Jan 20/Bloodbath averted in USA equities by a massive intervention/Dow still falls by 250 points/Oil falls into the 26 dollar handle for WTI/


Gold:  $1107.10 up $17.20    (comex closing time)

Silver $14.15 up 4 cents

In the access market 5:15 pm

Gold $1101.20

Silver:  $14,16


At the gold comex today,  we had a poor delivery day, registering 0 notices for nil ounces.Silver saw 2 notices for 10,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 199.26 tonnes for a loss of 104 tonnes over that period.

In silver, the open interest fell by 2,830 contracts down to 159,531. In ounces, the OI is still represented by .797 billion oz or 114% of annual global silver production (ex Russia ex China).

In silver we had 2 notices served upon for 10,000 oz.

In gold, the total comex gold OI fell by 1,913 contracts to 408,835 contracts as gold was down $1.60  with yesterday’s trading.

Today both the gold comex and the silver comex are in severe stress with gold in backwardation up to August.

We had no changes into inventory at the GLD,  / thus the inventory rests tonight at 657.92 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 change to inventory/Inventory rests at 313.606 million oz.

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


1. Today, we had the open interest in silver fall by 2,830 contracts down to 159,521 despite the fact that silver was up by 23 cents with respect to yesterday’s trading.   The total OI for gold fell by 1913 contracts to 408,835 contracts as gold was down $1.60 in price yesterday

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)



let us begin!

i)Late  TUESDAY night,WEDNESDAY morning: Shanghai down badly despite  manipulation  / Hang Sang falls badly. The Nikkei closed deeply  in the red as did all of Asia . Chinese yuan down a touch and yet they still desire further devaluation throughout this year.   Oil is much lower, falling below 28 dollars per barrel and clinging to the 27 dollar level. Stocks in Europe all in the red. Offshore yuan trades at 6.6056 yuan to the dollar vs 6.5790 for onshore yuan.  The POBC tries to soaks up off shore yuan to no avail as massive dumping occurred in Hong Kong . Hong Kong dollar suffers a decline, and the peg is in jeopardy.  The Saudis engage in currency controls to stop bets against the riyal


 ii) Shanghai opens below 3,000 and continues its descent.  Margin debt continues to drop as many small time players exit:

( zero hedge)


iii) This hedge fund predicts that the yuan will devalue by a huge 50%

( zero hedge)

iv)And then there is this account which should also give you a good idea as to what is happening to Chinese factory workers:

( zero hedge)




i)  Mr Draghi:  I think we have a problem!!
take a look at credit default swaps at Italian banks especially Unicredit:
( zero hedge)

ii) Financial entities in Italy and Greece cash/bond prices collapse/yields skyrocket:

( zero hedge)
i)A suicide bomber strikes the Russian embassy in Kabul, Afghanistan
( zero hedge)

i) Canada is in a pickle: it needs to lower the Cdn dollar to help the oil patch.

However the lower dollar unleashes huge inflation which will cause citizens to scale back purchases and thus kill the economy
( zero hedge)

i)Crude early last night falls below 28 dollars and with that it drags the entire globe equity markets lower:

( zero hedge)


ii) Then late in the morning, it slips below 27 dollars



iii) Bankrupt shale boys cannot give their assets away.


i)a. Please read Egon Von Greyerz’s important piece embedded in the following Embry/Kingworld piece

b).  Also read what Embry states:
( zero hedge)
ii)Bill White, former chief economist for the BIS now admits gold market rigging

( Ambrose Evans Pritchard/UKTelegraph/GATA)

iii) Donald trump is to engage in higher currency wars and this should benefit gold:

(courtesy Marketwatch.com/GATA)



i) Goldman posts the worst 4th quarter revenue since 2011:

ii) The Fed needs to inflate.  More bad news for the Fed as the CPI drops in December. However it is good news for consumers:

( zero hedge)

iii) Average earnings for USA citizens shows the weakest growth in a year:

( zero hedge)
iv) More bad news on the housing front:
( zero hedge)

v)Ray Dalio is one person you must pay attention to:

( zero hedge)

vi) The following story is quite logical.  The truth behind the two American vessels being captured off Farsi island in the Gulf is the fact that Iran had the capability to disarm both of the boats. GPS systems:

( Justin King/AntiMedia.org)

vii) Dave Kranzler on the global state of economic affairs

( Dave Kranzler/IRD)
viii) Greg Hunter interviews John Williams
(Greg Hunter/USAWatchdog/John Williams of Shadowstats.com)

Let us head over to the comex:


The total gold comex open interest fell to 408,835 for a loss of 1913 contracts as gold  was down  $1.60 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios held. We are now in the non active January contract which saw it’s OI fall by 4 contracts to 216.  We had 2 notices filed on yesterday, so we lost 2 contracts or an additional 200 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 10,589 contracts down to 200,960.First day notice is Friday, Jan 29.2016. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 203,406 which is good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was also fair at 188,714 contracts. The comex is deeply into backwardation up until October.

Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI fell by 2,830 contracts from 162,351 down to 159,521 despite the fact the price of silver was up 23 cents with respect to yesterday’s trading. We are now in the non active month of January saw it’s OI fall by 9 contracts down to 19. We had 11 notices filed yesterday so we  gained 2 contracts or an additional 10,000 oz will stand for delivery. The next big active contract month is March and here the OI fell by 3,321 contracts down to 115,761. The volume on the comex today (just comex) came in at 35,726 , which is fair. The confirmed volume yesterday (comex + globex) was excellent at 51,102. Silver is not in backwardation at the comex but is in backwardation in London. 
We had 2 notices filed for 10,000 oz.


December contract month:

INITIAL standings for January

Jan 20/2016

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil nil oz
Deposits to the Dealer Inventory in oz  nil
Deposits to the Customer Inventory, in oz   3,312.620 oz


No of oz served (contracts) today 0 contracts

nil oz

No of oz to be served (notices) 216 contracts(21,600 oz)
Total monthly oz gold served (contracts) so far this month 12 contracts (1200 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 50,704.4 oz
Today, we had 0 dealer transactions
We had 0  customer withdrawals
total customer withdrawals;  nil oz
We had 1 customer deposit:
 i) Into Scotia  3,312.820 oz

Total customer deposits  3312.820 oz

we had 0 adjustments.


Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 7774.663 oz or 0.2418 tonnes in its dealer or registered account.
***JPMorgan now has 401,621.707 or 12.49 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account.
To calculate the final total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (12) x 100 oz  or 1200 oz , to which we  add the difference between the open interest for the front month of January (216 contracts) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the January. contract month:
No of notices served so far (12) x 100 oz  or ounces + {OI for the front month(216) minus the number of  notices served upon today (0) x 100 oz which equals 22,800 oz standing in this active delivery month of January (0.7091 TONNES)
we lost 2 contracts or an additional 400 oz will not stand for delivery in this non active delivery month of January.
We thus have 0.7091 tonnes of gold standing and 8.566 tonnes of registered gold for sale, waiting to serve upon those standing
Last month, at the conclusion of the December contract month, we had 6.445 tonnes of gold standing and 8.57 tonnes of registered (dealer) gold for sale.
No evidence of any movement out of the registered gold to settle upon longs.
Total dealer inventory 275,425.112 or 8.566 tonnes
Total gold inventory (dealer and customer) =6,406,242.893 or 199.26 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 199.26 tonnes for a loss of 104 tonnes over that period. 
JPmorgan has only 12.73 tonnes of gold total (both dealer and customer)
And now for silver

January INITIAL standings/

Jan 20/2016:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 1,072,616.150 oz, CNT,Delaware
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 6952.990 oz


No of oz served today (contracts) 2 contracts

10,000 oz

No of oz to be served (notices) 17 contracts (85,000 oz)
Total monthly oz silver served (contracts) 97 contracts (485,000 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 3,327,004.4 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz


we had 0 dealer withdrawals:

total dealer withdrawals:  nil


we had 1 customer deposits:

i) Into CNT:  6952.990 oz

total customer deposits: 6952.990 oz

We had 2 customer withdrawals:
i) Out of CNT: 1,071,660.950 oz
ii) Out of Delaware: 955.200 oz

total withdrawals from customer account: 1,072,616.150   oz 

 we had 1 adjustments:

i) Out of CNT vaults:

45,792.75 oz was adjusted out of the dealer and this landed into the customer account of CNT



The total number of notices filed today for the January contract month is represented by 2 contracts for 10,000 oz. To calculate the number of silver ounces that will stand for delivery in January., we take the total number of notices filed for the month so far at (97) x 5,000 oz  = 485,000 oz to which we add the difference between the open interest for the front month of January (19) and the number of notices served upon today (2) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the December. contract month:
95 (notices served so far)x 5000 oz +(19) { OI for front month of January ) -number of notices served upon today (2)x 5000 oz or 570,000  of silver standing for the January. contract month.
We  gained 2 silver contracts or an additional 200 oz  will stand for delivery in this non active delivery month of January.
Total dealer silver:  36.148 million
Total number of dealer and customer silver:   155.394 million oz
more silver leaves the dealer and customer vaults
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

jan 20/ no change in inventory at hte GLD/Inventory rests at 657.92 tonnes

Jan 19/no change in inventory at the GLD/Inventory rests at 657.92 tonnes

jan 15.2016/a huge deposit of 3.86 tonnes of  inventory at the GLD/Inventory rests at 657.92 tonnes

I doubt that this is real gold/probably a paper gold addition.

Jan 14/ no changes into inventory at the GLD/Inventory rests at 654.06 tonnes.

JAN 13.2016/another huge deposit of 2.38 tonnes in gold inventory at the GLD/Inventory rests at 654.06 tonnes

JAN 12/no change in inventory at the GLD/Inventory rests at 651.68 tonnes

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



Jan 20.2016:  inventory rests at 657.92 tonnes

Now the SLV:
Jan 20/no change in silver inventory at the SLV/inventory rests at 313.606 million oz
jan 19/a massive withdrawal of 2.762 million oz of silver inventory from the SLV/Inventory rests at 313.606 million oz
jan 15.2016:no changes in inventory at the SLV/Inventory rests at 316.368 million oz
Jan 14./no changes in inventory at the SLV/Inventory rests at 316.368 million oz
JAN 13.2016:/no change in inventory at the SLV/Inventory rests at 316.368 million oz
Jan 12.2016: no change in inventory at the SLV/Inventory rests at 316.368 million oz
JAN 11/no change in inventory at the SLV/Inventory rests at 316.368 million oz/
Jan 8/we had a huge withdrawal of 1.429 million oz of silver from the SLV/Inventory rests at 316.368 million oz
someone was in urgent need of silver tonight.
jan 7 no change in inventory/rests tonight at 317.797 million oz
Jan 6/no change in inventory/rests tonight at 317.797 million oz
Jan 5/2016: we had huge withdrawals of 4.282 million oz/Inventory rests at 317.797 million oz
Jan 20.2016: Inventory 313.606 million oz.
1. Central Fund of Canada: traded at Negative 10.0 percent to NAV usa funds and Negative 10.8% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 63.3%
Percentage of fund in silver:36.7%
cash .0%( Jan 20.2016).
2. Sprott silver fund (PSLV): Premium to NAV falls to  -0.84%!!!! NAV (Jan 20.2016) 
3. Sprott gold fund (PHYS): premium to NAV rises  to- 0.65% to NAV Jan 20/2016)
Note: Sprott silver trust back  into negative territory at -.84%/Sprott physical gold trust is back into negative territory at -0.65%/Central fund of Canada’s is still in jail.


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


Trading in gold and silver overnight in Asia and Europe

Invest In Gold Now As Stock Market To Crash – Faber

Marc Faber, editor of the “Gloom, Doom & Boom Report,” has advised investors that now is a good time to invest in gold  because stocks will crash over 40% and the world is on the verge of a new liquidity and debt crisis.


Faber says investors would be prudent to diversify into safe haven in gold bullion which has risen 3% this year and is currently at $1,096 an ounce.

He recently told MarketWatch that the stock-market downturn could result in stocks hitting lows not seen in five years.

Faber warns that the S&P 500, which fell to 1,881 yesterday, could drop to its 2011 low below 1,200.

“According to FactSet data, that would be 1,099.23, set that October. Faber referred to that outcome, a more-than-40% plunge in the broad stock-market benchmark, as his ‘medium bearish’ scenario. His most bearish prognostication envisages the S&P 500 falling back to its 2009 nadir, which FactSet data put at 676.53,” MarketWatch reported.

“The main factor is diminishing global liquidity because of the decline in oil prices.”  A rapid appreciation of the U.S. dollar may send Brent oil as low as $20 a barrel, according to Morgan Stanley and other analysts.

Crude oil (WTI) fell sharply to below $28 a barrel today on deepening concerns about oversupply, fragile demand from China and the slowing global economy.

Faber has correctly warned that the price of crude oil indicates a shrinking global economy. “When oil prices increase, it basically is a consequence of expanding [global] liquidity,” Faber said, so inversely, this unrelenting fall suggests contraction.

Faber cautioned that the situation could change because of global central bank tactics. “It is impossible to make predictions because we don’t know the extent of the madness of central bankers,” he said. He has been a harsh critic of the quantitative easing measures of the Federal Reserve and other global central banks.

He has warned that their zero percent interest policies have resulted in the world becoming vastly more indebted and therefore more vulnerable to a new and worse global debt crisis.

Faber favours allocated and segregated coin and bar storage in Singapore.

Watch Marc Faber Webinar Video onStoring Gold in Singapore 

Download Essential Guide To Storing Gold In Singapore

Precious Metal Prices

20 Jan LBMA Gold Prices: USD 1,093.20, EUR 999.73 and GBP 771.08 per ounce
19 Jan LBMA Gold Prices: USD 1,087.00, EUR 999.77 and GBP 759.79 per ounce
18 Jan LBMA Gold Prices: USD 1,090.45, EUR 1,001.06 and GBP 763.67 per ounce
15 Jan LBMA Gold Prices: USD 1,081.80, EUR 991.38 and GBP 753.17 per ounce
14 Jan LBMA Gold Prices: USD 1,090.75, EUR 998.03 and GBP 759.10 per ounce

Breaking Gold News and Commentary Today – Click here



Mark O’Byrne
Two important points here:
1. Please read Egon Von Greyerz’s important piece embedded in the following Embry/Kingworld piece
2.  Also read what Embry states:
(courtesy zero hedge)

Truth about U.S. economy can’t be told, Embry tells KWN


3:40p ET Tuesday, January 19, 2016

Dear Friend of GATA and Gold:

Anyone who tells the truth about what is happening in the U.S. economy is attacked by the mainstream news media, Sprott Asset Management’s John Embry tells King World News today. “Anybody buying a 10-Year Treasury today with less than a 2 percent yield has to be delusional,” Embry says. “And although the U.S. stock market is also radically overpriced, gold and silver remain remarkably underpriced due to the chicanery in the paper markets.”

An excerpt from the interview is posted at the KWN blog here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.




Bill White, former chief economist for the BIS now admits gold market rigging


(courtesy Ambrose Evans Pritchard/UKTelegraph/GATA)


Central banker who admitted gold market rigging muses about debt jubilee


World Faces Wave of Epic Debt Defaults, Fears Central Bank Veteran

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, January 19, 2016

DAVOS, Switzerland — The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the Organization of Economically Developed Countries’ review committee and former chief economist of the Bank for International Settlements (BIS).

* * *

GATA EDITOR’S NOTE: For White’s candid 2005 admission of gold market rigging by central banks, see:


* * *

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said. “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.” …

… For the remainder of the report:






CFTC Has Decade Of Audit Opinions Withdrawn After Massive “Error” Uncovered

As regular readers are likely aware, we like to give the CFTC a helping hand whenever possible.

For seven years, we’ve warned about the danger the market faces from the parasitic “strategies” of predatory HFTs and nefarious vacuum tubes and finally, the Commission as well as the DOJ listened, subsequently confirming that such practices are indeed illegal.

So concerned is the CFTC about rooting out any and all corruption and market manipulation that the Commission conducted an extensive investigation into the cause of 2010’s infamous flash crash on the way to uncovering the “mastermind” behind the madness that sent the Dow plunging nearly 1,000 points in minutes.

