Gold: $1097.80 up $9.90 (comex closing time)
Silver $14.91 down 43 cents
In the access market 5:15 pm
Today, the Dow after being up over 100 points, faltered badly and closed at its lows down 167 points. The Nasdaq closed down 45 points. The news out of China calls for more devaluations and less government interventions. The combination of a faltering Dow and a dysfunctional Chinese market will cause further deterioration for bourses around the world. Expect on Monday, a bloodbath beyond your wild imaginations as everybody tries to sell in a bid-less market. Physical gold and silver is your only refuge.
At the gold comex today, we had a poor delivery day, registering 1 notice for 100 ounces.Silver saw 1 notice for 5,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 200.81 tonnes for a loss of 103 tonnes over that period.
In silver, the open interest rose by 173 contracts even though silver was considerably up 38 cents with respect to yesterday’s trading and again without a doubt we had more short covering. We have an extremely low price of silver and a very high OI. The total silver OI now rests at 168,418 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 1 notice served upon for 5,000 oz.
In gold, the total comex gold OI rose by 3,653 contracts to 425,659 contracts as gold was up $15.80 in yesterday’s trading.
We had another huge 4.46 tonnes of gold deposit into gold inventory at the GLD, / thus the inventory rests tonight at 649.59 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 massive withdrawals of 1.429 million oz /Inventory rests at 316.368 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rose slightly by 725 contracts up to 168,245 despite the fact that silver was up only with 1 cent with respect to yesterday’s trading. The total OI for gold rose by 8318 contracts to 422,006 contracts as gold was up $15.80 in price yesterday
2 a) Gold trading overnight, Goldcore
b) COT report
3. ASIAN AFFAIRS
i) EARLY LAST NIGHT: (zero hedge)
Last night, THURSDAY night, FRIDAY morning: Shanghai up almost 2% after initially plummeting with central bank intervention saving the day/ Hang Sang rises. The Nikkei closed down again last night.Chinese yuan up a tiny fraction but still they desire further devaluation throughout this year. Oil is slightly up,. Stocks in Europe mostly in the red. Offshore yuan trades at 6.74 yuan to the dollar vs 6.5900 for onshore yuan;
ii) Then early this morning 8 am est (8 pm Shanghai time) the following spooked markets: more devaluation and less intervention is planned!
iii) The market is worried about China because they strongly believe that $3 trillion in reserves is just not enough;
Also remember that China has 31 trillion in total bank loans of which 20% are probably non performing. That is why the 3 trillion is just not enough!
(courtesy zero hedge)
i) We reported on the attack on women in Cologne Germany. Today we find that there were further sex assaults reported in Finland, Switzerland, Austria and other parts of Germany:
i) The fundamentals for oil certainly do not look good:
ii) Bernanke does not mention manipulation as a reason for the dollars’ advantage:( GATA)
iii) We now clear up the mystery as to who bought the huge Deutsche bank gold vault in London:
It was ICBC, China’s largest bank. I guess that London is going to be an integral part of China’s plan for gold storage
( zero hedge)
iv) Lawrie Williams comments on the huge gold demand= withdrawals from Shanghai SGE:
(courtesy Lawrie Williams/Sharp Pixley)
ii) Now the background:
iii)In the jobs report:
iv)As always I give Dave Kranzler the last word on the phony jobs report:
v) The wholesale trade data is out and it is not pretty. We have a little inventories worked off . However the all important inventory to sales ratio spiked to 1.32 indicating a recession. We will probably see the Atlanta Fed lower 4th quarter GDP
vi) The Atlanta Fed immediately on seeing the inventory levels and the high ratio of inventory to sales, immediately lowered its estimate of 4th quarter GDP to only 8%. And this with a huge average gain of 282,000 jobs???
vii)The auto mfgrs continue to channel stuff:
viii) The consumer is in trouble as we witness a tiny increase in that all important non revolving credit which funds auto sales and student loans.
ix) The gas leak in Southern California is getting quite bad as doctors urge residents to leave
x) this week’s wrap up courtesy of Greg Hunter
(courtesy Greg Hunter/USAWatchdog)
Let us head over to the comex:
The total gold comex open interest rose to 425,659 for a gain of 3,653 contracts as gold was up by $15.80 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, both scenarios held. We are now in the non active January contract which saw it’s OI fall by 2 contracts to 262. We had 0 notices filed upon yesterday, so we lost 1 contract or an additional 100 oz will not 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 3120 contracts down to 271,905. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 242,343 which is very good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was also good at 243,047 contracts. The comex is in backwardation in gold up to February.
December contract month:
INITIAL standings for January
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||64.30 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||1 contract
|No of oz to be served (notices)||261 contracts
|Total monthly oz gold served (contracts) so far this month||1 contract (100 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||12,016.6 oz|
Total customer deposits nil oz
January INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||413,443.610 oz
Brinks, JPm, Scotia
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||579,357.900 oz Scotia|
|No of oz served today (contracts)||1 contracts
|No of oz to be served (notices)||81 contracts
|Total monthly oz silver served (contracts)||13 contracts (65,000 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||1,040,311.6 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 Scotia: 579,357.900 oz
total customer deposits: 579,357.900 oz
total withdrawals from customer account: 413,443.610 oz
we had 1 adjustment:
i) Out of Delaware: 9811.116 oz was removed from the customer account and this landed into the dealer account of Delaware
And now the Gold inventory at the GLD:
jan 8/another huge addition of 4.46 tonnes of gold into GLD/Inventory rests at 649.59 tonnes
- I highly doubt that the gold added was physical. Gold is severely in backwardation in London and thus almost impossible to source in two days almost 9 tonnes of gold.
Jan 7/a huge addition of 4.16 tonnes of gold into GLD/Inventory rests at 645.13 tonnes
Jan 6/2016/we had a withdrawal of 1.6 tonnes of gold from the GLD/Inventory rests at 640.97 tonnes/
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
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, January 05, 2016|
Our large specs:
Those large specs that have been long in gold added 3303 contracts to their long side
Those large specs that have been short in gold covered 4155 contracts from their short side.
Those commercials that have been long in gold added 495 contracts to their long side
Those commercials that have been short in gold added 4435 contracts to their short side
Those small specs that have been long in gold pitched 2590 contracts from their long side
Those small specs that have been short in gold added 928 contracts to their short side.
Conclusions: the commercials went net short for the first time in a month by 3940 contracts which is bearish
And now for our silver COT:
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||138||116|
|Tuesday, January 05, 2016||© SilverSeek.com|
Our large specs:
Those large specs that have been long in silver added 1114 contracts to their long side
Those large specs that have been short in silver added 428 contracts to their short side.
Those commercials that have been long in silver added 488 contracts to their long side
Those commercials that have been short in silver covered 716 contracts from their short side
(Are the commercials scared of something???)
Our small specs;
Our small specs that have been long in silver pitched 965 contracts from their long side
Those small specs that have been short in silver covered 926 contracts from their short side.
