Gold: $1096.50 down $1.30 (comex closing time)
Silver $13.86 down 5 cents
In the access market 5:15 pm
Today all markets are down badly, Asia and Europe and only a last minute rally orchestrated by the crooked bankers saved the Dow.
At the gold comex today, we had a poor delivery day, registering 0 notices for nil 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 200.31 tonnes for a loss of 103 tonnes over that period.
In silver, the open interest fell by 422 contracts down to 167,996. In ounces, the OI is still represented by .839 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 fell by 1,702 contracts to 423,957 contracts as gold was down $9.90 in Friday’s trading.
We had another huge 2.09 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 no changes to inventory/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 fall slightly by 422 contracts down to 167,996 despite the fact that silver was down by a considerable 43 cents with respect to Friday’s trading. The total OI for gold fell by 1702 contracts to 423,957 contracts as gold was down $9.90 in price yesterday
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i) EARLY LAST NIGHT:
Last night, SUNDAY night, MONDAY morning: Shanghai down 5.5%% / Hang Sang falls badly. The Nikkei was closed for a holiday.Chinese yuan up considerably on POBC interbvention but still they desire further devaluation throughout this year. Oil is slightly down,. Stocks in Europe mostly in the green. Offshore yuan trades at 6.69 yuan to the dollar vs 6.5650 for onshore yuan. The POBC soaks up considerably off shore yuan in Hong Kong causing shortages of yuan and this in turn causes HIBOR to rise to 13.45%
<Markets were in turmoil throughout the early evening last night
China opens for trading as we witness the POBC soak up huge amounts of yuan in Asia which then causes a scarity of yuan and thus the HIBOR rises to 13.4%:
( zero hedge)
iv) Sunday morning:
v) Saturday afternoon:
vi) the Chinese Plunge Protection team bought a gigantic 1.8 trillion yen`s worth of stock in 2015 (272 billion USA)
vii) The following is a must read. It explains the huge 3.5 trillion USA neutron bomb of total Chinese debt. Bass believes that Chinese non performing loans are above 20% if you include their shady shadow banking sector. If on default the banks only recover 50%, then the true loss will be over 3 trillion USA, equal to their reserves.
ii) Russian stocks crashing due to the low price of oil:
( zero hedge)
iii) The violence between Sunnis and Shiites continue. Today a car bomb in Shiite territory inside Baghdad.
Now, due to China’s problems, many see India having a total meltdown;
( zero hedge)
i)Morgan Stanley is the latest bank to suggest that oil will reach the 20 dollar level:
( Morgan Stanley: zero hedge)
ii) Is the use of shale drilling causing an increase in earthquakes. Is Oklahoma close to an massive one.
i) Gold is a beneficiary to the currency crisis (China)
ii)Saudi Arabia is now told to prop up their currency as we witness a global devaluation currency war( KHANE London Telegraph)
iii) Another conspiracy theory becomes fact as we now know that Libya was invaded to obtain their oil and prevent a gold back Libyan dinar. I would also bet that the Libyan gold is now gone having been leased out.
first: Turd Ferguson
(courtesy TF Metals.com)
second: Foreign Journal Policy
iv) An in depth look at Chinese based base metal company Nobel and how these guys may experience their Enron moment
( Simon Jacques)
v) At I pointed out to you on Friday, the Gold ETF inventory rose to 649.75 tonnes
vi) Bill Holter`s important commentary tonight is entitled:
“Margin Call: Gentlemen!!“
Let us head over to the comex:
The total gold comex open interest fell to 423,957 for a loss of 1702 contracts as gold was down by $9.90 in price with respect to Friday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, both scenarios held. We are now in the non active January contract which saw it’s OI fall by 5 contracts to 257. We had 1 notice filed on Friday, so we lost 4 contracts or an additional 400 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 10,568 contracts down to 261,337. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 223,085 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 219,840 contracts. The comex is not in backwardation in gold.
December contract month:
INITIAL standings for January
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||0 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
we had no adjustments.
Here are the number of oz held by JPMorgan:
January INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||438,850.500 oz
Brinks, JPm, Scotia
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,660,823.16 oz Scotia,CNT,HSBC|
|No of oz served today (contracts)||1 contracts
|No of oz to be served (notices)||80 contracts
|Total monthly oz silver served (contracts)||14 contracts (70,000 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||1,479,162.1 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 3 customer deposits:
i) Into Scotia: 482,191.600 oz
ii) Into CNT: 599,738.160 oz
iii) Into HSBC: 578,893.400 oz
total customer deposits: 1,660,823.160 oz
total withdrawals from customer account: 1,660,823.160 oz
we had 0 adjustments:
And now the Gold inventory at the GLD:
JAN 11./another 2.09 tonnes of gold addition (deposit) to the GLD/Inventory rests at 651.68 tonnes.
again, I doubt that the gold added was physical.
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
Jan 11.2015: inventory rests at 651.68 tonnes
And now your overnight trading in gold and also physical stories that may interest you:
Must See Presentation: “Wealth” of “Positive Catalysts” for Gold
Grant Williams gave another must see presentation at the Mines and Money Conference in London last month, laying out why he believes the gold price is languishing despite a wealth of what would ordinarily be “positive catalysts.”
Williams’ presentation is titled “Gold: The Unsurance Policy — Love It or Loathe It.” It is 28 minutes long and can be viewed here:
He notes the many incongruities to be seen in the gold market today and that while “nobody seems to care” about gold anymore, central banks have turned from sellers to buyers and demand for bullion is robust globally, especially in China, where the Shanghai Gold Exchange (SGE) is delivering more than 50 times more gold than the exchange perceived to set world prices, the New York Commodities Exchange (COMEX).
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.
This Is What Gold Does In A Currency Crisis, China Edition
As China’s leaders figure out that pegging the yuan to the dollar while quintupling their debt in five years was a colossal mistake, they are, apparently, concluding that the only way out is a sudden, sharp currency devaluation. As Reuters reports...
China’s central bank is under increasing pressure from policy advisers to let the yuan currency fall quickly and sharply, by as much as 10-15 percent, as its recent gradual softening is thought to be doing more harm than good.
The People’s Bank of China (PBOC) has spent billions of dollars buying yuan over recent months to defend the exchange rate, but has failed to stabilize market sentiment. The currency has steadily lost another 2.6 percent against the U.S. dollar even after the bank sprung a surprise devaluation of nearly 2 percent in August.
That gradual, managed depreciation makes the yuan a one-way bet for investors who see the currency weaken even as the central bank intervenes to prop it up.
Policy insiders are now calling for a quick and sharp yuan depreciation, backed by tighter capital controls to curb speculation and the flight of money out of the country.
“We should let the yuan have a considerable depreciation, but we should have a bottom line; it cannot create a big impact on the economy and the financial system, and big panic in the capital market,” an influential government economist told Reuters, suggesting the yuan be allowed to depreciate by 10-15 percent over an unspecified timeframe.
Letting the yuan fall sharply and quickly could help cushion many of China’s debt-laden companies as the government pursues far-reaching structural reforms.Beijing is keen to restructure industry through “supply side” reform, especially reducing industrial over-capacity, but fears the corporate sector is too weak to handle that.
[ZH:However, one needs to ask whether that is the goal for China… after all – Exports have been rising with a stronger Yuan?
Finally, the real purpose of the PBOC’s exercise in FX management today was, just like in August, to fire a warning shot at the Fed’s rate-hiking plans. Only this time the warning shot is far, far louder.
In September the Fed postponed its rate hike as a result of China’s devaluation. Will it do the same again next week? Because if China is about to unleash a 15% deval of the CNY against the entire world, expect a flood of Chinese FX reserves as the PBOC tries to control the glidepath of its currency, and avoid an all out collapse driven by soaring capital outflows.
In other words, we are now right back where we were in mid-August, just before the bottom fell out of the market.]
“The biggest risk in China is not really the economy,” said Qian Wang, senior Asia economist for Vanguard Investments Hong Kong. “The real risk is, number one; the policy uncertainty, and number two; the currency. China is walking on eggshells.”
* * *
Chinese citizens, meanwhile, are anxiously awaiting tomorrow’s market open while mentally repeating the same three lines:
- Sure am glad I bought that gold last year.
- Wish I’d bought more gold last year.
- Wonder what I’ll have to pay for gold next week…
Here’s what that looks like in graphical form:
If China does spring a 15% devaluation on the already-wound-too-tight leveraged speculating community, the impact should be, well, amusing for sure, but otherwise a little hard to predict. About the only thing that can be said with near-certainty is that the above chart will have to be updated with much higher left and right axes.
Saudi Arabia is now told to prop up their currency as we witness a global devaluation currency war
(courtesy KHANE London Telegraph)
Saudis told to prop up currency amid global devaluation war fears
Submitted by cpowell on Sun, 2016-01-10 16:45. Section: Daily Dispatches
By Mehreen Khan
The Telegraph, London
Sunday, January 10, 2016
Saudi Arabia should use its massive foreign exchange reserves to defend the riyal amid fears the world is descending into a new phase of global currency wars, the World Bank has said.
The kingdom’s shaky currency peg with the dollar has come under record pressure this week as the price of oil has plummeted to near 12-year lows at $32-a-barrel.
With the global stock markets in turmoil, analysts fear a Saudi devaluation could spark a new wave of deflation and competitive “beggar-thy-neighbour” policies in a fragile global economy.
But the world’s largest producer of Brent crude should continue to defend its exchange rate by drawing down on its war chest of reserves, according to Franziksa Ohnsorge, lead economist at the World Bank. …
… For the remainder of the report:
Brookings posts Chris Powell`s questions to Bernanke but no answer as of yet:
(courtesy Brooking`s Institute Chris Powell)
Brookings Institution posts GATA secretary’s questions to Bernanke
Submitted by cpowell on Sun, 2016-01-10 01:15. Section: Daily Dispatches
8:10p Saturday, January 9, 2016
Dear Friend of GATA and Gold:
After your secretary/treasurer complained late yesterday to the press office of the Brookings Institution, his reply was finally appended to former Federal Reserve Chairman Ben Bernanke’s Thursday essay on the causes of the U.S. dollar’s ascension as the primary world reserve currency. But as of this hour Bernanke has not responded to the several questions your secretary/treasurer posed in that reply about surreptitious market intervention by U.S. government agencies. Bernanke’s essay is posted at the Brookings Institution’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Another conspiracy theory becomes fact as we now know that Libya was invaded to obtain their oil and prevent a gold back Libyan dinar. I would also bet that the Libyan gold is now gone having been leased out.
first: Turd Ferugson
(courtesy TF Metals.com)
Another “Conspiracy Theory” Becomes Conspiracy Fact
Obviously, there’s A LOT to talk about today and we’ll try to cover as much as we can. We’ll begin instead, though, with another one of those pesky “conspiracy theories” that just became conspiracy fact.
