Gold: $1115.60 down $.50 (comex closing time)
Silver 14.22 down 22 cents
In the access market 5:15 pm
At the gold comex today, we had a good delivery day, registering 5 notices for 500 ounces. Silver saw 16 notices for 80,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 199.70 tonnes for a loss of 103 tonnes over that period.
Today we had a huge flash crash in silver and this caused the fix to settle at 13.58 even though the price of silver at the time was slightly over $14.00. This is totally unbelievable and it will cause huge losses to mining companies who use the fix to settle on silver delivered. The regulators and bankers should all be put in jail for this most outrageous criminal behaviour.
In silver, the open interest rose by 1549 contracts up to 156,283. In ounces, the OI is still represented by .782 billion oz or 112% of annual global silver production (ex Russia ex China).
In silver we had 16 notices served upon for 80,000 oz.
In gold, the total comex gold OI fell by a rather large 3354 contracts to 381,996 contracts as gold was down $5.60 with yesterday’s trading.
Today both the gold comex and the silver comex are in severe stress with gold in backwardation up to April.
We had no changes in gold inventory at the GLD, / thus the inventory rests tonight at 669.23 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex. In silver,/we had no changes in inventory and thus/Inventory rests at 310.653 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 1549 contracts up to 156,283 despite the fact that silver was down 10 cents with respect to yesterday’s trading. The total OI for gold fell by 3,354 contracts to 381,996 contracts as gold was down $5.60 in price from yesterday’s level.
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i) Late WEDNESDAY night,THURSDAY morning: Shanghai down badly by 2.85% / Hang Sang up. The Nikkei and the rest of Asia closed badly in the red . Chinese yuan up a touch and yet they still desire further devaluation throughout this year. Oil gained a dollar, rising to 32.25 dollars per barrel for WTI and 33.40 for Brent. Stocks in Europe so far are all in the red. Offshore yuan trades at 6.6174 yuan to the dollar vs 6.5760 for onshore yuan. huge volatility is the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/POBC injects another 50 billion of liquidity into the markets
ii)The architect of Abenomics resigns amid corruption and bribery allegations:
( zero hedge)
iv) A terrific commentary explaining how China’s paper economy will implode and take the globe with it:( David Stockman/ContraCorner)
v) China will now use public funds to cover losses on some failed venture capital
( zero hedge)
vi)Houston: we have a problem!! The delta in total Debt to GDP in one year is absolutely outstanding!! Now the total rises to 346% (Corporate,Sovereign/Personal. With debt rising much faster than GDP, then must be a devaluation in the yuan shortly:
ii)Sweden now set to deport 80,000 refugees amid huge security fears. We wish Sweden the best of luck trying to find them!
ii) We now have a new virus to be worried about: the ZIKA virus spread through a mosquito which will cause defects in pregnant women as it causes huge birth defects. It is spreading explosively in South and Central America:
i) Oil soars to 3 weeks high on a supposed Saudi proposal for a 5% cut in production from all nations. However Iran spoils the party suggesting that they want to recoup lost market share:( zero hedge)
ii) Then this happened: “OPEC: there is no plan for a meeting with Russia”
Brent and WTI still rising despite that news.
( zero hedge)
iii)So ends the trial balloon of a output oil cut. Saudi Arabia has no proposal for that
iv) Shell and Italian ENI corp may lose a huge 9 billion barrels of crude
i) The big story of yesterday was the official gold repatriated by Germany at 210 tonnes.
Chris Powell asks the correct question: “where was the source of these bars”
I will also give you my two cents worth on the matter below
(courtesy Chris Powell/GATA)
ii)Ronan Manly explains how Germany received its 210 tonnes of gold back
iii) Peter Boehringer discusses the slow pace of German gold repatriation!
( Peter Boehringer/GATA)
iv)Interesting: Koos Jansen spoke to Scotiabank people on Chinese gold demand; and he gives us a commentary on this!
( Koos Jansen/GATA)
v) LBMA is trying to thwart the arrival of a allocated bullion exchange at the LBMA:
vi) We had another silver flash crash this morning: two commentaries
vii) Lawrie Williams discusses Chinese gold demand. You will recall that China has now stopped giving SGE withdrawals on gold which to us was key in estimating demand.
Now it is going to be a little more difficult to find true demand as we must use export figures from all the various countries
(courtesy Lawrie Williams/Sharp’s Pixley)
USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER
i)Moody’s had downgraded Freeport McMoRan to junk. Its credit default swaps (bets on the survival of the company) skyrocketed today. This is important due to the huge derivative trading by Freeport and together with their compadres, Glencore, Trifigara and Nobel, they can bring the entire globe to its knees:
( zero hedge)
ii)Jobless trend continues to drive in a northernly direction:
iii) Next on tap is the total destruction in the capital goods arena: durable good orders crashed!!
( zero hedge)
iv) Another huge problem in the USA: schools for profit are just not finding jobs for its graduates. This saddles huge debt upon the student and they want their money back
v)Pending home sales disappoint:
vi)Biotechs continue to face a beating. Only Facebook is advancing despite its 83 x P/E
vii)This should give you a clear picture as to why the S and P is not rising. There is a direct correlation between a rise in the Fed’s balance sheet and the S and P.
viii)This is going to do wonders for the USA housing markets as HSBC halts mortgages to Chinese nationals:( zero hedge)
Let us head over to the comex:
The total gold comex open interest fell to 381,996 for a loss of 3354 contracts as the price of gold was down $5.60 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 again held in spades. We are now leaving the non active January contract which is now off the board. The next big active delivery month is February and here the OI fell by a monstrous 47,488 contracts down to 25,686. First day notice is tomorrow 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 234,453 which is poor considering the huge number of rollovers.. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 309,860 contracts. The comex is deeply into backwardation up until April.
January contract month:
FINAL standings for January (probably)
|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|| 1929.000 oz
|No of oz served (contracts) today||5 contracts
|No of oz to be served (notices)||off the board|
|Total monthly oz gold served (contracts) so far this month||172 contracts (17,200 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||78,296.8 oz|
i) Into Scotia: another of those dubious 1929.000 oz
Total customer deposits 1929.500 oz
we had 1 adjustments.
From the Delaware vault:
200.477 oz was removed from the dealer and this landed into the customer account of Delaware
Here are the number of oz held by JPMorgan:
January FINAL standings/ (probably)
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||750,040.69 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||996,770.29 oz,
|No of oz served today (contracts)||16 contracts
|No of oz to be served (notices)||off the board.|
|Total monthly oz silver served (contracts)||115 contracts (575,000 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||5,637,135.0 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 2 customer deposits:
i) Into Brinks: 607,852.35 oz
ii) Into HSBC: 388,917.940 oz
total customer deposits: 996,770.29 oz
total withdrawals from customer account 750,040.69 oz
we had 2 adjustments:
i) Out of the CNT vault:
we had an adjustment of 556,394.710 oz adjusted out of the dealer and this landed into the customer account of CNT
ii) Out of the Delaware vault:
we have 745,499.738 oz adjusted out of the customer account and this landed into the dealer account of Delaware:
And now the Gold inventory at the GLD:
jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23
jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.
Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes
Jan 25./a huge deposit of 2.08 tonnes of gold into the GLD/inventory rests at 664.17 tonnes
most likely the addition is a paper deposit and not real physical
Jan 22/no change in gold inventory at the GLD/Inventory rests at 662.09 tonnes
Jan 21.2016: a huge deposit of 4.17 tonnes/Inventory rests at 662.09 tonnes
most likely the addition is a paper deposit and not real physical
jan 20/ no change in inventory at hte GLD/Inventory rests at 657.92 tonnes
Jan 28.2016: inventory rests at 669.23 tonnes
And now your overnight trading in gold, THURSDAY MORNING and also physical stories that may interest you:
Uncertain Times Sees Germany Repatriate 200 Tonnes Of Gold Bullion
Germany’s Bundesbank released further detail on its gold holdings on Wednesday, saying it transferred 210 tonnes of gold back to the country last year from vaults in Paris and New York.
