Alpha article: LINK. Here’s the Cliff’s Notes graph (click to enlarge):
I’d love to hear Larry’s response to this indisputable data from the St. Louis Fed’s website. Having said that, the inventory level in November jumped up to 6.3% to its second highest level of the year. Larry will have to fumble around for another excuse next month.
I have been writing about the fact that I’ve been seeing a literal flood of listings hit the market since the late summer all over metro Denver. In fact, the high end of the market – i.e. over $800k – was being flooded with listings since the spring. In some high end areas the number of “for sale” signs is jaw-dropping. The “new price” signs on top of “for sale” signs are raining down hard now as well. Moreover, the amount of listings in the $300k-$750k is has been rising rapidly since October.
I mention this because Denver was one of the first big cities to see the bubble pop the first time around. In housing, market trends typically hit Denver before the rest of the country. This occurrence goes back to at least the late 1970’s when Denver housing was hit by the oil bust back then.
What I’ve been seeing since the late spring this year is nearly identical to what I was seeing all over Denver in 2006/2007. In fact, the number of “for rent” signs in front of homes is significantly higher now than back then. This tells me that there’s a lot of “investors” and “flippers” who are stuck – they can’t unload the home they bought in the spring unless they are willing to take a hit so they try to rent it out to cover their monthly expenses. Given that a glut has formed in the Denver apartment market, there are going to be a lot of unhappy home traders by early 2016 – just like the first time around 9 years ago.
I believe that it is highly likely that 2016 will be a very difficult year for the housing market. Having said that, I am expecting the new home sales report for November to beat market expectations. I say this because the two series – new and existing home sales – seem to be on a schedule in which one misses big and the other beats big. They reverse roles the next month. This “strange” occurrence has been going on since the spring. But this won’t change the underlying reality, which is that the same middle class income dynamic that is driving retail sales into the ground will soon be driving home sales into the ground.
Grey Swans Rising – All 6 Of Goldman’s Global Risk Indices Are Worsening
Despite every effort by The Fed to convince the world that everything is awesome, it’s not. From China growth risks to concerns about tightening financial conditions, Goldman warns so-called ‘grey swan’ fears are rising with Brexit, Trumpe elected, widening terrorist threats, and increased protectionism the most impactful.
Many of the risks that sprung up in 2015, as Goldman details, look set to continue in 2016 (or worsen)…
Greece has avoided the worst, but challenges remain. Greece and its official creditors agreed on a new adjustment program and financial support package in July, and Alexis Tsipras was re-elected as Prime Minister in snap September elections. The inflow of liquidity from initial financial disbursements has staved off the immediate threat of default and/or exit from the Euro area, but implementation of necessary governance and economic reforms remains challenging. Both within and outside Greece, much skepticism remains about the economic and political viability of the proposed adjustment, against the background of a renewed downturn in the Greek economy triggered by the mid-year threat of Grexit. Parliamentary support for adjustment measures has been diminishing and austerity and reform fatigue is intense among the Greek public.
Concerns about extreme Chinese equity market volatility have given way to growth worries. A series of administrative measures launched over the summer calmed the Chinese equity market, allowing for a recovery in China A- and H-share markets from their Q3 lows. These measures included: tightening rules on margin trading by lowering the loan-to-value (LTV) ratios for brokers’ financing and by restricting OTC leverage products such as umbrella trusts; suspending domestic IPOs (resumed in November); banning major shareholders from selling their shares; restricting trading on index futures, and directly purchasing stocks in the secondary market (which amounted to an estimated RMB1.8tn from June to November). However, while equity market volatility has diminished, lingering concerns about policy implementation difficulties against a broadly less friendly backdrop for economic growth have left China risks front and center for many market participants.
