Jan 5/Terror in Saudi Arabia with execution of a chief Shiite cleric/Major retaliation against Saudi Arabia/We are hearing a huge 1000 rape claims against Muslims in Cologne Germany/Riksbank preparing to battle hedge funds as the central bank tries to stop rise in SEK/ Nefsky capital closes shop despite a profitable year claiming they cannot continue because of HFT/Auto sales plummet/Apple sales plummet in Europe due to lack of demand for I6 and I 6 plus apple phones/

Gold:  $1078.40 up $3.30    (comex closing time)

Silver $13.95 up 13 cents

In the access market 5:15 pm

Gold $1077.90

Silver:  $13.98

 

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

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 199.48 tonnes for a loss of 103 tonnes over that period.

In silver, the open interest rose by 41 contracts even though silver was well up in price 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. However we moved slightly out of backwardation in silver at the comex. The total silver OI now rests at 168,194 contracts. In ounces, the OI is still represented by .841 billion oz or 120% of annual global silver production (ex Russia ex China).

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

In gold, the total comex gold OI fell by 5392 contracts to 409,828 contracts despite the fact that gold was up over 13.00 dollars in yesterday’s trading.  Again we must have had considerable short covering in the gold arena yesterday.

Since my last report we had a 3.57 tonnes withdrawal in gold inventory at the GLD, / thus the inventory rests tonight at 642.37 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 huge changes in  inventory at the SLV/we had massive withdrawals of 4.28 million oz /Inventory rests at 317.797 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver rise slightly by 41 contracts up to 168,193 despite the fact that silver was up in price with respect to yesterday’s trading.   The total OI for gold fell by 5,392 contracts to 409,828 contracts despite the fact that gold was up over $13.00 in price yesterday

(report Harvey)

2 a) Gold trading overnight, Goldcore

 

(Mark OByrne)

b) Federal Reserve Bank of NY report of gold movement last month.

(Harvey)

3. ASIAN AFFAIRS

EARLY LAST NIGHT:

Last night, MONDAY night, TUESDAY morning: Shanghai closes down sharply throughout the day with an attempted relief rally into the close  , Hang Sang falls, Chinese yuan rises a bit after a big devaluation over the holiday season. Stocks in Asia all in the red, . Oil falls slightly in the morning,. Stocks in Europe mixed. Offshore yuan continues to collapse as it trades at 6.64 yuan to the dollar vs 6.515 for onshore yuan:

4.EUROPEAN AFFAIRS

First we had massive rapes in Sweden. Now it has spread to Germany where Cologne Germany is investigating monstrous attacks rapes by 1000 men of Arab or North African Origin:
( zero hedge)

5.RUSSIAN AND MIDDLE EASTERN AFFAIRS

i)  Russia initiates legal proceeding against the Ukraine over its 3 billion USA debt:

( Jack Farchy/London’s Financial times)

ii) Another slap in the face of Obama as Iran introduces a second underground missile city:

( zero hedge)

iii) The temperature rose a bit today as a Saudi Aramco bus was burnt down after a terrorist assault:

(courtesy zero hedge)

iv) An interesting question: Because of what happened over the weekend(47 beheadings a beheading of a important Shitte cleric ), it looks like the USA must choose between its long term ally Saudi Arabia or Iran:

One author believes the choice should be Iran: and he explains why!

(courtesy zero hedge)

v) David Stockman and Pat Buchanan agree that we should severe the relationship with the brutal Saudi Arabia regime.

(contracorner)

6. GLOBAL ISSUES

i)The Baltic Dry Index drops again to a new record low signalling continue global economic contraction:
( Baltic Dry Index/zero hedge/Deutsche bank)

ii) the oldest central bank in the world, the Riksbank is now preparing for a foreign exchange war with the hedge funds who are betting that the central bank will lose the war as they would be helpless to defend against a rising SEK.

You will recall that Sweden at NIRP as it tries to get a little inflation into the country.  The only thing that NIRP has down is raise house prices to skyrocketing levels while all other areas are deflating
(courtesy zero hedge)

7 EMERGING MARKETS

A good picture as to what is going to happen in Africa and other emerging nations as dollars are in short supply:  expect massive hyperinflation in these countries coupled with social unrest
( zero hedge)

8. OIL MARKETS

i) Oil tumbles with the news that Saudi Arabia is slashing prices to Europe:

iii) WTI plunges into the 35 dollar column as the Canadian dollar breaks the 1.40 level:

(courtesy zero hedge)

iv) Then late in the day, oil spikes higher on  this API news of a large inventory drawdown but fades on large Cushing build of 1.4 million barrels

(courtesy zero hedge)

9. PHYSICAL MARKETS

i ) Grant Williams of Hmmm. fame talks about gold as the go to investment

(Grant Williams)

ii) Steve St. Angelo talks about gold exports out of the uSA greater than what it imports and produces

a must read..

(Steve St Angelo/SRSRocco report)

iii) Bill Holter comments “has the Fed lost control?”

(Holter/Sinclair collaboration)

iv) Profit Confidential comments on the rigging of gold/silver

(Profit Confidential/GATA)

v) A new book the “the Silver Manifesto” outlines the gold and silver rigging by the banks and Fed

(David Morgan/Chris Marchese/GATA)

vi) Bix Weir on the 17 attributes of  a freely traded silver market

(Bix Weir)

vii) The following story is quite interesting!! Switzerland is voting to ban commercial banks from creating money!!

(courtesy Khan/London’s Telegraph)

 viii) Venezuela’s President, Maduro, seizes control of his central bank:

( London’s Financial Times)

10 USA MARKETS THAT WHICH WILL INFLUENCE GOLD AND SILVER:

i) Former Fed President Richard Fisher (Dallas Fed) admits the USA front ran the huge market rally from 2009 until now and admits that there is no ammo left:

a must see.
(courtesy zero hedge/ CNBC/Richard Fisher)

ii) There goes the USA”s calculation of GDP!!  Ten full years of miscalculations

( zero hedge)

iii) Another shocking story:  the 1.5 billion USA hedge fund,Nefsky Capital is folding despite being up this year. They blame the HFT’s for making a mockery on investing and are thus returning money to investors rather than trying to invest!!

iv)  This did not help Apple stock today as demand for I6 and I 6 plus falters

(zero hedge)

 v) The wheels just came off auto sales:

i) inventory is rising
ii) non revolving credit growth is slowing
iii) inventory stuffing into dealers seems to have hit its limits:
( zero hedge)

 

 

Let us head over to the comex:

The total gold comex open interest fell to 409,828 for a loss of 5,392 contracts despite the fact that gold was up by over $13.000 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, only the former scenario held. We are now in the non active January contract which saw it’s OI rise by 22 contracts to 310.  We had 0 notices filed upon yesterday, so we gained 22 contracts or an additional 2200 oz will stand for delivery in this non active delivery month of January.   The next big active delivery month is February and here the OI fell by 7040 contracts down to 272,926. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 122,428 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 171,906 contracts. The comex is in backwardation in gold up to April. The backwardation from January to February is $0.10   i.e. January is higher by $0.10 ./January to April $0.10

Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI rose by 41 contracts from 168,153 up to 168,194 despite the fact that the price of silver was up considerably with respect to yesterday’s trading. We are near multi year lows in silver price and yet extremely high OI which makes no sense at all.  We are now in the non active month of January saw it’s OI fall by 13 contracts down to 357. We had 0 notices filed yesterday so we lost 13 contracts or an additional 65,000 oz will not stand for delivery. The next big active contract month is March and here the OI fell by 724 contracts down to 130,158. The volume on the comex today (just comex) came in at 32,921 , which is fair. The confirmed volume yesterday (comex + globex) was excellent at 54,448. Silver is in not in backwardation 
We had 0 notices filed for nil oz.

December contract month:

INITIAL standings for January

Jan 5/2016

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 1157.000 oz???

Scotia

Deposits to the Dealer Inventory in oz  nil
Deposits to the Customer Inventory, in oz  nil
No of oz served (contracts) today 0 contracts

oz

No of oz to be served (notices) 310 contracts

(31000 oz)

Total monthly oz gold served (contracts) so far this month contracts(nil oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 1157.000 oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had  0 dealer deposits:
We had 1  customer withdrawal:
i) Out of Scotia:  1157.000 oz???
this is not divisible by 32.15 oz therefore they are not Kilobars.
this cannot be explained!!
Total customer withdrawals:  1157.000 oz
We had 0 customer deposits:

Total customer deposits  nil oz

 JPMorgan has a total of 7975.14 oz or 0.2480 tonnes in its dealer or registered account.
***JPMorgan now has 401,421.339 or 12.48 tonnes in its customer account.
Today we had 0 adjustments;
.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account.
 
To calculate the final total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (0) x 100 oz  or nil oz , to which we  add the difference between the open interest for the front month of January (310 contracts) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals the number of ounces standing.
 
Thus the initial standings for gold for the January. contract month:
No of notices served so far (0) x 100 oz  or ounces + {OI for the front month(310) minus the number of  notices served upon today (0) x 100 oz which equals 31,000 oz standing in this active delivery month of January (0.9642 TONNES)
We thus have 0.9645 tonnes of gold standing and 8.58 tonnes of registered gold for sale, waiting to serve upon those standing
Last month we had 6.445 tonnes of gold standing and the same 8.58 tonnes of registered (dealer) gold for sale.
No evidence of any movement out of the registered gold to settle upon longs.
Total dealer inventory 275,914.939 or 8.5820 tonnes
Total gold inventory (dealer and customer) =6,413,485.693 or 199.48 tonnes) 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 199.48 tonnes for a loss of 103 tonnes over that period. 
 
JPmorgan has only 12.73 tonnes of gold total (both dealer and customer)
Today, more total gold leaves the comex/
end
And now for silver

January INITIAL standings/

Jan 5/2016:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory nil

 

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 600,411.06 oz

CNT

No of oz served today (contracts) 0 contracts

nil oz

No of oz to be served (notices) 357 contracts 

(1,785,000 oz)

Total monthly oz silver served (contracts) 12 contracts (60,000 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 nil oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 1 customer deposit:

i) Into CNT:  600,411.06 oz

total customer deposits: 600,411.06 oz

We had 0 customer withdrawals: 

total withdrawals from customer account: nil    oz 

 we had 2 adjustments:

i) Out of Brinks:

150,860.900 oz was removed from the dealer side and placed into the customer side (probably a settlement)

ii) Out of CNT:

132,969.140 oz was removed from the dealer side of CNT and placed into the customer side of CNT

(probably a settlement)

 

The total number of notices filed today for the January contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in January., we take the total number of notices filed for the month so far at (12) x 5,000 oz  = 60,000 oz to which we add the difference between the open interest for the front month of January (357) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the December. contract month:
12 (notices served so far)x 5000 oz +(357) { OI for front month of January ) -number of notices served upon today (0)x 5000 oz or  1,845,000  of silver standing for the January. contract month.
We lost 65,000 oz of additional silver that will not stand in this non active delivery month of January.
Total number of dealer silver: 36.499 million oz
Total number of dealer and customer silver:   161.749 million oz
end
 
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Jan 5/2016: since my last report we had a total of 3.57 tonnes of gold withdrawal from the GLD/Inventory rests at 642.37 tonnes

Dec 23. will update GLD inventory tomorrow

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

Jan 5  inventory 642.37 tonnes/
Now the SLV:
Jan 5/2016: we had huge withdrawals of 4.282 million oz/Inventory rests at 317.797 million oz
dec 23. will provide tomorrow
Dec 22./no changes in inventory at the SLV/inventory rests at 322.079 million oz
Dec 21.2015: a huge withdrawal of 1.43 million oz from the SLV/Inventory rests at 322.079 million oz
Dec 18./no changes in silver inventory at the SLV/rests tonight at 323.509 million oz
Dec 17.2015: no changes in silver inventory at the SLV/rests tonight at 323.509 million oz/
Dec 16./no changes in silver inventory at the SLV/rests tonight at 323.509 million oz
Dec 15./no changes in silver inventory at the SLV/rests tonight at 323.509 million oz/
Dec 14./2015; no change in silver inventory at the SLV/rests tonight at 323.509 million oz
Dec 11.we had another huge addition at the SLV of 2.002 million oz/inventory rests at 323.509 million oz
Dec 10. no change in silver inventory at he SLV/Inventory rests at 321.507 million oz/
Jan 5/2016:  tonight inventory rests at 317.797 million oz***
******Note the difference between the GLD and SLV.  GLD sees liquidation of metal but not SLV. Why?  because the SLV has no real silver behind it only paper silver. Today the addition of silver was a paper silver entry and I extremely doubt that real silver entered the SLV vaults.
end
Report on Federal Reserve Bank of NY gold:
7 million dollars worth of gold was removed last month at 42.22 dollars per oz
thus 165,798.19 oz was removed or 5.157 tonnes.
they have been averaging a minimum of 9 tonnes per month previously.
Maybe they are approaching the end of the barrel?
end
 
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 10.0 percent to NAV usa funds and Negative 10.2% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.9%
Percentage of fund in silver:37.0%
cash .1%( Jan 5.2016).
2. Sprott silver fund (PSLV): Premium to NAV rises to  +0.90%!!!! NAV (Jan 5.2016) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to- 0.44% to NAV Jan 5/2016)
Note: Sprott silver trust back  into positive territory at +0.90 /Sprott physical gold trust is back into positive territory at -0.54%/Central fund of Canada’s is still in jail.
end

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

Trading in gold and silver overnight in Asia and Europe
First gold/silver trading courtesy of Mark O’Byrne/Goldcore:

Brave New World of Bank Bail-Ins As Of January 1st

On January 1st, 2016, the new bail-in regime became law putting at risk the deposits of savers and companies in the EU.