Frankfurt is now the largest storage location for the country’s gold reserves after New York, it said in a statement, reports Henry Sanderson in the FT.
The Bundesbank’s repatriation of 200 tonnes of gold bullion reaffirms the fact that central banks today still view gold as a vital safe haven reserve currency and monetary asset. It also indicates a lack of trust between central banks and specifically with the Federal Reserve, whose gold reserves have not been audited in over 50 years and many have doubts about the integrity of those reserves.
In these uncertain times, it is prudent to follow the advice of Dr. Marc Faber by becoming your own central bank. It is essential to own gold in allocated, segregated accounts in the safest vaults in the world, in the safest jurisdictions in the world.
Further repatriation of gold by other central banks from the Fed and the Bank of England has the potential to create the long awaited short squeeze and a sharp revaluation in the gold price as central banks are forced to enter the market to acquire the physical bullion that they thought they already owned. A lack of supply and very robust – likely record demand – in the coming financial and monetary crisis will exacerbate this revaluation in gold.
We believe, like the German Bundesbank and people who are buying gold in record amounts, that only gold bullion in your possession or allocated gold stored in secure locations such as Singapore, Hong Kong and Zurich can be viewed as a safe-haven asset.
Precious Metal Prices
28 Jan: USD 1,119.00, EUR 1,026.14 and GBP 781.59 per ounce
27 Jan: USD 1,116.50, EUR 1,027.14 and GBP 781.04 per ounce
26 Jan: USD 1,114.70, EUR 1,028.42 and GBP 785.80 per ounce
25 Jan: USD 1,103.70, EUR 1,020.29 and GBP 773.96 per ounce
22 Jan: USD 1,097.65, EUR 1,012.55 and GBP 769.63 per ounce
Download Our 7 Gold Must Haves
The big story of yesterday was the official gold repatriated by Germany at 210 tonnes.
Chris Powell asks the correct question: “where was the source of these bars”
I will also give you my two cents worth on the matter below
(courtesy Chris Powell/GATA)
Ronan Manly: Bundesbank keeps withholding critical gold information
Submitted by cpowell on Wed, 2016-01-27 15:40. Section: Daily Dispatches
10:40a ET Wednesday, January 27, 2016
Dear Friend of GATA and Gold:
Gold researcher Ronan Manly reviews the German Bundesbank’s announcement of its gold repatriation in 2015 and identifies many omissions.
The announcement, Manly writes, “does not mention whether any of the gold withdrawn from the Federal Reserve Bank of New York was melted down and recast into good-delivery bars. Some readers will recall that the Bundesbank’s updates for 2013 and 2014 did refer to such remelting/recasting events.”
Manly adds: “The repatriation information in all the press releases and updates from the Bundesbank since 2013 has excluded most of the critical information about the actual gold bars being moved. So, for example, in this latest update concerning the 2015 transport operations, there is no complete bar list (weight list) of the bars repatriated, no explanation of the quality of gold transferred and whether bars of various purities were involved, no comment on whether any bars had to be melted and recast, no indication of which refineries, if any, were used, and no explanation of why it takes a projected seven years to bring back 300 tonnes of gold that could be flown from New York to Frankfurt in a week using a few C-130 U.S. transport carriers. …
“The crucial questions to ask in my view are where the repatriated gold that has so far been supplied to the Bundesbank from New York and Paris has been sourced from, what were the refiner brands and years of manufacture for the bars, what was the quality (fineness) of the gold, and are these bars the same bars that the Bundesbank purchased when it accumulated its large stock of gold bars during the 1950s and especially the 1960s?”
Manly’s analysis is headlined “Update on Bundesbank Gold Repatriation 2015” and it’s posted at Bullion Star here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
I have checked back on my calculations for gold leaving the FRBNY:
From May through to end of November: 88 million dollars worth of gold at $42.22/oz
From January through to May 2015: 81 million dollars worth of gold at 42.22 dollars per oz/
thus: total for the yr: 167 million dollars worth of gold/$42.22 = 3,955,471 oz or 123 tonnes. Thus we have 24 tonnes of extra gold to be accounted for in yr 2015
Germany claims it received 99.5 tonnes from NY in 2015.
Germany is deficient 24 tonnes
In 2014: 240 million dollars worth of gold left the FRBNY or 177 tonnes of gold.
We know that 121.5 tonnes belonged to Holland leaving 56 tonnes for NY. Yet 85 tonnes of gold was recorded by the Bundesbank as repatriated.
Thus we have 29 tonnes of gold excess to Germany.
Thus if we take 2014 and 2015: the difference is exactly 5 tonnes and probably without a doubt the 5 tonnes that Germany received in 2013. The average amount of gold shipped per month to Germany is 7.666 tonnes.
The author, Manly then sends emails to the German Bundesbank asking for bar codes and bar lists which would indicate where and when these bars were made. So far no legitimate answer from BUBA.
What is also interesting is the gold coming from France. Last year you will recall that 35 tonnes was repatriated from France. This year 110 tonnes was repatriated from France.
The gold at France (and the USA) is earmarked gold and should not be touched. Germany pays France a fee but the USA does not charge.
The big question is why doesn’t Germany ask for all of its gold back immediately from France and save the fees? Why are we seeing a slow movement of repatriation? Why has BUBA refused to answer on the bar lists and bar codes when we previously had the lists when gold was stored in USA and France?
It sure looks like France supplied England the gold to enter into all kinds of lease operations, thereby hypothecating and rehypothecating the same gold. The fact that Germany has demanded their gold was now put tremendous pressure on the LBMA to supply the gold as England now desperately recalls outstanding loans (leases) from bullion banks. No doubt the same pressure is now on the comex as gold leaves the FRBNY to Frankfurt.
No wonder the comex and LBMA are in gold backwardation!!!.
(courtesy Ronan Manly)
Germany Has Repatriated Over 366 Tonnes Of Gold From New York And Paris
Submitted by Ronan Manly of BullionStar
Update on Bundesbank Gold Repatriation 2015
Deutsche Bundesbank has just released a progress report on its gold bar repatriation programme for 2015 – “Frankfurt becomes Bundesbank’s largest gold storage location“.
During the calendar year to December 2015, the Bundesbank claims to
have transported 210 tonnes of gold back to Frankfurt, moving circa 110
tonnes from Paris to Frankfurt, and just under 100 tonnes from New York
As a reminder, the Bundesbank is engaged in an unusual multi-year
repatriation programme to transport 300 tonnes of gold back to Frankfurt
from the vaults of the Federal Reserve Bank of New York (FRBNY), and
simultaneously to bring back 374 tonnes of gold back to Frankfurt from
the vaults of the Banque de France in Paris. This programme began in
2013 and is scheduled to complete by 2020. I use the word ‘unusual’
because the Bundesbank could technically transport all 674 tonnes of
this gold back to Frankfurt in a few weeks or less if it really wanted
to, so there are undoubtedly some unpublished limitations as to why the
German central bank has not yet done so.
Given the latest update from the German central bank today, the
geographic distribution of the Bundesbank gold reserves is now as
follows, with the largest share of the German gold now being stored
- 1,347.4 tonnes, or 39.9%, stored in New York;
- 196.4 tonnes, or 5.8%, stored in Paris;
- 434.7 tonnes or 12.9% stored at the Bank of England vaults in London;
- 1402.5 tonnes, or 41.5% now stored domestically by the Bundesbank at its storage vaults in Frankfurt, Germany
In January 2013, prior to the commencement of the programme, the
geographical distribution of the Bundesbank gold reserves was 1,536
tonnes or 45% at the FRBNY, 374 tonnes or 11%, at the Banque de France,
445 tonnes or 13% at the Bank of England, and 1036 tonnes or 31% in
The latest moves now mean that over 3 years from January 2013 to
December 2015, the Bundesbank has retrieved 366 tonnes of gold back to
home soil (189 tonnes from New York (5 tonnes in 2013, 85 tonnes in
2014, and between 99-100 tonnes in 2015), as well as 177 tonnes from
Paris (32 tonnes in 2013, 35 tonnes in 2014, and 110 tonnes in 2015).