Conclusions: note the difference between gold and silver. The commercials seem a little timid as they go net long again by 1432 contracts.
And now your overnight trading in gold and also physical stories that may interest you:
Gold Higher In Most Currencies in 2015 – Up 4% This Week
– Gold acts as safe haven in 2015 … for those who need safe haven
– Gold gains in CAD, AUD, NZD, ZAR, RUB & most emerging market currencies
– Gold essentially flat in EUR (-0.3%) as ECB QE supports gold
– Gold lower in USD, GBP, CNY, INR, JPY, CHF
– Of 18 major currencies, gold was higher in 11 currencies and lower in 7
– Hallmarks of market bottoming and bodes well for 2016
– Gold over 4% higher in USD, EUR and GBP so far in January
Gold performed its traditional role as hedge against currency depreciation again in 2015. Many currencies saw sharp losses and concurrent gold price gains. This trend has continued in the first week of 2016, with gold up by more than 4% in most currencies.
In 2015, gold fell in dollars (USD), sterling (GBP), Chinese yuan (CNY) , Indian rupee (INR), Japanese yen (JPY) and Swiss francs (CHF).
However, gold was higher in Canadian dollars (CAD), Australian dollars (AUD), New Zealand dollars (NZD), South African rand (ZAR) and of course the Russian rouble (RUB). Indeed, gold was higher against nearly all emerging market currencies.
It is important to note that more than 90% of global demand for gold comes from outside the U.S.
Gold was essentially flat in euro terms (EUR), down 0.3%) as ECB money printing supported gold in “single currency” terms.
It is important to again emphasise that gold bullion buyers buy gold in local currencies and have exposure in and to local currencies. UK investors buy gold in sterling, Australians in Australian dollars, Swiss investors buy in Swiss francs, Germans in euros and so on. Therefore, it is important for non-U.S. investors to focus on gold in local currency terms. Indeed, it can be of value for U.S. investors to consider gold in non dollar terms as periods of gains in other currencies often presage gains in U.S. dollar terms.
The sole focus of gold in dollar terms and the 10% fall of gold priced in dollars has led to some negative comment about gold’s annual fall, the “third year of losses.” This is contributing to poor and indeed negative sentiment towards gold in some western markets – particularly in the UK and Ireland. This is bullish from a contrarian perspective and suggests we may be bottoming.
Even after the falls seen in these currencies in 2015, contrary to popular opinion, gold remains one of the best performing assets in the last 10 and indeed 15 years. In annual average percentage terms, gold is between 7% and 12% per annum higher since 2001 as the world has embarked on competitive currency devaluations and currency wars. Gold has seen even larger average annual percentage gains in other currencies.
In the short term, gold has had a difficult time and has experienced what we believe has been a healthy period of correction. This has been frustrating for gold owners but will be beneficial to the gold market in the long term. It has washed out the speculative froth that was entering the market in 2011 and 2012.
It is testament to gold and silver’s inherent strength that they have outperformed many paper assets in local currency terms, even assets which have been positively targeted by the Fed and other central banks and boosted by loose monetary policy – such as major stock indices and bond markets.
Much economic analysis continues to focus solely on gold in dollar terms and discusses gold with the continuing assumption of a U.S. and global economic recovery and economic growth. Recent data calls this into question and suggests that the recovery in the real economy is poor at best.
The resilience of gold in 2015 and gains seen in many currencies against the backdrop of a strong dollar, record highs in stock markets, the collapse of oil and commodity prices and negative sentiment in the U.S. and UK towards the precious metals is encouraging.
The assets that performed well in recent years – stocks and bonds – are by and large those that have been bloated by monetary stimulus on a scale that the world has never seen before.
These bubbles are increasingly vulnerable and will likely burst – the question is when rather than if. Indeed, the turmoil that we have seen on international markets appears a foretaste of a very volatile 2016. We have been warning that today we see conditions akin to those seen in 2007 and 2008. George Soros echoed those concerns this week.
It is worth remembering – as many seem to have forgotten – that gold was one of the few assets to rise in the financial crash of 2008 and in the debt crisis 2007 to 2012 period. It has underperformed since as stocks and bonds roared to artificially induced record highs. It is due a period of outperformance soon and we believe it will outperform in the 2016 to 2020 period.
Gold’s financial insurance attributes will again protect those who have diversified into it in 2016.
8 Jan LBMA Gold Prices: USD 1097.45, EUR 1,009.86 and GBP 750.67 per ounce
7 Jan LBMA Gold Prices: USD 1096, EUR 1,009.45 and GBP 752.51 per ounce
6 Jan LBMA Gold Prices: USD 1083.85, EUR 1,009.66 and GBP 739.84 per ounce
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
We now clear up the mystery as to who bought the huge Deutsche bank gold vault in London:
It was ICBC, China’s largest bank. I guess that London is going to be an integral part of China’s plan for gold storage
(courtesy zero hedge)
China’s Largest Bank Is Mystery Buyer Of Massive 1,500 Ton Gold Vault In London
Back in June 2013, when Deutsche Bank opened a gold vault in Singapore which could hold up to 200 metric tons, the German bank was euphoric about the prospects for storing physical gold: “Gold has traditionally been stored in London, Zurich and New York, but there is a serious shift in dynamics going on as the global financial crisis continues to evolve,” Mark Smallwood, Deutsche Asset & Wealth Management’s head of wealth planning in the Asia-Pacific region, told The Wall Street Journal.
This is what the outside, and inside, of the state of the art Singapore vault looked like:
Mark was correct and thanks to the ongoing decline in gold prices, Chinese and Indian demand for the metal, the physical metal that is, not its various paper manifestations, has risen to record levels. Alas, one thing Mark did not know is that in early 2014, a German regulator would reveal that “precious metals manipulation was worse than the Libor scandal” and as a result the largest German bank (and largest bank in the world by notional derivative exposure) – which has been probed and found guilty for rigging virtually every market, including gold – would quietly liquidate its entire physical precious metals trading group.
Which meant that Deutsche Bank’s Singapore gold vaul, was about to be sold.
But while the sale of DB’s Singapore gold vault was to be expected with China’s ravenous apetite for warehousing physical gold around the Pacific Rim, what may have escape popular attention is that Deutsche Bank’s even more massive, and even newer, gold vault in London was also “on the block” as of December 2014 when we reported that Deutsche Bank is “open to offers for its London-based gold vault following the closure of its physical precious metals business.” As Reuters noted: “If the right offer came along, then the bank would sell the London vault,” one source close to the situation said.
Most curiously, the bank’s London gold vault only became operational in June of 2014, more than two years after launching the project. It can store some 1,500 tonnes of gold and was built and managed by British security services company G4S.
As Reuters further noted, with other banks withdrawing from the commodities business to cut costs and reduce their regulatory burden, it might be difficult for Deutsche Bank to find buyers amongst its nearest peers. However, one possible buyer is general LBMA-member, Chinese bank ICBC, which we said at the end of 2014, was trying to build a presence in London.