Is the world turning upside down in 2016 or what? Just yesterday we discussed how, earlier this week, Fed Goon Fisher openly admitted that Fed policy was designed to goose the equity market in a desperate attempt to create the “wealth effect”. Just another “conspiracy theory” being exposed as FACT. http://news.goldseek.com/GoldSeek/1452112241.php
And now today we have this…Back on New Year’s Eve, there was a dump of over 3,000 unclassified emails from your next POTUS, Hillary Clinton. Most of these were garbage and BS but you might want to take a close look at this one
Here’s the critical excerpt:
“On April 2, 2011 sources with access to advisors to Salt al-Islam Qaddafi stated in strictest confidence that while the freezing of Libya’s foreign bank accounts presents Muammar Qaddafi with serious challenges, his ability to equip and maintain his armed forces and intelligence services remains intact. According to sensitive information available to this these individuals, Qaddafi’s government holds 143 tons of gold, and a similar amount in silver. During late March, 2011 these stocks were moved to SABHA (south west in the direction of the Libyan border with Niger and Chad); taken from the vaults of the Libyan Central Bank in Tripoli.
This gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden Dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French.franc (CFA).
(Source Comment: According to knowledgeable individuals this quantity of gold and silver is valued at more than $7 billion. French intelligence officers discovered this plan shortly after the current rebellion began, and this was one of the factors that influenced President Nicolas Sarkozy’s decision to commit France to the attack on Libya.”
Well, there you have it. What we’ve all long-suspected. And straight from the US Secretary of State and her most trusted advisor, Sid Blumenthal. You can read more about this at the source link here: http://www.foreignpolicyjournal.com/2016/01/06/new-hillary-emails-reveal-true-motive-for-libya-intervention/
So, now that you know all of this, are you surprised…or does it even matter to you…that, as I type, the stock market has rallied over 200 points from its opening lows while gold has been beaten back from its highs? It’s all just a huge sham and fraud. ALL OF IT. Your “markets”, your politics, your patriotic wars and “responsibility to protect” doctrines. It’s all garbage. Designed and maintained by your political and financial elite.
I wish I had the answer for you. I wish I could give you some good news about how this will all be OK in the end. I wish I could trust the The Good Guys always win and The Bad Guys always lose. But I can’t. And it wouldn’t matter anyway. All that matters is that you, personally, understand all of this and that you, personally, are taking all necessary actions to shelter/insulate yourself and your family from these criminals.
Look, it’s OK if you own stocks. It’s OK if you keep money in fiat cash. You have to take all prudent steps that you deem necessary. What’s not OK is that you bury your head in the sand after reading “analysis” pimped to you by defenders and participants of the current system. Nothing is free and nothing is fair. Understand this and you have a chance to come out the other side. Blindly believe the nonsense like the rest of The Sheep and you will be slaughtered.
Regarding the “markets” today…We have a near total calamity on our hands. Overnight, China devalued the yuan by nearly 0.5%, the most since late August, and this sent their stock market reeling again. It only traded for about a half an hour before closing for the day down 7%. And we’re seeing again a HUGE move by China to sell US treasuries in order to raise cash to support the yuan. (Crazy, isn’t it?). Just as in August, I suggest to you again that this may be all by design. “Analysts” have claimed for years that the Chicoms “can’t sell their treasuries without disrupting the market and causing huge foreign reserve losses”. Oh really? They similarly dumped $100B of treasuries in August and rates barely budged. They’re dumping again now and rates aren’t moving.
So, if you want to dump your US dollar reserves held in treasuries without “disrupting the market”, just create enough volatility and fear that there are plenty of bids for what you’re trying to sell. It worked in August and it’s working now. And why would China be in such a hurry to dump their US dollar holdings??? I don’t think I need to waste time typing that answer for you…
As I type, gold is back up to $1104. Gee, who was it that always says that tha area around 1104-1105 is stout resistance/support? Hmmm. That guy with the funny hat that no one takes seriously or invites to their conferences. And where might we expect gold to stall (at least temporarily)? Well, that’s pretty easy…
Once gold successfully trades through $1105, you can be 100% certain that the 100-day moving average will provide stout resistance. We noted this pattern all through 2015 and it will almost certainly happen again. In fact, the last time the global markets went through all of this back in August, gold was…ahem…stopped right at the 100-day MA. Wow. Imagine that!
And silver is still battling $14 but finally having some success…even in the face of $2 copper. Once it finally draws clear of $14.15, the next stopping point is $14.40 and the 50-day MA currently at 14.36.
Speaking of copper…and crude…both are bouncing a bit and that may help us reach the levels laid out above. Copper actually saw a new low below $2 earlier but it has bounce to $2.04. Crude fell all the way to $32.10 but, as I type, it’s back to $34. So, let’s see what the rest of the day brings. Maybe we’ll still get $1111 gold and $14.40 silver.
And the tomorrow brings the BLSBS. Already there are some hints of “postponed rate hikes” and maybe even possible easing. A lousy BLSBS tomorrow could be just what the stock market needs and that would certainly help drive the metals even higher…maybe even through $1111 and $14.40! But let’s not get too far ahead. We’ve got the rest of the day to be concerned with and we’re left to wonder how long, if at all, the Chicom market will even be open tonight. Craziness!
Hang in there. Keep the faith. Remain diligent and situationally aware at all times. And most importantly, with all of the darkness in the world, try to be a force for good.
second: Foreign Journal Policy
NATO overthrew Libyan dictator to prevent gold-backed African currency
Submitted by cpowell on Sun, 2016-01-10 00:41. Section: Daily Dispatches
Hillary Emails Reveal True Motive for Libya Intervention
Newly disclosed emails show that Libya’s plan to create a gold-backed currency to compete with the euro and dollar was a motive for NATO’s intervention
By Brad Hoff
Foreign Policy Journal, Cross Village, Michigan
Wednesday, January 6, 2016
The New Year’s Eve release of over 3,000 new Hillary Clinton emails from the State Department has CNN abuzz over gossipy text messages, the “who gets to ride with Hillary” selection process set up by her staff, and how a “cute” Hillary photo fared on Facebook.
But historians of the 2011 NATO war in Libya will be sure to notice a few of the truly explosive confirmations contained in the new emails: admissions of rebel war crimes, special ops trainers inside Libya from nearly the start of protests, Al Qaeda embedded in the U.S. backed opposition, Western nations jockeying for access to Libyan oil, the nefarious origins of the absurd Viagra mass rape claim, and concern over Muammar Gaddafi’s gold and silver reserves threatening European currency. …
Though the French-proposed U.N. Security Council Resolution 1973 claimed the no-fly zone implemented over Libya was to protect civilians, an April 2011 email sent to Hillary with the subject line “France’s client and Qaddafi’s gold” tells of less noble ambitions.
The email identifies French President Nicholas Sarkozy as leading the attack on Libya with five specific purposes in mind: to obtain Libyan oil, ensure French influence in the region, increase Sarkozy’s reputation domestically, assert French military power, and to prevent Gaddafi’s influence in what is considered “Francophone Africa.”
Most astounding is the lengthy section delineating the huge threat that Gaddafi’s gold and silver reserves, estimated at “143 tons of gold, and a similar amount in silver,” posed to the French franc (CFA) circulating as a prime African currency. In place of the noble sounding “Responsibility to Protect” (R2P) doctrine fed to the public, there is this “confidential” explanation of what was really driving the war:
“This gold was accumulated prior to the current rebellion and was intended to be used to establish a pan-African currency based on the Libyan golden dinar. This plan was designed to provide the Francophone African Countries with an alternative to the French franc (CFA).
“(Source Comment: According to knowledgeable individuals this quantity of gold and silver is valued at more than $7 billion. French intelligence officers discovered this plan shortly after the current rebellion began, and this was one of the factors that influenced President Nicolas Sarkozy’s decision to commit France to the attack on Libya.)”
Though this internal email aims to summarize the motivating factors driving France’s (and by implication NATO’s) intervention in Libya, it is interesting to note that saving civilian lives is conspicuously absent from the briefing.
Instead, the great fear reported is that Libya might lead North Africa into a high degree of economic independence with a new pan-African currency.
French intelligence “discovered” a Libyan initiative to freely compete with European currency through a local alternative, and this had to be subverted through military aggression. …
… For the remainder of the report:
An in depth look at Chinese based base metal company Nobel and how these guys may experience their Enron moment
(courtesy Simon Jacques)
Noble Group’s “Margin Call” Part II: The Enron Moment
“Our balance sheet – the strongest in recent history – represents a significant advantage as we continue to identify high value growth opportunities across the products and geographies we operate in. Maintaining our investment grade rating with the international rating agencies is a vital part of this strategy.”
– Noble Group 2014 Annual Report, p. 27
* * * * *
“Moody’s Investors Service has downgraded Noble Group Limited’s senior unsecured bond ratings to Ba1 from Baa3 and the provisional rating on its senior unsecured MTN program to (P)Ba1 from (P)Baa3.”
– Moody’s, December 29, 2015
* * * * *
“Noble Group Downgraded To ‘BB+’ On Weakened Liquidity; Notes Lowered To ‘BB’; Ratings Still On CreditWatch Negative”
– Standard & Poors, January 7, 2016
Noble’s “Margin Call” Part II – The Enron Moment
The story of Noble is worth writing a book, mostly of how not to run your business.
If they are in this mess, it is a in large part because the management was comprised predominantly of traders who were predisposed to defending their books.
Noble has been desperately trying to revive their image by hiring former Goldman, JP. Morgan, Trafigura executives etc. By doing so they were looking for a form of credibility collateral.
It didn’t work well for the new employees as they rapidly found out that they inherited from the liabiliaties of one decade of Noble’s poor decision making of the hard-core asset guys like William J. Randall and ex-Goldman Sach banker Yusuf Alireza.
In the part II of this analysis we will review the gap between the liquidity headroom and the debt maturity profile of the trader and explain how Noble Group will have its Enron moment.
The fatal mistake that Noble Group did was to deliberately mislead the market about their financial performance using accounting devices.
During last November, Noble Group’s chief financial officer Robert van der Zalm has stepped down from his position after taking a leave of absence for “health reasons”.
Two months later, Moody’s downgraded Noble Group.
In a very awaited decision, Standard & Poor’s has finally lowered Noble Group’s to junk, placing Asia’s largest commodity trader on watch for further possible as the rating agency remains skeptical about the liquidity headroom of the trader.
According to Noble Group, on September 30th 2015, the company had $15.5bn banking facilities and $1.669B in RMI (ready marketable inventories).
- $11.1bn of these $15.5bn banking facilities is uncommitted and are contingent on ability of maintaining investment-grade rating in the future.
- Noble claims to have $900M of cash and 1.669B$ in RMI (ready and marketable inventories).
- Their 1.669B$ in RMI have claims on related- party notes that are under collateralized by their commodity merchant activity and therefore should be excluded from their liquidity headroom.
- Noble Group currently uses $3.4B of borrowing facilities that are uncommitted.
Noble Group is left with only 1B$ of unutilized committed borrowing facilities and $900M of cash ready available to meet $2.966B of debt scheduled in the next 12 months.
Source: Noble Group MD&A Q-3 2015
Moreover, Noble Group counts on the completion of the Noble Agri stake divesture to reap $750M, a transaction which may not be completed by February 2016.