The latest transfers still leave 110 tonnes of gold to shift out of New
York in the future and 196.4 tonnes to move the short distance from
Paris to Frankfurt.
In the first year of operation of the repatriation scheme during
2013, the Bundesbank transferred a meagre 37 tonnes of gold in total to
Frankfurt, of which a tiny 5 tonnes came from the FRBNY and only 32
tonnes from Paris. Whatever those excessive limitations were in 2013,
they don’t appear to be so constraining now. In 2014, 85 tonnes were let
out of the FRBNY and 35 tonnes made the trip from Paris. See Koos
Jansen’s January 2015 blog titled “Germany Repatriated 120 Tonnes Of Gold In 2014” for more details on the 2014 repatriation.
Those who track the “Federal Reserve Board Foreign Official Assets Held at Federal Reserve Banks” foreign earmarked gold table
may notice that between January 2015 and November 2015 , circa 4
million ounces, or 124 tonnes of gold, were withdrawn from FRB gold
vaults. Given that the Bundesbank claims to have moved 110 tonnes from
New York during 2015, this implies that there were also other
non-Bundesbank withdrawals from the FRB during 2015. Unless of course
other gold was withdrawn from the FRB, shipped to Paris, and then became
part of the Paris withdrawals for the account of the Bundesbank. The
FRB will again update its foreign earmarked gold holdings table this
week with December 2015 withdrawals (if any) which may show an even
larger non-Bundesbank gold delta for year-end 2015.
Notably, the latest press release today does not mention whether any
of the gold withdrawn from the FRBNY was melted down / recast into Good
Delivery bars. Some readers will recall that the Bundesbank’s updates
for 2013 and 2014 did refer to such remelting/recasting events.
Today’s press release does however include some ‘assurances’ from the
Bundesbank about the authenticity and quality of the returned bars:
“The Bundesbank assures the identity
and authenticity of German gold reserves throughout the transfer process
– from when they are removed from the storage locations abroad until
they are stored in Frankfurt am Main. Once they arrive in Frankfurt am
Main, all the transferred gold bars are thoroughly and exhaustively
inspected and verified by the Bundesbank. When all the inspections of
transfers to date had been concluded, no irregularities came to light
with regard to the authenticity, fineness and weight of the bars.”
But why the need to for such a general comment on the quality of the
bars while not providing any real details of the bars transferred, their
serial numbers, their refiner brands, or their years of manufacture?
Perhaps remelting/recasting of bars was undertaken during 2015 and the
Bundesbank is now opting for the cautious approach after getting some
awkward questions last year about these topics – i.e. the Bundesbank’s
approach may well be “don’t mention recasting / remelting and maybe no
one will ask”.
This bring us to an important point. Beyond the Bundesbank’s
hype, its important to note that the repatriation information in all of
the press releases and updates from the Bundesbank since 2013 has
excluded most of the critical information about the actual gold bars
being moved. So, for example, in this latest update concerning the 2015
transport operations, there is no complete bar list (weight list) of the
bars repatriated, no explanation of the quality of gold transferred and
whether bars of various purities were involved, no comment on whether
any bars had to be re-melted and recast, no indication of which
refineries, if any, were used, and no explanation of why it takes a
projected 7 years to bring back 300 tonnes of gold that could be flown
from New York to Frankfurt in a week using a few C-130 US transporter
There is also no explanation from the Bundesbank as to why these 100
tonnes of gold were available from New York in 2015 but not available
during 2014 or 2013, nor why 110 tonnes of gold somehow became available
in Paris during 2015 when these bars were not available in 2014 or
The crucial questions to ask in my view are where the repatriated
gold that has so far been supplied to the Bundesbank from New York and
Paris has been sourced from, what were the refiner brands and years of
manufacture for the bars, what was the quality (fineness) of the gold,
and are these bars the same bars that the Bundesbank purchased when it
accumulated its large stock of gold bars during the 1950s and especially
In essence, all of these updates from Frankfurt could be termed
‘limited hangouts’, a term used in the intelligence community, whereby
the real behind the scenes details are left unmentioned, and questions
about the real information is invariably left unasked by the mainstream
media. Overall, it’s important to realise that the Bundesbank’s
repatriation updates, press releases, and interviews since 2013 are
carefully stage-managed, and that the German central bank continually
dodges genuine but simple questions about its gold reserves and the
physical gold that is being transported back to Frankfurt.
For example, in October 2015, the Bundesbank released a partial
inventory bar list/weight list of it gold holdings. At that time, on 8
October 2015, I asked the Bundesbank:
Hello Bundesbank Press Office,
Regarding the gold bar list published by the Bundesbank yesterday (07 Octoberhttps://www.bundesbank.de/Redaktion/EN/Topics/2015/2015_10_07_gold.html), could
the Bundesbank clarify why the published bar list does not include,for
each bar, the refiner brand, the bar refinery serial number, and the
year of manufacture, as per the normal convention for gold bar weight
lists, and as per the requirements of London Good Delivery (LGD) gold
From the London Good Delivery Rules, the following attributes are required on LGD barshttp://www.lbma.org.uk/good-delivery-rules
Serial number (see additional comments in section 7 of the GDL Rules)
Assay stamp of refiner
Fineness (to four significant figures)
Year of manufacture (see additional comments in section 7 of the GDL Rules)”
“The marks should include
the stamp of the refiner (which, if necessary for clear identification,
should include its location), the assay mark (where used), the fineness,
the serial number (which must not comprise of more than eleven
digits or characters) and the year of manufacture as a four digit
number unless incorporated as the first four digits in the bar number.
If bar numbers are to be reused each year, then it is strongly
recommended that the year of production is shown as the first four
digits of the bar number although a separate four digit year stamp may
be used in addition. If bar numbers are not to be recycled each year
then the year of production must be shown as a separate four digit number.”http://www.lbma.org.uk/assets/market/gdl/GD_Rules_15_Final.pdf
Best Regards, Ronan Manly
The Bundesbank actually sent back two similar replies t the above email:
“Dear Mr Manly,
Thank you for your query. Information
on the refiner and year of production are not relevant for storage or
accounting purposes, which require the weight data, the fineness and a
unique number identifying each bar or melt. The Bundesbank has all of this information for each of its gold bars. By contrast, particulars relating to the refiner and year of production merely provide supplementary information. They tell us part of the gold bar’s history but do not describe its entire ‘life cycle’.”
DEUTSCHE BUNDESBANK Communication
“Dear Mr Manly,
The crucial data for storage and
accounting purposes are the weight, the fineness and a unique number
identifying each bar or melt. The Bundesbank has all of this information
for each of its gold bars, which it records electronically and also
makes available to the public. In addition to the data on weight and
fineness, the Bundesbank, the Bank of England and the Banque de France
identify gold bars exclusively on the basis of internally assigned
inventory numbers and not using the serial numbers provided by the
refiners. These custodians do not classify the bar numbers stamped onto
the gold bars by the refiner as individual inventory criteria. They do
not use the refiner’s bar numbers as these are not based on a unique
numbering system that can be used for identification purposes. Stating
the refiner and the year of production is not required for storage or
DEUTSCHE BUNDESBANK Communication
Even the large gold ETFs produce detailed weight lists of their bar
holdings, so you can see from the above answers that the Bundesbank is
resorting to flimsy excuses in its inability to explain why it is not
following standard practice across the gold industry.