So impressed were we at the Commission’s dedication to preserving the integrity of our beloved “markets” that we sought last year to help the CFTC uncover further instances of manipulation in a series of articles (see here, here, and here) designed to help hapless regulators spot the very same type of tactics they swear Navinder Sarao used on the way to engineering the collapse of the entire US equity market from his basement.

Of course we jest and to the extent we believed there might be a shred of honesty and/or dignity buried somewhere in the bowels of the government body tasked with policing the derivatives market, our hopes were dashed on Tuesday when we learned that the Commission’s auditor has withdrawn “nearly a decade” of financial opinions after discovering that the books may be cooked.

The Commodity Futures Trading Commission understated liabilities by $194 million in fiscal 2014 and $212 million the following year,” Reuters reports, citing KPMG  documents. “The understatements are the equivalent to more than 75 percent of the CFTC’s $250 million annual budget.”

Apparently, the agency conveniently avoided accounting for the full cost of leasing facilities in Washington, Chicago, New York, and Kansas City.

The government doesn’t see fit to give the Commission its own buildings, so the CFTC is forced to rent. “In its annual financial statements, the regulator was only accounting for a year’s worth of rent payments,” Reuters says, before noting that KPMG claims the regulator is in violation of GAAP and may have run afoul of “the federal Anti-Deficiency Act, which prohibits government agencies from obligating or expending federal funds in excess of the amount available.”

“This is not the first time leasing issues have come up at the CFTC,” Reuters goes on to note. “In 2014, the inspector general criticized it for wasting taxpayer money on underutilized office space in Kansas City.” The inspector general’s review of the Kansas City office space Reuters references is embedded below and anyone in need of some mid-week levity is encouraged to read it. In short, the inspector found that the CFTC was set to waste $3.6 million in taxpayer funds on vacant office space.

So essentially, the CFTC is not only renting space it doesn’t need (because apparently there’s not enough manipulation going on across markets to warrant fully staffing the Commission’s various offices), it’s also underreporting its rental costs.

Put more simply: the Commission is disappearing rent it’s paying for space it isn’t using.

Needless to say, this begs the question of what else in the agency’s books is fabricated or shall we say “manipulated”, but fortunately for US citizens who have “invested” their tax dollars in the Commission, there’s someone you can call for help…

CFTC OIG Review of Leasing




Donald trump is to engage in higher currency wars and this should benefit gold:


(courtesy Marketwatch.com/GATA)


Brett Arends: Donald Trump made a case for gold — and no one noticed


By Brett Arends
MarketWatch.com, New York
Wednesday, January 20, 2016

Investors in gold bullion have been suffering brutal losses for more than four years.

The price of gold has nearly halved since its 2011 peak, falling from $1,891 an ounce to just $1,094 today. But last week, for the first time in a long time, there was a bit of good news. Thanks to Donald Trump.

In a remarkable but little-noticed, exchange during Thursday’s Republican debate, the Republican front-runner opened the door to wider currency wars against America’s main trading partners if he is elected president. And although Trump’s preferred means of retaliating against the likes of China and Japan is apparently through a tariff, similar ends can be achieved far more easily by driving down the value of the U.S. dollar.

And that must surely be positive for gold bullion, the one currency in the world that nobody can print. …

… For the remainder of the report:




And now your overnight WEDNESDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:


1 Chinese yuan vs USA dollar/yuan FALLS to 6.5790 / Shanghai bourse: in the RED/ hang sang: RED

2 Nikkei closed down 632.18  or 3.71%

3. Europe stocks deeply in the red  /USA dollar index up to 99.09/Euro down to 1.0898

3b Japan 10 year bond yield: falls to .215   !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 117.91

3c Nikkei now well below 18,000


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

3e WTI:: 27.40  and Brent: 27.94 

3f Gold up  /Yen up

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil down for WTI and down for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to  .507%   German bunds in negative yields from 6 years out

 Greece  sees its 2 year rate rise to 10.70%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield rise to  : 9.02%  (yield curve deeply  inverted)

3k Gold at $1098.20/silver $14.13 (7:45 am est)

3l USA vs Russian rouble; (Russian rouble down 1 and 98/100 in  roubles/dollar) 80.71

3m oil into the 27 dollar handle for WTI and 27 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0031 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0936well 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  + .507%/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 1.99% early this morning. Thirty year rate  at 2.74% /POLICY ERROR)


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

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


Markets In TurmOIL: Futures Plunge, Japan Enters Bear Market, Crude And Commodity Currencies Crash

It all started early last night when the front month oil contract dipped below $28 giving a taste of what was to come. It was all downhill from there.

First Chinese stocks ended the recent ramp higher, with the Shanghai Composite closing down 1% back under 3000, then Japan’s rout accelerated with both the Nikkei (-3.7%) and the Topix Index sinking into bear markets, both falling more than 20% from their 2015 highs.

The rout then spilled over to Europe, where the Stoxx 600 is down 3% to the lowest level in 13 months, and finally making landfall in the US where the E-mini is down 1.8%, trading at 1840, meanwhile WTI is back under $28 while the USDJPY plunged to a one year low and barely rebounded despite an attempt at verbal intervention when an unknown Japanese government source said they are “closely watching currency movements”, which lead to a 100 pip spike in the pair that was promptly faded.

In sum: the world is on the verge of a global bear market, exacerbated by an ongoing earnings deterioration which has sent the MSCI gauge of global equities to the brink of a bear market. But the biggest driver remains oil whose slump to a new 12-year low is ripping through markets. Just on Wednesday, Royal Dutch Shell Plc said profit may drop at least 42 percent in the fourth quarter. U.S. bonds now predict the slowest inflation since May 2009.

Commodity currencies were slammed with Russia’s ruble and Mexico’s peso falling to record lows, while bets mounted on an end to Hong Kong’s dollar peg.

Saudi Arabia also launched capital controls when it was reported overnight that it had ordered a halt to Riyal forward option trades.  (HARVEY:  SEE BLOW)

Yields on 10-year Treasuries dropped below 2 percent and the yen jumped to a one-year high.

“It’s back to oil and that’s what is driving everything at the moment,” Barra Sheridan, a rates trader at Bank of Montreal in London told Bloomberg. “We can easily run more because it’s pure fear. I don’t know what we need to change this sentiment.”

Well a central bank intervention or two would help. For now, this is where the “running” has taken global assets as of moments ago:

  • S&P 500 futures down 1.8% to 1840
  • Stoxx 600 down 3% to 323
  • FTSE 100 down 2.9% to 5706
  • DAX down 3.1% to 9361
  • German 10Yr yield down 6bps to 0.49%
  • Italian 10Yr yield up 2bps to 1.57%
  • Spanish 10Yr yield down 2bps to 1.69%
  • MSCI Asia Pacific down 2.8% to 117
  • Nikkei 225 down 3.7% to 16416
  • Hang Seng down 3.8% to 18886
  • Shanghai Composite down 1% to 2977
  • US 10-yr yield down 9bps to 1.97%
  • Dollar Index down 0.12% to 98.87
  • WTI Crude futures down 2.8% to $27.65
  • Brent Futures down 2.2% to $28.12
  • Gold spot up 0.7% to $1,094
  • Silver spot up 0.5% to $14.10

A quick jog through the markets:

Asian equity markets traded with heavy losses after the continued weakness in energy prices, with WTI Mar`16 futures falling below USD 29/bb dampening sentiment across the region. Subsequently, the MSCI Asia-Pac reached 4 year lows, while the Nikkei 225 (-3.7%) fell into bear market territory after falling 20% from August highs and ASX 200 (-1.3%) was also dragged lower by the energy complex, while the latter was also weighed by losses in basic materials after the index’s 3rd largest Co. by market cap BHP Billiton cut its FY iron ore guidance.

Elsewhere, the Shanghai Comp. (-1.0%) conformed to the region’s negative tone and declined back below the 3000 level, while the Hang Seng (-3.8%) was pressured by losses in large casino and energy names with CNOOC also lowering its capex and production guidance. Finally, 10yr JGBs remained relatively flat, with trade mostly uneventful despite the risk-averse tone and BoJ entering the market to purchase JPY 1.27TN bonds.