EU countries join the UK, the U.S., Canada, Australia and New Zealand in having plans for bail-ins in the event of banks and other large financial institutions getting into difficulty. It is now the case that in the event of bank failure, personal andcorporate deposits could be confiscated.

The bail-in architecture was seen in the Cyprus bank bail-ins that were seen in 2003. Then, deposits of over €100,000 were confiscated in “haircuts” in order to bail out banks in Cyprus.  Now the exact same principles that were used in Cyprus – which we were told was unique and a one off – are going to apply to all of Europe.

Bail-ins and the risks they pose have largely been ignored in most of the media. In one of the very few articles on bail-ins in recent days, Hugh Dixon of Reuters Breaking Views has looked at bail-ins but has focused on the “political risks” rather than that posed to savers and indeed company depositors:

The European Union entered a brave new world of bank “bail-ins” at the start of 2016. Europe has wasted so much taxpayers’ money on bailing out bust banks in recent years that it is right to try to get investors to help foot the bills in future. However, the tough new regime carries big political risks.

bail-ins-considerations

The article, ‘EU enters brave new world of bank bail-ins’, is interesting despite ignoring the financial and economic risk of bail-ins –  they would likely be very deflationary in a world already beset by deflation – and can be accessed here


Download Our Must Read Bail-In Guides Here:

Protecting Your Savings In The Coming Bail-In Era

From Bail-Outs To Bail-Ins: Risks and Ramifications


Daily Prices

5 Jan LBMA Gold Prices: USD 1078.00, EUR 1,000.75 and GBP 734.31 per ounce
4 Jan LBMA Gold Prices: USD 1072.70, EUR 982.30 and GBP 725.02 per ounce
31 Dec LBMA Gold Prices: USD 1062.25, EUR 974.32 and GBP 716.36 per ounce


Breaking Gold News and Commentary Today – Click here

 

 

 

Mark O’Byrne
end
(courtesy Grant Williams/GATA/zero hedge)

Grant Williams’ presentation to last month’s Mines and Money London conference

Section:

9:56p ET Monday, January 4, 2016

Dear Friend of GATA and Gold:

Zero Hedge has posted the wonderfully entertaining presentation made last month at the Mines and Money conference in London by Singapore-based fund manager Grant Williams, who notes the incongruities that pervade the gold market.

Williams says that while nobody seems to care about gold anymore, at least at establishment levels in the West, in fact central banks have turned from sellers to buyers and demand for metal is robust nearly everywhere, especially in China, where the Shanghai Gold Exchange is delivering 52 times more metal than the exchange perceived to set world prices, the New York Commodities Exchange.

Further, Williams says, while the gold price has been slaughtered for four years, simultaneously the fundamental factors supporting a higher price have increased greatly.

Williams notes that market rigging by central banks and their agent investment banks may be a cause of pricing incongruities. He concludes that eventually everyone will care about the gold price and that there’s not enough gold to accommodate everyone.

Williams’ presentation includes data GATA and its consultants have brought to your attention and is headlined “Gold: The Unsurance Policy — Love It or Loathe It.” It is 28 minutes long and can be viewed at Zero Hedge here:

http://www.zerohedge.com/news/2016-01-04/gold-unsurance-policy-love-it-o…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

END

China is throwing its muscle against the banks as they initiate a gold yuan backed fix

(courtesy Ananthalakshmi/Singapore news)

Foreign banks in China could face curbs if they snub gold benchmark

SINGAPORE | BY A. ANANTHALAKSHMI

China has warned foreign banks it could curb their operations in the world’s biggest bullion market if they refuse to participate in the planned launch of a yuan- denominated benchmark price for the metal, sources said.

The world’s top producer and consumer of gold has been pushing to be a price-setter for bullion as part of a broader drive to boost its influence on global markets.

Derived from a contract to be traded on the state-run Shanghai Gold Exchange, the Chinese benchmark is set to launch in April, potentially denting the relevance of the current global standard, the U.S. dollar-denominated London price.

China needs the support of foreign banks, especially those who import gold into the mainland, but they could be wary given the global scrutiny on benchmarks following the manipulation of Libor rates in the foreign exchange market.

Banks with import licenses will face “some action” if they do not participate in the benchmark, said a source who did not want to be named as he was not authorized to speak to media.

“Maybe China won’t cancel the license but we won’t give them the import quota or will reduce the amount under the quota,” the source said. Banks with licenses must apply to regulators for annual import quotas.

Australia and New Zealand Banking Group, HSBC and Standard Chartered are the foreign banks with import licenses. Another 12 Chinese banks can also import.

HSBC declined to comment, while ANZ and StanChart did not respond to calls and emails.

Banks had been told China would take “some measures” if they did not participate in the fix, a banking source said.

“They passed on the impression that ‘maybe your quota will be limited or you cannot be a market maker for swaps or forwards’,” he said.

In a trial run for the fix in April 2015, some foreign banks participated along with many major Chinese banks.

Traders at those banks said earlier that while they were interested in the benchmarking process, their legal and compliance teams may be reluctant.

“For foreign banks to take part in that fixing procedure, it is very hard. There are compliance issues for every foreign bank,” said the second source, adding that the issue was not with China, but the regulatory attention benchmarks have attracted in the last few years.

Details of the fix are yet to be revealed, but sources say it would be derived from a contract traded on the bourse for a few minutes, with the SGE acting as the central counterparty.

A yuan fix would not be seen as an immediate threat to the gold pricing dominance of London and New York, but it could gain momentum if China’s currency becomes fully convertible.

 

-END-

 

(courtesy Profit Confidential/GATA)

Profit Confidential notes growing evidence of gold market rigging and cites GATA

Section:

8:40p ET Monday, January 4, 2016

Dear Friend of GATA and Gold:

Financial news and opinion Internet site Profit Confidential today notes the growing evidence of central bank manipulation of the gold market and cites GATA’s efforts to expose it. Profit Confidential’s commentary is headlined “Something Weird Is Happening to Gold Prices That No One Is Talking About” and it’s posted here:

http://www.profitconfidential.com/gold/gold-price-manipulation-actually-…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

end

 

Bix Weir/GATA)

Bix Weir: 17 requirements for a freely traded silver market structure

Section:

12:48a ET Thursday, December 31, 2015

Dear Friend of GATA and Gold:

Financial market blogger Bix Weir of the Road to Roota Letter today offers “17 Requirements for a Freely Traded Silver Market Structure,” a list containing many good suggestions but perhaps omitting the one requirement that would transform not just the silver market but all markets on the planet.

That is, the U.S. Treasury Department, its Exchange Stabilization Fund, and the Federal Reserve should be required to publicize simultaneously every financial transaction they make, directly or through intermediaries, including all trades executed through the trading room of the Federal Reserve Bank of New York. Fear of disclosure of its market interventions is what long has induced the Fed to oppose legislation for a comprehensive audit of its activities.

Weir’s suggestions are posted at the Road to Roota Internet site here:

http://www.roadtoroota.com/public/1221.cfm

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

 

(courtesy The Silver Manifesto/David Morgan/Chris Marchese/SilverInvestor.com)

 

‘The Silver Manifesto’ documents manipulation of gold and silver markets

Section:

9:54p ET Wednesday, December 12, 2015

Dear Friend of GATA and Gold:

Manipulation of the gold and silver markets by central banks and their agent investment banks figures heavily in a new book by David Morgan and Chris Marchese of Silver-Investor.com, “The Silver Manifesto.” The book, its authors say, documents and proves the manipulation of those markets. You can learn about “The Silver Manifesto” here:

http://www.webwire.com/ViewPressRel.asp?aId=201536

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

end

 

This is interesting!! Switzerland is voting to ban commercial banks from creating money!!

(courtesy Khan/London’s Telegraph)

Switzerland to vote on banning commercial banks from creating money

Section:

By Mehreen Khan
The Telegraph, London
Friday, December 24, 2015

Switzerland will hold a referendum to decide whether to ban commercial banks from creating money.

The Swiss federal government confirmed Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the central bank to be given sole power to create money in the financial system.

The campaign — led by the Swiss Sovereign Money movement and known as the Vollgeld initiative — is designed to limit financial speculation by requiring private banks to hold 100 percent reserves against their deposits.

“Banks won’t be able to create money for themselves anymore,” the campaign group said. “They’ll be able to lend only money that they have from savers or other banks.” …

If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, “while the decision concerning how new money is introduced into the economy would reside with the government,” Vollgeld says. …

The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fischer as a way of preventing asset bubbles and curbing reckless lending. …

Over 90 percent of money in circulation in Switzerland now exists in the form “electronic” cash created by private banks, rather than the central bank. …

… For the remainder of the report:

http://www.telegraph.co.uk/finance/economics/11999966/Switzerland-to-vot…

 

end

Venezuela’s President, Maduro, seizes control of his central bank:

(courtesy London’s Financial Times)

 

Venezuelan president seizes control of central bank

Section:

Venezuela Fuels Fears over Hyperinflation

By Andres Schipani
Financial Times, London
Tuesday, January 5, 2015

Venezuela on Monday fuelled fears of looming hyperinflation after publishing a decree by President Nicolás Maduro curbing legislative oversight of the central bank.

The tactic is the latest in a power struggle between the incumbent Mr Maduro and the new opposition-led legislature due to be sworn in on Tuesday and comes as the country is gripped by a tumultuous political, social, and economic crisis.

Mr Maduro’s decree, dated last Wednesday, strips away the legislature’s controls over the central bank, including the power to appoint and sack directors.

“Maduro made the central bank his personal minting ministry, in a country where the constitution establishes an independent central bank,” said Francisco Monaldi, a Venezuelan economist and visiting Harvard professor. “The full discretional presidential control over the central bank is the ultimate tool for sliding into hyperinflation in Venezuela.” …

… For the remainder of the report:

http://www.ft.com/intl/cms/s/0/bf9250d6-b35a-11e5-b147-e5e5bba42e51.html

 

This was published two weeks ago and presented to you and is worth repeating:

 

A very important paper from Steve this morning as he explains that both the USA and Australia are exporting more gold that they produce.

In the report the USA produces 211 tonnes and imports 201 tonnes.  It exports 380 tonnes.  Where did they remaining 24 tonnes come from?

 

(courtesy Steve St Angelo/SRSRocco report)

Submitted by Steve St. Angelo of the SRSRoccoReport.com

THE DRAIN CONTINUES: U.S. Exports More Gold To Hong Kong Than It Produces

As the Federal Reserve continues to prop up the highly leveraged debt based financial industry, the flow of U.S. gold heading East picked up significantly. According to the USGS most recently released survey, Hong Kong received 56% of total U.S. gold bullion exports in September.

Actually, U.S. gold bullion shipments to Hong Kong where so large they exceeded its total domestic mine supply in September:

As we can see, the U.S. exported 19.3 metric tons (mt) of gold bullion to Hong Kong, while its total domestic mine supply was only 18.7 mt. The other top sources of U.S. gold exports were:

  • Switzerland = 11.4 mt
  • United Kingdom = 6.9 mt
  • India = 5.7 mt
  • U.A.E = 1 mt

Not all of U.S. gold shipments were in bullion form, some were exported as dore bars. Dore bars are semi-pure gold bars poured at the mines requiring additional refinement. India received 5.6 mt of gold dore bars from the U.S. while Switzerland imported 4.3 mt and the U.A.E, almost one metric ton.

That being said, the U.S. continues to export more gold than it imports or produces from domestic mines.For the first nine months of the year, the U.S. suffered a 24 mt deficit as it exported 380 mt of gold versus 155 mt from its domestic mine supply and 201 mt it received in gold imports:

Not only is the U.S. exported more gold than it produces, Australia is doing the very same thing. Of the 214 mt of gold exported from Australia during the first nine months of the year, China (and Hong Kong) received 136 mt or 64% of the total. Total Australian gold exports went to the following countries:

Australian Gold Exports (Jan-Sep 2015):

  • China = 136 mt
  • Singapore = 34.7 mt
  • India = 15.4
  • Thailand = 12.2 mt
  • United Kingdom = 6.4 mt

Total Australian gold mine supply during this period was only 205.2 mt (source: Australian Government Resources & Energy Quarterly Report). Even though Australia does import gold, here is another example of a Western country exported 100%+ of its domestic mine supply to the East.

Why is this interesting? Because two of the top four gold producing countries in the world exported the majority of their gold supply. Let’s look at the top four gold producing countries below (wikipedia):

Top 4 Gold Producing Countries 2014:

  • China = 450 mt
  • Australia = 270 mt
  • Russia = 245 mt
  • United States = 211 mt

We know that all of China’s gold mine supply stays in the country, so does the majority of Russia’s. However, Australia and the United States exports the majority of their domestic mine supply. Which means, the East continues to trade worthless fiat money or U.S. Treasuries for gold while the West manufactures more paper derivatives and debt.