Adding the 1B$ of unused uncommitted borrowing facilities plus the $750M of Noble Agri and the $900M of cash that Noble claims to have, Noble is still short by $316M.
With the S&P downgrade, the total collateral margin call on Noble Group could be as much as $3.4B, banking facilities that are uncommitted and contingent on the ability of maintaining their investment-grade rating.
Noble will have its Enron Moment.
Enron’s bankruptcy occurred on November 2001 and was triggered by S&P’s downgrade of its debt below investment grade, activating a call provision in some loan indentures with principal amounts totaling $4 billion, cash and liquidity that suddenly Enron didn’t have.
After the quick sale of Noble Agri, Noble’s core business remains its coal & energy – two very depressed commodities for the foreseeable future, and with no cash-flows to pay its debt and a sudden tightening of the credit, the trader is a cancer patient on the forward curve.
The New York gold price closed Friday at $1,102.50 down from $1,109.30. In Asia it was moved to $1,104 but London pulled it back to $1,100 but the LBMA price was set at $1,104.70 up from $1,097.45 with the dollar index lower at 98.52 down from 98.82 on Friday. The euro was at $1.0895 up from $1.0882 against the dollar. The gold price in the euro was set at €1,013.95 up from €1,010.12. Ahead of New York’s opening, the gold price was trading at $1,103.15 and in the euro at €1,012.25.
The silver price in New York closed at $13.93 down 37 cents. Ahead of New York’s opening the silver price stood at $14.00.
Friday saw purchases of 4.463 tonnes into the SPDR gold ETF and again a relatively massive purchase of 3.75 tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 649.594 tonnes and at 160.17 tonnes in the Gold Trust. These two purchases show a continuation of vigorous demand for gold by U.S. investors.
To really understand why gold is rising one has to step back and look at global financial markets and what’s happening there. 2016 may well become the “Year of Consequences” where the behavior of markets, central banks and the banking system with its burgeoning debt bears the fruit it was inevitably going to produce at some point in time. So far in 2016 we have seen huge, negatively directed, volatility in equity markets, not just in the equity casino in China, but in the developed world markets too. We expect that to continue as underlying problems come to the surface.
For gold and silver, bearing in mind that their prices are essentially a statement by only U.S. investors, their heavy purchases in the last month show their opinion on U.S. markets and U.S. financial problems. U.S. investors have seen that bond, equity market tops appear to be in and that global, debt problems could mature into global [including U.S. markets] financial crises in 2016 and beyond. With U.S. investors being the first to be positive in this world, what will happen in the rest of the world? It has to be worse than in U.S. financial markets. The E.U. is more than likely to see a repeat and worse of the Sovereign debt crisis as their recoveries splutter and die and debt servicing abilities prove inadequate. The impact on the confidence levels in the developed world will be very heavy as this is a repeat of what’s gone before. The efforts to stem the crises in the previous crisis must have failed, so another similar crisis could be insoluble.
Margin Call Gentlemen!
We’ve now arrived at a point very similar to where we were in the fall of 2008 with several very grave exceptions. The world is facing a global margin call again, only this time there are no sovereign entities left with a clean balance sheet that can be levered up further. There are also no tools left available to the various central banks to administer monetary policy. They have already printed, monetized debt and lowered rates to zero. Richard Fisher has even admitted they have no ammunition left! As a side note, rates were cut to zero to make the higher debt balances serviceable but now even zero percent rates are not enough. From a macro standpoint, real economic activity is not generating enough cash flow (profits and tax revenues) to support this current debt. Lastly, there is no more “collateral” left to borrow against. Whether it be stocks, bonds, real estate, commodities or even “faith”, we are at the end of the road in the collateral department.
And now your overnight FRIDAY morning trading in bourses, currencies, and interest rates from Europe and Asia”
1 Chinese yuan vs USA dollar/yuan rises a bit in value , this time to 6.5650/ Shanghai bourse: deeply in the red , hang sang: red
2 Nikkei closed
3. Europe stocks up on Yen rise /USA dollar index up to 98.50/Euro up to 1.0897
3b Japan 10 year bond yield: falls to .229 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 117.68
3c Nikkei now just above 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI: 32.54 and Brent: 33.02
3f Gold up /Yen down
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .518% German bunds in negative yields from 6 years out
Greece sees its 2 year rate rise to 8.38%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 8.53% (yield curve flat)
3k Gold at $1103.10/silver $14.00 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 50/100 in roubles/dollar) 75.35
3m oil into the 32 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 0.9964 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0857 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 falls to + .518%/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 2.15% early this morning. Thirty year rate at 3% at 2.94% /POLICY ERROR
Overnight rate: 0.20% (policy error)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
let us begin:
Last night, SUNDAY night, MONDAY morning: Shanghai down 5.5%% / Hang Sang falls badly. The Nikkei was closed for a holiday.Chinese yuan up considerably on POBC interbvention but still they desire further devaluation throughout this year. Oil is slightly down,. Stocks in Europe mostly in the green. Offshore yuan trades at 6.69 yuan to the dollar vs 6.5650 for onshore yuan. The POBC soaks up considerably off shore yuan in Hong Kong causing shortages of yuan and this in turn causes HIBOR to rise to 13.45%
<Markets were in turmoil throughout the early evening last night
Something Just Snapped In FX Markets: Rand Crashes Most Since Lehman As Yen Surges To 1-Year Highs
Then China opens for trading as we witness the POBC soak up huge amounts of yuan in Asia which then causes a scarity of yuan and thus the HIBOR rises to 13.4%:
(courtesy zero hedge)
China Contagion Spills Over To Hong Kong Banks As HIBOR Explodes To Record High, Stocks Tumble
Chinese stocks are trading at the lows of the day after Overnight HIBOR rates (Hong Kong’s interbank borrowing rate) exploded a stunning 939bps to a record high 13.4%. It is clear that banks are utterly desperate for liquidity and/or are extremely concerned about one another’s counterparty risk. This has dragged HSCEI down 5% (to its lowest since Oct 2011).
Evidently the pressure between On- and Off-shore Yuan was too much for banks to bear...
Smashing Hang Seng China Enterprise Index down 5% to its lowest since October 2011
As we explained earlier, as Asian markets opened (ahead of the Yuan fix), they were in turmoil with FX markets crashing (JPY rallying as carry trades unwound), equity markets tumbling (Dow, Nikkei, and China A50), commodity carnage (crude and copper carnage) as Gold and bonds were bid. With offshore Yuan sliding ahead of the fix (and Onshore Yuan 3 handles cheap to Friday’s fix), CFETS RMB Index dropping below 100 for the first time, and following Friday’s ‘token’ stability, The PBOC decided to hold Yuan Fix practically unchanged for the second day. USDJPY and equity markets jumped on the news, then quickly faded.
We have seen this “stability” before…
Asian stocks collapse to lowest since October 2011…
Chinese media is pushing rumors of rate cuts and urging people that they do not need USD(despite the lines we noted earlier) demanding theyhave more patience… (via People’s Daily)
More patience is needed for the Chinese economy which is in a transition period, as it transfers from old to new economic growth drivers while also facing a backdrop of a slowing global economy, the People’s Daily reports citing academics. It would be too opinionated to judge that the Chinese economy would suffer a hard landing based on short-term fluctuations as many factors have had an impact on the yuan’s recent depreciation and the stock market’s falls.
“The fundamentals of many economic crises is the psychological panic problem, and we need to take good care of the market and foster new drivers; conclusions on the Chinese economy can’t be made in a rush based on the short-term or partial changes,” said Zhang Tiegang, professor at the Central University of Finance and Economics.
Yeah – all psychological.
Offshore Yuan was tumbling before the Fix…
As were Chinese stocks:
- *FTSE CHINA A50 JANUARY FUTURES SLIDE 3%
Of course, The Keynesian have a solution for all this…
- *STIGLITZ: RECENT CHINA MARKET VOLATILITY ISN’T CATACLYSMIC
- *STIGLITZ: CHINA NEEDS DEMAND BOOST TO AVOID DEEPER DOWNTURN
It’s that simple eh?!
The reaction to PBOC “stability” is not good:
- *MSCI ASIA PACIFIC EX-JAPAN INDEX DROPS 1.7%, EXTENDING LOSS
- *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 1.7% TO 3,131.85
And Dow futures jumped 80 point and then dumped 100…
Chinese stocks are tumbling…
And ChiNext is now down over 21% YTD…
* * *
As we detailed earlier, markets were turmoiling into the China Fix…
China ripples may be turning into tsunamis. As FX markets creep open, something serious must have snapped. The South African Rand just crashed 10% – the biggest single-day drop since Lehman – to new record lows. At the same time, carry trades are being unwound en masse, smashing USDJPY down to 116.75 (strongest Yen in a year). Somebody do something!!!
The South African Rand crashed 10% to a record low against the USD of 17.9169. This 10% collapse is the largest on record outside of the immediate post-Lehman move…
Don’t forget – As goes the South African Rand, so goes The World?
Korean Won plunges to its lowest since July 2010…
And Yen is surging…
Smashing Nikkei futures down over 500 points from Japan’s close….
As USDJPY tumbles so US Equity markets are slumping…
And crude is carnaging…
Copper flash-crashed at the open and is now retesting…
It appears people were expecting some Chinese intervention over the weekend… and so far have been disappointed.
For now, Gold is bid as a safe haven…
It Begins: FXCM Doubles Yuan Margins, Warns Of Market “Disruption And Highly Illiquid Conditions”
The last time FX brokers, still hurting from the Swiss National Bank’s revaluation shocker from last January which forced brand names such as FXCM to seek an urgent bailout, scramble to hike margins was in late June just ahead of the Greek “event risk” weekend, when numerous brokers either hiked margins on EUR positions or went to “close only” mode due to “uncertainty surrounding the Greek debt negotiations… that could lead to high volatility on the market.”
So, barely one week into the new year, one which has seen the stock market suffer its worst ever first week of trading, some FX brokers are not taking chances, and in the aftermath of the aggressive plunge in the Yuan (one we warned about a month ago), have decided to minimize client stop-out risk by hiking margins.
Case in point, here is FXCM with a just released warning about upcoming “highly illiquid conditions” leading to a doubling in Yuan margins:
We believe there is a chance of disruption and highly illiquid conditions in the forex market during the coming weeks (and/or months). Please be aware that market gaps tend to occur over the weekend – that is, currencies trade at prices considerably distant from previous levels.
Margin requirements will double on the USD/CNH pair after market close on January 15, 2016. See a Complete List of New Margin Requirements
Please review your account to ensure that you have enough available margin to support any new positions. You may deposit additional funds at www.myfxcm.comor close positions as needed.
Follows the traditional disclaime which FXCM itself probably should have taken to heart one year ago when after the SNB’s de-pegging the firm suffered tremendous losses:
Remember that forex trading can result in losses that could exceed your deposited funds and therefore may not be suitable for everyone, so please ensure that you fully understand the high level of risk involved.
The paradox here is that pre-emptive, if correct, warnings such as this one, tend to quickly become self-fulfilling prophecies as other brokers immediately follow suit and likewise increase margin requirements, which helps mitigate total loss potential but just as quickly soaks up liquidity from the market, leading to an even more fragmented market, prone to sudden, and quite dramatic moves.