For additional Bundesbank’s prevarications on its gold bars, please see my blog “The Keys to the Gold Vaults at the New York Fed – Part 3: ‘Coin Bars’, ‘Melts’ and the Bundesbank” in a section titled “The Curious Case of the German Bundesbank”.
Finally, see BullionStar guest post from 8 October 2015 by Peter Boehringer, founder of the ‘Repatriate our Gold’ campaign – “Guest Post: 47 years after 1968, Bundesbank STILL fails to deliver a gold bar number list“.
This guest post adeptly takes apart the Deutsche Bundesbank’s
stage-managed communication strategy in and around its gold repatriation
exercise, and asks the serious questions that the mainstream media fear
Peter Boehringer discusses the slow pace of German gold repatriation!
(courtesy Peter Boehringer/GATA)
Peter Boehringer: Bundesbank increases pace of German gold repatriation
Submitted by cpowell on Wed, 2016-01-27 15:11. Section: Daily Dispatches
10:11a ET Wednesday, January 27, 2016
Dear Friend of GATA and Gold:
Peter Boehringer, founder of the German Precious Metals Society and leader of the campaign to repatriate Germany’s gold reserves, sends the following today.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
By Peter Boehringer
Wednesday, January 27, 2016
The Bundesbank today announced its gold repatriation tonnages for 2015: 210 tons, with 99.5 having been returned from the Federal Reserve Bank of New York and 110 from the Banque de France in Paris. This is 6 percent of all German gold reserves and 10 percent of the German gold reserves held abroad:
This is a good improvement in repatriated volumes compared to 2013 and 2014 (not to mention 1968-2012, when no gold was returned).
But the Bundesbank’s pace is still too slow. Switzerland alone can import and export more than 10,000 physical tonnes per year.
The Bundesbank is still not ambitious enough with Germany’s gold. The Bundesbank wants to repatriate only half of Germany´s gold (approximately 1,650 tons) by 2020, not 100 percent (3,380 tones) as our campaign demands.
The Bundesbank is still not transparent enough. It has provided no gold bar serial number lists, no external audit of Germany´s gold reserves (not even for the gold in vaults in Frankfurt), and no photography of physical delivery of the Germany gold from the Fed and Banque de France.
The Bundesbank is still double counting German gold bars on other balance sheets, indicating the possibility of fractional gold banking.
There is still no proof whether the Bundesbank has repatriated any gold from New York so far or whether central banks have just swapped book entries of their paper gold (directly or via the Bank for International Settlements).
At least one more central bank besides the Bundesbank must have repatriated some gold from the New York Fed in 2015, as the New York Fed reports a decline in its custodial gold holdings of another 25.5 tonnes.
In summary, there is good progress in the alleged pace of repatriation. This is positive in our view. But there is still no proof for anything reported by the Bundesbank about Germany’s gold. There are still many counterparty, storage, and accounting risks with Germany’s gold reserves. So Germany’s gold might be so compromised that it could not perform its natural role as the ultimate currency reserve in case of a fiat currency crisis that created a need for Germany to change to a partially gold-backed new Deutsche mark.
Interesting: Koos Jansen spoke to Scotiabank people on Chinese gold demand;
(courtesy Koos Jansen/GATA)
OMG: Scotiabank sought China gold demand presentation by Koos Jansen
Submitted by cpowell on Wed, 2016-01-27 18:16. Section: Daily Dispatches
1:18p Wednesday, January 27, 2016
Dear Friend of GATA and Gold:
Gold researcher and GATA consultant Koos Jansen reports today that he made a presentation about Chinese gold demand to a Scotiabank commodities conference in Toronto this month, and he goes on to detail what he told the conference, apparently without realizing how extraordinary it was in the first place that the bullion bank would want to hear from someone so politically incorrect.
Of course Jansen is the foremost authority on the Chinese gold market. But he has repeatedly shown how the establishment’s respectable analysts of that market have been mistaken and even have been providing disinformation. Has Jansen’s evidence become so overwhelming as to make him respectable too?
What’s next — an invitation to GATA Chairman Bill Murphy to address traders at JPMorganChase and the Federal Reserve Bank of New York about gold market manipulation?
Scotiabank’s invitation to Jansen may not herald the End of Days but maybe it is a hint about the end of the current round of government-sponsored gold price suppression and the start of another round at a higher and more sustainable level.
Jansen’s report is headlined “Presentation by Koos Jansen at Scotiabank” and it’s posted at Bullion Star here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Five out of six brokers in the Libor trial acquitted by a London jury:
Five of six brokers in LIBOR trial acquitted by London jury
Submitted by cpowell on Wed, 2016-01-27 18:57. Section: Daily Dispatches
By Liam Vaughn and Suzi Ring
Wednesday, January 27, 2016
Five ex-brokers accused of helping convicted trader Tom Hayes rig LIBOR, the benchmark interest rate used in trillions of dollars of derivatives and loans, were acquitted Wednesday by a London jury, which is still deliberating charges against a sixth.
Noel Cryan, 50, who worked at Tullett Prebon Plc in London, Colin Goodman, 54, and Danny Wilkinson, 49, formerly of ICAP Plc, and RP Martin Holdings Ltd.’s Terry Farr, 44, and James Gilmour, 50, were found not guilty and released. The jury couldn’t reach a unanimous verdict on ICAP’s Darrell Read, 50, and was sent home to come back Thursday to discuss the remaining charge. The jury took about a day to find the others not guilty.
The verdict marks the culmination of a sprawling and complex four-month trial that was postponed for several days when one of the defendants, Wilkinson, fell ill. Several of the men cried as the verdicts were read out. Farr burst from the dock and climbed the stairs to embrace his wife and son. …
… For the remainder of the report:
Modus operandi of our friendly bankers; two commentaries
(courtesy zero hedge)
Precious Metals Pummeled (After Silver’s Overnight Flash-Crash)
It seems the crude short squeeze is tearing a big hole in some traders’ balance sheets (record shorts will do that) and so precious metals are being sold hard. After Silver’s overnight flash crash, both gold and silver have been slammed as crude surges…
Silver Market In Disarray After Benchmark Price Fix Manipulation
As Bulliondesk.com’s Ian Walker reports, the silver market was thrown into disarray on Thursday after the LBMA Silver Price was set 84 cents below the spot and futures price this morning.
The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce.
At the time of the auction, which begins at 12 noon London time, the spot price was at $14.42 per ounce while the futures price on the CME was at $14.415, leaving a number of market participants extremely confused as to what has happened.
“Unfortunately, it is not [a mistake],” Ole Hansen, head of commodity strategy for Saxo Bank, told FastMarkets. “This could be the end of the fix. It took 14 minutes to find a fix – they obviously found a fix way off of the market.”
The difference between the two was nearly six percent but the benchmark cannot be changed, a person familiar with proceedings told FastMarkets.
Another source also suggested that the continued existence of the fix has been put in jeopardy by the huge discrepancy in today’s price, adding that many producers – who still use the price as their daily reference – may have lost significant amounts of money if any contracts have been settled according to the fix.
“A huge number of contracts are still settled on that price,” another said. “This will no doubt cause significant problems.”
The matter is being investigated internally, FastMarkets understands, so CME has no official comment at this time.
This is how the market reacted to this clear manipulation…
As we have detailed previously, the ‘fix’ or ‘benchmark’, as it is now known, is still the global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.
While some traders continue to use the 24-hourly traded spot price, larger players prefer the snapshot-style daily benchmark to settle bulkier contracts on a traditionally over-the-counter (OTC) market.
The price is set every day by six participants – HSBC, JPMorgan Chase Bank, Mitsui & Co Precious Metals, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters.
CME and Thomson Reuters won the battle to provide the methodology and price platform for the daily process back in July 2014, replacing the 117-year old fix in August that year under sweeping reforms of the entire precious metals complex.