In any case, the list of potential buyers for DB’s brand new vault lease remained a mystery, and perhaps our revelation of the exact location of this vault, something potential buyers tend not to appreciate especially when said vault will house up to 1,500 tons of gold, or over $50 billion worth of “inventory”, may have dissuaded some. As a reminder, the “secret” location of the Deutsche Bank vault, which as revealed in the G4S building application, is located in thePark Royal complex, and specifically at the 291 Abbey Road, London NW10 7SA location.
As it turns out, one persistent buyer failed to be dissuaded.
According to Reuters, as was rumored one year ago, China’s largest bank – and in fact the world’s largest bank – by assets, ICBC Standard Bank, is buying the lease on Deutsche Bank’s London gold and silver vault, enlarging its footprint in the city’s bullion market, four industry sources close to the companies told Reuters.
China’s ICBC, which took a controlling stake in Standard Bank’s London-based Global Markets business last year, has also applied to become a clearing member of the London gold and silver over-the-counter business.
The Chinese and South African lender is aiming to fill the gap left by Western banks, which are retreating from commodities to cut costs and reduce regulatory burden. “They (ICBC Standard Bank) have taken on the lease for the vault,” the first source said.
Currently, five banks – JP Morgan, HSBC, Bank of Nova Scotia, Barclays and UBS – settle daily bullion transactions between dealers, amounting to more than $5 trillion worth of metal each year in the London over-the-counter market.
These banks are shareholders of the London Precious Metals Clearing (LPMCL) company. They will decide whether to accept or reject ICBC Standard Bank’s application within the next few months. The LPMCL declined to comment.
“They are applying for clearing membership at the moment, but that’s still subject to a vote, which has not taken place yet,” the source said.
Should the vote go in its favor, ICBC will be ready with what may be one of the largest gold vaults in London, if not the world, to park local gold which will then be promptly shipped over to the mainland to be dealt with as seen fit. Unless, of course, the vault is there for thereverse migration: to house quietly escaping Chinese gold as part of the local oligarchy’s attempts to circumvent China’s capital controls, a task so far accomplished relatively painless with bitcoin.
Only time will tell.
What is perhaps most surprising is how cheaply ICBC acquired the massive gold vault: “The figure that was initially talked about may have been around $4 million, but it’s way lower now,” a second source said, without disclosing the figure paid for the vault.
So what does “way less” than $4 million buy you nowadays? Here is the answer, courtesy of Google Maps:
Lawrie Williams comments on the huge gold demand= withdrawals from Shanghai SGE:
(courtesy Lawrie Williams/Sharp Pixley)
1 Chinese yuan vs USA dollar/yuan rises a bit in value , this time to 6.5900/ Shanghai bourse: in the green , hang sang: green
2 Nikkei closed down 69.38 or 0.39%
3. Europe stocks mostly down /USA dollar index up to 98.70/Euro down to 1.0872
3b Japan 10 year bond yield: falls to .234 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 118.59
3c Nikkei now just above 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI: 33.18 and Brent: 33.80
3f Gold down /Yen down
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .534% German bunds in negative yields from 6 years out
Greece sees its 2 year rate rise to 9.30%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 8.60% (yield curve inverted)
3k Gold at $1100.80/silver $14.06 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble up 77/100 in roubles/dollar) 74.00
3m oil into the 33 dollar handle for WTI and 33 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9988 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0859 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 6 year German bund now in negative territory with the 10 year rises to + .534%/German 6 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 2.17% early this morning. Thirty year rate at 3% at 2.94% /POLICY ERROR
Overnight rate: 0.21% (policy error)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
let us begin:
Last night, THURSDAY night, FRIDAY morning: Shanghai up almost 2% after initially plummeting with central bank intervention saving the day/ Hang Sang rises. The Nikkei closed down again last night.Chinese yuan up a tiny fraction but still they desire further devaluation throughout this year. Oil is slightly up,. Stocks in Europe mostly in the red. Offshore yuan trades at 6.74 yuan to the dollar vs 6.5900 for onshore yuan:
Here We Go Again: Chinese Stocks Plunge, Give Up Early Gains Despite Yuan Fix Unchanged
Update: *SHANGHAI COMPOSITE INDEX FALLS 2.04%(AFTER BEING UP 3.2%)
And CSI Futures are tumbling…
Not a pretty week…
Shifting notavkly from the opening color that we detailed earlier..
With all eyes on Chinese FX and equity markets, following the worst start to a year for US (and Chinese) stocks in history, PBOC decided (after 7 straight days of devaluation and 7% devaluation since August) to halt the run and increase Yuan fix by a paltry 0.01% to 6.5636 (notably below yesterday’s 6.5939 CNY close). Offshore Yuan is strengthening and US equity markets are jumping. Chinese equity markets (now theoretically unhampered by their circuit-breaker panic switch) are far less impressed.
PBOC fixes the Yuan a tiny bit stronger…
Offshore Yuan roller-coastered through the US session as Reuters headlines sparked selling pressure after some Treasury-selling/Yuan-tervention…but is rallying on the not bad news…
Onshore-Offshore spread has tumbled to 900pips from over 1500…
Asian stocks are set for their worst week since 2011 with some notable names in big trouble:
- *NOBLE GROUP TUMBLES 10%, EXTENDING LOSS, AFTER S&P DOWNGRADE
While China ETFs trading in US markets signal notable weakness to come for an-“limited” Chinese stock market…
Chinese stocks look set for a positive open:
- *CHINA SHANGHAI COMPOSITE SET TO OPEN UP 2.2% TO 3,194.63
- *CHINA’S CSI 300 INDEX SET TO OPEN UP 2.4% TO 3,371.87
- *FTSE CHINA A50 INDEX RISES 2.17%
And Dow Futures love it… for now…
So no news is good news for now…
Markets Spooked After China Central Bank Announces More Rate Liberalization, Yuan Internationalization
As quick primer on China: the more something is “liberalized”, the worse it is for local – and global – risk assets since all risk “assets” in China are so grotesquely manipulated, the resulting price discovery is always violent and spills over to the rest of the world as 2016 has so far demonstrated; alternatively, the more the government intervenes to stabilize any given asset, the better it is for local – and global – risk assets, as it means the distortion in price levels and capital allocation will continue at least a little longer, i.e., the proverbial can kicking, even if it means the hangover will be that much worse.
Which is probably why the catalyst for the futures swoon experienced moments ago, which brought the S&P futures back down to unchanged since China’s FX announcement last night, was a Reuters story according to which China’s PBOC is preparing to further liberalize interest rates while further internationalizing the Yuan, translated: even more devaluation + even less intervention = bad for risk.