Unfortunately, this is not a sustainable financial or economic business model for the West. While precious metal investors are frustrated by the low paper price of gold and silver, there is light at the end of the tunnel. I explain this in a recent interview with Crush The Street. If you have not watched the interview below, I highly recommend it:

end
Released yesterday, this is a very important Holter commentary:
(courtesy Bill Holter/Holter Sinclair collaboration)
Loss of control …A Very Interesting Finish/Start!
2015 was a very interesting year in its own right, the way it finished was even more interesting.  As the year progressed we saw global trade, GDP and earnings weaken significantly.  We saw unprecedented rhetoric geopolitically while central banks and sovereign treasuries became suspect from both credibility and in some cases solvency points of view.
  As the world turns on credit and credit alone, it would be a good exercise to make this the focal point.  We know the Fed “mandated” higher rates just a couple of weeks before Christmas.  I use the word “mandated” because it looks like they have raised rates but done nothing as far as withdrawing collateral and actually tightening credit conditions.  We saw no evidence of any tightening through year end.  Then the unbelievable happened, overnight rates collapsed to .12 basis points on Dec. 31.
  Specifically I believe it is important to look at what happened in the U.S. credit markets on the final day of the year because it exposes two important areas.  Rates collapsed well below the recently announced new range and the Fed had a record overnight auction. 
As a kicker, money market rates spiked.
  Why is any of this important?  First, it shows the Fed is not in the complete lockdown and control of markets but more importantly it shows how far financial institutions have gone to “portray” solvency.  You see, they take a “snapshot” picture of their balance sheet at year end.  The huge movements of capital and rates were these institutions getting the “bad stuff” off of their books in preparation for the public picture!  Suffice it to say, the movements were quite obvious to all, internally and internationally everyone saw this and they “know”.
  Shifting gears to the beginning of the year’s trading, “Happy New Year”!  Over the weekend, Saudi Arabia and Iran held their version of a “beheadarama” tit for tat which ended in the Saudi embassy in Tehran burned to the ground and the Saudis then breaking diplomatic ties.  This all occurred with the Saudis saying “we don’t care what the White House thinks of our actions”.  Can anyone say bye bye petrodollar?  In case you missed the obvious here, this is further evidence of a loss of control by Washington.
  As the markets opened around the world, China took the lead and dropped 7% to trip their circuit breakers to close their markets for the day.  Interestingly the bozos on CNBC are saying “7% isn’t that much, China will probably change their rules and become closer to U.S. circuit breakers of 20%” …
  Really?  Does anyone believe our markets would even open on day two after a 20% drop?  Many readers were either too young or were not paying attention in 1987.  The market crashed on a Monday but it was Tuesday that was the scariest day.  It was the purchase of illiquid Value Line futures with something like $6 million  that turned the markets when everything else was frozen.  It was this event which created the plunge protection team and the belief in the “Fed put”.  The problem is this, we became so addicted to “help” on a 24/7 basis since 2008 and “risk” now has less than zero premium in it.  We wake up ever single day to “it can never happen again, the government will not allow it”.
  I ask you this, what will happen to markets when it is perceived the Fed/Treasury/U.S. is NOT IN CONTROL?  Please do not tell me this can never happen because we just had a “three fer” in this category.  Money and credit went out of control Dec. 31st, geopolitics went out of control over the weekend and now the markets opened worse than any year since 1932!
  I believe this “loss of control” began in late August last year and we have seen tremors on and off ever since.  The complete loss of control is certainly and mathematically coming.  I can say this with confidence because we are living in a larger experiment than ever before in history.  We have lived through credit bubbles before, we know they have always burst and caused economic and financial ruin.  To think “this time will be different” is the height of idiocy.  The only “difference” will be the scope and magnitude of how bad the collapse will be.  Previous credit bubbles never included the issuer and finances of the world’s reserve currency.  The “foundation” to the world’s financial system will come into question and the greatest panic of all time will only be stopped by turning the lights out in the casinos.  Loss of control and the plugs being pulled all around the world will lead to one universal “view” when the dust clears …an UNRECOGNIZABLE VIEW!
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com
end

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

1 Chinese yuan vs USA dollar/yuan RISES SLIGHTLY in value , this  time to  6.5150/ Shanghai bourse: in the red with a late sell off , hang sang: red

2 Nikkei closed down 76.98 or .42%

3. Europe stocks mixed with a bias to the negative /USA dollar index up to 99.25/Euro down to 1.0762

3b Japan 10 year bond yield: falls to .263   !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 118.94

3c Nikkei now just above 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI: 36.73  and Brent:   37.01

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 down for WTI and down for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to  .587%   German bunds in negative yields from 5 years out

 Greece  sees its 2 year rate fall to 7.57%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield falls to  : 8.09%  (yield curve flattening)

3k Gold at $1081.30/silver $14.03 (7:45 am est)

3l USA vs Russian rouble; (Russian rouble down 50/100 in  roubles/dollar) 73.44

3m oil into the 36 dollar handle for WTI and 37 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 1.0093 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0856 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  + .587%/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 2.23% early this morning. Thirty year rate at 3% at 2.98% /POLICY ERROR

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

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

 

Stocks Resume Rout After Massive Chinese Intervention Fails To Lift Shanghai, Calm Traders

After yesterday’s historic -6.9% rout in the Shanghai Composite, which saw the first new marketwide circuit breaker trading halt applied to Chinese stocks (on its first day of operation), many were wondering if the Chinese government would intervene in both once again imploding stock market, as well as China’s plunging and rapidly devaluing currency. And, after the SHCOMP opened down -3%, the government did not disappoint and promptly intervened in both the Yuan as well as the stock market, however with very mixed results which global stocks took a sign that the Chinese “national team” is no longer focused solely on stocks, and have resumed selling for a second consecutive day. 

According to Bloomberg, China moved to support its sinking stock market as state-controlled funds bought equities and the securities regulator signaled a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter. Government funds purchased local stocks on Tuesday, said the people, who asked not to be identified, or arrested, or executed, because the buying wasn’t publicly disclosed – just like when the Federal Reserve intervenes in the US stock market.

Additionally, the China Securities Regulatory Commission asked bourses verbally to tell listed companies that the six-month sales ban on major stockholders will remain valid beyond Jan. 8. As a reminder, rumors that big insiders would be allowed to dump stock as soon as the end of this week is what started the initial selloff yesterday which accelerated the triggering of the circuit breaker.

“The market has got some help from state funds and that will support shares in the short term,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. However, in the long run, the market will need its own strength to hold up. It can’t always rely on the national team.” The national team is how China call its own plunge protection team.

Finally, in an attempt to stabilize liquidity, the nation’s central bank also pumped 130 billion yuan ($19.9 billion) into the financial system after money market rates jumped. However, this injection has in turn spooked some that the PBOC will no longer provide long-term easing via such instruments as MLFs, and force banks to rely too much on short-term sources of funding.

And yet, despite all this, not only did the Shanghai Composite tumble into the close, reverting back to its -3% opening level, but a last minute surge into the close did not even manage to push the Composite into the green, with the SHCOMP closing -0.3%.

 

China’s difficulty (or unwillingness) to achieve substantially confidence-boosting results, positive results is also why after being boosted early in the session, both US equity futures, global stocks and the all important USDJPY carry pair, failed to sustain gains and have once again dropped in overnight trading: U.S. stock-index futures pointed to more losses after equities started the year with the worst rout in 15 years. S&P 500 Index E-mini contracts expiring in March fell 0.6% with the current market snapshot looking as follows:

  • S&P 500 futures down 0.6% to 1996
  • Stoxx 600 down 0.3% to 355
  • FTSE 100 down less than 0.1% to 6090
  • DAX down 0.9% to 10193
  • German 10Yr yield down 1bp to 0.56%
  • Italian 10Yr yield down 3bps to 1.52%
  • Spanish 10Yr yield down 3bps to 1.69%
  • MSCI Asia Pacific down 0.4% to 128
  • Nikkei 225 down 0.4% to 18374
  • Hang Seng down 0.7% to 21185
  • Shanghai Composite down 0.6% to 3277
  • US 10-yr yield down 1bp to 2.23%
  • Dollar Index up 0.31% to 99.18
  • WTI Crude futures down 0.3% to $36.64
  • Brent Futures down 0.7% to $36.95
  • Gold spot up 0.3% to $1,078
  • Silver spot up 0.9% to $14.00

“It’s a really messy start to the year — everyone is really on edge,” said William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London. “Not much is expected of the world in terms of growth, risk appetite is biased to the downside and weak data from China to the U.S. hasn’t helped at all. Plenty of people out there believe that the next global recession is imminent.”

Looking at regional markets, Asian stocks saw choppy trade throughout the session as they initially shrugged off opening losses to trade mostly higher after the PBoC upped its liquidity injection, while the CSRC was said to be considering limiting share sales by major stakeholders and there was also speculation of intervention by China state funds to support equities. This initially lifted the region’s bourses, before markets reversed course again in a resumption of the risk averse theme so far in 2016 and saw the Nikkei 225 (-0.4%) extend on its worst start to the year since 2008. Shanghai Comp (-0.30%) fluctuated between gains and losses, having earlier pared all its 3% opening declines after the PBoC announced a CNY 130bIn injection via 7-day reverse repos, which
was its largest open market operation since September, while the ASX 200 (-1.0%) remains negative as commodity linked names suffer. 10-year JGB’s were relatively flat and unreactive to a somewhat mixed 10yr auction where the bid-to-cover was lower and the tail widened from the prior month’s auction, as the results were still much better than the 12-month average.

Top Asian News:

  • PBOC Injects Most Cash Since September in Open-Market Operations: China central bank injects 130b yuan using reverse repos
  • China Retools Bank Reserve Ratio, Casting Doubt on RRR Cuts: Central bank planning new “Macro Prudential Assessment” system
  • Dick Smith Crumples Just 2 Years After $384 Million Listing: Australian retailer fails to obtain support from bankers
  • Kuroda’s Oil Rebound Proves Elusive in Boost for Japanese Bonds: Saudi-Iran tension doesn’t alter Barclays’s inflation outlook

Likewise in Europe, investor optimism in Europe proved short-lived as shares in the region erased an advance of more than 1 percent, and failed to hold on to early strength trade relatively in negative territory, with the tepid start to 2016 continuing. The Stoxx Europe 600 Index fell 0.3 percent after slumping 2.5 percent on the previous day. Carmakers and chemical companies posted the worst declines, while travel and leisure stocks rose. Germany’s DAX Index fell 0.7 percent after its slide Monday that was the biggest since a summer rout triggered by China’s devaluation of the yuan.

Top European News:

  • Buyout Firm EQT Said to Bid for Swiss Travel Company Kuoni: Discussions with possible bidders at preliminary stage
  • Next Holiday Sales Miss Sends Distress Signal Across U.K. Retail: Slowdown at online unit compounds impact of mild weather
  • Nevsky Capital to Shutter $1.5 Billion Hedge Fund After 15 Years: Nevsky expects to liquidate portfolio, move into cash by end of January

The risk off sentiment has continued to bolster fixed income markets, with Bunds advancing throughout the morning amid touted real money buying to break above the 159.0 level. Also of note, the Eonia fix remains near Christmas Eve’s record low, while ECB excess liquidity reached its highest level since November 2012.

In FX, the yen was the best performing currency, while the euro dropped as data showed euro-area inflation was weaker than economists predicted in December, when the European Central Bank stepped up its stimulus program. The 19-member common currency declined 0.5 percent to $1.0778, falling again most major peers.

Developing-market currencies were mixed, with the Polish zloty, Hungarian forint and Turkish lira slipping at least 0.6 percent, while Indonesia’s rupiah and the Philippine peso gained at least 0.3 percent.

In commodities, oil prices remained flat throughout the European session, with no new fundamental news after the market shrugged off the increase in tensions between Iran and Saudi Arabia.

Gold advanced 0.4 percent to $1,078.34 an ounce, rising for a second day. Copper rose 1.1 percent to $4,661 a metric ton on the London Metal Exchange, while nickel, aluminum, and zinc also advanced as industrial metals pared the biggest decline since September as the PBoC
announced injection of CNY 130bIn via 7-Day reverse repos, after
yesterday’s sell-off in metals.

West Texas Intermediate crude for February delivery was little changed at $36.72 a barrel on the New York Mercantile Exchange, after falling 0.8 percent Monday. U.S. crude inventories are forecast to keep supplies more than 130 million barrels above the five-year seasonal average, according to a Bloomberg survey before government data Wednesday.

A measure of wheat, corn and soybean prices rose after slumping to a nine-year low Monday on concern beneficial weather in Latin America will exacerbate global supply gluts. The Bloomberg Grains Subindex rose 0.7 percent after slumping to the lowest since September 2006.

Today’s US economic calendar is rather empty, with just the ISM New York , API Crude Oil Inventories, and December auto sales on Deck.