46 Months Of Accelerating Deflation Mean Beijing Is Now Trapped
It may be Saturday, but there is no rest for the onslaught of negative data from China, which overnight reported the latest, December, consumer and producer price inflation numbers, with the former printing at 1.6% Y/Y, matching consensus estimates, and a tiny increase from the 1.5% in November: the modest pick up was due to one-time items, primarily vegetable prices. For all of 2015, CPI rose 1.4%, down from 2.0% in 2014, and the slowest annual increase since 2009 and well below Beijing’s goal of keeping last year’s inflation below 3%.
It was wholesale inflation which again was the more troubling of the two prints, with PPI declining at 5.9% for the 5th consecutive month, below the -5.8% consensus, and printing negative for almost 4 years, or 46 months, in a row, highlighting the deeply entrenched pressures facing China’s manufacturers as the economy cools. The biggest contributors to the PPI drop were extraction and raw materials, which plunged by 19.7% and 10.3% over the past year, respectively. For all of 2015, the PPI fell 5.2% compared with a decline of 1.9% in 2014.
The modest CPI rebound was due to food prices, which rose 2.7% in December, up slightly from November, while nonfood items rose 1.1%, matching November’s increase. Vegetables seem to be a bit more expensive recently, the WSJ cited a 45-year old Beijing homemaker wearing a cream-colored down jacket who gave her surname as Li, adding that she hasn’t noticed much change in the price of meat or fruit.
Ms. Li said her family isn’t planning on buying any new appliances but might purchase a car if it can win a license plate, which are allocated in Beijing by lottery to reduce congestion and pollution. “Most of the time, if I need something, I’ll just buy it,” she said.
Goldman’s quick take on the Chinese data:
CPI inflation was in line with market and our expectations. Higher food prices (especially the price of fresh vegetables and fruits) contributed to the increase in overall CPI. Non-food inflation decelerated from November on a sequential basis. Core CPI (excluding food and energy) was up 1.5% yoy (vs. November: 1.5% yoy), which implies sequential inflation of 1.5% mom ann (vs. 1.2% mom ann in November).
PPI inflation came in at -5.9% yoy in December, below market and our expectations. On a sequential basis, producer prices fell 5.8% on month-over-month annualized seasonally adjusted basis, compared with -5.7% in November.
While December CPI inflation edged up from November, it was mainly driven by food price increase during winter and will likely fall in the next several months. PPI inflation was below expectations. We continue to expect further easing on the monetary policy front (our baseline expectation is 75 bps cut in RRR to largely offset liquidity drain from FX outflows each quarter of this year, and two 25 bps benchmark interest rate cuts this year). We believe policy makers are also likely to rely on fiscal and quasi-fiscal (via policy banks) policies to support growth.
Other analysts agree and are confident that another wholesale burst of stimulus is imminent,most likely in the form of an RRR cut:
“The inflation profile remains soft,” said Commerzbank AG economist Zhou Hao. “China will maintain a relaxed monetary policy to reduce the local borrowing cost for corporates.” Mr. Zhou added that yuan exchange rates are expected to weaken further as China attempts to reduce its external debt. China’s consumer inflation remains soft while deeper than expected factory deflation last month suggests that Chinese companies need to reduce their debt as overcapacity continues to fuel losses in many industries, said Commerzbank AG economist Zhou Hao.
Just like in the west, Beijing is hoping that China’s depreciating currency could add to inflationary pressure by pushing up the cost of imported goods in yuan terms, said Oliver Barron, China research director with investment bank North Square Blue Oak. He added that Beijing will likely have to ease monetary policy to cushion the impact of industrial restructuring and rising debt levels.
“So a potential benefit if inflation is below target is the reform aspect,” Mr. Barron said. “It’s easier when inflation is low.”
China’s producer-price index declined 5.9% in December from a year earlier, unchanged from the decline in November. It was the PPI’s 46th consecutive monthly decline as Chinese manufacturers continue to battle fierce price pressure and fight overcapacity.
Less downward pressure on prices at the factory gate in the coming months would signal that the government is serious about reducing excess capacity, although progress is likely to be incremental, Mr. Barron said. “There’s still huge overcapacity in the industrial sector that’s not being addressed,” he said. “I think the government’s push to address overcapacity this year will go slowly.”
Which brings us to Keynesian problem #1: while lower prices helps an economy if consumers and companies use the savings to buy and invest, protracted price declines may encourage them to delay spending in the belief that waiting will result in still lower costs in the near future, dragging down already slowing growth. While this is great news for consumers, it is terrible for levered corporations who provide goods and services. And in a country in which total debt is 3.5x more than GDP deflation, any accelerating deflation means a debt crisis, with trillions in bad debt finally floating to the surface, is inevitable.
Finally, even if China does engage in more stimulus, which it will perhaps as soon as this week when it cuts either RRR or its interest rate (or both) again, there are two major problems:
- With its economy rapidly slowing down and millions of (very angry) people in the process of being laid off, leading to record strikes and a groundswell of social unrest, the last thing the government can afford to do now is to force companies to cut costs even more when, as a result of a plunging currency, soaring import prices (see Japan) will slam profit margins and lead to even more layoffs.
- As China depreciates even more (recall that a month ago we predicted at least another 15% in CNY devaluation, something Bloomberg agrees with today), it will face even more capital outflows: at least $670 billion according to BBG, which in turn will drastically cut the country’s pile of FX reserves (and put pressure on US Treasurys). That would come at the worst possible time: just as China’s banks are forced to begin recognizing the huge pile of non-performing loans as a result of a tsunami of pent up corporate defaults mostly in the commodity sector, which as we reported back in October, is as much as $3 trillion, and which as we followed up yesterday, is the basis for Kyle Bass’s top trade of the year, shorting the Yuan.
Of course, the longer China does nothing, the greater its problems will become as the status quo is the status quo is also fundamentally destructive. As such Beijing needs to choose: either collapse the economy in a deflationary wave, leading to a debt crisis and widespread social unrest, or devalue massively overnight in hopes of stimulating inflation, leading to collapsing profit margins, and even more widespread social unrest.
In short, our condolences China: having decided to adopt Western neo-Keynesian economics, with the typical monetarist bent, you too are now trapped with no way out. But don’t worry: so is everyone else. Good luck.
China’s Plunge Protection Team Bought ¥1.8 Trillion In Stocks In 2015
There was a palpable sense of disappointment among US traders who woke up this morning, expecting China to have announced another major stimulus – whether an RRR or full-blown interest rate cut – following Saturday’s announcement that after 46 consecutive months of wholesale deflation, not to mention a historic market rout, China had not engaged in another round of monetary, or at least fiscal, and very much self-defeating stimulus.
The mood turned even more sour when the same traders, used to getting bailed out by central banks or nation states, read the tape from the overnight Bloomberg, according to which China’s premier was quoted by Beijing News as vowing that there would be “no more strong stimulus on the economy“.
Just as bad, the prime minister added that China wouldn’t seek strong stimulus or flood the economy with too much money to expand demand, Beijing News quoted Li Keqiang as saying in Taiyuan city.
Li then added that China will try its best to develop new business models and create new drivers for the economy, which naturally is bad news for a market which is used to the old, conventional form of “growth”: throwing trillions in cash at the problem and hoping something sticks.
Finally, and most confusing, was Li saying that China must take concrete measures to ease overcapacity in the steel and coal sectors.
Why this is confusing is that just on Friday, CRI reported that China “will provide full support for the coal and steel sectors, which suffer serious overcapacity, to help them out of their current difficulties, according to an official statement issued Thursday. Since last year, overcapacity in those sectors became a prominent problem due to weak demand at home and abroad and dropping commodity prices on the global market, the statement cited Premier Li Keqiang as saying at a meeting on the topic.”
This, to us at least, sounds like a promise of another bailout and quite contrary to the Beijing News report.
But where things get even more confusing is that despite intervening in the market, as it did on two occasions last week to prop up stocks, the PBOC is now increasingly shifting away from an activist approach toward the Chinese stock market.
Which begs the question: why spend all those billions to prop up the stock market in 2015 if China will no longer do this? And what will happen to the US if, as many expect, China not only allows the Yuan to depreciate aggressively in hopes of boosting inflation (even if all it will achieve is to stimulate social unrest) but steps aside the next time the market crashes.
But how many billions (or trillions) did China’s so-called “national team” spend to prop up stocks in recent months? According to Goldman not less than CNY1.8 trillion in the June-November period.
Finally, why this is very bad news for Chinese stocks is that as Goldman further notes, “major individual shareholders (>5%) holding as much as Rmb1tn worth of shares are incentivized to sell.”
If the PBOC is not there to provide the bid, all hell could break once again, as soon as start of trading tonight East Coast time.
This Is The $3.5 Trillion “Neutron Bomb” That Keeps Kyle Bass Up At Night
Earlier today, CNBC invited Kyle Bass, the man who correctly predicted and profited from the subprime collapse, to discuss what he thought was the biggest threat to the global financial system.
Here is the highlight of what he said:
What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion.
He then puts this number in the context of China’s “massive” foreign reserves:
What’s the magic number in their FX reserve pile today? When you look at banking system assets divided by their foreign exchange reserves, China is 7x, it’s one of the worst in the world. I think people are mypoically focused on a giant number of reserves, of $3 trillion or thereabouts, and no one is really paying attention to the size of the system and what’s about to happen.
Actually that’s not true: we first pointed this out more than 2 years ago, when we showed “How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water.”
A few weeks later we followed up with another stunning chart showing “How In Five Short Years, China Humiliated The World’s Central Banks.” However, we do agree fully with Bass that virtually nobody else is paying attention to this epic question of scale, especially as it relates to another topic we have been covering for the past two years: China’s soaring, and dramatically underreported non-performing loans.
More on that in a second, but first a quick reminder that as we also reported over the weekend, for Kyle Bass, “The Greatest Investment Opportunity Right Now” is to short the Chinese currency: a trade which just in the past week has generated tremendous returns (using the embedded FX leverage), and which we are confident will continue to be very profitable, especially since as we first said in August, days before China’s devaluation, the only thing that could save China’s economy from an even harder landing, is to rapidly devalue their currency. China did just that, and has been doing that ever since.
Earlier today, even Goldman – with a huge delay – finally came to see things correctly, when it said that:
“We are adjusting our USDCNY forecast weaker, to 7.00 on a 12-month horizon (our twelve-month forecast was 6.60 previously) and 7.30 by end-2017 (from 6.80 previously). Though markets have been moving quickly, and today’s lower USDCNY fixing suggests the possibility that policymakers may want to stabilize expectations for the CNY, this puts us back on the weak side of market pricing over a twelve-month horizon, consistent with our view that 2016 will be a year of continued “bumpy deceleration” and significant policy easing in the Chinese economy, and that the potential for greater CNY depreciation remains a large source of uncertainty.”
So going back to Kyle Bass’ thesis, it a relatively simple one: China has been avoiding a credit, or non-performing loan cycle, and fabricating the data, but the time has run out.
“China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it’s killing them… China’s effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle.”