- U.S. STOCK INDEX FUTURES PAIR GAINS SLIGHTLY AFTER CHINA’S CENTRAL BANK SAYS IT WILL FURTHER LIBERALIZE INTEREST RATES – RTRS
- CHINA CENTRAL BANK: TO FURTHER LIBERALISE INTEREST RATES
- CHINA CENTRAL BANK: TO MAKE YUAN MORE INTERNATIONAL
- CHINA CENTRAL BANK: TO MAINTAIN PRUDENT MONETARY POLICY
- CHINA CENTRAL BANK: TO FLEXIBLY USE MONETARY POLICY TOOLS TO KEEP ADEQUATE LIQUIDITY IN BANKING SYSTEM
- CHINA CENTRAL BANK: TO KEEP USING MLF, PSL AND CREDIT POLICIES TO SUPPORT KEY AREAS IN THE ECONOMY
- CHINA CENTRAL BANK: TO FURTHER IMPROVE CURRENCY FORMATION MECHANISM
- CHINA CENTRAL BANK: TO KEEP YUAN BASICALLY STABLE
- CHINA CENTRAL BANK: TO DEEPEN REFORM OF FX MANAGEMENT SYSTEM AND FINANCIAL INSTITUTIONS
The full statement can be found here, and the full story from Reuters:
China’s central bank said it would further liberalise interest rates, according to a statement posted on the People’s Bank of China website on Friday.
The central bank also said it would make the yuan more international, keep the currency basically stable, further improve the currency formation mechanism and deepen reforms of the foreign exchange management system and financial institutions.
The central bank will use medium-term loans, and pledged supplementary loans and credit policies to support key areas of the economy.
The central bank also said it would maintain prudent monetary policy and flexibly use monetary policy tools to keep adequate liquidity in the banking system.
We wonder how long until the PBOC “retracts” this story following the adverse futures reaction. After all, if this week has taught us anything it is that when it comes to policy, in China everything is now dictated by market.
The market is worried about China because they strongly believe that 3 trillion in reserves is just not enough;
Also remember that China has 31 trillion in total bank loans of which 20% are probably non performing. That is why the 3 trillion is just not enough!
(courtesy zero hedge)
When 3 Trillion Just Isn’t Enough: Analysts Fret Over “Worrying” China Reserve Burn
“China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To,” a Bloomberg headline from Friday morning reads.
“China’s $3 trillion-plus in foreign currency reserves, the biggest such stockpile in the world, would seem to be a gold-plate insurance policy against the country’s current market chaos, a depreciating currency and torrent of capital leaving the country,” Bloomberg writes, before citing a number of sources who say that in reality, $3 trillion aint what it used to be.
“Some Chinese reserves may have already been committed to fund pet government projects like the Silk Road fund to build roads, ports and railroad across Asia or tens of billions in government-backed loans to countries such as Venezuela, much of which is repaid through oil shipments,” the piece continues. “Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies.”
As we discussed at length on Thursday, Beijing burned through its UST stash at the fastest pace on record in December, liquidating some $108 billion in reserves in a desperate attempt to manage capital outflows and the yuan devaluation.
“The paradox that China finds itself in is that as it devalues the currency in what it hopes is a controlled fashion, the FX outflows soar, forcing the PBOC to intervene and slow down the devaluation, leading to a self-defeating process in which China not only devalues far slower than it hopes, but results in an accelerated depletion of reserves,” we said, summing up the decidedly unenviable position the PBoC finds itself in as Beijing wades into the global currency wars.
“As expectations around the direction of RMB have shifted, so have capital outflows risen forcing the central bank to sell large amounts of reserves to defend the currency – a phenomenon that generates the opposite impact of global QE,” Deutsche Bank wrote, in a note out Thursday. “From this perspective, the ongoing large capital outflows as evidenced by the release of China’s FX December reserves today do not bode well for this year,” the bank warns, adding that its Asia FX strategists “have recently conservatively estimated that there are an additional $300bn of potential to go.”
So given the above, just how precarious is the situation? That is, with capital flooding out amid market-wide confusion over the pace of the yuan deval, soaring NPLs, M2M losses on the PBoC’s CNY1.5 trillion stock portfolio (a quarter of which was purchased at multiples of 40X or more), as well as the myriad other factors listed above, one wonders how much dry powder China actually has.
A simplified way of looking at the situation is presented by RBS’ Alberto Gallo, who takes FX reserves, adds an additional 20% of GDP in funds raised from issuing government bonds and compares the total to NPLs, national team losses, losses on SOE bailouts, and capital flight.
“The Chinese government has some ammunition left, but not that much considering losses already present in the economy,” Gallo writes. “Comparing current central bank reserves and headroom to add to government debt vs bank non-performing loans (which we estimate at 15%), potential losses on stock purchases and capital flight over a period of three years, our simplistic comparison below tells you that China’s government dry powder isn’t that much.”
And that’s probably a generous assessment. That is, it’s easy to imagine that NPLs are actually far higher than 15%. It’s also conceivable that many more SOEs run into trouble in 2016 than 2015. Then there’s the CNY8 trillion wealth management product black swan which could force the government to choose between bailing out WMP investors and facing social upheaval.
Finally, as noted above, the plunge protection national team wasn’t exactly bargain shopping during the ill-fated attempt to shore up China’s faltering equity market over the summer. Have a look at the following table from BofAML which shows you just how expensive some of the shares were:
The inevitable conclusion from RBS: “Chinese authorities will need to use their ammunition wisely.”
We close with a warning from Richard Jerram, the chief economist at the Bank of Singapore:
“The burn rate has been worrying. It’s not about how long it gets to zero, its about how long it gets to about 2, which is what they need.”
“Ms. Merkel Invited Me”: Refugee Sex Assaults Reported In Finland, Switzerland, Austria
On Thursday, we got what appears to be confirmation that the “hundreds” of suspects involved in a series of sexual assaults on German women were largely of Arab origin. According to German media, many of the men were asylum seekers who had recently entered the country from the war-torn Mid-East.
The assaults occurred in the city center in Cologne, where eyewitnesses and victims saygroups of marauding New Year’s revelers accosted women, in some instances making off with their belongings. Attacks were also reported in Hamburg, and Stuttgart.
Initially, the incidents received little media coverage but soon the word was out and the backlash from the German public was palpable.
Protests were staged in Cologne and opposition lawmakers lambasted Chancellor Angela Merkel for her open-door migrant policy which some say is destined to rip Germany’s social fabric to shreds.
Meanwhile, Cologne mayor Henriette Reker got herself into a bit of hot water by suggesting that German women have a responsibility to deter attacks by staying at “arm’s length” from would-be assailants. She also said Germany “needs to explain to people from other cultures that the jolly and frisky attitude during our Carnival is not a sign of sexual openness.”
Apparently, Germany isn’t the only country that needs to “explain” things to refugees.Reports now suggest that women in Finland and Sweden experienced similar assaults on New Year’s Eve by asylum seekers.