Top Global News

  • China Said to Intervene in Stocks After $590b Selloff: State funds buy after CSI 300 index tumbled 7% on Monday, CSRC signals 6-month selling ban on major holders to stay. China Open to Circuit-Breaker Tweaks as Analysts Highlight Flaws: Regulator says it will “gain experience and make adjustment”
  • Fairchild Said Planning to Open Door for Talks With China Suitor: Plans to say revised proposal from group led by China Resources Holdings, Hua Capital likely to lead to superior offer
  • VW’s Top Executives Plan U.S. Visit as Diesel Woes Mount: Penalties in U.S. suit could reach as much as $80b
  • Orange, Bouygues Confirm Preliminary Talks Over Telecom Unit: Companies says talks are preliminary and may still fail
  • Oil Shrugs as Glut Blunts Shock From Deeper Saudi-Iran Clash: Oversupply trumps escalating diplomatic conflict
  • China’s Wanda in Talks to Buy Legendary Stake, Reuters Says: Deal values American filmmaker at up to $4b
  • Gene-Editing Drugmaker Backed by Google, Gates Files for IPO: Editas Medicine to use proceeds for blindness, cancer studies
  • Legg Mason Said to Be in Exclusive Talks to Buy Clarion Partners: Deal said to value real estate investment manager at $850m
  • Manhattan Apartment Prices Top Pre-Crisis Record on Luxury Deals: Home prices in borough increase to median of $1.15m
  • ArcelorMittal Considering Scaling Back U.S. Operations: AMM: Co. cites underutilised hot strip mills as possible consolidation target

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equities failed to hold on to early strength and trade in negative territory, with the risk-off sentiment continuing to bolster fixed income markets
  • Early Tuesday FX trade has been largely EUR based, with decent EUR/JPY selling reported
  • Looking ahead, highlights include ISM New York and API Crude Oil Inventories
  • Treasuries gain in early trading as global stocks declined for a second day after China’s efforts to prop up its stock market failed to quell investor misgivings over the strength of the global economy.
    PBOC injected the most cash since September into the financial system to keep a lid on borrowing costs and was also said to intervene in FX markets to prevent excessive volatility
  • The required reserve ratio for commercial banks will increasingly be used instead as a lever for enforcing financial stability, according to a PBOC announcement on Dec. 29 describing a new Macro Prudential Assessment system
  • Euro-area consumer prices rose an annual 0.2%, less than expected; “It’s a major disappointment,” Rabobank FX strategist Jane Foley said on Bloomberg TV
  • U.K.’s Cameron will allow ministers in his cabinet to decide for themselves whether to campaign for Britain to stay in or leave the EU in a referendum expected later this year
  • The alliance between the U.S. and Saudi Arabia — an almost century-old friendship at the heart of American policy in the region — is coming under growing strain as the Sunni- led kingdom engages in an escalating Cold War with Shiite Iran
  • Spain’s acting prime minister, Mariano Rajoy, called for a three-way coalition including the main opposition Socialists to provide the stability he says is needed to safeguard the economic recovery
  • Companies like J. Crew Group Inc. and 99 Cents Only Stores are struggling under debt they took on in LBOs; their bond prices have plummeted — in some cases to as little as 25 cents on the dollar — as investors brace for possible defaults
  • No IG or HY deals priced yesterday. BofAML Corporate Master Index OAS holds at +173, YTD range 180/129. High Yield Master II OAS widens 15bp to +710; YTD range 733/438
  • Sovereign bond yields lower. Asian and European stocks lower, U.S. equity-index futures decline. Crude oil lower, gold and copper higher

US Event Calendar

  • 9:45am: ISM New York, Dec. (prior 60.7)
  • TBA: Wards Domestic Vehicle Sales, Dec., est. 14.2m (prior 13.99m)
  • Wards Total Vehicle Sales, Dec., est. 18m (prior 18.05m)

DB’s Jim Reid completes the overnight wrap

So much for a peaceful start to the New Year then. Risk assets suffered a torrid opening day of 2016 yesterday with much of the blame being attributed to the huge falls in the overnight session in China. Having been down around 4% as we went to print yesterday, Chinese equity markets continued to sell-off into the close. The Shanghai Comp, CSI 300 and Shenzhen closed with losses of -6.86%, -7.02% and -8.22% respectively by the close of play in a day reminiscent of the huge falls seen in the August sell-off, the move lower for the Shenzhen in particular being the largest in nearly 8 years. That soft manufacturing data for China was seen a starting point for the blame, although a couple of other factors, which we’ll touch on shortly, were seen as perhaps having a greater impact. The geopolitical concerns between Saudi Arabia and Iran did little to help temper the negative tone as did some much softer than expected manufacturing data out of the US. The end result was some hefty falls on both sides of the pond too. The Stoxx 600 closed down -2.50% – its worst start to a year ever – while the DAX was down -4.28% for its worst fall since late August. The S&P 500 (-1.53%) managed to recover about a percent into the close but still suffered its worst start to a year since 2001 and the sixth-worst ever.

It’s straight to overnight session in Asia then where having initially taken another steep leg lower at the open, bourses in China have settled down into the midday break as headlines break around possible support through state intervention. The Shanghai Comp is currently +0.41% although that’s having opened over 3% down before swiftly reversing course. The CSI 300 is +0.79% although the Shenzhen (-0.53%) has failed to break into positive territory this morning. It’s a bit mixed in the rest of Asia. The Hang Seng is currently flat, while there’s gains for the Nikkei (+0.12%) and Kospi (+0.48%) although the ASX (-1.57%) has extended its poor start to the year. Oil markets are around half a percent higher, while credit indices in Asia are generally a basis point tighter. US equity futures are pointing towards a slightly more positive start.

In a note published yesterday, our China equity strategists highlighted that several concerns were to blame for the sell-off this time 24 hours ago. As well as the soft manufacturing data, the sharp RMB depreciation (fix once again set lower), mounting investor concerns on A-share supply increase ahead of the expiring sell restriction on major shareholders (this Thursday) and perhaps most importantly the newly enacted circuit breaker which may have exacerbated market concerns on a dry-up in liquidity were all given as reasons. Despite the latter being designed to lower volatility, our colleagues highlight that it took more than two trading hours for the CSI 300 to hit the -5% threshold yesterday but just 15 minutes to hit -7% as investors rushed to sell indiscriminately to raise cash after the 15 minutes suspension and so instead amplifying volatility. In their view they wouldn’t be surprised to see the A-share circuit breaker fine-tuned in coming months, something acknowledged by the China Securities Regulator this morning.

Back to markets elsewhere yesterday. The distinctly risk-off start to the year saw a decent bid fuel across core Government bond markets. 10y Treasury yields finished the session down 2.7bps at 2.243% although did temper a move lower of as much 7bps mid-way through the session. 10y Bund yields were down over 6bps and are sitting around 0.565%. Much like the equity moves, credit markets were hard hit also with Crossover nearly 19bps wider and CDX IG over 2bps wider in the US. Gold rallied +1.23% while Oil finished -0.76% lower and below $37, although in fairness this masked some larger intraday moves related to those tensions in the Middle East.

It was the US data which also stole some of limelight after a disappointing December ISM manufacturing print (48.2 vs. 49.0 expected). The reading was down 0.4pts from November and in turn registered for the first time since the end of the last recession its second consecutive sub-50 reading. The number was also the lowest since June 2009 and raises concerns of contraction in the factory sector. Of interest, the employment component fell a significant 3.2pts to 48.1 which got people talking of potential downside risks to this Friday’s payrolls. The December non-manufacturing ISM survey released tomorrow now takes on more significance post the data, particularly given the large divergence between the manufacturing and non-manufacturing data at present (7.3pts in November). In fact, our US economists highlight that aside from now there has been a substantial spread between the two series on only two previous occasions. Both times (in 2000/2001 and 2005) the spread closed because the non-manufacturing ISM ultimately followed the downward trend already in place in the manufacturing ISM. So one to keep an eye on.

Back to the data yesterday, US construction spending was also soft at -0.4% mom in November (vs. +0.6% expected). Meanwhile the final December manufacturing PMI was nudged down one-tenth to 51.2. The Atlanta Fed revised down their Q4 GDP forecast significantly post yesterday’s data to 0.7% for the quarter, from 1.2% at the end of December and as much as 2% mid-way through the month.

While the manufacturing data disappointed for the most part yesterday, there was better news to be had in Europe where the final Euro area manufacturing PMI was revised up one-tenth to 53.2. This was supported by an upward revision to Germany (+0.2pts to 53.0) while Italy also saw a decent rise (+0.7pts to 55.6). Readings for France (-0.2pts to 51.4) and the UK (-0.6pts to 51.9) were a tad more disappointing, although better than expected mortgage approvals and lending in the latter helped sentiment there.

Meanwhile, there was some disappointment in the preliminary German CPI reading for December which printed at -0.1% mom at the headline and well below expectations for +0.2%. That saw the YoY rate taken down one-tenth to +0.3% (vs. +0.6% expected).
There was some Fedspeak for us to digest yesterday too. Cleveland Fed President Mester downplayed the big drop in Chinese equity markets, instead saying that ‘we’ve built in a weakening path for China’ and that ‘I don’t see that as a significant risk to the forecast’ for the US economy. San Francisco President Williams was also seemingly unfazed by the China moves, saying that ‘right now at least this isn’t a big concern for me’ and instead choosing to focus on the strong fundamentals for the US economy. Williams also went on to say in an interview with CNBC that for 2016, ‘something in that three to five rate hike range makes sense at least at this time’ – this of course higher than the current marking pricing for about two 25bp hikes.

Turning over to the day ahead now the main focus in the European session will be the December CPI print for the Euro area where we’ll get the advance core reading (expectations for +1.0% yoy) and an estimate for the headline print (+0.3% yoy expected). Italian CPI is also due while over in Germany we’ll get the December unemployment data. It’s quieter in the US this afternoon with just the latest regional manufacturing print in the form of the ISM NY, while later this evening the December vehicle sales numbers are due out.

end

ASIAN AFFAIRS

let us begin:

 

Last night, MONDAY night, TUESDAY morning: Shanghai closes down sharply throughout the day with an attempted relief rally into the close  , Hang Sang falls, Chinese yuan rises a bit after a big devaluation over the holiday season. Stocks in Asia all in the red, . Oil falls slightly in the morning,. Stocks in Europe mixed. Offshore yuan continues to collapse as it trades at 6.64 yuan to the dollar vs 6.515 for onshore yuan:

Early last night:

After Tumbling At Open, Chinese Stocks Erase All Losses

 

end

EUROPEAN AFFAIRS
First we had massive rapes in Sweden. Now it has spread to Germany where Cologne Germany is investigating monstrous attacks rapes by 1000 men of Arab or North African Origin:
(courtesy zero hedge)

Germany In Shock After “Monstrous” Attacks, Rape By 1,000 Men “Of Arab Or North African Origin”

Yesterday, we were shocked to learn that as German anger boils over at the country’s unprecedented refugee wave, one or more so far unknown assailants fired shots through the window at a home for asylum seekers in western Germany injuring one resident as he was sleeping. As AP noted it wasn’t immediately clear who was responsible for the incident or what the motive was. However, Darmstadt prosecutors’ spokeswoman Nina Reininger told news agency dpa: “If someone shoots at housing which has people inside, I assume that it is a targeted attack.”

An officer of the crime scene investigation unit examine the shattered window glass
of a refugee shelter in Dreieich near Offenbach, Germany, Monday, Jan. 4, 2016

Today, we are just as shocked to read that, even as we expected, the animosities between the two groups have dramatically escalated, and that the mayor of Cologne has summoned police for crisis talks after nearly 100 women reported they were robbed, threatened or sexually molested at the New Year’s celebrations outside the city’s cathedral by young, mostly drunk, men, police said on Tuesday. One woman said she was raped.

According to BBC, “the scale of the attacks on women at the city’s central railway station has shocked Germany.” About 1,000 drunk and aggressive young men were involved.

The initial shock will quickly transform to furious anger, because more important in this specific case was the origin of the 1,000 drunk assailants, who split into groups, and attacked women in the square. Citing the police chief Wolfgang Albers, BBC notes that the men were of “Arab or North African region“, adding that they were mostly between 18 and 35 years old. He added that the attack was a “completely new dimension of crime”.

BBC adds that what is particularly disturbing is that the attacks appear to have been organised. Around 1,000 young men arrived in large groups, seemingly with the specific intention of carrying out attacks on women.

Fearing a public backlash, Cologne mayor Henriette Reker said there was no reason to believe that people involved in the attacks were refugees. Nonetheless, after a crisis meeting, she admitted the attacks were “monstrous” adding that “we cannot allow this to become a lawless area.

This, of course, puts her in a very precarious position if it is found that the attackers were indeed refugees.

Reker was stabbed in the neck and seriously hurt in October, just a day before she was elected mayor. Police said that attack appeared to be motivated by her support for refugees.

Cologne Mayor Henriette Reker and President of the Cologne Police Wolfgang
Albers (R) hold a news confernece in Cologne, Germany, January 5, 2016.

Integration commissioner Aydan Ozoguz, a self-proclaimed Muslim, likewise warned against refugees and foreigners being put under “blanket suspicion”.

At this point it is too late for damage control, however, as this has become a case of guilty until proven innocent, especially since politicians involuntarily may be stirring the pot: “We will not accept the disgusting attacks on women. All perpetrators must be held to account,” said Justice Minister Heiko Maas, a Social Democrat, in a tweet.

As Reuters adds, the attack has stirred “strong emotions in Germany where Chancellor Angela Merkel has welcomed people fleeing war zones in the Middle East and Africa.”

The political reaction was immediate: the right-wing Alternative for Germany (AfD), which has gained in polls in part at Merkel’s expense thanks to a campaign against refugees, said she should close the border.

“Mrs Merkel, is Germany ‘colourful and cosmopolitan’ enough for you after the wave of crimes and sexual attacks?” tweeted AfD chief Frauke Petry.

Meanwhile, Germany’s embattled prime minister urged people to respect strangers. Merkel said that “We .. respect everyone, even if we don’t know them,” she said. “That is the case not only for Germans, but for everyone.”