Tensions between Russia and NATO members have persisted and arguably escalated. While fighting in eastern Ukraine has continued with varying levels of intensity, Russia has shifted its focus to the conflict in Syria, launching airstrikes there at the end of September. Despite a common pursuit with Western powers of combatting the Islamic State, the US and others have criticized the Kremlin’s approach for targeting primarily Syrian rebels. More recently, tensions flared after Turkey shot down a Russian military aircraft accused of breaching Turkish airspace on November 24. News that NATO had extended a membership invitation to Montenegro in early December also prompted a negative reaction from Russian officials.
Cybersecurity issues continue to affect government agencies and private companies alike. US officials revealed in July that data breaches of Office of Personnel Management’s (OPM) computer networks had exposed security clearance data and other personal information for over 20 million people (from a prior estimate of 4.2 million). Other notable cyber incidents in 2H2015 included a breach of the information services company Experian, which compromised personal data of an estimated 15 million T-Mobile customers. However, cyber concerns gave way somewhat in the public eye to a renewed focus on “conventional” threats after high-profile terrorist attacks in Beirut, Paris, and San Bernardino (California), among others.
Rate volatility has declined, but unjustifiably so. Volatility of US short- and long-dated interest rates remained elevated through mid-November. But, over the past month both realized and implied vol for maturities longer than 2-years has sharply declined, which we don’t think is warranted and is unusual in a rate hiking cycle.
In retrospect, two key grey swans missed: SNB cap abolished and the magnitude of the European refugee influx.
And what to look for in 2016:
- Risk of relapse in Greece. Unpopular changes to the Greek pension system may undermine the government’s parliamentary majority, leading to another round of political uncertainty and delays in the disbursement of official financial support. However, Greece is unlikely to become such a central focus again because (1) markets have become less concerned about contagion, (2) the immediate cash flow needs of the Greek government have diminished, and (3) Greece’s geographically and politically crucial role in the European refugee crisis has reduced the appetite to allow deeper economic stress in the country.
- Ongoing concerns about the intersection of Chinese policy, politics, and growth, and CNY-related risks.
- Continuation of tensions between Russia and the West, from one-off incidents or strategic differences.
- Debate in the public and private sphere over the treatment of encryption software in combatting terrorism.
- Increased rate volatility, at least until more clarity on the pace and predictability of further US rate hikes emerges.
- Other potential grey swans: (1) Brexit, (2) Trump elected, (3) widening terrorist threat, (4) a rise in protectionism.
Source: Goldman Sachs
NYC Has Received A “Credible Threat” Days Ahead Of Christmas, PIX11 Reports
wondering what just broke the market’s hypnotic no volume, no breadth levitation? It was the following headline from BBG:
- NEW YORK CITY RECEIVES ‘CREDIBLE THREAT’: PIX11 CITES SOURCES
Which reference the following WPIX11 report:
New York City has received ‘credible’ threat: sources
A “credible threat” has been lodged against New York City, days ahead of Christmas and during an especially busy time of the year when tourists flock to the Big Apple, law enforcement sources told PIX11 News Tuesday.
Top NYPD brass including Commissioner William Bratton held an emergency meeting Tuesday to discuss the threat and their response to it, sources said. Few details were released about the nature of the threat.
A federal law enforcement source said the threat is not specific and could take place in several major U.S. cities.
All New York City police officers received a bulletin Tuesday afternoon outlining the department’s tactical plan and warning officers to stay vigilant, according to sources. That internal memo mentioned social media being used as a tactic and that a possible attack could come without warning.
Expect to see increased police presence at iconic locations across multiple boroughs, including Times Square, St. Patrick’s Cathedral for Midnight Mass on Thursday, and Barclays Center in Brooklyn. This is the first time a threat has sparked a swell of police presence in a borough other than Manhattan.
Sources said several factors lead them to believe this threat is credible, including the reliability of the source, the nature of the threat and the timing, specifically that the holidays are approaching.