Top Asian News

  • Hong Kong Dollar Forwards Sink to Weakest Since 1999 on Peg Bets: 3-mo. interbank lending rate climbs by most Since 2008.
  • Hedge Fund That Called Subprime Crisis Says Yuan Should Fall 50%: Mark Hart of Corriente Advisors is betting against yuan.
  • PBOC’s Ma Says New Tools Substitute for Bank Reserves Cuts: China’s central bank has added liquidity via market channels.
  • Bad-Debt Buyers See Good Times as Rajan Cleans Up India’s Banks: Edelweiss, JM predict record stressed-asset sales this quarter.
  • Saudi Arabia Said to Order Halt of Local Riyal Forward Options: Bets on devaluation reached highest in 2 decades this mo.

In Emerging Markets, the MSCI EM Index dropped the most in two weeks, sinking 2.8 percent to the lowest on a closing basis since May 2009. The gauge is down 12 percent this year, the worst start since records began in 1988. Hong Kong’s Hang Seng China Enterprises Index tumbled 4.2 percent as oil producers plummeted and a drop in the city’s dollar spurred concern over capital outflows. The Shanghai Composite Index slipped 1 percent.

Russia’s Micex Index slid 1.7 percent and the Bloomberg GCC 200 Index of equities in Gulf markets lost 3.2 percent. Saudi Arabia’s Tadawul All Share Index declined 4.5 percent and Dubai shares sank 4.6 percent. Egypt’s benchmark slid 4.5 percent. Russia’s ruble weakened as much as 2 percent to a record 80.1790 against the dollar. The Mexican peso fell to a record 18.4775 per dollar and is down 6.5 percent this year, making it Latin America’s worst performing major currency.

Saudi Arabian banks are under orders to stop selling currency products that allow investors to make cheap bets on a devaluation of the riyal, according to five people with knowledge of the matter. The Saudi Arabian Monetary Agency told banks not to sell options contracts on riyal forwards at a meeting in Riyadh on Jan 18., the people said, asking not to be identified as the information is private.

In Europe, risk averse sentiment continues to gather pace in European trade, with USD/JPY hitting 1y lows and Bunds back above 160.00 level, while stocks are also broadly lower. The FTSE-MIB (-3.0%) is underperforming amid the ongoing focus on banks NPLs. Banca Monte dei Paschi shares are once again suspended from trading, after a fall of 18% in Milan. The Stoxx Europe 600 Index tumbled 3 percent at 6:05 a.m. in New York, with all industry groups declining. Shell slid 5.3 percent and BHP Billiton Ltd. dragged commodity producers lower, falling 6.7 percent after trimming its full-year iron ore output forecast. Zurich Insurance Group AG declined 8.1 percent after forecasting a second straight quarterly loss for its biggest unit.

In terms of fixed income, heading into the ECB policy meeting Citi have noted the EUR curve is currently pricing in very little in terms of additional near-term easing.

Top European News

  • Aberdeen Is Loading Up on Stocks, Wants More If Rout Deepens: Scottish asset manager has increased its funds’ exposure equities by 0.5%-1%, says CIO Anne Richards.
  • U.K. Unemployment Falls to Decade Low as Labor Market Tightens: Metric unexpectedly fell to lowest in almost a decade; wage growth slowed less than forecast.
  • Zurich Plunges as General Insurance Faces Second Quarterly Loss: Oper. loss for division will probably be ~$100m in 4Q.
  • Shell Profit Plunges at Least 42% as Oil’s Slump Deepens: 4Q adj. profit ex-items likely to be in range $1.6b-$1.9b.
  • SocGen Said to Pull Back From U.S. Mortgage Bond Trading: Bank instructing traders of U.S. government-backed mortgage bonds to stop buying them: people familiar.
  • Trans-Atlantic Derivatives Fight Nears End as Capital Rules Loom: EU, U.S. regulators nearing deal on oversight of $553t global derivatives markets that would prevent increase in EU capital requirements from hitting banks this year.
  • Berlusconi’s EI Towers Said to Offer $1b for Inwit Stake: Unit made bid for stake in Telecom Italia’s wireless infrastructure unit of ~EU900m: people familiar.
  • Intesa CEO Rules Out Takeover of Monte Paschi, Italian Banks: CEO Carlo Messina says no pressure from govt to purchase Paschi.

In FX, the yen strengthened 1.3 percent to 116.09 per dollar, and touched 115.98, the strongest level since Jan. 16, 2015. The USD/JPY was back below 117.00 as Europe came in, and it was not long before we took out 116.50 (barriers). Next up was 116.00, which eventually gave way also, but comments from Japan officials that FX markets were being closely watched saw shorts turned sharply

Japan’s currency appreciated 0.9 percent to 127.19 per euro. The euro climbed 0.5 percent to $1.0957. The Australian dollar slid 0.9 percent to 68.45 U.S. cents, extending this year’s decline to 6.1 percent. The kiwi touched the weakest level since Sept. 30.

The Canadian dollar, which has fallen every day this year, slipped to the lowest since 2003 amid speculation the central bank will cut its benchmark interest rate to a level last seen during the 2009 financial crisis. Fresh lows in Oil saw USD/CAD hit through the Monday highs to 1.4689. The Bank of Canada decides on interest rates today, and private-sector economists are almost evenly divided on whether it will cut the policy rate to 0.25 percent.

In commodities, West Texas Intermediate crude lost as much as 4% to $27.32 a barrel before trading down 3.2%. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday.

Industrial metals dropped on prospects for slower economic growth in China and sustained low oil prices. Copper fell as much as 1.1 percent. Gold rose as renewed losses in equities spurred demand for less risky assets, with Citigroup Inc. saying bullion’s rationale as a haven was now back in vogue and prices may be supported over the first quarter.

Top Global Headline News:

  • Bernanke Says Dollar’s 2-Year Rally Is Running Out of Steam: “Much of the appreciation in the dollar may have already happened — we may not see much more”: former Fed chairman
  • IBM 2016 Profit Shows Struggle to Move Past Old Operations: 2016 profit forecast shows co. continues to struggle.
  • Carlyle, Symantec Agree to Lower Price for Veritas Deal: Cos. revise price for biggest announced U.S. leveraged buyout of 2015 amid strains in debt markets.
  • Netflix Investors Like What They See as Intl. Users Soar: Co. added 5.6m subscribers to its online streaming service in 4Q, including >4m from outside U.S.
  • McDonald’s Revamps U.S. Management to Remove 2 Zone Presidents: As part of turnaround plan, co. will eliminate 2 of 4 zone-president jobs from its U.S. management ranks.
  • Delta Will Rely on Partnerships to Expand Routes in Asia: Co. to exploit pacts with China Eastern Airlines, Jet Airways India to improve connectivity in Asia.
  • Apple Seeks to Open Stores in India as Mobile Growth Slows: Co. applied to open its own stores in India, a strategy that may help it better target a fast-growing market.
  • Merck to Submit Ebola Vaccine for Approval by End of 2017: Co. has signed an agreement with Gavi, world’s biggest funder of vaccines for developing countries.
  • Banks Face Losing $150b to Startups, Oliver Wyman Says: Insurers, banks may lose revenue to fintech startups.