Unfortunately for Merkel, it is now too late to contain the incipient, and increasingly more violent – and soon, lethal – conflict between growing sections of the local population and the country’s refugees wave, because as Reuters further adds, and as we have noted repeatedly, there are almost daily attacks on refugee shelters.

“Events like that in Cologne foster xenophobia,” Roland Schaefer, head of Germany’s association of towns and localities, told reporters. Yes they do, and it was very obvious to everyone long before the recent violence broke out, that when mixing two combustible cultures, these would be results.

Unless, of course, outcomes such as these were precisely what the otherwise very perceptive Merkel had in mind all along.

As for the “monstrous” attack in Cologne, the local news website Koelner Stadt-Anzeiger says the suspects were already known to police because of frequent pickpocketing in and around Cologne central station. Police are trying to find out whether the men who targeted women on Thursday night, surrounding, molesting and robbing them, organized their assaults through social media. They are also studying mobile phone and CCTV surveillance videos.

If confirmed that the assailants were indeed recent refugees, the dramatically escalating conflict within German society is about to take a quantum jump into ever greater violence.

end
RUSSIAN AND MIDDLE EASTERN AFFAIRS
Another slap in the face of Obama as Iran introduces a second underground missile city:
(courtesy zero hedge)

Iran Unveils Second Underground “Missile City” In Further Humiliation For Obama

Back in October, Iran put the Obama administration in a tough spot. Tehran test-fired a next generation, surface-to-surface ballistic missile capable of carrying a nuclear warhead.

The new weapon – dubbed “Emad” – is capable of hitting arch nemesis Israel and although the launch didn’t violate the letter of the nuclear accord, it did apparently violate a UN resolution and that, in turn,prompted a number of US lawmakers to call for a fresh set of sanctions on Tehran.

Of course this isn’t the best time to be slapping the Iranians with more sanctions, which is presumably why The White House delayed a decision on the matter last week.

First, the implementation of the nuclear deal is supposed to bring sanctions relief for Tehran. Any new punitive measures will jeopardize the agreement. If the deal falls apart, it would be a severe blow to Obama’s presidential legacy.

Furthermore, heightened tensions between Iran and Saudi Arabia in connection with the latter’s decision to execute a prominent Shiite cleric, have plunged the Muslim world into chaos. Were the US to hit Iran with sanctions now, it might very well come across as a kind of backdoor way of supporting the Saudi position in the middle of a worsening diplomatic crisis.

Knowing that Washington is in a bind, the Iranians have pushed ahead with their vaunted ballistic missile program. As we’ve noted on a number of occasions, Iran has one of the largest ballistic missile arsenals in the Middle East. Here’s the breakdown courtesy of the US Institute Of Peace:

  • Shahab missiles: Since the late 1980s, Iran has purchased additional short- and medium-range missiles from foreign suppliers and adapted them to its strategic needs. The Shahabs, Persian for “meteors,” were long the core of Iran’s program. They use liquid fuel, which involves a time-consuming launch. They include:

  • The Shahab-1 is based on the Scud-B. (The Scud series was originally developed by the Soviet Union). It has a range of about 300 kms or 185 miles

  • The Shahab-2 is based on the Scud-C. It has a range of about 500 kms, or 310 miles. In mid-2010, Iran is widely estimated to have between 200 and 300 Shahab-1 and Shahab-2 missiles capable of reaching targets in neighboring countries.

  • The Shahab-3 is based on the Nodong, which is a North Korean missile. It has a range of about 900 km or 560 miles. It has a nominal payload of 1,000 kg. A modified version of the Shahab-3, renamed the Ghadr-1, began flight tests in 2004. It theoretically extends Iran’s reach to about 1,600 km or 1,000 miles, which qualifies as a medium-range missile. But it carries a smaller, 750-kg warhead.

  • Although the Ghadr-1 was built with key North Korean components, Defense Minister Ali Shamkhani boasted at the time, “Today, by relying on our defense industry capabilities, we have been able to increase our deterrent capacity against the military expansion of our enemies.”

  • Sajjil missiles: Sajjil means “baked clay” in Persian. These are a class of medium-range missiles that use solid fuel, which offer many strategic advantages. They are less vulnerable to preemption because the launch requires shorter preparation – minutes rather than hours. Iran is the only country to have developed missiles of this range without first having developed nuclear weapons.

  • This family of missiles centers on the Sajjil-2, a domestically produced surface-to-surface missile. It has a medium-range of about 2,000 km or 1,200 miles when carrying a 750-kg warhead. It was test fired in 2008 under the name, Sajjil. The Sajjil-2, which is probably a slightly modified version, began test flights in 2009. This missile would allow Iran to “target any place that threatens Iran,” according to Brig. Gen. Abdollah Araghi, a Revolutionary Guard commander.

  • The Sajjil-2, appears to have encountered technical issues and its full development has slowed. No flight tests have been conducted since 2011. IfSajjil-2 flight testing resumes, the missile’s performance and reliability could be proven within a year or two. The missile, which is unlikely to become operational before 2017, is the most likely nuclear delivery vehicle—if Iran decides to develop an atomic bomb. But it would need to build a bomb small enough to fit on the top of this missile, which would be a major challenge.

  • The Sajjil program’s success indicates that Iran’s long-term missile acquisition plans are likely to focus on solid-fuel systems. They are more compact and easier to deploy on mobile launchers. They require less time to prepare for launch, making them less vulnerable to preemption by aircraft or other missile defense systems.

  • Iran could attempt to use Sajjil technologies to produce a three-stage missile capable of flying 3,700 km or 2,200 miles. But it is unlikely to be developed and actually fielded before 2017.

In fact, Iran’s missile cache is so large, they’re running out of places to “hide” them. “We lack enough space in our stockpiles to house our missiles,” General Hossein Salami said on Friday. “Hundreds of long tunnels are full of missiles ready to fly to protect your integrity, independence and freedom,” he added.

Yes, “hundreds of tunnels”, like those we highlighted in “Caught On Tape: Inside Iran’s Secret Underground Missile Tunnels.”

The video shown above was first shown on the state-run Islamic Republic of Iran Broadcasting (IRIB) channel whose cameras were permitted inside the underground base.

“Those who threaten Iran with their military option on the table would better take a look at Iran’s ‘options under the table,’ namely the missile arsenals. Iran’s known military power is only the tip of the iceberg,” the Commander of the IRGC Aerospace Force Brigadier General Amir Ali Hajizadeh told reporters.

On Tuesday, we got a look at yet another Iranian “missile city” when Speaker of the Parliament Ali Larijani inaugurated a new site. Here’s footage from the event:

As Middle East Eye reports, the new “city” will be used to store the Emad: “Iran’s military has revealed a secret underground ‘missile city’ used to store a new generation of ballistic missiles which the US says are ‘nuclear capable’ and whose test-firing last year broke a UN resolution.” Here’s more:

The Revolutionary Guards Corps on Tuesday released pictures and video of the underground bunker after a visit by Parliament Speaker Ali Larijani.

 

Iran’s Tasnim news agency said the bunker, which it dubbed a ‘missile city’, stores the Emad ballistic missile, which has a range of 2,000km and was first successfully tested on October 10. The US says the missiles are advanced enough to be fitted with nuclear warheads.

 

It is the second such bunker to be publicised in three months, after the Guards in October revealed a facility dug into an unnamed mountain to store and protect Iran’s advanced weaponry.

 

Brigadier General Amir Ali Hajizadeh, the commander of the Guards’s aerospace division, said the facility was only one of many bases scattered across the country.

 

The publicising of the existence of the bunker comes at a sensitive time in relations between Iran and world powers, who signed an agreement in July to largely curtail Iran’s nuclear ambitions. 

And that, in short, should tell you everything you need to know about the degree to which Tehran is prepared to negotiate with Washington vis-a-vis the country’s ballistic missile program.

Iran has always maintained its missile arsenal is for defensive purposes only and thus represents a completely legitimate effort to protect the country from the myriad hostile states in the region. The events that unfolded over the weekend underscore why Tehran is so keen on bolstering its defenses.

But defensive or no, the video shown above represents yet another slap in the face for the Obama administration and will only serve to infuriate already irate lawmakers in the US who, unlike the administration, aren’t in the mood to make any new “friends” in the Mid-East.

end
The temperature rose a bit today as a Saudi Aramco bus was burnt down after a terrorist assault:
(courtesy zero hedge)

Saudi Aramco Bus Burns Down After “Terrorist Assault” In Qatif Region

Following this weekend’s escalation between Saudi Arabia and Iran, in which both sides managed to infuriate each other to a degree that brought diplomatic relations between the two to levels not seen since 1980, one thing was certain: the escalation has only just begun; after all, there is no point in severing diplomatic ties with Iran, and thus thrusting OPEC into complete chaos, if Iran does not at least curb its production on its own, one way or another.

Moments ago, we got confirmation of just this escalation when according to Alriyadh.com, a bus belonging to Saudi Aramco was torched in a “terrorist assault” by “four armed rioters” in the country’s unrest-filled Qatif region.

From Alriyadh, google translated:

East Police: Bus one of the companies assaulted by four people
Riyadh – SPA

 

Media spokesman for the Police Eastern Region, said that when the fourth quarter pm Tuesday afternoon 03/25/1437, hit a bus, designated for transportation of employees and workers of a company to the towns and districts of the province of Qatif, assaulted by four (4) people of rioters armed, and when they pass one of the residential neighborhoods of the town of Qudayh, where they Bastiagafha at gunpoint, and setting fire to them.

 

 

He added that the security authorities embarked on crime and managed to control the fire, and did not result in injury and thankfully one any harm, as specialists began the police in the criminal investigation of this terrorist attack and investigation procedures.

 

Will this major escalation be swept away, or will Saudi authorities blame it all on terrorist Shi’ites, then promptly find a “link” to Iran instigators, which they will then use to escalate what has so far been mostly a war of words into something more tangible? Keep an eye on oil prices for the answer.

end

An interesting question: Because of what happened over the weekend, it looks like the USA must choose between its long term ally Saudi Arabia or Iran:

One author believes the choice should be Iran:

(courtesy zero hedge)

Saudi Arabia Or Iran? It’s Time For Obama To Choose

“It’s not as if you have an Iranian alternative. And if you have no alternative, your best choice is to stop complaining about the Saudis.”

That’s a quote from a “senior Gulf Arab official” who spoke to The New York Times about Washington’s position on the sectarian strife playing out across the Mid-East.

As a refresher, an already volatile situation took a decisive turn for the worst over the weekend when Saudi Arabia executed Sheikh Nimr al-Nimr, sparking outrage across the Shiite community.

The turmoil couldn’t have come at a worse time for Washington.

The White House is desperate to salvage the narrative in Syria where Russia’s intervention has, i) highlighted America’s shortcomings in the “war” on ISIS and ii) laid bare the fact that the Sunni extremists the Western world generally identifies with terrorism are being armed and funded by a number of state sponsors, including Saudi Arabia.

Meanwhile, the Obama administration is anxious to ensure that the implementation of the Iran nuclear deal goes smoothly. If the Iranians were to back out at the last minute, it would be a major blow to the President’s legacy during his last year in office.

As we put it on Sunday after Riyadh cut diplomatic ties with Iran in the wake of attacks on the Saudi embassy, “the Obama administration will have to make a choice: stick with the Saudis in order to preserve the prevailing Mid-East order and ensure that the ‘special’ relationship between Washington and Riyadh isn’t damaged, or finally take the plunge and side with the Iranians with whom the administration is desperate to establish a cordial relationship after years of mutual distrust and hostility.” Here’s The Times echoing our assessment:

The United States has usually looked the other way or issued carefully calibrated warnings in human rights reports as the Saudi royal family cracked down on dissent and free speech and allowed its elite to fund Islamic extremists. In return, Saudi Arabia became America’s most dependable filling station, a regular supplier of intelligence, and a valuable counterweight to Iran.

For years it was oil that provided the glue for a relationship between two nations that share few common values.

But the political upheaval in the Middle East and the American perception that the Saudis are critical to stability in the region continue to hold together an increasingly fractious marriage. So when Saudi Arabia executed 47 people, including Sheikh Nimr al-Nimr, the dissident cleric, on Saturday, beheading many of them in a style that most Americans associate with the Islamic State rather than a close American partner, the administration’s efforts to explain the relationship became more strained than ever.

In 2011, Saudi leaders berated President Obama and his aides for failing to support President Hosni Mubarak of Egypt during the Arab Spring, fearing Mr. Obama might do the same thing if the uprisings spread to the kingdom.

The nuclear deal with Iran only fueled the Saudi sense that the United States was rethinking the fundamental relationship — and Saudi officials, on visits to Washington, openly questioned whether they could rely on their American ally

So ever since that accord was reached in July, the Obama administration has been offering reassurance.

When Mr. Kerry warned the Saudis against executing Sheikh Nimr, a Saudi-born Shiite cleric who directly challenged the royal family, he was ignored. “This is a concern that we raised with the Saudis in advance,” Josh Earnest, the White House press secretary, acknowledged Monday. He said the execution has “precipitated the kinds of consequences that we were concerned about.”

The fundamental question is this: has preserving the relationship with the Saudis become more trouble than it’s worth for the US? And if so, is it finally time for Washington to reimagine its Mid-East policy by doing the previously unthinkable and siding with Tehran over Riyadh?