News of a threat against the city comes exactly one week after a menacing email was sent to public school districts in New York and Los Angeles. That “specific” message, which Bratton said contained outlandish threats that mirrored recent episodes of the show “Homeland,” sparked the total closure of Los Angeles schools.
New York City has been on high alert for months, starting with the Nov. 13 terror attacks in Paris that killed 130 victims and injured hundreds more in a calculated assault executed by three teams of three assailants each, armed with explosive vests, belts and assault rifles. ISIS took responsibility for the carnage.
After the Paris attack, a video released by the terror group surfaced showing several scenes in New York City, including Times Square, a GAP in Herald Square, T.G.I. Friday’s and yellow taxi cabs on city streets.
At the time, Bratton and Mayor Bill de Blasio said there was no new or credible threat against the city but urged residents and visitors alike to be vigilant and report suspicious activity.
Then, on Dec. 2, a married couple unleashed a terror attack at a facility for individuals with developmental disabilities in San Bernardino, Calif., stoking the fear of terror attacks happening on U.S. soil.
Armed with multiple assault rifles, Syed Rizwan Farook and his wife Tashfeen Malik burst into a conference room at Inland Regional Center and opened fire. In all, 14 people were killed, ranging in age from 26 to 60, and 21 victims were hurt. The suspects were shot dead when they tried to take on dozens of police officers as they fled in a black SUV.
FBI investigators said Farook and Malik had been “radicalized for some time” but said they likely were not directed by ISIS to carry out the attack.
Any suspicious behavior should be reported to the nearest police officer, by calling 911 or 1-888-NYC-SAFE.
Tips can also be submitted via the app “See Say,” which lets users send a photo or message of any suspicious activity they see to the New York State Intelligence Center. Officials will then review the tip and if it’s a major threat, will call in additional law enforcement.
The app doesn’t replace the 911 system, but rather is another way citizens can help prevent a potentially deadly attack.
Slammed By Redemption Requests, These Hedge Funds Raise “Gates” To Avoid Firesale Liquidations
In the aftermath of the stunning liquidation and gating of first Third Avenue’s junk bond mutual fund, and shortly thereafter several other fixed income hedge funds, investors have been following with great interest capital (out)flows from the fixed income space. However, while the junk bond space is certainly ripe for fireworks, even more dramatic events are taking place in the far more familiar equity space, where with redemption submission deadlines looming or having just passed, LPs and all other hedge fund investors have decided that after seven years of underperforming the market, it is time to get out, and do so with a bang.
Case in point: Carlyle’s Claren Road.
We first profiled the deeply troubled hedge fund four months ago, when we reported that investors had redeemed nearly half, or $2 billion, of the firm’s total $4.1 billion in AUM.
By way of background, Claren Road was founded in 2005 by former Citigroup Inc. credit traders Brian Riano, John Eckerson, Sean Fahey and Marino. Carlyle bought a 55 percent stake in Claren Road five years ago as part of a push into hedge funds. At its peak less than a year ago, in September of 2014, Claren Road managed $8.5 billion.
As we further said in August, “Claren Road is facing redemptions that will pull 48% of the funds investments, forcing across the board liquidations, mass layoffs, and what will ultimately almost certainly be the fund’s liquidation.”
Four months later we are halfway there: according to an update by the WSJ, in a rush to beat last week’s fourth quarter redemption deadline, investors submitted withdrawal requests for another $950 million from Claren Road, in the process slashing the fund’s AUM by half for the second consecutive quarter. According to the WSJ, The firm is expected to have $1.25 billion under management as of Jan. 1, down from $8.5 billion as recently as September 2014.
Worse, the fund has now seen its AUM cut by half for two quarters in a row, in the process forcing liquidations of whatever securities it may have left, and putting downward pressure on the asset prices of securities it once invested in.