Bulletin Headline Summary From Bloomberg and RanSquawk

  • Risk averse sentiment continues in European trade, with USD/JPY hitting 1y lows and Bunds back above 160.00 level, while stocks are in a sea of red
  • Plenty of movement in FX as the stock markets turn sour once again. US equity gave up gains last night, leading to renewed losses in Asia
  • Today’s highlights include: US Housing Starts, Building Permits, CPI and the BoC Rate Decision
  • Treasuries rally overnight with 10Y yield touching 1.951%, lowest intraday level since April 27, as global equities and commodities continue to slide.
  • If it feels like rallies in U.S. stocks are getting shakier in 2016, they are. In the 11 trading sessions since New Year’s, the S&P 500 has fallen an average of 1.3% from its intraday high, more than double the decline last year
  • Saudi Arabia plans to hold a debt auction next week to raise as much as 20b riyals ($5.3b), the first indication it will continue tapping the local debt market to fund a budget gap, forecasted by the IMF to be 14% of GDP this year
  • Saudi Arabian Monetary Agency ordered lenders to halt sale of options contracts on riyal forwards amid mounting speculation the nation won’t be able to maintain the riyal’s peg to the dollar as revenue plunges
  • The ruble plunged to a record low as the collapse in crude weighs on the economy of the world’s biggest energy exporter and surpasses every other obstacle the nation has endured, including being treated as a near pariah state under sanctions
  • The four biggest U.S. banks — Bank of America, Citigroup, JPMorgan and Wells Fargo — have set aside at least $2.5b combined to cover souring energy loans and have said they’ll add to that if prices stay low  (HARVEY:  THAT’S ALL THEY SET ASIDE?)
  • As the chattering chieftains of the global economy gather this week in Davos, Switzerland, they’re facing the darkest outlook since the financial crisis tipped the world into recession seven years ago
  • U.K. unemployment unexpectedly fell to the lowest in almost a decade and wage growth slowed less than economists forecast as the labor market continued to strengthen
  • Sovereign bond yields lower. Asian stocks and European stocks drop; equity-index futures falter. Crude oil and copper slide lower, gold rises


DB’s Jim Reid completes the overnight wrap

Despite US stocks closing off their lows yesterday, it was another day of fading momentum in markets. The post China GDP rally in Asia extended into the European session and helped risk assets in the US get off to a decent start, only for the focus to switch over to another leg lower for WTI. Prices at one stage actually staged a bit of rebound, trending up past the $30/bbl mark around midday only then to trend lower as the session went on, falling another $2 into the close to hover around the $28 level. A lot was made of the latest damming IEA report. The headline in particular was enough to knock sentiment after the agency said that the global market could ‘drown in oversupply’ while at the same time firing warning signs about the return of increased supply from Iran.

After initially bouncing 1% at the open, the S&P 500 dipped as low as -0.82% as unsurprisingly the weakness in the energy sector which we are becoming accustomed to dragged the index lower. A late rally into the close (another trend we’ve noticed of late) did help the index close with a modest +0.05% gain however. Prior to this we had seen European bourses rebound with the Stoxx 600 (+1.31%) up strongly. European credit markets had a better session also (Crossover -14bps) while US credit indices finished little changed but again after a bit of a roundabout day of price action which saw CDX IG in particular trade in a 5bp range. In rates markets US 10y yields finished the session up 2bps at 2.057%, again in a volatile session following a 7bp range.

Onto the latest in Asia this morning. Any hope that the late momentum in the US session last night might continue has evaporated with steep losses across the bulk of the region as WTI plunges down below $28/bbl (currently $27.60). The significant fall has come for the Hang Seng (-3.74%) while there’s also been a steep drop for Hong Kong stocks listed in China (HS-China Enterprises index), down nearly 5% and at a six-year low. The weakness for Hong Kong stocks coming as the HKD has fallen to the weakest level in eight years. Meanwhile the Nikkei (-2.89%), Shanghai Comp (-1.37%), Kospi (-3.12%) and ASX (-1.35%) are also down sharply. There’s little relief in credit markets either where iTraxx indices in Asia and Australia are currently 6bps and 7bps wider respectively. US equity index futures are off 1.5% while Treasury yields are close to breaking below 2%.

Yesterday DB’s Chief China Economist, Zhiwei Zhang, dug deeper into the details of the GDP data. From a production perspective the slowdown in 2015 came primarily in the secondary sector (which accounts for around 40% of GDP). Secondary sector growth slowed from 7.3% in 2014 to 6.1% last year, while the primary sector (which accounts for 10% of GDP) was modestly lower at 3.9% from 4.1%. Tertiary sector growth actually picked up, from 7.8% from 8.3%. With regards to expenditure, Zhiwei highlights that investment was the clear drag reflecting a fall in real estate investment growth primarily, while consumption actually held up relatively well. Looking ahead, the current signals from leading indicators are generally mixed. Growth of property sales are slowing, while new housing starts are improving. Following the data, Zhiwei has downgraded his Q1 2016 GDP forecast from 7.0% to 6.8%, but maintains his baseline forecast for 2016 growth of 6.7%.

Moving on. In terms of the economic data the only release out of the US yesterday came in the form of the NAHB homebuilder survey which printed at 60 for this month (vs. 61 expected) and unchanged relative to the downwardly revised December level. In Europe there were no surprises to come out of the final December CPI prints for Germany (-0.1% mom and +0.3% yoy at the headline) or the Euro area (+0.2% mom headline, +0.9% yoy core). Interestingly there was a big tick up in the German ZEW current situations survey for January however, with the reading up 4.7pts to 59.7 (vs. 53.1 expected) and to the highest level since September. Saying that, the expectations survey did however decline nearly 6pts to 10.2 (vs. 8.0 expected).

Meanwhile in the UK we saw CPI during December come in a smidgen ahead of expectations at +0.1% mom for the month (vs. 0.0% expected). The headline YoY rate was nudged up to +0.2% while the core nudged up two-tenths to +1.4% yoy. This was put to one side however as the bigger news came in the form of some dovish commentary from BoE Governor Carney. The Governor highlighted concerns over global growth, UK growth slowing,and the impact of the recent sharp leg lower in oil meaning inflation ‘will likely remain very low for longer’. As such Carney tempered any hopes of a near term hike, saying that ‘the year has turned, and, in my view, the decision proved straightforward – now is not yet the time to raise interest rates’. Remember that Carney had previously said last summer that the decision on timing should come ‘into sharper relief’ around the turn of this year.

Elsewhere, the ECB bank lending survey covering Q4 2015 highlighted that changes in credit standards and loan demand continue to support a recovery in loan growth. Encouragingly, credit standards on loans to enterprises were said to have eased further last month and those on housing loans were now said to have returned to a net easing. Banks were also said to have reported a further strengthening of their capital positions and a reduction of risk-weighted assets mainly related to riskier loans during the second half of last year.
From the macro to the micro, yesterday saw a couple more US banks report with both BofA and Morgan Stanley coming in ahead of expectations for both earnings and revenue estimates. Cost cutting was a big theme for both, however attention was directed to the former where, much like the theme we’ve seen so far, BofA was said to have set aside $500m in reserves related to energy losses, with overall exposure said to be around $21bn (albeit a small percentage of total loans). As it stands currently, 42 S&P 500 companies have reported their latest results in this earnings cycle. The theme has been much like prior reporting periods with 76% beating earnings estimates but just 52% beating revenue estimates. Interestingly, all 12 financials stocks have beaten revenue estimations. Clearly though the overriding focus there has been on balance sheet exposure to oil as we’ve highlighted.

Before we take a look at the day ahead, yesterday also saw the IMF trim their global growth forecast for the third time in less than twelve months. The fund now expects global growth of 3.4% this year, which is down from the earlier 3.6% estimate. 2017 growth was cut to 3.6%, a cut of two-tenths also. While its forecast for growth in China was left unchanged at 6.3% this year, the fund did slash its forecast in Brazil to a 3.5% contraction (downgraded by 2.5pp). Russia is expected to contract by 1%.