“Finnish police reported Thursday an unusually high level of sexual harassment in Helsinki on New Year’s Eve and said they had been tipped off about plans by groups of asylum seekers to sexually harass women,” AFP reports, adding that “three sexual assaults allegedly took place at Helsinki’s central railway station on New Year’s Eve, where around 1,000 mostly Iraqi asylum seekers had converged.”
“There hasn’t been this kind of harassment on previous New Year’s Eves or other occasions for that matter… This is a completely new phenomenon in Helsinki,” the city’s deputy police chief said. “The suspects were asylum seekers. The three were caught and taken into custody on the spot,” Koskimaki told AFP.
Apparently, the attacks were premeditated. “Ahead of New Year’s Eve, the police caught wind of information that asylum seekers in the capital region possibly had similar plans to what the men gathered in Cologne’s railway station have been reported to have had,” a police statement read.
And it wasn’t just Finland.
“Swiss police said several women were allegedly robbed and sexually assaulted in Zurich on New Year’s Eve, [in a] method ‘a little bit similar’ to that used in a spate of assaults in Germany,” The Herald Sun writes. “And it has now emerged that similar sex attacks were carried out in Austria, but police didn’t publicise the incidents ‘to protect the privacy of the victims’”.
Yes, “to protect the privacy of the victims” – or to protect against the prospect that publicizing the incidents would trigger a bloc-wide backlash against refugees, because while it’s easy to say that the actions of seven individuals on a suicide mission in Paris aren’t representative of the millions of asylum seekers flooding into Europe from Iraq, Syria, and Afghanistan, it’s a bit harder to claim that apparently coordinated sexual assaults by thousands of would-be asylum seekers don’t say something about the extent to which integration may be, in Slovak PM Robert Fico’s words, “impossible.”
- Officials were therefore prevented by close people rings from advancing to help caller
- A man is quoted as saying: “I am Syrian, you have to treat me kindly Mrs. Merkel has invited me.”
- Witnesses were threatened when they named perpetrators.
- People torn according to the report in front of the police residence permit, grinned and said: “You can send me anything, go get a new tomorrow.” Whether they were genuine documents and what kind of documents, it is not apparent from the report.
- Granted restraining orders have been ignored;To take repeat offenders in custody, due to lack of capacity was not possible.
- After track closures due to overcrowding people had just walked on the side track and then on the rails back to the suspended platform.
- When boarding trains there were physical fights, it was the “law of the jungle”.
“Women with or without accompaniment went through a literally ‘gauntlet’ by the heavily intoxicated men masses, as one can not describe it,” the report reads.
There you have it. “Heavily intoxicated men masses,” comprised of Syrians who told police that they had been invited by Angela Merkel. That’s sure to go over well with the German public and opposition lawmakers.
Apparently, Germany is set to uninvite those responsible, as the justice minister said the country could deport some suspects. Of course identifying the culprits will be next to impossible. Here’s The New York Times:
The police have so far been unable to apprehend anyone, a fact that Wolfgang Albers, Cologne’s chief of police, attributed to the chaos in which the assaults took place, despite there being dozens of officers on duty in the area.
“The women were in a very difficult situation,” Chief Albers said in an interview Wednesday with the public radio station WDR 5. “They were afraid, they wanted to get away, and of course they did not notice any specific faces.”
In Hamburg, the police said Wednesday that they had received 53 complaints, more than half of them alleging sexual harassment, from victims age 18 to 25. They appear to have been targeted in a similar fashion in that city’s Reeperbahn red-light and club district on New Year’s Eve. Victims and witnesses in Hamburg also described the attackers as being dark-skinned or “looking Arabic.”
The New Year’s Eve mass-scale assaults, the police said, involved groups of several men taking advantage of the crowds to target young women by surrounding them. While several perpetrators groped the women, others picked their pockets, stealing wallets and cellphones.
Even if the authorities are able to apprehend suspects, they biggest challenge will be for victims to identify their attackers, given that several men appeared to have been involved in the attacks on each woman.
Here’s the latest from Merkel who, while stopping short of subjecting her own policy to criticism, seems to be changing her stance – if only gradually.
“Of course after what happened, there are several very serious questions which go beyond Cologne. Are there connections or collective patterns? Are there elements of condemnation of women?”
“We must vehemently work against that. I don’t think these are single cases. People have a right, and we as a state institution have the obligation to give the right answers to this.”
Meanwhile, the first version of Hitler’s “Mein Kampf” to be published in Germany since World War II went on sale Friday.
The Hedge Fund Known As The Swiss National Bank Posts A Record $23 Billion Loss, Down 4%, On EUR, AAPL, VRX
To some it is the independent and impartial Swiss National Bank; to others it is the world’s biggest hedge fund with $584 billion in assets or about the same as the Swiss GDP, whose former chief suddenly resigned in 2012 following a family FX trading scandal.
Whatever it is, the SNB had an abysmal year: first and foremost it was its terrible bet on maintaining a EURCHF floor which imploded almost exactly a year ago, when the bank was forced to scrap its attempts to keep the Swiss Franc weak, in the process suffering tens of billions in losses.
Then it was its unprecedented buying spree of US stocks, which in the first quarter of 2015 saw the SNB become one of the world’s biggest buyers, and holders, of AAPL. Since then the stock price entered a bear market, having tumbled to levels not seen since late 2014.
Among its other holdings, the SNB also had substantial exposure not only to the crushed US shale and energy sector, but to the recent bete noire of the US pharma industry, the company everyone now loves to hate, after loving to love for years, leveraged roll-up expert, Valeant.
And, as was to be expected in a year in which the smartest money around the world failed to generate any profit, the SNB was likewise slammed, and earlier today, it announced in a preliminary report (the full results will be out on March 4) that it had suffered a CHF23 billion ($23.05 billion) loss in the past year, or about 4% of its assets under management. In retrospect, considering some of the double-digit losses recorded by the marquee hedge fund names, a 4% loss looks downright respectable by funds who “hedge” only in name.
From the SNB:
Swiss National Bank expects annual loss of CHF 23 billion
Ordinary profit distribution, thanks to large distribution reserve
According to provisional calculations, the Swiss National Bank (SNB) will report a loss in the order of CHF 23 billion for the 2015 financial year. The loss on foreign currency positions amounted to CHF 20 billion. A valuation loss of CHF 4 billion was recorded on gold holdings. The net result from Swiss franc positions was CHF 1 billion. The allocation to the provisions for currency reserves is approximately CHF 1.4 billion. Taken together, the annual loss and allocation to provisions totalling some CHF 24.5 billion are less than the distribution reserve, which amounts to CHF 27.5 billion. Thus, despite the annual loss, the resulting balance sheet profit will allow a dividend payment of CHF 15 per share as well as the ordinary profit distribution of CHF 1 billion to the Confederation and the cantons. After these payments, the distribution reserve will amount to CHF 2 billion. A detailed report on the annual result with definitive figures will be released on 4 March 2016; the Annual Report will be published on 24 March 2016.