For some, like Politico’s Stephen Kinzer, the answer is “yes.” Below, find excerpts from Kinzer’s latest.

*  *  *

From “The United States Shouldn’t Choose Saudi Arabia Over Iran

Only two Muslim powers remain standing in the Middle East, and suddenly they are on the brink of war. Our old friend, Saudi Arabia, carried out one of its routine mass beheadings last week, and among the victims was a revered Shiite cleric. Our longtime enemy, Iran, which is the heartland of Shiite Islam, was outraged. Furious Iranians burned the Saudi Embassy in Tehran. The next day, Saudi Arabia broke diplomatic relations with Iran

The United States should do everything possible to avoid choosing sides in an intensifying proxy war between the dominant Shiite and Sunni powers in the Middle East. Though history tells us we should tilt toward Saudi Arabia, our old ally, if we look toward the future, Iran is the more logical partner. The reasons are simple: Iran’s security interests are closer to ours than Saudi Arabia’s are.

taking Saudi Arabia’s side would be a disaster. True, militarily the two appear pitifully mismatched. Saudi Arabia is among the world’s best armed states. It has spent vast sums to buy the world’s most advanced war-fighting systems, most of them from the United States. Iran, by contrast, has been under heavy sanctions for decades. Its army is not much better equipped than it was during the Iran-Iraq War 30 years ago.

The confrontation becomes equalized, however, when motivation is factored into the equation. Saudis are notorious for their aversion to sacrifice. They hire foreigners to do most of the kingdom’s daily labor. Few Saudi men would dream of risking their lives for their country. For its war in Yemen, Saudi Arabia has recruited hundreds of mercenaries from Colombia. The Saudis have enough air power to devastate almost any country on earth. Wars are won on the ground, though, and there Saudi Arabia is pitifully weak.

The Iranians are different. If they believe their faith is under threat, they will pour onto battlefields even if they have to fight with slingshots. That difference in patriotic fervor makes sense. Saudi Arabia has existed for 83 years, Iran for more than 2,500.

Saudi Arabia’s decision to provoke this crisis was aimed at least in part at forcing the United States to take sides. Supporting Saudi Arabia over Iran, however, would be a way of harming our own interests.

Why does Iran make more long-term sense as a partner? Countries should fulfill two qualifications to become U.S. partners. Their interests should roughly coincide with ours, and their societies should look something like our own. On both counts, Iran comes out ahead.

Iran and the United States are bound above all by their shared loathing of Sunni terror groups. In addition, Iran is closely tied to large Shiite populations in Afghanistan, Iraq, Syria, Lebanon and Bahrain. It can influence those populations in ways no one else can. If it is brought into regional security arrangements, it will have a greater interest in stability—partly because that would increase its own influence in the region.

By almost any standard, Iranian society is far closer to ours than Saudi society.Years of religious rule have made Iranians highly secular. The call to prayer is almost never heard in Iran. In Saudi Arabia, by contrast, it dominates life, and all shops must close during designated prayer breaks. Iranian women are highly dynamic and run many businesses. Saudi women may not even drive or travel without a man’s permission. The 9/11 attacks were planned and carried out mainly by Saudis; Tehran was the only capital in the Muslim world where people gathered spontaneously after the attacks for a candlelight vigil in sympathy with the victims.

*  *  *

Images from candlelight vigils in Iran held on the evening of September 11, 2001 to mourn the Americans killed in 9/11:

end

David Stockman and Pat Buchanan agree that we should severe the relationship with the brutal Saudi Arabia regime.

( Courtesy contracorner)

Enough Already! It’s Time To Send The Despicable House Of Saud To The Dustbin Of History

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The attached column by Pat Buchanan could not be more spot on. It slices through the misbegotten assumption that Saudi Arabia is our ally and that the safety and security of the citizens of Lincoln NE, Spokane WA and Springfield MA have anything to do with the religious and political machinations of Riyadh and its conflicts with Iran and the rest of the Shiite world.

Nor is this only a recent development. In fact, for more than four decades Washington’s middle eastern policy has been dead wrong and increasingly counter-productive and destructive. The crisis provoked this past weekend by the 30-year old, hot-headed Saudi prince behind the throne only clarified what has long been true.

That is, Washington’s Mideast policy is predicated on the assumption that the answer to high oil prices and energy security is deployment of the Fifth Fleet to the Persian Gulf. And that an associated alliance with one of the most corrupt, despotic, avaricious and benighted tyrannies in the modern world is the lynch pin to regional stability and US national security.

Nothing could be further from the truth. The House of Saud is a scourge on mankind that would have been eliminated decades ago, save for Imperial Washington’s deplorable coddling and massive transfer of arms and political support.

At the same time, the answer to high oil prices is high oil prices. Could anything not be more obvious today when crude oil is hovering around $35 per barrel notwithstanding a near state of war in the Persian Gulf?

Here’s the thing. The planet was endowed by the geologic ages with a massive trove of stored energy in the form of buried hydrocarbons; and it is showered daily by even more energy in the form of the solar, tidal and wind systems which shroud the earth.

The only issues is price, the shape and slope of the supply curve and the rate at which technological progress and human ingenuity drives down the real cost of extraction and conversion.

On top of that, the vast resilient forces of the free market have silently, steadily and dramatically improved the energy efficiency of the US economy.

As shown in the long term chart below, energy consumption per dollar of GDP is only about 40% of the level which obtained when Washington’s politicians first started running around like Chicken Little, claiming that the energy sky was fall at the time of the so-called 1973 oil crisis.

U.S. Energy Intensity, Thousand BTU per Dollar of GDP*

Driven by the supply and demand curves of the ordinary economics processes over the last four decades, therefore, the constant dollar price of oil has gone absolutely nowhere. The threat of high oil prices has been a giant myth all along.

The red line in the chart below expresses the world crude oil price in March 2015 dollars of purchasing power. At today’s $35 per barrel it is only marginally higher than it was in 1971 before Nixon slammed shut the gold window and inaugurated four decades of central bank fueled monetary inflation.

Inflation Adjusted Oil Price Chart

The truth is, the long era of the so-called oil crisis never happened. It was only a convenient Washington invention that was used to justify statist regulation and subsidization domestically and interventionist political and military policies abroad.

Back in the late 1970s as a member of the House Energy Committee I argued that the solution to high oil prices was the free market; and that if politicians really wanted to cushion the purely short-term economic blow of a Persian Gulf supply interruption the easy and efficient answer was not aircraft carriers, price controls and alternative energy subsidies, but the Texas and Louisiana salt domes that could be easily filled as a strategic petroleum reserves (called SPRO).

During the Reagan era we unleashed the energy pricing mechanisms from the bipartisan regime of price and allocation controls which had arisen in the 1970s and began a determined campaign to fill the SPRO. Thirty-five years later we have a full SPRO and a domestic and world economy that is chock-a-block with cheap energy because the pricing mechanism has done its job.

In fact, OPEC is dead as a doornail, and the real truth has now come out. Namely, there never was a real oil cartel. It was just the House of Saud playing rope-a-dope with Washington, and its national oil company trying to do exactly what every other global oil major does.

That is, invest and produce at rates which are calculated to maximize the present value of its underground reserves.  And that includes producing upwards of 10 million barrels per day at present, even as the real price of oil as relapsed to 50 year ago levels.

What this also means is that Imperial Washington’s pro-Saudi foreign policy is a vestigial relic of the supreme economic ignorance that Henry Kissinger and his successors at the State Department and in the national security apparatus brought to the table decade after decade.

Had they understood the energy pricing mechanism and  the logic of SPRO, the Fifth Fleet would never have been deployed to the Persian Gulf. There also never would have been any Washington intervention in the petty 1990 squabble between Saddam Hussein and the Emir of Kuwait over directional drilling in the Rumaila oilfield that straddled their historically artificial borders.

Nor would there have been any “crusader” boots trampling the allegedly sacred lands of Arabia or subsequent conversion of the Bin-Laden’s fanatical Sunni mujahedeen, which the CIA had trained and armed in Afghanistan, to the al-Qaeda terrorists who perpetrated 9/11.

Needless to say, the massive US “shock and awe” invasion thereafter which destroyed the tenuous Sunni-Shiite-Kurd coexistence under the Baathist secularism of Saddam Hussein would not have happened. Nor would the neocon war mongers have ever become such a dominant force in Imperial Washington and led it to the supreme insanity of regime change in Libya, Syria, Yemen and beyond.

In short, the massive blowback and episodic eruptions of jihadist terrorism in Europe and even America that plague the world today would not have occurred save for the foolish policy of Fifth Fleet based energy policy.

Still, there is an even more deleterious consequence of the Kissinger Error. Namely, it has allowed the House of Saud, along with Bibi Netanyahu’s political machine, to define the conflicts which rage in the mid-east.

The fact is, the barbaric Wahhabi fundamentalism, which is home-based in Saudi Arabia and which the Saudi regime enforces by the sword of its legal system and the bounty of its oil earnings. is the real source of jihadist terrorism in the world today. And its the ultimate inspiration and financial benefactor of the Islamic State., as well.

 

 

By Pat Buchanan

The New Year’s execution by Saudi Arabia of the Shiite cleric Sheikh Nimr Baqir al-Nimr was a deliberate provocation.

Its first purpose: Signal the new ruthlessness and resolve of the Saudi monarchy where the power behind the throne is the octogenarian King Salman’s son, the 30-year-old Defense Minister Mohammed bin Salman.

Second, crystallize, widen and deepen a national-religious divide between Sunni and Shiite, Arab and Persian, Riyadh and Tehran.

Third, rupture the rapprochement between Iran and the United States and abort the Iranian nuclear deal.

The provocation succeeded in its near-term goal. An Iranian mob gutted and burned the Saudi embassy, causing diplomats to flee, and Riyadh to sever diplomatic ties.

From Baghdad to Bahrain, Shiites protested the execution of a cleric who, while a severe critic of Saudi despotism and a champion of Shiite rights, was not convicted of inciting revolution or terror.

In America, the reaction has been divided.

The Wall Street Journal rushed, sword in hand, to the side of the Saudi royals: “The U.S. should make clear to Iran and Russia that it will defend the Kingdom from Iranian attempts to destabilize or invade.”

The Washington Post was disgusted. In an editorial, “A Reckless Regime,” it called the execution risky, ruthless and unjustified.

Yet there is a lesson here.

Like every regime in the Middle East, the Saudis look out for their own national interests first. And their goals here are to first force us to choose between them and Iran, and then to conscript U.S. power on their side in the coming wars of the Middle East.

Thus the Saudis went AWOL from the battle against ISIS and al-Qaida in Iraq and Syria. Yet they persuaded us to help them crush the Houthi rebels in Yemen, though the Houthis never attacked us and would have exterminated al-Qaida.

Now that a Saudi coalition has driven the Houthis back toward their northern basecamp, ISIS and al-Qaida have moved into some of the vacated terrain. What kind of victory is that – for us?

In the economic realm, also, the Saudis are doing us no favors.

While Riyadh is keeping up oil production and steadily bringing down the world price on which Iranian and Russian prosperity hangs, the Saudis are also crippling the U.S. fracking industry they fear.

The Turks, too, look out for number one. The Turkish shoot-down of that Russian fighter-bomber, which may have intruded into its airspace for 17 seconds, was both a case in point and a dangerous and provocative act.

Had Vladimir Putin chosen to respond militarily against Turkey, a NATO ally, his justified retaliation could have produced demands from Ankara for the United States to come to its defense against Russia.

A military clash with our former Cold War adversary, which half a dozen U.S. presidents skillfully avoided, might well have been at hand.

These incidents raise some long-dormant but overdue questions.

What exactly is our vital interest in a permanent military alliance that obligates us to go to war on behalf of an autocratic ally as erratic and rash as Turkey’s Tayyip Recep Erdogan?

Do U.S.-Turkish interests really coincide today?

While Turkey’s half-million-man army could easily seal the Syrian border and keep ISIS fighters from entering or leaving, it has failed to do so. Instead, Turkey is using its army to crush the Kurdish PKK and threaten the Syrian Kurds who are helping us battle ISIS.

In Syria’s civil war – with the army of Bashar Assad battling ISIS and al-Qaida – it is Russia and Iran and even Hezbollah that seem to be more allies of the moment than the Turks, Saudis or Gulf Arabs.

“We have no permanent allies … no permanent enemies … only permanent interests” is a loose translation of the dictum of the 19th century British Prime Minister Lord Palmerston.

Turkey’s shoot-down of a Russian jet and the Saudi execution of a revered Shiite cleric, who threatened no one in prison, should cause the United States to undertake a cost-benefit analysis of the alliances and war guarantees we have outstanding, many of them dating back half a century.

Do all, do any, still serve U.S. vital national interests?

In the Middle East, where the crucial Western interest is oil, and every nation – Saudi Arabia, Iran, Iraq, Libya – has to sell it to survive – no nation should be able drag us into a war not of our own choosing.

In cases where we share a common enemy, we should follow the wise counsel of the Founding Fathers and entrust our security, if need be, to “temporary,” but not “permanent” or “entangling alliances.”

Moreover, given the myriad religious, national and tribal divisions between the nations of the Middle East, and within many of them, we should continue in the footsteps of our fathers, who kept us out of such wars when they bedeviled the European continent of the 19th century.

This hubristic Saudi blunder should be a wake-up call for us all.