There’s a busier day of data ahead of us to look forward to today. Kick starting the session in Europe this morning will be the latest PPI print out of Germany before we then get the latest labour market data docket for the UK including unemployment and weekly earnings. The highlight of this afternoon’s session in the US will of course be the December CPI print. Current expectations are running at 0.0% mom for the headline and +0.2% for the core, which are expected to lift the YoY rates for both to +0.8% and +2.1% respectively. Housing starts and building permits data are also due in the US this afternoon. The corporate earnings highlight today is Goldman Sachs, due to report at the open.

let us begin:

i)Late  TUESDAY night,WEDNESDAY morning: Shanghai down badly despite  manipulation  / Hang Sang falls badly. The Nikkei closed deeply  in the red as did all of Asia . Chinese yuan down a touch and yet they still desire further devaluation throughout this year.   Oil is much lower, falling below 28 dollars per barrel and clinging to the 27 dollar level. Stocks in Europe all in the red. Offshore yuan trades at 6.6056 yuan to the dollar vs 6.5790 for onshore yuan.  The POBC tries to soaks up off shore yuan to no avail as massive dumping occurred in Hong Kong . Hong Kong dollar suffers a decline, and the peg is in jeopardy.  The Saudis engage in currency controls to stop bets against the riyal





Shanghai opens below 3,000 and continues its descent.  Margin debt continues to drop as many small time players exit:


(courtesy zero hedge)

Shanghai Opens Below 3,000 As Animal Spirits Leave The Building: Longest Margin Debt Drop In 6 Months

Traders who may have napped through the earlier oil slide below $28 finally woke up just in time for the China open to find that while there was little excitement on the currency front following a Yuan fixing, which at 6.5578 was practially unchanged from yesterday’s midpoint of 6.5596…


…the Shanghai composite – following yesterday’s torrid, manipulated last hour surge – opened 0.5% lower, sliding back below the 3,000 level which was breached last week for the first time since last summer.


More troubling for China’s market manipulators is that they will very quickly and aggressively need to get involved today if they wish to prop up the market, now that the animal spirits are officially gone.

Below is a chart of the Chinese stock market “animal spirits” leaving the building. 

According to Bloomberg, the outstanding balance of Shanghai margin debt dropped for 13th consecutive day on Tuesday, the longest since July 9. Balance fell 0.1%, or 610m yuan, to 583.4b yuan or the lowest level since October 9. This was the longest losing streak in 6 months as the public now leave the market bubble in droves.

Elsewhere in related securities, while the onshore Yuan is peaceful, there was less peace for its offshore cousin, where the USD/CNH 12-month forwards tumbled following selling by Asia-based leveraged accounts, and trigger stop-losses through the 2,900 area.  PBOC intervention time? Perhaps, but it’s early.


Also troubling was the Bloomberg note that after the PBOC broke the Hong Kong interbank market by crushing all available FX liquidity in order to manipulate the CNH higher, now the offshore spillover appears to have spilled right back into China as follows:


At this point it is practically impossible to track all the Chinese market breakages, which like connected vessels appear at the most random of places, and the moment one hole is patched up, another immediately takes its place.

Finally, for those interested in the Hong Kong market, the Hang Seng Index slid 1.6% to 19,325.56 at the open, resuming declines after snapping a three-day losing streak yday, with losses led by energy companies such as Sinopec -3.6% and PetroChina -3.3% which were among the biggest drops on HSI.

However perhaps most crucially, the Hong Kong Dollar is systematically collapsing towards the weak-end of its USD-peg band…


And crude is unable to sustain any bounces…

This hedge fund predicts that the yuan will devalue by a huge 50%
(courtesy zero hedge)

Hedge Fund Which Predicted The Subprime Crisis Expects Massive Yuan Devaluation In 2016

Earlier this month, even before China unleashed the end phase of its latest currency devaluation which since forced the PBOC to enforce even more capital controls to avoid accelerating capital outflows, Kyle Bass revealed that his best investment idea for 2016 was to short the Chinese currency:

“Given our views on credit contraction in Asia, and in China in particular, let’s say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there’s one thing that is going to happen: China is going to have to dramatically devalue its currency…. “We are not short Chinese equities, but we are very invested in the Chinese currency: we think we are going to see a pretty material devaluation; we think it’s going to be in the next 12-18 months.”

He did not specify exactly what he means by “pretty material devaluation” however according to our own December calculations, an indicative number is likely in the 10-15% ballpark.

Today, another Texas-based hedge fund manager who just like Kyle Bass correctly predicted, and profited from, the subprime crisis, Corriente Advisors’ Mark Hart, has not only reiterated Kyle Bass CNY devaluation call, but has gone as far as quantifying by how much the Chinese currency will have to fall. Cited by Bloomberg, Hart has said that “China should weaken its currency by more than 50 percent this year.

Hart believes that the Chinese crawling devaluation is an error as it carries with its the latent threat of much more devaluation in the future, thus encouraging even more outflows, which in turn forces China to sell even more reserves, which destabilizes the economy even further, forcing even more devaluation and so on.

Instead, a one-off devaluation would allow policy makers to “draw a line in the sand” at a more appropriate level for the yuan, easing pressure on China’s foreign-exchange reserves and removing an incentive for capital outflows, according to Hart, who’s been betting against the currency since at least 2011. He adds that China should devalue before its $3.3 trillion hoard of reserves shrinks much further, he said, because the country can still convince markets it’s acting from a position of strength.

Incidentally, this is precisely what Ex-PBOC adviser Yi Yongding says yesterday China should do, as quoted by the 21st Century Herald, adding that the PBOC’s forex reform in Aug. 2015, known as “crawling peg” by foreign investment banks, has many flaws and should be abandoned. Accoding to Yi, the scheme won’t be able to break mid- or long-term depreciation expectations because those are decided by fundamentals, even if they are misinterpreted. His conclusion is a widely accepted one by now, namely that China may not have better choice but to strengthen control over capital flows to stabilize financial market.

Back to Hart who says that “there wouldn’t be anything underhanded about a sharp devaluation. Why should China be forced to suffer deflationary effects of defending its currency when everyone else isn’t?”

In other words, why peel the bandaid one millimeter at a time when China should just rip it off in one motion?

Here’s a reason why: or rather over 20 trillion reasons, which is how much in dollar equivalent deposits Chinese savers have parker at their local banks. If those depositors realize that their net purchasing power for foreign goods and services has suddenly lost 50%, in the words case, there would be riots in China, and in the best case an unprecedented capital outflow. Which is also why China has been so unwilling to do the “bandaid” approach.

As Bloomberg adds, Hart, whose prescription clashes with consensus forecasts for the yuan and recent comments from senior government officials, said China would be justified in weakening the currency after central banks in Europe and Japan fueled declines in their exchange rates to stoke economic growth in recent years. Such a move would likely come as a surprise to global investors, who were rattled by a drop of less than 3 percent in the yuan last August.

“They’re trying to drive a car with one foot on the brake,” said Hart, who estimates the People’s Bank of China spent more than $100 billion supporting the yuan in onshore and offshore markets during the first 12 days of January. “If China were to devalue to a level that wasn’t actually a true equilibrium they will get run over pretty quickly, they will blow through FX reserves, and then they will lose face because they’ll be forced to devalue.”

There is another implication from a sharp devaluation: a world in which not even the IMF can deny any longer that a full blown currency war has broken out. Bloomberg adds more:

While a one-off drop in the yuan could ease selling pressure on the currency and support exports, it would also entail risks for China and the rest of the world. Chinese borrowers have amassed $1.5 trillion of foreign-currency debt, according to an official estimate at the end of September, which would become instantly harder to repay after a sharp decline in the yuan.


A devaluation could also fan fears of a global currency war — a risk that Mexico’s finance minister cited earlier this month — and spur the U.S. Federal Reserve to backtrack on plans to raise interest rates, according to Hart.

For now, Chinese policy makers have signaled there are no plans for a big drop in the yuan. Premier Li Keqiang on Friday pledged a “stable” exchange rate and said the nation has no intention of stimulating exports through a competitive devaluation. Bets against the currency will fail and calls for a large depreciation are “ridiculous” as policy makers are determined to ensure stability, Han Jun, the deputy director of China’s office of the central leading group for financial and economic affairs, said last week in New York.

However, while in August 2015 China did engage a modest one-off devaluation, there is a precedent for a far sharper devaluation. The currency slid 33 percent at the start of 1994 as authorities unified official and market exchange rates, and the yuan has stayed stronger than that level ever since March of that year. That decision was a “wild success,” helping to set the stage for years of economic growth and foreign-exchange inflows, said Hart, who founded his hedge fund in 2001.

While a devaluation this year would be “jarring” and may initially accelerate capital outflows, it would ultimately put China in a stronger position, according to Hart. He said the country could explain the move by saying it would put the yuan at a level more reflective of market forces and allow the currency to catch up with declines in international peers.