This, naturally, was good news because, drumroll, it was “better than expected.” From the WSJ
“A big loss was expected and it is no surprise given the exchange rate volatility over the last year,” said Karsten Junius, chief economist at J. Safra Sarasin, a Swiss bank. “But losses like this put pressure on central bankers who need support from the general public to keep their independence.”
“The public don’t like central banks that make losses, which could then be forced to be recapitalized by the central government,” said Mr. Junius. “This result should persuade [SNB Chairman Thomas Jordan] to be more cautious about intervening in the markets in future.”
Don’t hold your breath.
What is more interesting is how the SNB actually calculated a loss of only CHF23 billion, bcause based on our calculations using the bank’s publicly disclosed filing, just its holdings of public stocks have generated billions in losses, in addition to the CHF 20 billion in FX losses disclosed previously. We will be curious to reconcile the SNB’s own numbers with ours as soon as the SNB’s 13-F hits the docket in one month.
For now, however, the SNB’s distributions to the local cantons are safe.
While the SNB doesn’t need to generate a profit for monetary-policy purposes, municipalities have come to rely on an annual handout from the central bank to fund local spending. Their circumstances are already straitened by slower economic growth, brought on by the currency’s ascent from the cap of 1.20 per euro to about 1.09 now.
“The good news is that the cantons and the government aren’t going to have to go without their money,” said David Marmet, an economist at Zuercher Kantonalbank. “From a political point of view, it removes some pressure on the discussion about the right monetary policy. ”
Actually, based on a mark-to-market of its holdings, the loss would be far greater and certainly prevent the SNB from distributing any cash, making us wonder if someone at the very top isn’t cooking the books once again.
We look forward to reconciling this difference in a few short weeks.
RUSSIAN AND MIDDLE EASTERN AFFAIRS
your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am
Euro/USA 1.0872 down .0053
USA/JAPAN YEN 118.23 up 0.704
GBP/USA 1.4598 down .0028
USA/CAN 1.4117 up .0013
Early this morning in Europe, the Euro fell by 53 basis points, trading now just above the important 1.08 level falling to 1.0872; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP and the USA tightening by raising their interest rate / Last night the Chinese yuan was up in value (onshore). The USA/CNY down in rate at closing last night: 6.5900 / (yuan up but still undergoing massive devaluation/ which will cause deflation to 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 southbound trajectory as settled up again in Japan by 70 basis points and trading now well below that all important 120 level to 118.59 yen to the dollar.
The pound was down this morning by 22 basis points as it now trades just below the 1.46 level at 1.4598.(1/3 of England under water)
The Canadian dollar is now trading down 13 in basis points to 1.4117 to the dollar.(due to collapsing oil prices)
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 FRIDAY morning: closed down massively 69.38% or 0.39%
Trading from Europe and Asia:
1. Europe stocks all massively in the red
2/ Asian bourses mixed / Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai green (massive bubble bursting), Australia in the red: /Nikkei (Japan) red/India’s Sensex in the green /
Gold very early morning trading: $1099.40
Early FRIDAY morning USA 10 year bond yield: 2.17% !!! up 1 in basis points from THURSDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.94 up 1 in basis points. ( still policy error)
USA dollar index early FRIDAY morning: 98.70 up 40 cents from THURSDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers FRIDAY MORNING
OIL RELATED STORIES
If You Are An Oil Bull, Don’t Look At These 2 Charts
It’s getting worse… faster! These two stunning overnight developments in crude oil prices should shock investors…
First, OPEC – after its crude basket price dropped below $30 for the first time in 12 years –slashed its price overnight by $2 to $27.85 – the biggest single-day drop in history and lowest level since November 2003…
Is it any wonder the Saudis are trying to sell every national asset to subsidize this US Shale-crushing energy price?
Second, even closer to home, Canadian heavy crude oil collapse below $20 – a record low!!
The low prices may push more of the highest-cost output offline. Producers including Baytex Energy Corp. and Canadian Natural Resources Ltd. have shut in more than 35,000 barrels a day of heavy oil and bitumen production capacity, according to company presentations and a report on the Alberta government website.
Current prices are “below shut-in levels,” said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. There’s no incentive to ship Canadian crude to the U.S. Gulf Coast and producers may start annual maintenance sooner than planned, he said. “We’re the last barrel produced and we’re the first barrel shut in.”
So record inventory surge in gasoline, global storage at its limits, price-war in Europe, Saudis in panic cash-flow “whatever it takes” mode, borrowing bases being slashed, credit risk at record highs, and Canada now facing widespread shut-ins… but apart from that, the bottom must be close right?
* * *
Bonus Chart: Venezuela lowers its crude below crucial $30 level – Feb 2004 lows…
WTI Slides Despite Plunge In US Oil Rig Count
The oil rig count dropped 20 to 516 in the last week – the biggest weekly drop in 4 weeks to new cycle lows. Crude was unimpressed, jumping modestly and then fading…
- *OIL RIGS IN PERMIAN BASIN FELL BY 9 TO 200, BAKER HUGHES SAYS
- *OIL RIGS IN WILLISTON FELL BY 4 TO 49, BAKER HUGHES SAYS
Rig count decline accelerated notably… Rig count continues to track the 3mo lagged WTI price…
And crude popped and dropped…
December Jobs Soar by 292K, Smash Expectations But Average Wages Post First Drop Since 2014
As we noted in the jobs preview, only a super strong number had any chance of prompting a market reaction, and sure enough, the just announced December print of +292,000 smashed expectations of +200K, surging from last month’s upward revised 252K, while October was revised to a massive 307,000, a net addition of 50K over the last two months.
So time for another rate hike, right?
Not so fast: as usual, the fly in the ointment was a well-familiar one: wages simply did not grow, and with Wall Street expecting a 0.2% increase in average hourly wages, in December not only was there no wage growth, but in fact, average hourly earnings posted a tiny decline from $25.25 to $25.24.
From the report:
The number of unemployed persons, at 7.9 million, was essentially unchanged in December, and the unemployment rate was 5.0 percent for the third month in a row. Over the past 12 months, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 800,000, respectively. (See table A-1.)
Among the major worker groups, the unemployment rate for blacks declined to 8.3 percent in December, while the rates for adult men (4.7 percent), adult women (4.4 percent), teenagers (16.1 percent), whites (4.5 percent), Asians (4.0 percent), and Hispanics (6.3 percent) showed little or no change. (See tables A-1, A-2, and A-3.)
The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 2.1 million in December and accounted for 26.3 percent of the unemployed. The number of long-term unemployed has shown little movement since June, but was down by 687,000 over the year. (See table A-12.)
The civilian labor force participation rate, at 62.6 percent, was little changed in December and has shown little movement in recent months. In December, the employment- population ratio, at 59.5 percent, changed little. (See table A-1.)
* * *
Total nonfarm payroll employment increased by 292,000 in December. Employment rose in several industries, including professional and business services, construction, health care, and food services and drinking places. Mining employment continued to decline. In 2015, payroll employment growth totaled 2.7 million, compared with 3.1 million in 2014. (See table B-1.)