TF Metals Report: The LBMA strikes back
Submitted by cpowell on Thu, 2016-01-28 16:09. Section: Daily Dispatches
11:08a ET Thursday, January 28, 2016
Dear Friend of GATA and Gold:
The TF Metals Report’s Turd Ferguson writes today that the London Bullion Market Association seems to be trying to subvert an incipient physical gold and silver exchange. The report is headlined “The LBMA Strikes Back” and it’s posted here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Lawrie Williams discusses Chinese gold demand. You will recall that China has now stopped giving SGE withdrawals on gold which to us was key in estimating demand.
Now it is going to be a little more difficult to find true demand as we must use export figures from all the various countries
(courtesy Lawrie Williams/Sharp’s Pixley)
28There have been two schools of thought regarding the measurement of Chinese gold demand – those who have followed the figures put out by the major precious metals consultancies and the World Gold Council, and the hugely higher figures suggested by Shanghai Gold Exchange (SGE) withdrawal figures.
In truth we find the mainstream consultancy and WGC figures increasingly hard to live with, despite the analysts pouring scorn on the SGE figures which, to this observer, look much more likely if one relates them to known mainland China gold imports alone – let alone adding in the nation’s very substantial domestic new gold output. For example, if one goes by mainstream consultancy GFMS China gold consumption figures you find an annual total under the consultancy’s latest report of something well south of 1,000 tonnes for 2015 and with the added comment that Indian consumption was ahead of that for China for the second consecutive year.
But – and this is a big but – it all depends on how one defines consumption. As far as gold jewellery demand is concerned this is probably all very true. But GFMS also comments that Chinese bank holdings of gold increased by as much as 400 tonnes over the first three quarters of the year bringing total bank holdings to some 1,900 tonnes at that time – and presumably to over 2,000 tonnes by the year end. This is all gold being absorbed by the Chinese market in some form or another. Interestingly if China treated its commercial bank holdings in the same way that Turkey does, then the country’s total gold reserves (Central Bank plus commercial banks) would probably be close to 4,000 tonnes, which does correlate pretty well to some estimates of total Chinese gold holdings, rather than the 1,762 tonnes the Central Bank reports to the IMF.
Given that China’s commercial banks are in effect state enterprises could these commercial bank holdings be one of the ways China hides its full gold reserve total? Obviously this is speculative, but with China doing its best to obfuscate its true gold reserve and demand figures, speculation is all we have to try and work out what is happening in terms of gold flows into the country – never to come out!
And the obfuscation of gold data has been upped another notch already this year with the SGE no longer publishing its actual withdrawals data any more. Last year 2,596 tonnes were withdrawn from the Exchange – a figure the Chinese Central Bank describes as total Chinese gold demand. But obviously what it sees as demand and what consultancies like GFMS see as demand are two totally different figures and it seems to this observer that much of the difference, as noted above, is made up by what the Chinese commercial banks are absorbing. It is difficult to see the necessity for them to hold perhaps 2,000 tonnes of gold plus unless this is being held on behalf of the state.
Nevertheless whatever GFMS defines as consumption, the key to the nation’s gold absorption – and to global gold flows – is the total of metal coming in against the total going out – and the export of gold is prohibited. In analysing Chinese total gold demand we suggested that this can be reconciled to a large extent by taking known gold imports, plus China’s own gold output, plus estimated scrap gold going into the SGE – and the grand total of all this has probably been well over 2,000 tonnes plus last year (See: Are China’s gold imports rising or falling? and Chinese Gold Assoc figures equate domestic gold demand to SGE withdrawals ).
So if this premise is correct and actual Chinese gold absorption last year is represented by the SGE withdrawals figures, how can we estimate the figure in years ahead if the SGE (presumably by order of its controlling entity – the Chinese Central Bank, the Peoples Bank of China) is no longer to publish its weekly withdrawals figures (See: CHINA Stops Publishing SGE Withdrawal Figures)? Overall the data suggests that China is ‘absorbing’ over 80% of global new mined gold output (of around 3,150 tonnes in 2015) entirely on its own. No wonder London gold inventories are falling so fast and COMEX registered gold stocks have fallen to only around 2 tonnes!
Perhaps the best way ahead is close monitoring of Chinese gold import statistics published by the exporting nations. Hong Kong, Switzerland, the UK, the USA, Australia etc. all publish gold export data broken down by country, and while these may not in combination account for total Chinese gold imports, they will account for an extremely large proportion of them. Time was when Hong Kong’s published gold export figures could be taken as a proxy for mainland Chinese imports, but no longer given that far more gold – probably more than 50% nowadays – is entering the mainland directly rather than being routed via Hong Kong. So now a bit more work is needed. But monitoring the flow of known imports, adding in China’s own consumption, plus making allowances for imports from unreported sources and for domestic scrap supply will give us an indicator of what is really going on here. Not ideal, but given that China seems to be trying to make estimates of the true gold flows into private and state-controlled hands as difficult as possible as part of its own long term political/financial agenda it is the best we non-mainstream analysts can do.
Meanwhile it may well suit China to have the world’s major media view Chinese consumption as reported by the major precious metals consultancies and the World Gold Council, but as we have shown above, in terms of true global gold supply and demand it should be the Chinese gold absorption figure which is key to real global gold flows and this is hugely different from reported ‘consumption’ figures.
And now your overnight THURSDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan RISES to 6.5762 / Shanghai bourse: in the RED down 2.85%/ hang sang: GREEN
2 Nikkei closed DOWN 122.47 or 0.71%
3. Europe stocks IN THE RED /USA dollar index DOWN to 98.84/Euro UP to 1.0911
3b Japan 10 year bond yield: rises slightly to .220 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 118.80
3c Nikkei now well below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 32.37 and Brent: 33.40
3f Gold down /Yen down
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to 0.420% German bunds in negative yields from 7 years out
Greece sees its 2 year rate fall to 14.42%/:
3j Greek 10 year bond yield fall to : 9.42% (yield curve deeply inverted)
3k Gold at $1119.00/silver $14.32 (7:45 am est) the bankers are whacking because of OTC/LBMA options expiry
3l USA vs Russian rouble; (Russian rouble up 1 and 36/100 in roubles/dollar) 76.72
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/expect a huge devaluation imminently from POBC.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0137 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1062 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 7 year German bund now in negative territory with the 10 year falls to + .420%/German 7 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 2.80% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Bounce Fades As Oil Treads Water, Italian Banks Turmoil, Chinese Stocks Won’t Stop Falling
Following the Fed’s disappointing “dovish, but not dovish enough” statement which effectively admitted Yellen had committed policy error by hiking just as the US economy “was slowing down” which in turn lowered the odds of a March rate hike to just 18%, it was up to oil to pick up the correlation torch, and so it did, rising in an otherwise mixed session which has seen European stocks slide on continued weakness surrounding Italian banks, many of which have been halted limit down, while Asia was unable to pick a direction after the resignation of Japan’s “Abenomics” minister Akira Amari to over a graft scandal and yet another rout for Chinese stocks.
Before we get to the US, we should note what is going on in China where the Shanghai Composite Index fell by another 2.9% to 2655.66, capping a 9.6 percent retreat over three days, as concern a weakening economy will reduce corporate profits overshadowed the biggest cash injection into the financial markets in three years. The SHCOMP closed at the lowest level since November 2014, taking its decline for the year to 25 percent, the most since 2008. As Bloomberg notes, authorities continue to take measures to stabilize the nation’s financial markets but having most of their time focused on propping up the devaluing currency, they appear to have left equity investors to fend for themselves.