So what exactly is this non-performing loan cycle that Kyle Bass is referring to, and where does he get a $3 trillion potential loan loss – a quantum step in admission of economic failure which we first dubbed China’s neutron bomb” in October 2015 – number?
Luckily, we explained all of this two months ago when we showed how “China’s Banking Sector Is Sitting On A $3 Trillion Neutron Bomb.” For those who missed it, here is the explanation behind what could be the best trade of the next 12-18 months (the best trade of 2015 incidentally was to be long Glencore CDS, as we suggested in 2014) according to Kyle Bass:
* * *
We’ve long contended that official data on bad loans at Chinese banks is even less reliable than NBS GDP prints. Indeed, the lengths Beijing goes to in order to obscure the extent to which banks’ balance sheets are in peril is truly something to behold and much like the deficient deflator math which may be causing the country to habitually overstate GDP growth, it’s not even clear that China could report the real numbers if it wanted to.
We took an in-depth look at the problem in “How China’s Banks Hide Trillions In Credit Risk: Full Frontal”, and we’ve revisited the issue on a number of occasions noting in August that according to a transcript of an internal meeting of the China Banking Regulatory Commission, bad loans jumped CNY322.2 billion in H1 to CNY1.8 trillion, a 36% increase. Of course that’s just the tip of the iceberg. In other words, that comes from a government agency and although the scope of the increase sounds serious, it still translates into an NPL ratio of just 1.82%. Here’s a look at the “official” numbers (note that when one includes doubtful accounts, the ratio jumps to somewhere in the neighborhood of 3-4%):
There are any number of reasons why those figures don’t even come close to approximating reality. For instance, there’s Beijing’s habit of compelling banks to roll over bad loans, and then there’s China’s massive (and by “massive” we mean CNY17 trillion) wealth management product industry which, when coupled with some creative accounting, allows Chinese banks to hold some 40% of credit risk off balance sheet.
Well as time goes on, and as market participants scrutinize the data coming out of the world’s second most important economy, quite a few analysts are beginning to take a closer look at the NPL data for Chinese banks. Indeed, if Beijing continues to move toward “allowing” defaults to occur (even at SOEs) and if China’s transition from smokestack economy to a consumption and services-driven model continues to put pressure on borrowers from the manufacturing sector, the situation is likely to deteriorate quickly. If you needed evidence of just how precarious things truly are, look no further than a recent report from Macquarie which showed that a quarter of Chinese firms with debt are currently unable to cover their annual interest expense (as you might imagine, it’s even worse for commodities firms).
Just two weeks after we highighted the Macquarie report, we took a look at research conducted by Hong-Kong based CLSA. Unsurprisingly, it turns out that Chinese banks’ bad debts ratio could be as high 8.1%, a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator.
We called that revelation China’s “neutron bomb” but it turns out we may have jumped the gun. According to Hong Kong-based “Autonomous Research”, the real figure may be closer to 21% when one takes into account the aforementioned shadow banking sector. Here’s more from Bloomberg:
Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks.
Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered.
The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. Bank of China Ltd. reported on Thursday its biggest quarterly bad-loan provisions since going public in 2006.
Charlene Chu, who made her name at Fitch Ratings making bearish assessments of the risks from China’s credit explosion since 2008, is among those crunching the numbers.
While corporate investigator Ho relies on her observations from hitting the road, Chu and her colleagues at
Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions.
While traditional bank loans are not Chu’s prime focus — she looks at the wider picture, including shadow banking — she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher.
“A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,” said Chu. “China is confronting a massive debt problem, the scale of which the world has never seen.”
As a reminder, here’s a look at the scope of the “problem” Chu is describing:
And here’s a bit more on special mention loans and the ubiquitous practice of “evergreening”:
Slicing and dicing the official loan numbers, Christine Kuo, a senior vice president of Moody’s Investors Service in Hong Kong, focuses on trends in debts overdue for 90 days, rather than those classified as “nonperforming.” Another tactic some analysts use is to add nonperforming debt to “special mention” loans, those that are overdue but not yet classified as impaired, yielding a rate of 5.1 percent.
Banks’ bad-loan numbers are capped by “evergreening,” the practise of rolling over debt that isn’t repaid on time, according to experts including Keith Pogson, a Hong Kong-based senior partner at Ernst & Young LLP. Pogson was involved in restructuring debt at Chinese banks in 1998, when their NPL ratios were as high as 25 percent.
So let’s just be clear: if 8% is a “neutron bomb”, a 21% NPL ratio in China is the asteroid that killed the dinosaurs. Here’s why:
If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 20% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $3 trillion.
That, as we suggested three weeks ago, may help to explain why round after round of liquidity injections (via RRR cuts, LTROs, and various short- and medium-term financing ops) haven’t done much to boost the credit impulse. In short, banks may be quietly soaking up the funds not to lend them out, but to plug a giant, $3 trillion, solvency shortfall.
In the end, we would actually venture to suggest that the real figure is probably far higher than 20%. There’s no way to get a read on how the country’s vast shadow banking complex plays into this but when you look at the numbers, it’s almost inconceivable to imagine that banks aren’t staring down sour loans at least on the order of a couple of trillion.
To the PBoC we say, “good luck plugging that gap” and to the rest of the world we say “beware, the engine of global growth and trade may be facing a pile of bad loans the size of Germany’s GDP.”
We close with the following from Kroll’s senior managing director in Hong Kong Violet Ho (quoted above):
“A credit report for a Chinese company is not worth the paper it’s written on.”
Yuantervention Extreme – Offshore Yuan Explodes 850 Pips Higher, Biggest Jump Ever
While some central banks prefer to stealthily ‘manage’ their markets, a bid here, a stick-save there, today’s epic intervention, short-squeeze, carry-trade-carnage in Offshore Yuan is the most visible hand yet in the new normal world of central planning. USDCNH is now down over 850 pips on the day – a record 1.25% strengthening in the offshore Yuan…
CNH is now 15 handles stronger from the “halt” spike lows last week…
This is the biggest single-day drop in USDCNH (strengthening in Offshore Yuan) since records began…
One wonders if the move is over now…
Thousands Flood The Streets In Germany As Fury Over Refugee Sex Assaults Reaches Boiling Point
Update: the water cannons are out as is the tear gas:
Over the last several days, more information has come to light with regard to the wave of sexual assaults that occurred across Europe on New Year’s Eve.
What some observers initially assumed was an set of isolated attacks in Cologne’s city center now appears to have been a bloc-wide phenomenon as women from Austria, to Switzerland, to Finland come forward to report being accosted by what some police say were gangs of drunken Mid-East asylum seekers.
“In Sweden, police said at least 15 young women reported being groped by groups of men on New Year’s Eve in the city of Kalmar,” AP reports, adding that “in Finland, police said they received tipoffs on New Year’s Eve that about 1,000 predominantly Iraqi asylum seekers were intending to gather near the main railway station in Helsinki and harass passing women.”
“Women with or without accompaniment went through a literally ‘gauntlet’ by the heavily intoxicated men masses, as one can not describe it,” a clumsy translation of a report by the German Federal Police reads. Some have suggested that the string of attacks was initially played down by the media and by German authorities in an effort to avoid triggering an anti-migrant backlash. Indeed, the mayor of Cologne, Henriette Reker, got herself in a bit of hot water for comments which seemed to suggest it is German women’s responsibility to keep would-be attackers at “arm’s length” and to not send the wrong message to “people from other cultures” by acting too “jolly and frisky.”
Meanwhile, Angela Merkel is attempting to salvage the “yes we can” narrative vis-a-vis Berlin’s refugee open-door policy while simultaneously condemning the attacks.
On Friday, Cologne’s police chief Wolfgang Albers was dismissed in connection with his department’s mishandling of the ordeal.
According to a draft document seen by Reuters, Germany may now change its policy with regard to the deportation of refugees. “The paper says refugees and asylum seekers who have been sentenced to prison or probation should be barred from eligibility for asylum,’ Reuters writes. “Why should German taxpayers pay to imprison foreign criminals,” Vice Chancellor Sigmar Gabriel asked. “The threat of having to spend time behind bars in their home country is far more of a deterrent than a prison sentence in Germany.”
(“Respect us! We are not fair game even when naked!” a sign held by Swiss artist Milo Moire reads)
“Women’s groups and many politicians have long been arguing that Germany’s sexual assault law is archaic, with loopholes that mean groping and surprise attacks are not necessarily prosecutable unless the woman tries to fight off the attack – which police often advise against,” Deutsche Welle notes. “There have been very many cases that you and I would probably unequivocally describe as rape or sexual assault that haven’t come to a conviction, because the women allegedly didn’t defend themselves enough,” Elke Ferner of the Social Democratic Party’s women’s group told the broadcaster.
That law is about to be changed thanks in part to the attention the New Year’s attacks have brought to the issue.
And speaking of drawing attention to the attacks, protesters are once again massing in Cologne where “thousands” of demonstrators took the streets on Saturday. “The protesters included the Islamophobic Pegida movement and the right-wing extremist Pro Cologne party” USA Today says.
More than 1,500 police officers were deployed across the city in anticipation of the rallies. Here’s more from DPA:
Cologne police are gearing up for a day of highly charged demonstrations, with 1000 far-right protesters expected to hit the streets in response to the mass sex assaults and thefts targeting women on New Year’s Eve.
Hundred-strong teams of police were deployed on Saturday to locations across the western German city, totalling 1700 officers, a spokesman said.
The Islamophobic Pegida movement and the right-wing extremist Pro Cologne party were to stage a rally on the square in front of the main train station, where about 1000 intoxicated men are thought to have robbed, sexually assaulted and, in some cases, raped women during turn-of-the-year celebrations.
Of the 32 suspects identified by police in Cologne, 22 are asylum seekers, the German Interior Ministry said.
One suspect was carrying a document with Arabic-German translations of sexist phrases and threats, which mass-circulation tabloid Bild published on Saturday.
Several pro-migration counter-protests have also been planned for Saturday, underscoring the division in German society over the government’s open-door migration policy, which allowed more than one million people to enter the country last year.
And from Reuters:
Migrants who commit crimes should lose their right to asylum, German chancellor Angela Merkel said on Saturday, toughening her tone as crowds gathered in Cologne angered by mass assaults on women on New Year’s Eve.
Nearly two dozen asylum seekers were among those suspected of carrying out the attacks, police said this week, heightening tensions over immigration and fuelling criticism of Merkel’s refusal to place a limit on the numbers of migrants entering the country.
“The right to asylum can be lost if someone is convicted on probation or jailed,” Merkel said after a meeting of the leadership of her Christian Democrats (CDU) party.
“Serial offenders who repeatedly rob or repeatedly affront women must feel the full force of the law,” Merkel told journalists in Mainz, promising a reduction over the longer term in the flow of migrants to Germany.
Under German law, asylum seekers are typically only deported if they have been sentenced to at least three years in prison, and providing their lives are not at risk at home.
About 1,700 police officers were on the streets of Cologne as protesters, including members of the anti-Islam PEGIDA movement, waited for official permission to march through the city.