And while we did forecast the inevitable liquidation of the once reputable hedge fund, a new twist has emerged: it appears gates are not only a “debt thing”, where highly illiquid securities may if not justify then explain why a hedge fund is forced to gate. According to the WSJ, in an attempt to avoid forced liquidation Carlyle’s hedge fund also had no choice but to gate redemption requests:
Claren Road previously told clients that it would delay full payment of withdrawals requested in the fourth quarter, as it had with their third-quarter requests. The $1.25 billion under management as of January doesn’t include funds that are to be paid back.
Investors, hoping to get quick access to their depleted funds, are not happy:
The delayed-repayment schedule, unusual since the financial crisis ended, has rankled some investors. The firm’s executives have said they believe the extended payout is the best way to protect both remaining and redeeming investors. The firm has told clients it won’t immediately pay back about two-thirds of the nearly $2 billion in withdrawals requested in the third quarter. It wasn’t clear when fourth-quarter redemption requests will be paid in full.
Claren Road’s reaction is understandable: the last thing it wants is for competing hedge funds to heavily short its longs and vice versa, in the process forcing it to liquidate at even more disadantageous prices. Even so, it has merely delayed the day of reckoning.
Worse, since it is unclear when the hedge fund and its peers will ultimately pull the plug on liquidating existing positions from the “side book”, there will now be a constant lid on stock prices, as any and every ramp will be promptly taken advantage of by Claren Road to sell into.
And not only Claren Road but its peers. As the WSJ also notes, “investors have been defecting from funds large and small in the face of losses, say hedge-fund executives and investors, who predict redemption requests will continue to hit funds into early next year as clients reassess their holdings. Hedge funds that have turned in consecutive years of poor performance are being hit particularly hard, they say.”
Here are some other biggest losers and the names most likely to impose gates:
Mason Capital Management LLC, an event-driven hedge-fund firm out of New York, has seen its assets under management shrink from $8.3 billion at the start of the year to $4.9 billion, according to a person familiar with the firm. Mason is down about 9% for the year through November, following a 12% loss last year.
Luxor Capital Group, which is down about 13% for the year through November in its event-driven hedge funds, has received year-end redemption requests that total about 8% of the $4.5 billion in assets under management in the funds, according to people familiar with the firm. The strategy lost 10% last year. One of the people said the size of the redemption requests was in line with those of prior years and that investors would be paid out as usual.
Red Mountain Capital Partners, a Los Angeles-based firm started by Goldman Sachs Group Inc. veteran Willem Mesdag to take activist positions in small-cap companies, converted to a $500 million closed-end vehicle in September after experiencing losses in the low teens. The change, which was approved by the firm’s investors, means that investors looking to get out of the fund this year can instead expect to receive the last of their funds back within roughly five years, Mr. Mesdag said.
LionEye founders Stephen Raneri and Arthur Rosen, formerly executives at hedge fund Ramius LLC, decided to shutter the firm after most of its largest investors submitted redemption requests, according to people familiar with the matter. LionEye had lost 27% in the five-month period ending in November, bringing its performance for the year through November to a 19% loss, said one of the people. It was the firm’s first losing year.
Stone Lion Capital Partners LP recently said it suspended redemptions in its credit hedge funds after many investors asked for their money back.
As a reminder, we profiled Stone Lion’s management team a week ago when we revealed that its two “debt expert” principals were also co-heads of distressed and high yield trading at none other than the bank that started it all: Bear Stearns. How ironic.
Needless to say, these names are just the beginning: once the redemptions – and gating – genie is out of the bottle, there is no putting it back.
Not helping is that not only will the broad hedge fund universe underperform for the 7th consecutive year, but 2015 will be the worst year for hedge fund returns since 2011, which in turn was the worst since the financial crisis. Worse, as we reported over the weekend, hedge funds have now tipped their hand and are actively lowering their fees in a scramble to retain clients; the problem is that clients do not want to be “retained” – they want to go where their money is not desperately needed.