Patrick J. Buchanan is the author ofChurchill, Hitler, and “The Unnecessary War”: How Britain Lost Its Empire and the West Lost the World. To find out more about Patrick Buchanan and read features by other Creators writers and cartoonists, visit the Creators Web page at http://www.creators.com.

 

end

 

Russia initiates legal proceeding against the Ukraine over its 3 billion USA debt:

(courtesy Jack Farchy/London’s Financial times)

January 1, 2016 1:02 pm

 

 

Russia initiates legal proceedings against Ukraine over $3bn debt

Jack Farchy in Moscow

Russia has formally initiated legal proceedings against Ukraine over the non-payment of a $3bn debt, setting the stage for the latest dispute between the two countries to play out in English courts.

The Russian finance ministry said in a statement on Friday that it had “initiated the procedures necessary for a prompt commencement of court hearings with Ukraine” and that it would file a lawsuit in the English courts.

The move was widely expected after Kiev last month imposed a moratorium on servicing the debt after reaching an $18bn restructuring agreement with all of its creditors apart from Russia.

The initiation of what is likely to be a protracted legal battle over the debt adds to myriad economic and financial disputes between the two neighbours, which have intensified in recent months even as fighting in east Ukraine has waned.

On Thursday, power supplies from Ukraine to Crimea, which Russia annexed in March 2014, were once again cut. On Friday, Moscow imposed new trade restrictions against Kiev, banning imports of a range of foodstuffs andcancelling a free-trade agreement.

The $3bn bond was the first instalment of a $15bn Russian cash infusion that Mr Putin promised the ailing government of then Ukrainian president Viktor Yanukovich in December 2013. The support came after Mr Yanukovich backed out of Kiev’s plans for economic integration with the EU, but Mr Yanukovich was toppled by the Maidan movement after payment of the first tranche.

Russia refused to take part in Ukraine’s restructuring deal agreed in September as part of a $40bn IMF-led support package for Ukraine. While Moscow initially insisted on full repayment on time, President Vladimir Putin in November proposed instead to allow Ukraine to repay the bond in three annual $1bn tranches from next year. Kiev insisted it could not offer better terms than those given to its other creditors.

The Russian finance ministry argued on Friday that Kiev’s position should preclude it from receiving further funds under the IMF support programme. The IMF in December changed its policy on lending to countries with debts to other Fund members, in principle allowing Ukraine’s support programme to continue. But the changes require Kiev to demonstrate that it has sought to negotiate in “good faith” with Russia before the IMF can make future disbursements.

“If Ukraine does not change its position and does not start to negotiate in good faith, the IMF board of directors cannot fail to raise the question of the permissibility of continued lending to Ukraine in the context of the broader financing programme,” the Russian finance ministry said, complaining that Kiev had not responded to Mr Putin’s November proposal.

The statement, however, left open the possibility of further negotiations: “The initiation of court proceedings does not preclude a constructive dialogue to reach an acceptable settlement of the debt.”

END

 

GLOBAL ISSUES
The Baltic Dry Index drops again to a new record low signalling continue global economic contraction:
(courtesy Baltic Dry Index/zero hedge/Deutsche bank)

A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low

Following disappointing China PMI data and a collapse in US ISM Manufacturing imports data, the fact that The Baltic Dry Index has collapsed to fresh record lows will hardly be a surprise to many. However,as Deutsche Bank warns, a “perfect storm” is brewing in the dry bulk industry, as year-end improvements in rates failed to materialize, which indicates a looming surge in bankruptcies.

 

At 468, The Baltic Dry Index is now at a new record low…

 

And US Manufacturing imports suggest things are getting worse, not better…

 

 

Which leads Deutsche Bank to warn of…A Perfect Storm Brewing

 The improvement in dry bulk rates we expected into year-end has not materialized.And based on conversations we’ve had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments. The glut of “for sale” tonnage has negative implications for asset and equity values. More critically, it can easily lead to breaches in loan-to-value covenants at many dry bulk companies, shortening the cash runway and likely necessitating additional dilutive actions.

 

Dry bulk companies generally have enough cash for the next 1yr or so, but most are not well positioned for another leg down in asset values

 

The majority of publically listed dry bulk companies have already taken painful measures to adapt to the market- some have filed Chapter 11, others have issued equity at deep discounts, and most have tried to delay/defer/cancel newbuilding deliveries.

 

The additional cushion, however, is likely not enough if asset values take another leg down; especially given the majority of publically listed dry bulk companies are already near max allowable LTV levels.

 

The move to sell assets in unison can lead to a downward spiral, where the decline in values leads to an immediate need for additional equity to cure LTV breaches.

Source: Deustche Bank

end
the oldest central bank in the world, the Riksbank is now preparing for a foreign exchange war with the hedge funds who are betting that the central bank will lose the war as they would be helpless to defend against a rising SEK.
You will recall that Sweden at NIRP as it tries to get a little inflation into the country.  The only thing that NIRP has down is raise house prices to skyrocketing levels while all other areas are deflating
\\
(courtesy zero hedge)

Sweden Prepares For FX “War” With Bloodthirsty Hedge Funds

On Monday, the Riksbank said it would “instantly intervene” in the FX market in the event ongoing krona strength ends up imperiling Sweden’s inflation target.

“During 2015, the Riksbank has cut the repo rate to –0.35 per cent, adjusted the repo-rate path downwards and purchased large amounts of government bonds and also announced additional purchases during the first half of 2016,” the bank said, in a statement. “However, since the last monetary policy meeting in mid-December, the Swedish krona has appreciated against most other currencies [and] if this development were to continue, it could jeopardise the ongoing upturn in inflation.”

As a reminder, Sweden is caught between a rock and a hard place.

The Riksbank – like the SNB, the Norges Bank, and the Nationalbank – is effectively beholden to the ECB. When Draghi eases, Stefan Ingves must ease as well or risk “undesirable” currency appreciation. In other words, in the endless, beggar thy neighbor race to the Keynesian bottom, it’s ease or be eased upon (so to speak), as everyone fights to stay alive in the ongoing global currency wars.

Despite the Riksbank’s best efforts to appease an angry Paul Krugman who, prior to Ingves’ relent and subsequent plunge into NIRP-dom, accused the bank of being what he calls “sadomonetarists,” Sweden has struggled to push inflation higher and keep a lid on the krona in the face of Mario Draghi’s €1.1 trillion asset purchase program and attendant move to cut the depo rate into negative territory.

Meanwhile, negative rates have inflated a massive housing bubble that Ingves is powerless to rein in thanks to the fact that tightening not only risks pushing inflation to zero, but also incurring the wrath of the world’s Paul Krugmans who would, without a doubt, point the “sadomonetarist” finger on the way to claiming that the bank is about to make the same mistake it made in 2010 (when it hiked “prematurely).

Having run out of options on the inflation front, the bank has effectively given Ingves and his first deputy governor Kerstin af Jochnick the power to intervene immediately to drive the krona lower. Previously, a board meeting would have been necessary if the bank wanted to step into the market.

While Riksbank could intervene at any time and wants to be unpredictable,” Anna Breman, chief economist at Swedbank, told Bloomberg by phone. “Currency interventions are politically controversial [and] may also be very costly and create big losses on balance sheet,” she added. “Riksbank FX intervention is a done deal if SEK appreciation trend continues, and is likely to be backed by further rate cuts,” Stefan Mellin, an analyst at Danske Bank, wrote on Monday. “Expect Riksbank to respond if the late-Dec. trend continues at the same pace, taking EUR/SEK toward 9.00-9.10 and/or the KIX index much more than 2% below its 1Q forecast,” he said.

Unfortunately for Ingves, hedge funds are adept at smelling blood in the FX waters (just as George Soros). As Bloomberg writes, the 2 and 20 crowd “may be gearing up to place bets against the Swedish central bank’s efforts to halt gains in the krona.” Here’s more:

“The market seems eager to challenge the Riksbank and there are rumors that many foreign hedge funds are long kronor and see a weakening of the krona after a possible intervention as a good buying opportunity,” he said. Exporters are also “structural krona buyers” and will probably exchange their foreign revenue after a dip, he said.

 


 

The Riksbank on Dec. 30 warned it was moving closer to intervening after the krona appreciated last month. On Monday, it sent out a statement that it had delegated the authority to Governor Stefan Ingves and his first deputy to “instantly” intervene in the market if necessary.

 

The Riksbank will probably need to contact primary dealer banks to warn them before it steps into currency markets, according to SEB, Swedbank and Danske Bank.

 

A currency intervention must now be “very close” and a tolerance level of between 9.00 and 9.10 “seems reasonable,” Javeus said. The bank will probably have to sell 2 billion kronor ($235 million) to 3 billion kronor to have any reasonable effect, he said.

In essence then, Ingves is now at war with the ECB and with hedge funds keen on testing the Riksbank’s mettle.

With Sweden’s QE program having already failed (see here and here), it now appears the Riksbank will soon be forced into a costly fight to keep the krona artificially suppressed. If Ingves loses the battle, deflation will be right around the corner (well, except in the housing market).

On the bright side, the inexorable influx of Mid-East migrants may end up causing Sweden to borrow more, thus creating more monetizable assets for the Riksbank’s broken QE program.

Average:

5
Your rating: None
EMERGING MARKETS
A good picture as to what is going to happen in Africa and other emerging nations as dollars are in short supply:  expect massive hyperinflation in these countries coupled with social unrest
(courtesy zero hedge)

Angola’s Currency Collapses To Record Low As “Hyperinflation Monster” Looms Over Africa

Just two weeks ago we warned of the looming “hyperinflation monster” in Africa with the continent appearing to be running out of dollars as some of Africa’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, are restricting access to the greenback to protect dwindling reserves. Specifically we warned of Angola’s already-soaring inflation hampering its ability to ‘adjust’ its currency towards its black market ‘reality’. But that did not stop the central bank devaluing Kwanza by 15% over the weekend – the most since 2001 – to record lows as crude prices crush their economy.

 

Here’s what we said two weeks ago: to be sure, African central banks have a simple way out: stop defending their currencies, and let the market determine the fair value. The problem with this approach is that it promptly leads to an immediate devaluation of the currency, and without fail, hyperinflation and social unrest. The latter is not an option for many African countries where inflation is already running red-hot in the double digits.

Angola, which is Africa’s second-biggest oil producer after Nigeria, has also been using its dollars to prop up its currency, the kwanza. Its central bank says it plans to stay on that course.

 

“If we devalue, it will have a huge impact on inflation because most of our food is imported,” said Gualberto Lima Campos, deputy governor for the Central Bank of Angola. The country has a 14% annual rate of inflation.

And now, it seems Angola is willing to face the hyperinflation and social unrest as it devalues the Kwanza to record lows. As Bloomberg notes, the central bank, known as the BNA, started managing foreign-exchange sales by commercial lenders to businesses in November as a response to the limited supplies of U.S. currency.

Angola’s currency fell the most since September 2001 after the central bank allowed it to devalue as the drop in oil prices cut the main source of government revenue and export earnings.

 

The kwanza slid 15 percent to an all-time low, trading at 158.7370 against the dollar as of 12:35 p.m. in the capital, Luanda. The drop followed a 24 percent retreat in 2015, its eighth year of declines and the most since 2003.

 

The kwanza was sold at an average rate of 156.386 last week compared with 135.988 a week earlier, the Luanda-based National Bank of Angola said on its website on Dec. 31. That’s the biggest single devaluation since policy makers started cutting the currency’s exchange rate in several moves during the course of 2015, which Eurasia Group estimates amounted to 25 percent before the latest reduction.

But, as Bloomberg reports, the policies leave companies at the mercy of the central bank’s view on which sectors need dollars the most, driving many to the black market, Jose Severino, chairman of the Angola Industrial Association, or AIA, which has 2,100 members, said in December.

Central bank Governor Jose Pedro de Morais is trying to reduce the gap between the kwanza’s official rate and that on the black market, where the currency was last year fetching between 270 and 280 per dollar.

 

 

[That implies another 50% plus devaluation to meet the ‘market’ price of currency]

 

A drop of more than 65 percent in the price of crude since June 2014 has curtailed the flow of dollars into the economy of sub-Saharan Africa’s second-largest oil producer.

While the slow-motion train wreck continues – as it appears a slow and painful devaluation is some form of currency defense (and capital controls internally), of course,  as we concluded previously,defending one’s currency is a losing game as not only Argentina most recently, but the Swiss National Bank most infamously, will admit.

“As African central banks place restrictions on access to their dollars, while burning through these reserves to support their currencies, they are also storing up longer-term troubles. “Few investors will want to put money into a country at an official exchange rate that is not set by the market and which is not seen as sustainable in the long run,“ said Charles Robertson, global chief economist at investment bank Renaissance Capital.”

For now Africa has avoided the “hyperinflation monster”, the result of an all too predictable scarcity of dollars, however the countdown is on and with every passing day that oil prices do not rebound, the inevitability of a full-on continental currency collapse, with hyperinflation and social unrest to follow, becomes increasingly more likely.