At a separate left-wing protest, more than 2,000 mostly women gathered close to the train station where many of the attacks, including muggings and sexual assaults, happened.
So once again, we see a deeply divided society, with right-wing demonstrators staging a kind of “we told you so” rally and pro-refugee Germans staging counter protests even as they decry the wave of assaults.
Meanwhile, the flow of asylum seekers continues unabated. “We had an average influx of 3,200 refugees per day arriving in Germany, and the numbers are not declining in the last days,” Ole Schroeder, the deputy German minister, told a briefing in Brussels. “Our problem at the moment in Europe is that we do not have a functioning border control system, especially at the Greece-Turkey border,” he added.
Where things from here is an open question but it appears many Germans are at their breaking point. How TIME’s person of the year responds may ultimately determine how the world remembers one of the most indelible and revered politicians in European history.
“Rapefugees Not Welcome”: Germany Erupts Into Chaos As “Mein Kampf” Reprint Flies Off Shelves
Anger over a wave of sexual assaults that occurred across the EU on New Year’s Eve reached a boiling point in Germany on Saturday when some 1,700 people attended a rally organized by the anti-Muslim PEGIDA movement.
PEGIDA, which nearly fizzled early last year, gained in popularity as hundreds of thousands of Mid-East asylum seekers responded to Angela Merkel’s open-door refugee policy by flooding across Germany’s borders. Initially, many Germans met the the migrants with hugs and gifts, but as the months wore on, sentiment gradually soured and attendance at PEGIDA rallies once again spiked with as many as 20,000 people showing up for an October demonstration.
Seeking to capitalize off the assaults that were allegedly perpetrated by groups of marauding Arab refugees in Cologne, PEGIDA took to the streets this weekend and predictably, clashes with riot police ensued.
“Demonstrators, some of whom bore tattoos with far-right symbols such as a skull in a German soldier’s helmet, had chanted ‘Merkel must go’ and ‘this is the march of the national resistance’”, Reuters writes. Another banner read: “Rapefugees not welcome.”
Ultimately, police rolled out the water cannons to disperse the crowd, which authorities say was at least partially comprised of “known hooligans” – whatever that means.
Some protesters hurled firecrackers and bottles at officers and in a testament to just how divided the country has become, dozens of counter demonstrators massed to protest the PEGIDA protest. Here’s a short clip which depicts the chaos:
The rallies came as Merkel signaled the German government may soon move to deport offenders. “The right to asylum can be lost if someone is convicted, on probation or jailed,” Merkel said following a meeting of the CDU’s top brass. “Merkel’s remarks on Saturday were in stark contrast to her earlier optimism about the influx to Germany, which has taken in far more migrants than any other European country,” Reuters remarked.
As we wrote on Saturday, “how TIME’s person of the year responds may ultimately determine how the world remembers one of the most indelible and revered politicians in European history.”
Indeed, some among the crowd openly called for the Iron Chancellor’s head (figuratively speaking). “Merkel has become a danger to our country. Merkel must go,” a speaker told the crowd which, as Reuters goes on to note, “loudly echoed the call, expressing their anger at Germany’s 1.1-million-strong migrant influx last year.”
“These women who fell victim will have to live with it for a long time. I feel like my freedom has been robbed,” one mother of four said.
The anger was just as palpable on the opposite side as many Germans see PEGIDA’s growing support as a dangerous blast from the country’s troubled past. Some 1,300 leftist demonstrators from the counter-protest shouted “Nazis raus!” (Nazis out!), while holding signs that read “There is nothing right about Nazi propaganda,” and “Fascism is not an opinion, it is a crime”.
“We are there to tell them to shut up. It is unacceptable for PEGIDA to exploit this horrible sexual violence perpetrated here on New Year’s day and to spread their racist nonsense,” one counter-protester said.
Meanwhile, in an eerie twist of fate, the seven decade ban on publication of Mein Kampf expired this month in Germany. Although anyone is now techinically free to publish Hitler’s manifesto, the definitive edition will be a 2,000 page annotated volume published by the Institute for Contemporary History in Munich.
Ronald Lauder, president of the World Jewish Congress, says it “‘would be best to leave ‘Mein Kampf’ where it belongs: the poison cabinet of history.'” “‘Unlike other works that truly deserve to be republished as annotated editions, ‘Mein Kampf’ does not,'” he adds. ICH director Andreas Wirsching said the following of the new edition in an interview with Deutsche Welle:
Our edition is particularly aimed at historical researchers. It can’t be denied that Hitler’s “Mein Kampf” is certainly an important historical document. The book is a source for information on his life, his thinking and most importantly, the history of National Socialism as a whole, and therefore it’s meant for research purposes.
But I’m certain that with this edition’s styling, we will reach an even wider audience due to the great interest in this topic. The commentaries are in part brief academic annotations, and we have added a detailed index to easily access the content. Public interest in this topic is so vast, and so we hope that maybe a few non-experts will also take a look at our edition.
While we can’t say for sure whether the buyers are “non-experts,” some people are indeed “taking a look.” As The Daily Mail reports, the new edition “was an instant sellout when it hit bookstores in Germany for the first time since the Second World War.” Like a unicorn tech IPO, the launch was oversubscribed as there were nearly four times as many orders as available copies. “More than 15,000 advance orders were placed, despite the initial print of 4,000 copies,” The Mail continues, adding that “one copy [was] even put up for resale on Amazon.de for €9,999.99.
And so, it would appear that PEGIDA leader Lutz Bachmann was indeed correct last year when he posted the following picture of himself on Facebook with the caption “He’s back.”
Glencore CDS Soar To 6 Year High After Bankruptcy Of US Subsidiary, Ongoing Copper Carnage
While the biggest bankruptcy story of the day is this morning’s chapter 11 filing by Arch Coal,one which would trim $4.5 billion in debt from its balance sheet while handing over the bulk of the post-reorg company to its first-lien holders as part of the proposed debt-for-equity exchange, the reality is that the Arch default was widely anticipated by the market.
However, another far less noted and perhaps far more significant bankruptcy filing was that of Sherwin Alumina Co., a U.S. unit of commodity trading giant Glencore PLC, whose troubles have been extensively detailed on these pages. The stated reason for this far more troubling chapter 11 was “challenging market conditions” which is one way to describe an industry in which just one remaining U.S. smelter will be left in operation after Alcoa shut down its Warrick Country smelting ops last week.
A spokesman for Glencore, which owns the entire business, said the commodities producer and trader is “supportive of the restructuring process undertaken by Sherwin and is hopeful of an outcome that will allow for the continued operation of the Sherwin facility.”
Sherwin said it will continue to operate while in bankruptcy and that Corpus Christi Alumina, another unit of Glencore, has offered to purchase almost all of Sherwin’s assets for an undisclosed sum.
This peculiar action between two subsidiaries of Glencore refocused the market’s attention on the one company which in September was among the hardest hit in the post-China devaluation rout, and the immediate result was that while Glencore stock plunged and is once again approaching all time lows, a more ominous development was that GLEN’s CDS spiked to as much as 950 basis points, the highest since April 2009 and suggesting far more pain is in store for the commodity trading giant.
The story of Glencore is well-known to regular readers, but here is the summary from Bloomberg, for those unfamiliar:
Slumping commodity prices have battered Glencore, prompting it to scrap a dividend payment, sell new shares and outline asset sales as it seeks to curb debt to maintain its investment-grade rating. Copper dropped to a six-year low amid a rout in metals as muted Chinese inflation increased concern that demand from the world’s largest buyer of raw materials will slow.
“CDS levels are driven by commodity prices and in the case of Glencore, especially copper,” said Max Mihm, a Frankfurt-based portfolio manager at Union Investment, which holds Glencore bonds among assets totaling about $271 billion. “If prices fall further and stay low Glencore will need to do more to protect its IG ratings.”
A Glencore spokesman declined to comment on its credit default swaps.
Copper for delivery in three months fell 1.9 percent to $4,399 a metric ton as of 4:46 p.m. on the London Metal Exchange, the lowest since April 2009. The Bloomberg World Mining Index of 80 equities fell for a fourth day to the lowest since June 2004.
Furthermore, while we have been following with great interest the plight of Glencore’s oriental cousin, Asia’s largest commodity trader, Noble Group, in the aftermath of its junking by both rating agencies (most recently in “Noble Group’s “Margin Call” Part II: The Enron Moment“) a move which will may unleash terminal collateral calls, something duly reflected in its all time low stock price, we have yet to see a comparably downgrade to junk status for Glencore.
Somehow we doubt that after today’s bankruptcy of Sherwin Alumina we will have much longer to wait, which means that the CDS of Glencore, already trading just south of 1000 bps, or 15-17 points upfront, are about to take another quantum leap wider pushing Glencore’s default even higher. Incidentally, as of right now, the market predicts a 55% probability of Glencore default over the next 5 years.
Compare this to the 181 bps GLEN CDS was trading at when we first revealed it as the “The Cheapest (And Most Levered) Way To Play The Chinese Credit-Commodity Crunch” in March 2014, a time when instead of coming up with original ideas the “smart money” was instead piling into Valeant which is already down about 15% in 2016 alone…
Mid-East Massacre: Equity Markets Plunge From Bahrain To Kuwait
With all eyes focused on tonight’s China open (and the “oops, China matters after all” meme), the Middle-East has fallen off the front (or back) pages of mainstream media. However, the last few days have been a bloodbath (analogistically as opposed to literally) across the Middle-East with Saudi stocks plunging 2.5% overnight (down almost 13% in the last 5 days) and every market from Bahrain to UAE all tumbling below August lows.
Saudi’s Tadawul Stock Index has collapsed in the last few days and is now unchanged since May 2009
But it’s not just Saudi Arabia. From UAE to Kuwait, Mid-East equity markets are tumbling…
Of course, the biggest stress is seen in Mid-East FX markets where implications of major devaluations, de-pegging are growing ever wider…
Russian stocks crashing due to the low price of oil:
(courtesy zero hedge)
Russian Stocks Are Crashing
Down over 5%, Russia’s RTS Index has plunged to its weakest level since Dec 2014 and the peak of its existential crisis mid-Ukraine/currency-crisis/oil-collapse. This is Russia’s biggest one-day drop since April 2015.
Russian Stocks Are Crashing
Down over 5%, Russia’s RTS Index has plunged to its weakest level since Dec 2014 and the peak of its existential crisis mid-Ukraine/currency-crisis/oil-collapse. This is Russia’s biggest one-day drop since April 2015.
The violence between Sunnis and Shiites continue. Today a car bomb in Shiite territory inside Baghdad.
10 Dead As Gunmen Attack Baghdad Mall, Take 75 Hostages
Last week, two attacks on Sunni mosques in Iraq suggested a violent sectarian backlash may be in the cards for the war-torn country on the heels of Saudi Arabi’s move to execute prominent Shiite cleric Nimr al-Nimr.
As we noted in “Iraq Says Mosque Bombings Were False Flag ISIS Attacks,” the sectarian issue is particularly divisive in post-Ba’thist Iraq and thus it wouldn’t exactly be a surprise if the country’ Shiite majority lashed out at Sunnis following al-Nimr’s rather untimely demise.