It would also most likely unleash another global currency crisis, first among the Emerging Nations, and then among their Developed peers, as country after country scrambled to implement comparable currency destruction as China, in order to preserve their relative share in dwindling global trade, where the shortest way to boost one’s exports has over the past 7 years, been a very simple one: destroy your currency faster than your exporting competitors.

The reality, however, is that Hart is correct, and China will have to pick one option: either a sharp devaluation, or failing that, debt defaults: the current course of gradual CNY debasement will only results in an acceleration in capital outflows until ultimately China’s $3 trillion rainy day fund is whittled away to nothing (and as a reminder, according to some estimate just a little over $1 trillion in it is actually liquid assets).

Hart is not alone in predicting a massive Yuan devaluation: Carlyle Group’s Emerging Sovereign Group in New York and Omni Partners in London are also positioned for a retreat in the currency. Crispin Odey, who runs Odey Asset Management, said in September that the yuan should fall by at least 30 percent.

Finally, this is how Hart is trading the upcoming devaluation: Hart said he’s wagering against the currency with put options, contracts that provide the right to sell at a specific price within a set period. Bets on a sharp devaluation aren’t common among his hedge fund peers, who only recently started to wager on a gradual depreciation, Hart said.

“It strikes me as odd that the world would assume that China wouldn’t pursue same the same type of monetary policies” that led to weaker exchange rates in other nations, Hart said. “They’re between a rock and a hard place.”

Which is 100% correct, and is also why the market is finally starting to pay attention to the China in the bull store, after years of stubbornly ignoring it.


And then there is this account which should also give you a good idea as to what is happening to Chinese factory workers:
(courtesy zero hedge)

“My Career Basically Ended Today”: What Is Really Happening In China

Two months ago, long before the WSJ and the NYT wrote virtually carbon-copy pieces, we laid out a list of China risk factors which everyone by now is familiar with. These were as follows:

  • a slowing economy crippled by soaring debt, now over 300% of GDP
  • an economy which is overly reliant on fixed investment
  • an artificially high exchange rate which is adversely impacting exports and impairing trade, in a “beggar thy neighbor” world everyone is rapidly devaluing their own currency
  • the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments at current prices of industrial commodities, leading to surging business failures and defaults
  • a burst housing bubble which recently popped (although slowly growing again)
  • a burst stock market bubble which recently popped (although slowly growing again)
  • Non-performing loans, as high as 20%, and metastsizing across the Chinese banking sector

The market has been struggling to price many of these into any existing investment theses.

We also said what we think is, as of this moment, is the biggest, and most, underreported risk facing China: social discontent, resulting from a breakdown in recent “agreeable” labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.

To corroborate this, in November we showed a tally of labor strikes through the 11th month amounted to a record high 2,005.  We have updated this to show that in just the last two months of the year, labor strikes in China have exploded, sending the total to a whopping 2,703.


This chart alone, more than any bullshit goalseeked “data” released by the Chinese politburo, reveals all one needs to know not only about the Chinese economy and its collapsing labor situation, but also the social mood because for Chinese workers to dare to protest their employment conditions knowing full well they risk the full retaliation of the state which always frowns upon public displays of dissatisfaction, things in China must truly be on the verge of total collapse.

A useful anecdote to illustrate what is truly happening on the ground, comes courtesy of the NYT which tells the story of how having lost his factory job, one Chinese migrant worker returns home.

Liu Lang, a Chinese migrant worker, left his rural hometown in Sichuan Province two decades ago to work in the factories of the southern province of Guangdong, China’s manufacturing powerhouse. Now, he is moving back.

“I worked my way up from a basic worker to a department head. And my career basically ended today,” Mr. Liu said on the train leaving Guangdong.

Factories in Guangdong have been hit hard by the slowing economy, and many of them have closed, including the shoe factory where Mr. Liu worked.

In 2015, China’s economy expanded 6.9 percent, just below the government’s target of 7 percent, according to official numbers released Tuesday. While the pace would be the envy of many developed countries, it marks China’s slowest economic growth since 1990, the year after the government’s crackdown on protesters in Tiananmen Square.

“My wife and I were both working at that factory,” Mr. Liu said. “We lost more than 20,000 renminbi for the last three months,” he added, referring to about $3,000 in unpaid back wages.


Now multiply this by tens of millions to grasp the severity of the problem.

In the next update, we will read how Liu and millions of his unemployed peers take to the streets, when after months of failed attempts to find jobs they turn violent and demand that the government do something to help them; the same government which is now facing an economic catastrophe.


 Mr Draghi:  I think we have a problem!!
take a look at credit default swaps at Italian banks especially Unicredit:
(courtesy zero hedge)

“And Now For Something Completely Different”

With everyone focusing on China, oil and the dollar, here is BMO’s Mark Steele taking a loot at something few are concerned about so far. That will change shortly.

And Now For Something Completely Different

Typically, when banks look as awful as they do, and believe us they do look awful, we focus on the credit default swaps on the FSA’s too-interconnected-to fail list. But your portfolio is broader than that, so today we will expand to show banks with a CDS over 100bps, and we sorted it by its degree of short term freakedoutity


Leading the pack is the Italian SIFI (Figure 2, and looking forward to hearing if you are still taking the stance of the Buba on Thursday Mr. Draghi), followed by another Italian, another Italian, and another Italian.

A German SIFI then…eventually you get to Morgan Stanly and Citibank.

So let’s just say that if you are focused on domestic North American issues…you are missing the point.

Financial entities in Italy and Greece cash/bond prices collapse/yields skyrocket:
(courtesy zero hedge)

Italy, Greece, Financials Crash As European Stocks, Peripheral Bonds Plunge

Led by a broad-based collapse in financial stocks, European markets extended and accelerated their plunge today. Thanks to the increased systemic linkages enforced by The ECB, peripheral sovereign risk is spiking as their national banking systems crash. Every European nation is now in at least correction since the end of QE3.

Europe crashed today…


Led by utter carnage in financials…

(note that thanks to Draghi’s liquidity spigots financial credit remains suppressed -for now – relative to equity. We do note that Sub financials credit is blowing out)

And every EU nation is now in at least a correction since the end of QE3 (Italy, Spain, and Greece in bear market)


And as EU financials tank, so sovereign risk soars for peripheral nations…

As  explained above Saudi Arabia unleashes capital controls as they ban bets against the dollar peg.
(courtesy zero hedge)

Saudi Arabia Unleashes Capital Controls: Bans Bets Against Dollar Peg

14 months ago, Saudi Arabia had a plan.

That plan involved deliberately suppressing the price of crude in order to bankrupt the US shale complex and put pressure on the Russians who were still clinging to the notion that Bashar al-Assad would remain President of Syria.

Preserving crude market share and securing the “ancillary diplomatic benefits” (to quote The New York Times) of lower oil prices has proven to be a trickier proposition than Riyadh originally imagined.

Not only has Moscow refused to relinquish Assad, Russia is actually pumping crude at record rates as the country’s fragile economy remains resilient even as the budget deficit looks set to balloon to its second widest level in two decades. Meanwhile, US production has managed to survive the rout thanks to forgiving capital markets drunk on ZIRP Kool-Aid.

And while the party is well nigh over for uneconomic US producers, the damage has been done for Saudi Arabia. A year of depressed crude prices blew a giant hole in the kingdom’s budget and although things are set to “improve” in 2016, the deficit is still projected at around 13% of GDP.

Riyadh has been forced to overhaul the welfare state by cutting subsidies for everyday Saudis, a move which may ultimately foment social unrest and the war in Yemen (which is headed into its second year) is a further drain on the country’s depleted coffers.

The Saudis are of course armed with a sizeable war chest. SAMA reserves amount to some $630 billion.

But as large as that sounds, it could all be gone in a matter of years depending on how long the kingdom intends to keep up the war of attrition with US production and the shooting war with the Houthis in Yemen. Throw in the fact that the Iranians are hell bent on boosting supply by a million barrels per day by the end of the year, and you have a recipe for continuous budget bloodshed in Riyadh.

As if plugging the yawning budget gap and maintaining subsidies for the kingdom’s oppressed masses weren’t enough of a threat to the SAMA reserve treasure trove, Saudi Arabia is also determined to defend a three-decade-old dollar peg for the riyal.