Which means that in addition to outright capital flight, hedge funds will be forced to mark to far lower markets, in the process launching a margin call cascade because while the value of the assets is declining, the value of the margin debt remains consistently unchanged, forcing even more selling to satisfy the initial margin request, and so on until the inevitable death spiral kicks in.
What is most surprising is that such gates and redemptions are traditionally a harbinger of, or contemporaneous with the end of the business cycle, the start of the default cycle, a tumble in asset prices or a massive exogenous shock to the system: think the failure of the GSEs, Lehman and the AIG near-death experience. This time, none of those are readily apparent which makes one wonder just how bad is the real picture behind the “rose-colored glasses” facade.
And since we live in a centrally-planned world, the Fed and central banks will do everything in their power to continue both the exhausted and fading business cycle for at least a few more quarters, knowing that 25-50bps of rate hikes will not be nearly enough to easy from once the NBER finally admits the recession has arrived. As a result, expect even more gates, even more liquidations, and even more sharp price drops once hedge funds are no longer able to delay the day of liquidation reckoning and are forced to sell into a painfully illiquid market, leading to cross-contagion and other hedge fund gates, liquidations and so on until some central bank, somewhere, is forced to step in.
Two stunning facts on the 1.2 trillion student loans:
i. At 108 colleges more than 1/2 of the students have not paid even 1 dollar on their loans even after 3 years after graduation
ii) the non payment rate of all student loans from borrowers after 3 yrs of graduation is a stunning 21.3%
(courtesy zero hedge)
At 108 US Colleges, More Than Half Of Students Haven’t Paid Even $1 On Their Student Loans
That the student loan bubble is one of the many “subprime” crises (because as of this moment there are just too many asset bubbles to count thanks to 7 years of global ZIRP, NIRP and QE) has been documented here ever since 2012. We also explained that the main reason for soaring college costs is the cheap and easily accessible government-funded student debt, which at last check was over $1.2 trillion and rising exponentially.
Today, the WSJ had an article on just this, titled “U.S. Helps Shaky Colleges Cope With Bad Student Loans” in which it explained in fine detail what our readers knew already, namely that it is the government’s direct intervention with trillions in “aid” that is making the debt default problem far more acute than it would have otherwise been, and leads to keeping millions more “students” in college where they end up learning no marketable skills in a job market that rewards mostly waiters and bartenders, yet loads them up with untenable debt.
Like we said: nothing new. There was however one stunning fact buried deep in the article.
While we knew that overall student loan default rates for all US colleges were in the 8-10% range based on the Fed’s quarterly consumer credit data, what was stunning is that the “non-repayment” rate, or the percentage of students who haven’t made a single dollar toward their loans within three years of leaving college is a crisis-worthy 21.3%. This means that of the millions in college graduates from the 2010 and 2011 cohort (and since then the job market for recent graduates has gotten worse), more than a fifth don’t have either the means or the intention to repay even one of the tens of thousands of dollars they owe…
… which means that ultimatley it will be up to taxpayers to once again foot the bill.
But wait, there’s more. Because while 21.3% may seem like a lot, and it is, the number rises to an absolutely stunning 50%, or half of all students, when looking at the 108 worst college offenders in the US. From the WSJ:
At 108 four-year colleges, at least half of all students hadn’t paid even $1 of what they owe within three years of leaving college, according to an analysis by The Wall Street Journal of the latest government data. Those colleges got more than $10 billion in federal student loans and grants last year.
Arkansas Baptist’s nonpayment rate on student loans was 88%, the highest of any four-year college in the U.S. More than four out of every five students drop out. Fitz Hill, president of the historically black private college, says the numbers look bad mostly because Arkansas Baptist enrolls poor students.
Sure, there is always a reason. And just for future reference, here are the25 colleges whose students will be the first to demand a bailout of their student loans when they stop pretending they will ever repay, and go straight to the “default” column wihout passing go, if collecting tens of thousands in taxpayer funds.
The full list of all US colleges tracked by the WSJ can be found here.