Iraqi officials however, said the attacks were likely false flags staged by ISIS in an effort to exploit the Sheikh’s execution and derail efforts to unite Sunni tribesman and Iran’s powerful Shiite militias in a coordinated effort to drive Islamic State from the country.
Now, gunmen have taken some 75 hostages at a mall in a Shiite neighborhood in eastern Baghdad.
“Police and medical officials, who spoke on condition of anonymity because they were not authorized to brief reporters, say the gunmen set off a car bomb at the entrance to the mall on Monday before moving in,” AP reports, adding that “the officials say another 25 people were wounded in the attack and that three police are among the dead.” Here’s an image from the scene:
“At least” 10 are reported dead.
Although no one has yet taken “credit” for the attack, one has to believe this is Islamic State and if so, it marks an incursion into the Iraqi capital and a serious escalation in hostilities just as the country marked its first real “victory” in Ramadi last month.
If this is in fact ISIS, it’s worth asking which of Islamic State’s regional Sunni benefactors ordered an attack on Shiite civilians.
Massive Coverup Exposed In Sweden As Media, Cops Hid Migrant Sex Attacks
What began as a series of reports from women in Cologne who said they were sexually assaulted by men of “Arab and North African origin” on New Year’s Eve has mushroomed into a full blown crisis that threatens to further undermine support for Angela Merkel’s open-door refugee policy on the way to fomenting social upheaval in Germany.
Anger over the attacks combined with allegations that police mishandled the situation led to a series of protests last week culminating in a 1,700-strong PEGIDA rally in Cologne that ultimately devolved into violent clashes between riot police and furious right-wing demonstrators.
Then, on Sunday, gangs of “bikers, hooligans, and bouncers” attacked a group of Pakistanis in Cologne’s city center after organizing what some are calling “migrant manhunts” on Facebook. The victims of the attacks were hospitalized.
As it turns out, the Cologne attacks were not an isolated incident. Once the story started making international headlines, reports began to trickle in from Austria, Finland, and Switzerland where women reported similar attacks perpetrated by apparent refugees.
But none of this would surprise police in Stockholm.
According to Swedish media, “hordes” of young men harassed and groped young women at a youth festival and concert in central Stockholm’s Kungsträdgården last August.
Those attacks were reported to police who, according to Nyheter Idag, were willing to talk to prominent daily Dagens Nyheter. Unfortunately for the victims, the paper deliberately covered up the story in an effort to avoid triggering an anti-migrant backlash – or at least that’s what Nyheter Idag alleges. Here are some excerpts from the piece entitled “Exposing Major PC Cover-up in Sweden – Leading Daily Dagens Nyheter Refused to Write About Cologne-like Sex Crimes in Central Stockholm”:
Nyheter Idag is now able to disclose in detail how major Swedish newspaper Dagens Nyheter deliberately covered up stories about widespread sexual abuse in central Stockholm in connection with a concert in the Kungsträdgården public square this August.
On Saturday August 15th, the nationally acclaimed and outspoken feminist artist Zara Larsson headlined the youth festival ‘We Are Sthlm” with a crowded concert in Kungsträdgården in central Stockholm. Thousands of young people were in attendance to take part in the event during the last summer nights of the year.
But for an unknown number of young girls the festival soon became a nightmare. Hordes of young men pressed against young girls, fondled and tried to cop a feel over and under skirts, pants and shirts. There were severe sexual assaults happening right in front of the stage, where artists such as Larsson and rapper OIAM performed.
During a single night police and security guards had to intervene against around 90 younger males, but even adult men took part in the abuse, says an eye witness to Nyheter Idag. The eye witness has professional experience from working at the Stockholm Police Department as a psychologist.
The psychologist who knew of what had happened in Kungsträdgården contacted journalist Hanne Kjöller at Dagens Nyheter, by, among other things, e-mail on August 17. The psychologist says he specifically turned to Kjöller because he knew that she had previously written about controversial topics.
“She was very interested and listened until I told her that all the boys and men that were apprehended were young asylants (unaccompanied is the terminology used by Swedish authorities) from Afghanistan and Syria. I sensed that she changed the tone (of her voice). But she also said that she would contact the police”, he tells Nyheter Idag.
Kjöller got the phone number to one of the police officers who were on duty during the event in Kungsträdgården and could provide a recollection of the events. Nyheter Idag has talked with the police officer who Kjöller talked to in August, and he was eager to tell Dagens Nyheter about the massive cases of sexual assault against young girls in central Stockholm.
“She sent a text message to me once, early on, where she wrote that she was looking for me, she wanted to talk. After that, I tried to get in touch with her, but that was when things started to get awry. She answered sometimes, said she would get back to me. But it never amounted to anything. She was interested in it for half day or a day, then she wasn’t anymore”.
The journalist Hanne Kjöller tries to establish contact with the psychologist on January 7th about the events in Kungsträdgården nearly five months earlier. She writes an e-mail to the psychologist. “Would like to get in touch with you again after what happened in Cologne during the New Year holidays,” she writes. In the e-mail conversation it is apparent that she learned of the sexual assaults in Kungsträdgården already on August 17th, but is only now ready to give attention to what happened.
She also calls the psychologist and records a message on his voicemail.
“We had contact in August. Now, after what happened in Cologne, I would like to talk to you again. It got stuck on certain things when we were doing this in August”, says Kjöller in the voicemail.
“Hanne Kjöller contacted me again yesterday because of the events in Germany, she said it gave her a bad feeling. She was fidgeting when I asked her why she never contacted the police and never wrote an article”, says the psychologist.
He says that Kjöller claims she never got hold of the police, and that is why no article was ever published in Dagens Nyheter about the incident in Kungsträdgården. But the psychologist also says that he’s been given a different explanation. That Kjöller over the phone told him that “the editor for the Stockholm section of Dagens Nyheter had taken charge of the case herself, and (the editor) considered the story to be “SD fabrications” (SD, or Sweden Democrats, are a populist anti-migration party that for a long time has been at odds with Swedish mainstream media).
“She (Kjöller) said that her editor had used the term ‘SD fabrications’ or ‘SD falsifications’, something like that. I remember that detail specifically”, says the psychologist.
When Nyheter Idag calls Hanne Kjöller to ask why there wasn’t any article published about the massive cases of systematic sexual assaults in Kungsträdgården she first gets quiet. She then explains that this is an issue that she doesn’t care to discuss.
“I can’t talk to you about what my sources have said to me. I can’t confirm or deny anything”.
Nyheter Idag explains to Kjöller that we are privy to e-mail conversations and text messages between her and the psychologist. Nyheter Idag also explains that the psychologist have told how he feels that she and Dagens Nyheter have obfuscated, covered up, the events that took place in Kungsträdgården. And so Nyheter Idag asks Kjöller to yet again explain how it happened that a story about such serious abuse was never published.
“I’m not going to answer that. No, no, no. I don’t want to talk to you”, Kjöller says and hangs up.
Full story here
We encourage you to read the full story from Nyheter Idag, but the long and the short of it seems to be that a major Swedish daily was engaged in a coverup right up until the attacks in Cologne thrust the issue into the spotlight. As we put it last week when Cologne Mayor Henriette Reker was busy explaining that it is German women’s responsibility to keep would-be attackers at “arm’s length”: “…you’d be forgiven for suggesting that perhaps some people are going out of their way to avoid applying negative stereotypes to migrants.”
And while Nyeter Idag blames Dagens Nyheter for not listening to authorities, Dagens Nyheter is attempting to turn the tables by blaming the police. Here are some excerpts from a rather awkward translation of a piece the daily conveniently ran just a day before the Nyheter Idag piece broke:
Similarly, it was in August last year. As was held Europe’s largest youth festival “We are Sthlm” in the Royal Garden. In the audience in front of the stage, where stars like Zara Larsson appeared, took big boy bunch night after night to press against young girls and tuck their hands inside the shirts and pants.
Police officers and stewards strategy was that as quickly as possible to remove the perpetrators under the Police Act thirteenth article, which focuses on the disturbances, and only during the single night removed some 90 young men. To set up notifications and initiate criminal investigations had come second. According to DN experience has not even yet been sentenced.
One of the police officers who participated in the operation, and had to spend a lot of time on supporting the affected girls, said that the matter was regarded as sensitive. The guys that were sent were assessed namely be largely unaccompanied arrivals.
Why the extensive sextrakasserierna in central Stockholm, with some small exceptions, ended up in the media shadow for me is unclear. But the mere suspicion that the abuse been considered as difficult to describe involves a betrayal of the victims.
So it’s “unclear” to Dagens Nyheter why these attacks remained “in the shadows”, even though it may well have been Dagens Nyheter that was responsible for the media coverup. “Swedish police have come under criticism for keeping quiet about alleged sexual assault incidents by young immigrant men over the past couple of years at a music festival in Stockholm,” Bloomberg writes, add that “the allegations came to light in a report over the weekend by newspaper Dagens Nyheter, citing internal police memos.”
Here are reactions from various politicians in Sweden to the allegations (via Svenska Dagbladet):
- Prime Minister Stefan Löfven: “I feel a very strong anger that young women should not be able to go to the music festival without being offended, sexually harassed and attacked.This is a very big problem for those affected and for the whole of our country. We will not budge an inch, and we should not look away, says Löfven. The police will prosecute crimes and prosecute the guilty people. But one should not by any reason whatsoever to try to hide anything, we have a problem with it and it should be up to date, says Stefan Löfven.”
- Moderate leader Anna Kinberg Batra: “It is totally unacceptable if the police are not doing everything it can to both prevent, but also to act against sex crimes. Now it is important that it reaches what the police have done and what has actually happened and that the police take action so that something like that can not possibly happen again.”
- Milljöpartiets spokesperson Gustav Fridolin: “It is unacceptable if the police do not inform the public about the crimes committed.”
- National Police Commissioner Dan Eliasson: “If what’s alleged is true, it’s serious from several vantage points. We could perhaps have prevented that girls had been molested if we had talked clearly about this. Secondly, it’s obviously not our role to take various political aspects into account.”
Who’s at fault here? The media, the police, or the politicians? Or is it everyone to blame?
If Nyeter Idag’s allegations are true, it certainly seems possible that Dagens Nyheter was under political pressure to avoid the story if possible. Meanwhile, if Dagens Nyheter’s account is accurate, it appears the police could have been under similar pressure. After all, it’s the politicians that set the agenda, the media simply perpetuate it and the police simply enforce it, so it’s difficult to believe that the media and the police conspired alone to cover up the attacks.
In any event, we now await the inevitable public backlash and attendant protests in Stockholm which will become the latest example of a “civilized” Western city torn apart by the bloc’s worsening migrant crisis.
Now, due to China’s problems, many see India having a total meltdown;
(courtesy zero hedge)
China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”
In late September, India “surprised” 51 out of 52 economists by cutting rates a larger than expected 50 bps.
Despite RBI Governor Raghuram Rajan’s penchant for catching markets off guard and despite the fact that exports had fallen for eight consecutive months, economists still failed to predict that anything more than 25 bps was in the cards.