Last August, we noted that the market was beginning to speculate that the peg would fall and subsequently, quite a few analysts and commentators began to ask how long the Saudis would be willing to keep the SAR tethered to a soaring dollar.

Well don’t look now, but Saudi Arabia just banned banks from selling options on riyal forwards.

Saudi authorities ordered banks to stop allowing cheap bets on a currency devaluation, according to five people with knowledge of the matter,” Bloomberg reported this morning, adding that “the directive applies to local banks and the Saudi branches of international banks, the people said.”

With riyal forwards hitting record highs above 900 points, SAMA had apparently had enough. “[Their] motive is to kill this speculative activity over the sustainability of the riyal peg,” Apostolos Bantis, a credit analyst at Commerzbank AG told Bloomberg by phone.

The peg “has served Saudi Arabia well [and] remains appropriate given the structure of the economy,” Masood Ahmed, director of the Middle East and Central Asia department at the International Monetary Fund said, earlier this month. “Saudi Arabia has adequate buffers to maintain this peg,” he added.

Perhaps. But one thing policy makers should have learned after watching Greece unravel last summer is that capital controls almost always backfire. Once the market (not to mention the populace) senses panic, it’s all downhill from there and make no mistake, there’s blood in the water here (pardon the mixed metaphors). For those curious to know how long the SAMA piggybank lasts under $30 crude, recall the following graphic from BofA which looks at the cash burn under different scenarios for budget cuts and borrowing:

As for what happens if (or perhaps “when” is now the more appropriate term) the peg does fall, we close with the following bit from BofAML, who calls the breaking of the riyal peg the “number one black swan event for the global oil market in 2016”:

For oil, however, the most crucial point is what happens to Middle East currencies and in particular to the Saudi Riyal. In fact, Saudi Arabia’s FX reserves are still high and point to an ample buffer for now, but they have been falling at a relatively fast rate (Chart 21). However, should China allow for significantly faster FX depreciation than is currently priced in by markets, we believe oil prices could fall further. Naturally, the FX reserve drain on Saudi could accelerate to $18bn per month if Brent crude oil prices average $30/bbl (Chart 22), sharply reducing the Kingdom’s ability to retain its currency peg. 

However, if Saudi cannot resist the gravitational forces created by a persistently strong USD and depegs the SAR to follow Russia or Brazil, oil prices could collapse to $25/bbl. Weaker commodity prices would in turn add more downward pressure on EMs (Chart 26). Thus, even if micro supply and demand dynamics are improving, the path for oil prices in 2016 will heavily depend on how the USD moves against the CNY and the SAR. Or on a Saudi supply cut.

A suicide bomber strikes the Russian embassy in Kabul, Afghanistan
(courtesy zero hedge)

4 Dead, 2 Dozen Injured After Suicide Bomber Strikes Russian Embassy In Afghanistan, ISIS Reportedly Claim Responsibility

 A loud explosion took place outside the Russian embassy in Afghanistan’s capital of Kabul this morning according to local media. Details are lacking but it appears as if a suicide car bomber was responsible.The Deputy Minister of Interior confirms 4 killed and 2 dozen injured in suicide attack. This is the 8th suicide attack in Afghanistan since January 1st.




Social media has begun to show images…

Unconfirmed comment that ISIS has claimed responsibility…

Canada is in a pickle: it needs to lower the Cdn dollar to help the oil patch.
However the lower dollar unleashes huge inflation which will cause citizens to scale back purchases and thus kill the economy
(courtesy zero hedge)

Canada Disappoints, Keeps Rates Unchanged As Oil Patch Burns

On Tuesday in “Canada Set To Unleash Negative Rates As Oil Patch Dies, Depression Deepens,” we outlined the dilemma facing Stephen Poloz and the BOC.

If the central bank cuts rates and drives the loonie lower, Poloz may be able to keep the CAD price of WCS above the marginal cost of production and thus avoid shut-ins that would cost the Canadian economy still more oil patch jobs.

However, further loonie weakness risks triggering a backlash from Canada’s beleaguered consumers who may scale back spending if their purchasing power is further eroded (i.e. if cucumbers continue theirrelentless push towards $10).

In short, the BOC is damned if they do and damned if they don’t, and going into Wednesday, the rate decision was a coin toss.

Well, Poloz has spoken and the Bank of Canada has decided to save its dry powder for another day. The benchmark rate remains on hold at 0.50% even as the central bank cuts its GDP forecast.


And there goes whatever was left of the oil patch, up in a 150 pip plume of smoke…

To be sure, this is just delaying the inevitable and here’s the chart that explains why:

A rising CAD effectively drives the country’s producers out of business. The longer Poloz waits, the larger the next cut will ultimately have to be, which means that if the BOC waits too long, Poloz may have to rethink his contention that the effective lower bound is -0.50%.



none today





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


Euro/USA 1.0898 down .0011

USA/JAPAN YEN 116.66 down .900

GBP/USA 1.4159 down .0020

USA/CAN 1.4651 up .0085

Early this Wednesday morning in Europe, the Euro fell by 11 basis points, trading now just above the important 1.08 level rising to 1.0886; 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 last night tumbling bourses and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was up in value (onshore). The USA/CNY up in rate at closing last night: 6.5790 / (yuan down  but will still undergo 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 northbound trajectory as settled up again in Japan by 90 basis points and trading now well below  that all important 120 level to 116.66 yen to the dollar.

The pound was down this morning by 20 basis point as it now trades just below the 1.42 level at 1.4159.

The Canadian dollar is now trading down 85 in basis points to 1.4651 to the dollar.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade also blowing up)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

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 WEDNESDAY morning: closed down 632.18 or 3.71%

Trading from Europe and Asia:
1. Europe stocks all in the red

2/ Asian bourses mixed/ Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the red after central bank intervention  (massive bubble bursting), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red /

Gold very early morning trading: $1097.60


Early WEDNESDAY morning USA 10 year bond yield: 1.99% !!! down 5 basis points from last night  in basis points from TUESDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.74 down 8 in basis points.  ( still policy error)

USA dollar index early WEDNESDAY morning: 99.09 up 2 cents from TUESDAY’s close. ( Now below resistance at a DXY of 100)

This ends early morning numbers WEDNESDAY MORNING












Crude early last night falls below 28 dollars and with that it drags the entire globe equity markets lower:



(courtesy zero hedge)


Crude Oil Slides Below $28, Lowest Since 2003, Dragging US Equity Futures Lower



Then late in the morning, it slips below 27 dollars


(courtesy Bloomberg/CNBC)


US crude dips below $27 as supply glut persists

Portuguese 10 year bond yield:  2.93% up 16 in basis points from TUESDAY

Japanese 10 year bond yield: .217% !! down 8/10 in basis points from TUESDAY and extremely low ****unbelievable
Your closing Spanish 10 year government bond, WEDNESDAY up 9 in basis points
Spanish 10 year bond yield: 1.79%  !!!!!!
Your WEDNESDAY closing Italian 10 year bond yield: 1.65% down 9 in basis points on the day:
Italian 10 year bond trading 14 points lower than Spain.
Closing currency crosses for WEDNESDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
Euro/USA: 1.0894 down .0016(Euro down 16 basis points)
USA/Japan: 116.66 down 0.896 (Yen up 90 basis points)
Great Britain/USA: 1.4156 down .0022 (Pound down 22 basis points)
USA/Canada: 1.4525 down 0.0040 (Canadian dollar up 40 basis points)
This afternoon, the Euro fell by 16 basis points to trade at 1.0894.
The Yen rose to 116.66 for a gain of 90 basis points. (and liquidating much of the yen carry trade)
The pound was down 22 basis points, trading at 1.4156.
The Canadian dollar rose by 40 basis points to 1.4525 even as the price of  oil price fell again to around $26.46 per barrel).
The USA/Yuan closed at 6.5788
Your closing 10 yr USA bond yield: down 5 basis points from TUESDAY at 1.97%// (trading well below the resistance level of 2.27-2.32%) policy error
USA 30 yr bond yield: 2.75 down 5 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
 Your closing USA dollar index: 99.04 down 5 cents on the day  at 2:30 pm




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