Employment in professional and business services increased by 73,000 in December, with temporary help services accounting for 34,000 of the gain. In 2015, professional and business services added 605,000 jobs, compared with a gain of 704,000 in 2014.
Construction showed strong job growth for the third consecutive month, gaining 45,000 jobs in December. Job gains occurred among specialty trade contractors (+29,000) and in construction of buildings (+10,000). Over the year, construction added 263,000 jobs, compared with a gain of 338,000 jobs in 2014.
In December, health care employment rose by 39,000, with most of the increase occurring in ambulatory health care services (+23,000) and hospitals (+12,000). Job growth in health care averaged 40,000 per month in 2015, compared with 26,000 per month in 2014.
Food services and drinking places added 37,000 jobs in December. In 2015, the industry added 357,000 jobs.
Employment in transportation and warehousing rose by 23,000 in December, with a gain of 15,000 in couriers and messengers.
Within the information industry, motion pictures and sound recording added 15,000 jobs in December, offsetting a decline of 13,000 in the prior month.
Employment in mining continued to decline in December (-8,000). After adding 41,000 jobs in 2014, mining lost 129,000 jobs in 2015, with most of the loss in support activities for mining.
Manufacturing employment changed little in December, though its nondurable goods component added 14,000 jobs. In 2015, manufacturing employment was little changed (+30,000), following strong growth in 2014 (+215,000).
Employment in other major industries, including wholesale trade, retail trade, financial activities, and government, changed little over the month.
The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in December. The manufacturing workweek edged down by 0.1 hour to 40.6 hours, and factory overtime edged up by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours. (See tables B-2 and B-7.)
Multiple Jobholders Surge To Highest Since August 2008
As we noted earlier, while the headline payrolls print blew away consensus estimates, printing above the highest expectations, there was a rather unpleasant number in the data: nominal average hourly wages actually dipped by 1 cent to $25.24.
What caused this? There are three reasons.
First: the continued surge of minimum wage jobs, as seen in the chart below, which shows that in December another 36,900 minimum wage waiters and bartenders were added to the labor force, bringing the total to a new record high of 11.3 million.
Putting this in context, here is a chart showing the relative addition of waiter, bartender jobs in 2015 vs high-paying manufacturing jobs. No comment necessary.
And longer-term chart: since December 2007.
Second: a troubling finding from the report was the continued surge in temp-help workers. In fact, as the BLS admitted, while employment in professional and business services increased by 73,000 in December, temporary help services accounting for nearly half, or 34,000, of the gain. As the chart below shows, jumping the 34K jump in December brought the number of temp-worker to a new all time high.
Third: the most troubling aspect of today’s jobs report, and perhaps the clearest explanation why there was no wage growth in December, is that the number of multiple job holders soared by 324,000 bringing the total to 7.738 million. This was the highest since August 2008, which as a reminder is the month before the great financial crisis started.
And, as Lakshman Achuthan shows, “people need multiple jobs to make ends meet”
So yes: jobs grew, and yet the BLS itself admits that of the 290,000 job additions, more than all came from 1 worker who had to work 2 or more jobs.
End result: average hourly wages declined from $25.25 to $25.24.
Where The December Jobs Were: Minimum Wage Deluge Continues
Earlier we gave a big picture explanation how the US can add 292,000 while average hourly wages actually decline. Below is a more nuanced answer, looking at the breakdown of jobs by industry in December. It will probably come as no surprise to anyone that for another consecutive month, the well-paying jobs: mining and logging, wholesale trade, manufacturing, and information barely posted a net increase.
Alternatively, the worst quality jobs continued to soar, pushed higher once again by none other than education and health, where Obamacare was once again instrumental to propel healthcare jobs by a 52,600 surge in December.
The rest was just ugly: temp help soared by 34,400, while waiter and bartenders added another 36,900. The one surprising, and positive outlier: construction jobs – traditionally a well-paid category – soared by 45,000, something very unexpected for the otherwise freezing month of December. This, however, is easily explained by two words: warm weather. As Goldman admits, “Construction employment rose by a firm 45k, a gain we suspect was helped by warm weather. ” This means that in January once the weather effect wears off, all these jobs will be lost and then some.
Finally, employment of “couriers and messengers” gained 15k, likely reflecting seasonal adjustment challenges related to secular growth in online holiday shopping. The flip side: thousands of malls are going empty, and soon to crush the CMBS market.
The full breakdown is below.
The manipulation of markets (witness today) and the overt lying about the economy intensify as we move inexorably towards the precipice. – John Embry
Short Seller’s Journal update: My “Quick Hit” pick is now down 27% from its Dec 31 close. Subscribers who took the plunge on my put option play are up over 500%. The put expires today and is a little over $5 in the money (it was a slightly out of the money put on 12/31/15). My long term short sell play is up (down) over 14%. This is a stock that I believe will go from $30 (12/31) to $10 by 2017. Short Seller’s Journal
The headline quote is from John Embry, who had emailed this morning asking me my opinion on the jobs report released this morning. Here’s my response, verbatim:
John, I woke up late this a.m., about 8:40 EST – that’s how much I care about the employment report. I turned on the tv to check the markets and saw the 292k and literally laughed out loud. It’s beyond shameless – it’s a full frontal assault on our intelligence. The Govt claims 45k new jobs in construction? But we find out earlier in the week that the Govt admits to rigging the construction spending number for the last 10 years. Is this some kind of joke?
The NFP is a completely fictitious number and it truly confounds me every month to see how much time, energy and money is spent by the financial mafia discussing a number that is indisputably 100% fabrication.
I don’t want to tossed into the cesspool of analysts who get sucked in to dissecting and discussing an economic report that is entirely fictitious. Let’s face it, it’s a made up number. The number reported is not even remotely credible when put in the context of what’s happening to the U.S. economy.
I have better things to do with my time, like discuss this weekend’s NFL playoff games. I can assure you, Embry’s knowledge and analysis of NFL football is at least on par with his high level of insight – and the ability to communicate that insight – on the financial markets.
To me the more interesting and relevant conversation encompasses how much longer can the insiders keep the financial markets propped up and how much longer will it be before the Government imposes complete totalitarian control over our system.
The response to today’s payroll by the stock and precious metals markets tells us that the market does not believe the NFP report. When the headline hit, the S&P 500 futures spiked up 14 pts to go up 30 pts from where they were at yesterday’s 4 p.m. NYSE close. Gold was smashed $8. Currently, three hours later, the S&P 500 cash market is down 8 from yesterday’s close and gold has snapped back $13 from post NFP low print.
I will point out that the homebuilder stocks have dropped over 11% this year to date. By the financial media’s yardstick, they are halfway to being considered in a “bear market.” If the NFP number had any fathomable degree of credibility, the homebuilder stocks would have staged a big rally today. They are down 2.2% today alone. Nothing more needs to be said on this matter.