Worse, Africa is just the start: while the manifestations will differ, the mechanics of the dollar shortage, which we recently quantified in the trillions of dollars, are universal, and should the Fed’s rate divergence path with the rest of the world continue pushing the USD ever higher, soon this USD-shortage will escape the confines of the world’s poorest continent and make landfall somewhere where it will be far more difficult to ignore the adverse consequences of the global commodity collapse and the Fed’s monetary policy.

 end

your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/TUESDAY morning 7:00 am

Euro/USA 1.0762 down .0062

USA/JAPAN YEN 118.94 down .517

GBP/USA 1.4677 down .0037

USA/CAN 1.3925 down .0011

Early this morning in Europe, the Euro fell by 62 basis points, trading now well below the important 1.08 level rising to 1.0762; 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 slightly in value (onshore). The USA/CNY down in rate at closing last night: 6.5166 / (yuan up but still undergoing massive devaluation which will spread throughout the globe)

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a northbound trajectory as settled up again in Japan by 52 basis points and trading now well below  that all important 120 level to 118.94 yen to the dollar.

The pound was down this morning by 37 basis points as it now trades just below the 1.47 level at 1.4677.

The Canadian dollar is now trading up 11 in basis points to 1.3925 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 and the yen carry trade also 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 TUESDAY morning: closed down 76.98 or .42%

Trading from Europe and Asia:
1. Europe stocks mixed: London green, Germany red: Spain: green, Paris; red/ Italy: green

2/ Asian bourses all in the red/ Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the red/last hour plummet  / (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) red/India’s Sensex in the red /

Gold very early morning trading: $1080.00

silver:$14.00

Early TUESDAY morning USA 10 year bond yield: 2.23% !!! down 2 in basis points from MONDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.98  down 2 in basis points.  ( still policy error)

USA dollar index early TUESDAY morning: 99.25 up 40 cents from MONDAY’s close. ( Now below resistance at a DXY of 100)

 

This ends early morning numbers TUESDAY MORNING

 

 

end

 

OIL RELATED STORIES

 

Oil Tumbles After Saudis Slash Prices To Europe

“The Saudis are preparing for Iran’s return,” said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry, as they sharply cut the prices they charge for crude oil in Europe (to the biggest discount since Feb 2009). The move that will likely undercut Iran happens as sectarian tensions escalate between the rival Middle Eastern nations. As WSJ reports, the Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program.

 

Saudis have slashed prices with the biggest discount to Europe sionce Feb 2009…

 

Whuich has sent crude prices lower…

 

As The Wall Street Journal reports,

Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports.

 

Saudi Arabian Oil Co., or Saudi Aramco, the kingdom’s state-owned oil company, didn’t mention the conflict in its news release about the price cuts.

 

Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market. On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery.

 

Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month.

 

 

Hamid Hosseini, the president of Iran’s oil exporters union, said he expected more competition from Saudi Arabia after the recent political tensions. But Mr. Hosseini, who is himself involved in talks with Iran oil buyers, said, “Iran will come back to Europe,” possibly by offering better credit terms and by bartering oil for goods.

 

Though it is still unable to sell in the EU, Iran has cut its nominal prices for North Western Europe by 27% in the past year.

*  *  *

Dow Swings 1000 Points In 24 Hours As Crude Carnage Continues

1000 points of Dow swings, VIX manipulations, and desperate talking heads, and still red…

 

On the day, Nasdaq was red, S&P unch, Small Caps green…

 

As China’s inability to maintain stability started things off in the overnight session…

 

For some context of the chaos, The Dow covered at least 1000 points in the last 24 hours…

 

FANTAsy stocks flailed…

 

AAPL was unhappy at Japanese news…

 

Gunmakers love Obama…

 

Energy stocks surged (notably after the news of an Aramco bus on fire) but crude did not…

 

And we note also that XIV (Inverse VIX ETF) was smashed higher at the same time… Someone wanted stocks higher in the face of potential problems…

 

 

While stocks oscillated wildly, Treasury yields also swung around from -3bps to +3bps ending with the long-end underperforming…

 

The USDollar Index rose once again hitting one-month highs… (though we note that Asian FX was unch against the Dollar on the day)

 

As The Loonie hit a new 12 year low…

 

Gold and Silver rallied furthger, despite the dollar gains, copper was flat but crude crumbled…

 

Crude pushed notably lower, back below $36 to 2-week lows…

 

Charts: Bloomberg

Bonus Chart: Something to consider…

Average:
There goes the USA”s calculation of GDP!!
(courtesy zero hedge)

US Government Discovers 10 Years Of “Processing Errors” In Construction Spending Data Slamming GDP

Even as increasingly more parts of the economy, especially those with exposure to manufacturing and industrial production, sink into the recessionary quicksand, one sector that was seen as immune from the malaise gripping US manufacturing and was outperforming the overall growth rate of the US economy, was housing, and specifically spending on private and public construction: a direct input into the GDP model.

That all changed today when the US Census released its latest, November, construction spending data, which not only missed expectations of a 0.6% increase, but tumbled -0.4%, the most since June of 2014, while all the recent changes were mysteriously revised lower.

And then the source of the mystery was revealed: in the fine print of the release, the government made a rare admission: all the construction spending data for the past 10 years had been “erroneous.”

In the November 2015 press release, monthly and annual estimates for private residential, total private, total residential and total construction spending for January 2005 through October 2015 have been revised to correct a processing error in the tabulation of data on private residential improvement spending. An Excel file containg all of the revisions can be found here

The result of the “revision” of the processing error is shown below: every month starting with April and going through October, was “found” to have been a lower increase than according to the previous data. Not only that, but the October print which had been the strongest since May, confounding many data watchers as it did not fit with anecdotal evidence of a dramatic slowdown in energy-related construction, suddenly was barely positive, leading to the November sequential decline, the worst since the -0.7% drop in June of 2014.

 

And here is the big picture: what it reveals is that while spending data in 2013 was revised substantially higher, it proves what many have known, namely that the economy is now slowing substantially and that what until recently was seen as the strong annual increase in construction spending, namely the 14.3% increase of September 2015, was in fact substantially lower.

The result is that the October Y/Y% change of 10.5%, and declining, is not only the lowest increase since April, but matches the level first reported in December 2013.In other words, contrary to the previous narrative suggesting construction spending was solid and supporting a growing economy, it has in fact been declining since June!

And to think of the tons of digital ink spent by “strategists” and experts analyzing construction spending “data” in the past 5 years…

Sarcasm aside, what this exercise proves – which is clearly meant to lower the goalseeked glideslope of the US economy and make it easier to enter recession – is what many have already said, namely that Yellen clearly missed her window to hike rates with the economy now clearly slowing down, and instead of tightening monetary conditions, Yellen should be easing and preparing to lower rates.

To be sure, this is not the first time the US government has slashed historical data on a wholesale basis due to “revisions” and “errors” – recall our post from December 2014 “The Housing Recovery Remains Cancelled Due To 6 Months Of Downward Revisions” in which we showed how 6 months of New Home Sales were quietly revised materially and, of course, to the downside.

 

And since as noted above, this data feeds straight into the GDP “beancounts”, we expect substantial downward revisions of recent historical GDP data, which will once again confirm Yellen’s rate hike error.

Finally, we now await for even more government data (perhaps payrolls is next) to “unexpectedly” be shown as having substantial historical errors, and be revised, like in the cases above, materially to the downside because it will look silly if the US economy jumps from growth straight into recession with existing “data sets” which reveal that the bulk of what passes for “data” at the US government is simply double and triple-seasonally adjusted GIGO.

end
This is shocking:  the 1.5 billion USA hedge fund is folding despite being up and they blame the HFT’s for making a mockery on investing:
(courtesy zero hedge)

First $1.5 Billion Hedge Fund Casualty Of 2016 Blames HFTs For Making A Mockery Of Investing

Following a year of historic routs in the hedge fund space, we pointed out that it is time for the pain among the active investors to return:

Less than 24 hours later, precisely this happened when as Bloomberg reports, Nevsky Capital’s $1.5 billion hedge fund is shutting down and returning money to investors. The reason: the emergence of computer-driven trading strategies and index funds diminish money-making opportunities.

What again is surprising about this latest hedge fund liquidation, is that the fund was not a significant underperformer, in fact according to BBG it was up 0.9% in 2015, outperforming the majority of the “smartest money” out there:

The London-based firm managed by Martin Taylor and Nick Barnes makes bets on rising and falling share prices in developed and emerging markets. The fund returned 18.1 percent in 2013 before losing 1.4 percent the following year. In the first 11 months of 2015, the fund was up 0.9 percent, according to data compiled by Bloomberg.

Even so, the founders have had enough with a centrally-planned, HFT manipulated “market” which is that only in name.

We have come regretfully to the conclusion that the current algorithmically driven market environment is one which is increasingly incompatible with our fundamental, research orientated, investment process,” Taylor, the firm’s chief investment officer, said in a statement.

As a reminder, Nevsky is the latest in a long, and getting longer by the day, list of funds joins hedge-fund firms such as billionaire Michael Platt’s BlueCrest Capital Management, Doug Hirsch’s Seneca Capital, and Scott Bommer’s SAB Capital Management who are returning money to clients and adding to an accelerating pace of hedge funds shutting down globally.

More from Bloomberg:

Taylor started the current version of the fund in 2011 and aimed to manage no more than $800 million after deciding to step away from the “intensity” of running the original $3.3 billion hedge fund that was started in 2000. The fund returned 14.6 percent in 2012.

 

Nevsky expects to liquidate the portfolio and move into cash by the end of January. The fund’s 18.4 percent annual gain since 2000 is nearly 10 times more than returns generated by average peers as measured by the HFRX Index, Nevsky said in the statement. Taylor and Barnes started the original fund while working for London-based Thames River Capital. Both previously worked at Baring Asset Management.

To be sure, there are many more hedge fund liquidations to come, especially if Nevsky’s ominous parting warning comes true: “The bear market in emerging market equities, which began in 2011, may eventually engulf developed markets too.”

end
Former Fed President Richard Fisher admits the USA front ran the huge market rally from 2009 until now and admits that there is no ammo left:
a must see.
(courtesy zero hedge/ CNBC/Richard Fisher)

“We Frontloaded A Tremendous Market Rally” Former Fed President Admits, Warns “No Ammo Left”

In perhaps the most shocking of mea culpas seen in modern financial history, former Dallas Fed head Richard Fisher unleashed some seriously uncomfortable truthiness during a 5-minute confessional interview on CNBC. While talking heads attempt to blame China for recent US market volatility, Fisher explains “It is not China,” it is The Fed that is at fault: “What The Fed did, and I was part of it, was front-loaded an enormous rally market rally in order to create a wealth effect… and an uncomfortable digestive period is likely now.” Simply put he concludes, there can’t be much more accomodation,“The Fed is a giant weapon that has no ammunition left.”

Must watch, when a shocked Simon Hobbs (at 5:10) is unforgettable: “Will The Fed come on and say ‘we’re sorry, we over-inflated the market’ when it crashes?” We doubt it.

 

Here is CNBC’s higher quality video, which for some reason seems to have edited out some of the more informative parts of the interview.

http://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=3000474362&size=530_298

Fisher appears to be undertaking  a major “cover-your-ass” episosde, proclaiming that he was against QE3 which is what has forced “valuations to be very richly priced.”

In my tenure at The Fed, every market participant was demanding we do more… “It was The Fed, The Fed, The Fed… in my opinion they got lazy.. and it is time to go back to fundamental analysis… and not just expect the tide to lift all boats… and as [The Fed] tide recedes we are going to see who is wearing a bathing suit and who is not”

end

 This did not help Apple stock today as demand for I6 and I 6 plus falters

(zero hedge)

Apple Plunges After Nikkei Reports iPhone Production Cuts Up To 30%

Yesterday’s miraculous dip-buying in Apple stock has been erased as yet another wourse raises concerns about iPhone production:

  • *APPLE MAY CUT IPHONE 6S, 6S PLUS PRODUCTION BY ~30%: NIKKEI
  • *APPLE SEEN CUTTING IPHONE 6S, 6S+ OUTPUT ~30% IN JAN-MAR:NIKKEI

The stock is down 2.5% on the news. Time to unleash moar buybacks!!

As Bloomberg reports,

Apple may cut iPhone 6s and 6s Plus production by ~30% in January-March quarter vs original plans, Nikkei reports without saying where it got the information.

 

AAPL initially told parts makers to keep production for quarter at same level as iPhone 6 and 6 Plus year earlier

 

Production expected to return to normal levels in April-June quarter

 

Nikkei says cos. likely to see drop in shipments include Japan Display, Sharp and LG Display, Sony, TDK, Alps Electric and Kyocera

And AAPL is tumbling…

end
The wheels just came off auto sales:
i) inventory is rising
ii) non revolving credit growth is slowing
iii) inventory stuffing into dealers seems to have hit its limits:
(courtesy zero hedge)

US Auto Sales Plunge To 6-Month Lows – Biggest Miss Since Nov 2008

Despite the blustering propaganda from CNBC’s Phil LeBeau, it appears the Auto-sales (and massive inventory build) party is over in America. December US domestic auto sales SAAR printed 13.46 mm – the lowest in 6 months (missing expectations of 14.15mm by the most since November 2008). With non-revolving credit growth slowing in December, and inventories at record highs, the wheels just fell off the credit-fueled auto ‘recovery’.

Car sales just tumbled:

 

This is the worst second-half of a year since 2008…

 

Which should not be a big surprise since we just suffered the lowest level of “plans to buy an auto” since January 2013:

 

Of course – if sales are collapsing then this is a major problem

 

 

Good luck American subprime car buyers: your time may be almost over.

end
I am glad to be back
I will see you tomorrow night
h
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