This week’s net injection of 590 billion yuan ($90 billion) into the money markets ahead of the start of the Chinese new year was the biggest since February 2013, however it wasn’t big enough. Further declines in the equity benchmark could be on the way. Strategists and technical analysts surveyed by Bloomberg are targeting a bottom of 2,500, compared with 2,656 today. Since the Shanghai Composite Index reached a record high on June 12 it has plummeted 48 percent. As can bee seen on the chart below, it remains the world’s worst performing major equity index in 2016.
Away from Asia, futures on the Nasdaq 100 Index climbed driven by Facebook which jumped 12% in early New York trading after posting another record earnings period. Technology peers also rallied, with more than 2 percent gains each in Google parent Alphabet Inc., Apple Inc., Netflix Inc., Amazon.com Inc. and Microsoft Corp. Amazon and Microsoft are due to report results today, along with some 50 other Standard & Poor’s 500 Index members.
And while Europe was initially happy to track oil modestly higher, it has since then stumbled deep in the red following the latest bout of risk in Italy where banks fell for the second day, leading the FTSE MIB to underperform the broader European market, and pushing the FTSE Italia All-Share Banks index down 4.2% as of 12:18pm CET. Indeed, this morning has been a a freeze fest, with Pop. Milano, UniCredit, Monte Paschi, Pop. Emilia shares halted; down ~5% or more after Banca Akros says price of the “bad bank” guarantee looks rather costly, doubts many Italian banks will be interested in using it to offload bad loans.
The one silver lining has been the MSCI Emerging Markets Index which rose for a second day and Gulf stocks were on course for their best week since December 2014. as U.S. crude headed for a three-day advance, helping boost currencies of commodity-exporting nations. “Emerging-market assets are rallying across the board today as the Fed sounded relatively dovish watching global developments,” said Bernd Berg, an emerging markets strategist in London at Societe Generale SA. “A March Fed rate hike looks increasingly unlikely now. I think we are now entering a risk-on phase and oil-related currencies will post a sizable rally.”
However, that may not last: with the futures picture changing dramatically, moments ago US equity futures slid as Oil erased all of its losses for the day:
- WTI CRUDE ERASES GAINS, TRADES LITTLE CHANGED AT $32.26/BBL
- WTI Crude Erases Earlier Advance, Dips 0.4% to $32.16/Bbl
- S&P FUTURES QUICKLY TURN LOWER; OIL FALLS; EU STOCKS DROPPING
And then as oil was sliding, a familiar headline reappeared:
- RUSSIAN ENERGY MINISTER NOVAK SAYS OPEC IS TRYING TO ORGANISE MEETING OF OPEC AND NON-OPEC COUNTRIES IN FEB
Maybe it can work for a second day in a row.
And while risk levels are changing rapidly and violently by the minute, this is roughly where we stand
- S&P 500 futures down 0.1% to 1872
- Stoxx 600 down 1.0% to 336.8
- MSCI Asia Pacific up less than 0.1% to 120
- Nikkei 225 down 0.7% to 17041
- Hang Seng up 0.8% to 19196
- Shanghai Composite down 2.9% to 2656
- S&P/ASX 200 up 0.6% to 4976
- US 10-yr yield up 2bps to 2.02%
- Dollar Index down 0.11% to 98.8
- WTI Crude futures up 1.6% to $32.83
- Gold spot down 0.6% to $1,118
- Silver spot down 0.4% to $14.43
A quick stroll through regional markets, we find Asian equity markets traded mixed having initially shrugged off the negative lead from Wall St . ASX 200 (+0.6%) outperformed amid gains in commodity names after crude briefly regained the USD 32/bbl level, while the Nikkei 225 (+0.7%) saw indecisive trade with participants tentative ahead of the BoJ policy decision tomorrow. Shanghai Comp (-2.9%) extended on its weakening trend, although is off its worst levels after the PBoC injected CNY 340b1n into the inter-bank market. 10yr JGBs traded lower, amid a suspected lack of buyers as participants await tomorrow’s conclusion to aforementioned policy meeting in which the BoJ is widely expected to remain on hold.
European indices trade in negative territory amid choppy trade with stabilizing oil markets failing to give stocks a lift. As North American participant come to their desks, stocks are gradually approaching their post-FOMC levels, after a cautious Fed revealed they are not blind to the risks the global economy faces, which resulted in pressure upon stock markets and a flight to safe-haven assets. Energy is supporting stocks, with the sector outperforming in the Euro Stoxx 600. The SMI (-1.5%) is the notable underperformer amongst the premier indices, its second largest component Roche (-4.3% ) weighing it down after predicting a less than stellar outlook for the coming year, with sales expected to grow in mid to low single digits.
In FX, Risk tone is mixed and as such short term speculators have taken the opportunity to buy USD/JPY this morning, taking encouragement from the domestic and offshore buying seen overnight. News that the Japanese Econ Min Amari will step down prompted a brief hit, but this looks to be short lived with the push for 119.00 back on in anticipation of the BoJ meeting this evening.
A gauge of 20 emerging-market currencies rose for a third day, gaining 0.4 percent. Russia’s ruble led the advance, climbing 1.3 percent in a third day of gains. Malaysia’s ringgit strengthened 1.1 percent, after Prime Minister Najib Razak maintained his fiscal-deficit target and announced measures to shore up an economy hit by a plunge in oil. Turkey’s lira and South Africa’s rand appreciated at 0.7 percent.
The pound advanced versus most of its 16 major peers after a report showed the U.K.’s economic expansion accelerated in the fourth quarter. Britain’s economy grew 0.5 percent in the final three months of 2015, from 0.4 percent in the third quarter, matching to the median forecast of analysts surveyed by Bloomberg.a
In commodities, West Texas Intermediate crude rose 0.7 percent to $32.54 a barrel after gaining 6.4 percent over the past two days. It’s recovering after falling to $26.19 on Jan. 20, its lowest since 2003.
The worldwide surplus will decline this year even after Iran adds an expected 500,000 barrels a day of output, United Arab Emirates Energy Minister Suhail Al Mazrouei said on his Twitter account. U.S. crude inventories increased by 8.38 million barrels last week, the biggest gain in volume since April, according to a weekly report from the Energy Information Administration.
Looking at the US calendar we’ve got last week’s initial jobless claims reading before the important preliminary December durable and capital goods orders data. Last month’s pending home sales data follows this and we close with the Kansas City Fed manufacturing activity index reading. Earnings wise today we’ve got 52 S&P 500 companies set to report with the highlights being Amazon (after-market), Caterpillar (before the open), Microsoft (after-market) and Ford Motor (before the open).
Global Top News
- Deutsche Bank Securities Unit Reports Loss on Revenue Slump: Transaction banking only unit at group to post profit gain
- Japan’s ‘Abenomics’ Minister Amari to Resign Over Graft Scandal: Economy Minister Akira Amari to resign, article alleges he took cash
- company in breach of law
- U.K. Economy Gained Momentum at End of 2015 on Services Growth: GDP rose 0.5% in 4Q
- Euro-Area Economic Confidence Declines to Lowest in Five Months: Indicator falls to 105 in January from 106.7 in December
- Roche Declines After Full-Year Profit Misses Analyst Estimates: Co. sees 2016 sales having low- to mid-single digit growth
- China’s Money-Market Operations Inject Most Cash in Three Years: PBOC’s reverse repos add a net 590b yuan this week
- Google Tax Deal May Be Next in Line for EU Probe, Vestager Says: EU competition chief Margrethe Vestager said she’s ready to investigate Google parent Alphabet’s GBP130m U.K. tax deal
- Takata CEO Said to Face Pressure to Resign as Crisis Deepens: Honda said to be more receptive on support if CEO resigns
- Wynn Resorts, Boston Reach Settlement on Everett Casino: Globe
- Apple May Introduce New IPad at March Event: 9to5Mac
- NetApp Said to Close SolidFire Deal Next Week: CRN
- Alibaba Said to Sell Meituan-Dianping Stake in $900m Deal: WSJ
Bulletin Headline Summary from RanSquawk and Bloomberg:
- Brent and WTI continue to grind higher, looking to test USD 34.00 and USD 33.00 respectively, in spite of the large DoE build seen yesterday
- European indices trade in negative territory amid choppy trade with stabilizing oil markets failing to give stocks a lift
- Looking ahead, highlights include German national CPI, UK GDP, US weekly jobless data, durable goods and pending home sales, comments from ECB’s Costa, Nowotny and Weidmann andf Microsoft earnings
- Treasuries lower in overnight trading before this week’s U.S. auctions conclude with $29b 7Y notes, WI yield 1.78%, compares with 2.161% awarded in Dec., highest 7Y auction stop since 2.235% in Sept. 2014.