“The weakness in India’s exports is striking, not only in terms of past trend, but also from a cross country perspective,” Deutsche Bank wrote at the time. “Indeed, India’s exports performance has been the weakest in the region in 2015.”
In short: in a world gone Keynesian crazy, you live and die by your willingness to engage in competitive easing and with China having just a month earlier moved to devalue the yuan, India had little choice but to cut lest the export picture should darken further.
Since then the malaise has deepened.
Exports have now fallen for 12 straight months and although some of the decline is probably attributable to slumping prices (as opposed to lower volumes), it’s worrisome nevertheless.
“India’s external trade likely fell for second consecutive year in FY16E, with both exports and imports contracting by 18.5%YoY and 17.2%YoY in the period Apr-Nov’15,” Citi notes, adding that “the meltdown in India’s exports and imports was even sharper than the global trade which contracted by 12- 13%YoY.”
On Friday, in the wake of China’s continued devaluation of the yuan, Indian Trade Minister Nirmala Sitharaman expressed concern about the effect a sharply weaker RMB will have on her country’s trade deficit with Beijing. “It’s worrying,” she said. “My deficit with China will widen.”
India is now looking at ways to prevent a flood of cheap imports from hitting domestic producers. “India steel companies such as JSW Ltd have asked the government to set a minimum import price to stop cheap imports undercutting them,” Reuters writes. “A similar measure was adopted in 1999.”
And cheap Chinese imports aren’t the only thing domestic corporates have to be concerned about. If the Chinese economy continues to land hard (so to speak) a sharper devaluation is a virtual certainty. That could weigh on the rupee and imperil Indian corporates that have borrowed in dollars.
“If China keeps getting hit like this, the yuan has to devalue, and we will see another crisis in India,” Vishal Kampani, managing director at JM Financial said in a January 8 interview with Bloomberg. “A devaluation of the yuan could weaken the rupee, creating ‘huge problems’ for Indian companies that have to pay back dollar loans, Kampani said.” Here’s more:
China is India’s largest trade partner and third-largest export market, so a slowdown there could prolong a record slump in the South Asian nation’s overseas shipments, which declined 12 straight months through November.
A China-led rout in Indian markets also risks damping private investment, already hurt by credit lines choked by bad debt and a legislative gridlock that’s blocked economic bills. That would boost pressure on Prime Minister Narendra Modi to sustain public spending even at the risk of worsening Asia’s widest budget deficit.
As a reminder, the country’s fiscal situation is a bit precarious or, as Citi puts it, Modi has “good intentions in a challenging environment.” “We believe that the government is committed to a fiscal consolidation path, but balancing the credibility of its deficit compression promise and presenting a realistic budget which does not give a negative growth shock is going to be tricky,” Citi wrote, in a note out Monday.
Yes, it’s “going to be tricky” because as we’ve seen in countless other countries over the past five or so years, fiscal retrenchment and booming growth aren’t compatible.
So ultimately, the spillover from China may well force India to choose between shoring up the deficit and keeping the economy going with fiscal stimulus as private investors close their wallets. Meanwhile, a sharp drop in the rupee is going to put tremendous pressure on Indian corporates who have borrowed in dollars and are “less [hedged] than we would wish”, to quote Rajan.
Why should you care about this, you ask?
Because as we showed back in November, the fate of global growth hangs on just three countries and if you believe Goldman, India will be the strongest performer:
your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/MONDAY morning 7:00 am
Euro/USA 1.0897 up .0032
USA/JAPAN YEN 117.68 up 0.475
GBP/USA 1.4567 up .0059
USA/CAN 1.4101 down .0068
Early this morning in Europe, the Euro rose by 32 basis points, trading now just above the important 1.08 level rising to 1.0897; 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: 6.5689 / (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 48 basis points and trading now well below that all important 120 level to 117.68 yen to the dollar.
The pound was up this morning by 59 basis points as it now trades just below the 1.46 level at 1.4567.
The Canadian dollar is now trading up 68 in basis points to 1.4101 to the dollar.(despite 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 MONDAY morning: closed
Trading from Europe and Asia:
1. Europe stocks all massively in the red
2/ Asian bourses deeply in the red/ Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai red (massive bubble bursting), Australia in the red: /Nikkei (Japan) red/India’s Sensex in the red /
Gold very early morning trading: $1103.25
Early MONDAY morning USA 10 year bond yield: 2.15% !!! up 3 in basis points from FRIDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.94 up 3 in basis points. ( still policy error)
USA dollar index early MONDAY morning: 98.50 up 22 cents from FRIDAY’s close. ( Now below resistance at a DXY of 100)
This ends early morning numbers MONDAY MORNING
OIL RELATED STORIES
Morgan Stanley is the latest bank to suggest that oil will reach the 20 dollar level:
(courtesy Morgan Stanley: zero hedge)
Oil Tumbles To 11 Year Lows After Another Bank Joins “$20 Crude” Bandwagon
Another algo-induced stop-run has tried and failed to maintain its gains this morning as Morgan Stanley becomes the latest (after Goldman) to join the “oil in the $20s is possible” bandwagon. Despite hopeful bullishness from Andy Hall who sees production destruction leading (an industry that couldn’t function at $50 certainly can’t function with prices below $40) inevityably leading to higher prices, Morgan Stanley warns, “in an oversupplied market, there is no intrinsic value for crude oil. The only guide posts are that the ceiling is set by producer hedging while the floor is set by investor and consumer appetite to buy. As a result, non-fundamental factors, such as the USD, are arguably more important price drivers.”
The “Ma” bounce has failed…
…because while equities are pricing in an unsustainable 23x in foward energy P/E, another market, that of interest rate forwards, is implying oil plunging down to $35!
As a reminder, oil is among other things, a function of rate differentials or said simpler, USD strength, strength which appears is not going anywhere. And as the following calculation from Cornerstone implies, should the EURUSD tumble to parity which is what Draghi’s desire seems to be, it would suggest a 22% plunge in oil from here, implying a $35.5 price of oil one year from now.
Morgan Stanley has now come to the realization that Material USD Appreciation Could Bring New Lows for Oil
Oil in the $20s is possible, but not for the reasons often cited. Several analysts and press reports have cited $20 oil scenarios for well over a year on the premise that storage would reach “tank tops” in the US or globally and force oil prices to “shut-in economics.” In reality, such scenarios are unlikely and often ignore how physical oil trading functions.
Moreover, there are few scenarios where reaching cash costs would force producers to shut in, especially over any shorter time horizon. Lastly, these forecasts also fail to appreciate that marginal changes in fundamentals are not driving marginal changes in oil prices.
It’s not about deteriorating fundamentals: The USD and non-fundamental factors continue to drive oil prices. Oversupply drove oil to ranges that should slow investment, but it does not set the price level. Oversupply may have pushed oil prices under $60, but the difference between $35 oil and $55 oil is primarily the USD, in our view.
In an oversupplied market, there is no intrinsic value for crude oil. The only guide posts are that the ceiling is set by producer hedging while the floor is set by investor and consumer appetite to buy. As a result, non-fundamental factors, such as the USD, were arguably more important price drivers in 2015. In fact, when we assess the >30% decline in oil since early Nov, much of it is attributable to the appreciation in the trade-weighted USD (not the DXY). With the oil market likely to remain oversupplied throughout 2016, we see no reason for this trading paradigm to change.
Given the continued USD appreciation, $20-25 oil price scenarios are possible simply due to currency. For much of the year, the rolling 20 and 30-week beta to the trade-weighted USD has ranged from 2-3, with recent figures even exceeding 3. On a shorter duration, the rolling 20-day and 30-day beta for the weighted USD basket of currencies has generally ranged from 2-4 with periods exceeding 4. In other words, for every 1% move in the trade-weighted USD, we tend to see a 2-4% move in Brent. Therefore, a 3.2% increase in the USD, as implied by a 15% yuan devaluation, could push down oil 6-15% ($2-5/bbl), which could put oil in the high $20s. If other currencies move as well, the move in the USD and oil could be even greater. Hence, we remain bearish, even after the notable downward move already.
Finally we leave it to perennial crude bull Andy Hall (whose fund lost 35% in 2015) to explain where it all went wrong:
We continue to believe that the shorter term headwinds are ultimately trumped by the longer term outlook for prices which remains firmly to the upside: an industry that couldn’t function at $50 certainly can’t function with prices below $40.
Is A Massive Earthquake Inevitable In Oklahoma?
When Americans speak of “the big one,” they’re talking about the potential for a super-massive earthquake that could essentially destroy most of quake-prone California. Now some scientists believe something similar could happen in the once geologically placid Oklahoma.
Oklahoma was shaken late Wednesday night by two of the strongest earthquakes to hit the state in recent years, the latest in a series of temblors that many researchers believe are caused by the burial of wastes from oil and gas drilling in the state.
The quakes struck 30 seconds apart and had magnitudes of 4.7 and 4.8 on the Richter scale.While considered light, both were centered directly beneath a region in northwestern part of the state near Fairview, Oklahoma, that produces significant amounts of oil and gas. The second temblor was the fourth-largest ever recorded in Oklahoma.
No injuries or damages were reported from Wednesday night’s quakes, but smaller events last week struck near Oklahoma City, shaking bricks from building facades, felled columns and caused a power blackout in suburban Edmond.
These and other recent earthquakes could be precursors to a much larger, more damaging event, according to some scientists.
“I do think there’s a really strong chance that Oklahoma will receive some strong shaking,” said Daniel McNamara, a research geophysicist at the National Earthquake Information Center in Colorado, who has studied Oklahoma’s earthquake history. “I’m surprised [Wednesday night’s quakes] didn’t rupture into a larger event.”
The frequency of earthquakes in Oklahoma has been rising for nearly a decade. Before 2008 there werefewer than two earthquakes in Oklahoma each year, on average. By 2010 the state had only three quakes with a magnitude of 3 or more, meaning their shaking is barely felt on the surface. In 2015, the number of such temblors had grown to 907.
Geologists say the reason is the way oil companies dispose of drilling waste. The water they use in drilling can’t be reused, so it must be discarded, usually injected deep below ground level. This water makes underlying rocks slippery, causing them to shift against one another, which sets off earthquakes.
The quakes have become something of a political issue in Oklahoma. Gov. Mary Fallin, who said she felt Wednesday night’s temblors, continued to express confidence in the Oklahoma Corporation Commission, which she said is the agency best suited to address the growing problem.
“I want to commend the Corporation Commission for being so active on this issue,” the Republican governor said Thursday. “It’s important that we understand that people are very, very concerned about this. I am too, and it’s important that we address the issue.”
But critics say the agency isn’t acting quickly enough. One who has been demanding more action is Democratic state representative Cory Williams, who said he believes the state Legislature needs to step in, though he adds that he doubts it will.
“Absent a catastrophic loss of life or property, there will be zero reaction from the Oklahoma House or Senate,” he said. “They don’t want to touch it. It’s a third rail.”
As for the ordinary people of Oklahoma, they just try to take everything in stride – the quakes as well as the political bickering.
“We just kind of adapt,” said one Fairview resident, Ronda Stucks. “Oklahomans are really good about adapting.”