Please have a good weekend – enjoy what you can, as much as you can, while you still can. The rug is being pulled out from under us and the landing will not be pleasant.
Wholesale Trade Data Suggest Manufacturing Recession Spreading To Entire Economy
The good news – wholesale inventories are being worked off (falling 0.3% MoM in November – biggest drop since May 2013). The bad news – inventories are being worked off (crushing Q4 GDP hopes and Fed forecasts). The ugly news – Wholesale sales collapsed 1.0% MoM – the biggest drop in a year (leaving the spread between sales and inventories at a record high). The ugliest data of all – inventories-to-sales spiked to 1.32x – (the highest since 2008’s crisis recession and as high as the worst in the 2001 recession!)
The year-over-year drops are a disaster…
This leaves a record absolute spread between sales and inventories…
Simply put – the “Field of Dreams” US Economy has utterly failed! We “built it” but they “did not come.”
In Q4 When 282,000 Average Jobs Were Supposedly Added, The Atlanta Fed Sees GDP At A Paltry 0.8%
Just over two hours ago, following the latest disappointing wholesale sales and trade, using the Atlanta Fed’s GDP methodology, we calculated just where the regional Fed would trim its famous “nowcast” estimate to:
Moments ago, that’s precisely what the Atlanta Fed’s revised Q4 GDP estimate was lowered to. To wit:
Latest forecast — January 8, 2016
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.8 percent on January 8, down from 1.0 percent on January 6. The forecast for the contribution of inventory investment to fourth-quarter real GDP growth declined 0.2 percentage points to -0.8 percentage points after this morning’s wholesale trade report from the U.S. Census Bureau.
So, to summarize: in a quarter in which GDP rose by 0.8%, and was likely negative when excluding the benefits – yes, that’s right, benefits – of the warm winter, the same way last year’s “harsh winter” supposedly subtracted from GDP, the US added on average over 270,000 workers per month.
Just when you thought the Chinese Department of Truth couldn’t be topped…
The Last Time Automakers Channel-Stuffed This Much, Lehman and GM Went Bankrupt
Don’t show Phil LeBeau this chart!
While day after day we are told how fantastic auto sales are in America… and how the reported data from the automakers shows just how ‘strong’ the US consumer must be.. and therefore the US economy.
However, as the following chart shows – it’s all false!!
Relative to apparently surging sales, inventories of (unsold) motor vehicles are at their highest since August 2008…
In other words, the channel-stuffed “see how well we are doing” smoke and mirrors of credit-fueled malinvestment has hit a wall and yet the automakers – afraid to signal any chink in that armor – kept producing… there is only one way this ends… badly!
Simply put – The last time automakers channel-stuffed this much, Lehman and GM went bankrupt shortly after.
Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years
Moments ago, the Fed released the latest, November, consumer credit data: it was not good. Rising by just $13.95 trillion, it was a big miss to the $18.5 trillion expected, and below the $15.6 billion downward revised increase in October. In fact, three months after the historic surge in September to the highest print in the revised series, total consumer credit has tumbled to the lowest since January.
But the big problem was not in the total data, but in one of the two key component data sets.
Recall that a few days ago we noted something very disturbing for US auto makers: for all the hoopla around the auto sales number, US domestic car sales had actually dropped to a 6 month low, missing estimates by the most since 2008.
What was just as disturbing was that “plans to buy an auto” had tumbled the most since January of 2013.
Lacking the most recent credit data, we did not know what may have caused this dramatic slowdown in auto purchasing, and intentions. Now that we have the data, we also have the answer, because while revolving consumer credit rose at a respectable pace of $5.7 billion in November, it was that all important “other” series, non-revolving credit – the source of funds for student and auto loans – where there was a dramatic slowdown.
As the chart below shows, after rising by $15.5 billion in the month before, and a near-record $22 billion in September, the November increase in nonrevolving credit was a paltry $8.3 billion – this was the smallest monthly increase in this most important for US car makers data, since February of 2012!
Suddenly both the slowdown in December car sales, and the collapse in buying intentions makes all the sense in the world: US consumer may have just had their fill of auto-related loans, and without these to fund future purchases, even on the most relaxed terms in auto loan history, the pace of current and future purchases will collapse.
And, as we showed earlier today, this collapse in auto loan issuance could not have come at a worse possible time: the chart below shows that the motor vehicle inventory-to-sale ratio is now the highest since August 2008:
As we said this morning, “the channel-stuffed “see how well we are doing” smoke and mirrors of credit-fueled malinvestment has hit a wall and yet the automakers – afraid to signal any chink in that armor – kept producing.”
And now we know why nobody was buying: suddenly the car loan issuance pipeline has been shut half way.
The conclusion: unless there is a surge in non-revolving debt in December and the coming months, the cheap debt-funded US auto renaissance is officially over. As for the follow up question, whether this was caused by a revulsion toward more debt, then the rate hike in 2015 which was immediate passed through to borrowers, will make sure that what is currently a half-shut credit pipeline, will slam shut in the coming months and choke the only sector in the US manufacturing economy that was still relatively vibrant.
Doctors Urge California Residents “Leave Now…While You Can” As Gas Leak Fears Grow
California Governor Jerry Brown finally declared a state of emergency on Wednesday, concerning the ongoing, currently unstoppable methane gas leak spewing from Aliso Canyon that has created a nightmare for residents of Porter Ranch.
“I will tell you, this goes well beyond Porter Ranch. We’ve had complaints from as far as Chatsworth, Northridge, and Granada Hills,”emphasized Los Angeles City Councilman Mitchell Englander during a Porter Ranch town hall meeting on December 28. “Apparently this plume of toxic chemicals and whatever it might be, doesn’t know zip codes […] This is the equivalent of the BP oil spill on land, in a populated community.”
Aliso Canyon sits less than two and a half miles from Porter Ranch and less than 30 miles from the city of Los Angeles — the second most populous city in the United States — whose outlying total statistical area includes nearly 18 million residents, as of 2013.
Brown has been widely criticized for lack of decisive action on the leak, which is erupting from its underground storage area with all the force“of a volcano.” Under Wednesday’sdeclaration, “all state agencies will utilize state personnel, equipment, and facilities to ensure a continuous and thorough state response to this incident.”
Porter Ranch residents have been evacuating the area for some time, though SoCalGas’ rather maladroit handling of the relocation procedure has been a nightmare — and the cause for a mounting number of lawsuits, including one from the L.A. city attorney’s office.
Los Angeles City Attorney Mike Feuer filed a civil lawsuit last month concerning the massive methane leak’s impact on area residents’ health and damage to the environment — which alleged failure by SoCalGas to prevent the leak and further exacerbation of “the effects of that failure by allowing acute odor and health problems faced by the community to persist for more than a month, to say nothing about the indefinite time it will persist into the future.”
Let us close with this week’s wrap up courtesy of Greg Hunter
(courtesy Greg Hunter/USAWatchdog)