- Federal Reserve Chair Janet Yellen and her colleagues have opened the door to a change in their outlook for the economy this year, and possibly a slower pace of interest-rate hikes that would make a move in March less likely
- There’s been speculation recently about whether the U.S. and the world are about to sink into recession. Underpinning much of the angst is an unprecedented $29 trillion corporate bond binge that has left many companies more indebted than ever
- Threats to financial stability include long-term impact on risk-taking of “persistently low interest rates,” increasing debt and declining credit quality in U.S. companies and emerging markets, according to Office of Financial Research’s annual report
- The U.K. economy gained a little momentum at the end of last year, thanks entirely to the services industry. 4Q GDP rose 0.5% from the previous three months, when it expanded 0.4%
- Spanish unemployment dropped to 20.9% from 21.2% the previous quarter to its lowest in almost five years, as Acting PM Mariano Rajoy struggles to form a government following an inconclusive election
- Euro-area economic confidence slumped to 105 from a revised 106.7 in December, the lowest since August, strengthening the European Central Bank’s case for increasing stimulus
- Currency traders are writing off Haruhiko Kuroda’s ability to weaken the yen the way he did in 2014, when he expanded his record monetary stimulus program
- Japanese Economy Minister Akira Amari resigned amid allegations he received money in return for favors. A tearful Amari apologized for the scandal, saying any cash received by his office was a political donation
- $2b IG corporates priced yesterday along with $300m HY. BofAML Corporate Master Index OAS 1bp wider yesterday at +200; 2015 range 180/129. High Yield Master II OAS tightened 5bp to +778; 2015 range 733/438
- Sovereign 10Y bond yields mostly steady. Asian stocks mixed, European stocks drop; U.S. equity-index futures rise. Crude oil rises,
US Economic Calendar
- 8:30am: Initial Jobless Claims, Jan. 23, est. 281k (prior 293k); Continuing Claims, Jan. 16, est. 2.218m (prior 2.208m)
- 8:30am: Durable Goods Orders, Dec. P, est. -0.7% (prior 0.0%)
- Durables Ex-Transportation, Dec. P, est. -0.1% (prior 0%)
- Cap Goods Orders Non-Def Ex-Air, Dec. P, est. -0.2% (prior -0.3%)
- Cap Goods Ship Non-Def Ex-Air, Dec. P, est. 0.8% (prior -0.6%)
- 9:45am: Bloomberg Consumer Comfort, Jan. 24 (prior 44)
- 10:00am: Pending Home Sales m/m, Dec., est. 0.9% (prior -0.9%)
- Pending Home Sales NSA y/y, Dec., est. 4.8% (prior 5.1%)
- 11:00am: Kansas City Fed Mfg Activity, Jan., est. -10 (prior -9)
DB’s Jim Reid concludes the overnight wrap
Looking at our screens this morning, it’s been a relatively mixed start for bourses in Asia but after a weak open, some positive sentiment is returning as we reach the midday break. There’s been gains this morning for the Hang Seng (+0.18%), Kospi (+0.31%) and ASX (+0.60%) after all three opened in the red, while in Japan the Nikkei is currently -0.44% but opened down nearly -1.5% following the FOMC selloff in the US last night. China is bucking the trend with markets seemingly struggling to trade with any conviction. The Shanghai Comp is currently -0.59% but has swung between gains and losses this morning. Elsewhere WTI is off around a percent in Asia and back below $32/bbl. Datawise the only release of note has been a softer than expected Japanese retail sales print (-0.2% mom vs. +1.0% expected).
Moving on. Earnings season is ramping up with a number of bellwether corporates reporting. Much like what we saw with Apple, despite Boeing’s quarterly earnings coming in ahead of analyst estimates investors latched onto the soft outlook for the quarter and year ahead which sent shares plummeting nearly 9% lower by the close. After the close we also got some bumper numbers out of Facebook (beat both earnings and revenue expectations) which sent shares up as much as 12% in extended trading (while US equity index futures are also up this morning). That was in stark contrast to eBay however who saw its share price down double digits after the close with management outlining a slightly more difficult quarter ahead than analysts had expected. All told yesterday we saw 33 S&P 500 companies report with 18 beating revenue expectations (55%) and 27 (82%) coming ahead of earnings estimates. That was slightly better than the overall trend so far after 133 companies having reported with 52% and 80% beating sales and earnings expectations respectively.
Elsewhere, the rest of the price action in markets played second fiddle to the FOMC. European equities managed to eke out small gains yesterday after trading with losses for much of the session (Stoxx 600 closing +0.31%). Meanwhile in terms of the economic data we saw both German (9.4 vs. 9.3 expected) and French (97 vs. 96 expected) consumer confidence indicators come in a smidgen ahead of expectations. In the US the only data of note was a greater than expected surge in December new home sales (+10.8% mom vs. +2.0% expected) which rose to a ten-month high after being put down to the unseasonably warm weather last month.
Looking at the day ahead, it’s a busy one for economic data and we kick off in Germany this morning where we’ll get the December import price index print. That’s before we turn to the UK where the advanced Q4 GDP print is due to be released (+0.5% qoq expected) followed by various confidence indicators for the Euro area. Germany’s preliminary CPI report for January is due out after this. Over in the US this afternoon, we’ve got last week’s initial jobless claims reading before the important preliminary December durable and capital goods orders data. Last month’s pending home sales data follows this and we close with the Kansas City Fed manufacturing activity index reading. Earnings wise today we’ve got 52 S&P 500 companies set to report with the highlights being Amazon (after-market), Caterpillar (before the open), Microsoft (after-market) and Ford Motor (before the open).
Let us begin:
Late WEDNESDAY night,THURSDAY morning: Shanghai down badly by 2.85% / Hang Sang up. The Nikkei and the rest of Asia closed badly in the red . Chinese yuan up a touch and yet they still desire further devaluation throughout this year. Oil gained a dollar, rising to 32.25 dollars per barrel for WTI and 33.40 for Brent. Stocks in Europe so far are all in the red. Offshore yuan trades at 6.6174 yuan to the dollar vs 6.5760 for onshore yuan. huge volatility is the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/POBC injects another 50 billion of liquidity into the markets (see below)
(courtesy zero hedge)
China Injects Another $50 Billion Liquidity As Mysterious Panic Buyer Reappears In Offshore Yuan
The PBOC FX intervention team continue to be busy in offshore Yuan this week as for the 4th time in 3 days, a mysterious panic-buyer lifted CNH between 5 and 10 handles higher for no good reason other than to show George Soros (and Bill Ackman) who is boss (i.e. drive away the shorts). In keeping with the recent “stability” the Yuan fix was flat but another 340bn Yuan was injected – except China CDS pushes to Aug 2015 wides indicating severe stress and suggesting devaluation looms.
Offshore Yuan in all its manipulated glory…It would appear 6.61 is the number to bet against!!
Mystery solved – USD/CNH sold near 6.6160 by large-sized Chinese banks, according to North Asia-based FX traders.
PBOC to the rescue.
Stability… or is it artificial (as CDS signals anything but)
But more liquidity…
- *PBOC TO INJECT 340B YUAN WITH REVERSE REPOS: TRADERS
- *PBOC TO INJECT 260B YUAN WITH 28-DAY REVERSE REPOS: TRADER
- *PBOC TO INJECT 80B YUAN WITH 7-DAY REVERSE REPOS: TRADER
This week’s two auction windows were used to add a net 590 billion yuan, the most since February 2013, data compiled by Bloomberg show.
We look forward to the post China New Year unwind of all that liquidity.
You can only hold the big balloon under water for so long…
Stocks are not loving the FX intervention. It appears that the PBOC cannot figure out to manipulate both at the same time…
- *SHANGHAI COMPOSITE INDEX DECLINES 1.3% AT OPEN
- *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 0.7% TO 2,909.33
The architect of Abenomics resigns amid corruption and bribery allegations:
(courtesy zero hedge)
Abenomics Architect Resigns Amid Corruption, Bribery Allegations
Japan’s economy minister Akira Amari “searched his memory” and doesn’t recall putting an envelope of cash in his pocket.
Nevertheless, the 66-year-old resigned on Thursday amid reports he accepted a $100,000 bribe from a construction company in exchange for political favors.
“I haven’t broken any laws,” Amari said last Friday, before promising to answer further questions once he had a chance to “conform his memories.”
As it turns out, Amari does recall receiving gifts from the company but those gifts were accepted as a “political donation.” No mafia-style cash envelopes were exchanged, he insists. “Putting money in my suit pocket in front of a visitor would be lacking dignity as a human being,” he said.
But even as the minister maintained his innocence, he decided to fall on his sword for the sake of Japan’s Quixote-esque fight against deflation. “We need to pass legislation through Parliament for steps to beat deflation and create a strong economy as soon as possible,” he said on Thursday. “Anything that hampers this must be eliminated, and I’m no exception.”
As Reuters notes, “Amari is a close ally of the prime minister, is a core member of his policy team, and led Japan’s negotiations for the Trans-Pacific Partnership free trade bloc.”
“This is definitely not good news for Abe and it’s going to make it harder to sell the TPP,” Jeffrey Kingston, director of Asian studies at Temple University’s Japan campus told Reuters. “Corruption is just not something that goes down well with voters [and] it’s going to be a bit of a rough road.”
Yes, “a bit of a rough road,” or as BBC’s Mariko Oi puts it, “the biggest scandal the Abe administration has faced” thus far.
Amari was the architect of Abenomics and “his resignation will probably raise even more questions over Abe’s economic policies,” Oi continues.
As for the “political donations,” Amari says the confusion arose because the cash was mishandled by his “secretaries” who allegedly spent 3 million yen of the illicit funds.
“I decided to resign my cabinet position today in consideration of my responsibility to oversee my secretary as a national lawmaker, my duty as a minister, and my pride as a politician,” a tearful Amari declared.
As Bloomberg reports, Amari is “the most influential minister to step down since Abe took office in December 2012.”
“The resignation of one of the leading members in the Abe cabinet hurts the policy implementation capacity of Abenomics,” Minori Uchida, head of global markets research at Bank of Tokyo-Mitsubishi UFJ said, earlier today.
Right. Of course the other thing that “hurts the policy implementation capacity of Abenomics” is that Abenomics simply hasn’t worked to pull the country out of deflation. Amari was one of three officials (Abe and BoJ governor Kuroda being the other two) who delivered near daily soundbites promising that the government would hit its 2% inflation target even if it killed them.
To whatever extent the market doubted the viability of Abenomics, Amari’s exit will only make the situation worse according to pretty much every commentator who’s weighed in thus far.
Nobuteru Ishihara, a former minister and secretary-general of the ruling Liberal Democratic Party, will step in as economy minister.
In the end, we suppose it says something about Abe’s cabinet that they can’t even seem to do graft right. $100,000 isn’t exactly a large sum when it comes to bribes and illicit kickbacks. Just ask a politician in Brazil.
We close with a quote from the disgraced minister, who says he risked his own life tilting at deflationary windmills.
“I worked without sleep or rest. After Prime Minister Abe put my self at the helm of Abenomics, I put my life on the line for my national duty over the past three years.”
* * *
Full article from Shukan Bunshun on the alleged bribes
And in public secretary Amari Akira TPP Minister (66), that there is a suspicion of mediation gain punishment law violations and Political Funds Control Law it found an interview of Shukan Bunshun.Depending on the coverage Affairs personnel of Shukan Bunshun of construction company in Chiba Prefecture, it was testimony to exchange money on the basis of the notes and recordings.
According to this man, Tour of the compensation of road construction Urban Renaissance Agency (UR) is doing, and request a man of influence in the Amari office. Over the past three years, Minister Amari and local Yamato office director, shaking Kenichi (public first secretary) and continued funding and entertainment Suzuki RyoMakoto policy secretary, only those total that remains is evidence 12 million yen and that up to.?
Qing Island director you have set a meeting was responded that they “do not was brought in the form of donations” to the coverage of Shukan Bunshun. However, there is no description in Amari’s political fund income and expenditure report.?The November 14, 2013, and met with the Minister of room to Amari minister. Along with Toraya of jelly that entered the box of paulownia, the ¥ 500,000 cash was placed in an envelope that was me, “This is a thank-you.”
Nobuo Mr. Gohara of attorney in the original Tokyo District Public Prosecutors Office prosecutor, a series of financial interactions Political Funds Control Law violation was pointed out that there is a suspicion of mediation gain punishment law.
TPP is in the refrain of the Diet approval, likely to raise the voices questioning the eligibility of Amari minister.
* * *
Is China About To Drop A Devaluation Bomb?
Though she had no intention of being funny, we laughed out loud, as undoubtedly many did with us, when incumbent and wannabe IMF head Christine Lagarde said last week in Davos that China has a communication issue. Of course, Lagarde knows full well that Beijing has much bigger problems than communication ‘with the market’. Or, to put it differently, if Xi and Li et al would ‘improve’ their communication by telling the truth about their economy, nobody would be talking about communication anymore.
Mixed signals from China, which is attempting to shift its economy away from exports and investment to a consumer-driven model, have deepened concerns about the outlook for world growth, she said. Uncertainty is “something that markets do not like”, Ms Lagarde told a panel of business leaders and economic regulators in the snow-blanketed Swiss ski resort. Investors have struggled with “not knowing exactly what the policy is, not knowing exactly against what the renminbi is going to be valued”, she said, referring to China’s currency. “I think better and more communication will certainly serve that transition better.”
The world’s second-largest economy this week announced its 2015 GDP growth as 6.9%, its slowest in a quarter of a century. The figure cast a shadow over the summit, where IHS chief economist Nariman Behravesh told AFP that Chinese policymakers had “fumbled” and had “added to the uncertainty and the volatility by their behaviour”. Mr Fang Xinghai, the vice-chairman of China’s securities regulator, said at the same panel that “in terms of communication, we should do a better job”. “We have to be patient because our system is not structured in a way that is able to communicate seamlessly with the market,” he added.
The real issue is what people would think if Beijing announced a more realistic 2% or less GDP growth number. The thought alone scares Lagarde as much as anyone, including the Politburo. The sole option seems to be to keep lying as long as you can get away with it. But how and where the yuan will be valued by China itself has become entirely inconsequential compared to how markets value the currency.
The PBoC spent a fortune trying to straighten the offshore and onshore yuan(s), only to see the two diverge sharply again, as Shanghai stocks posted the biggest loss on Tuesday, at 6.4%, since the ‘unfortunate’ circuit breaker incident. That puts additional pressure on the Hong Kong dollar peg, and ultimately on the mainland China peg to whatever it is they’re trying to peg to.
Beijing might solve some of these problems by devaluing the yuan by 30%, or even 50%, but it would invite a large amount of other problems in the door if it did. Like a full-blown currency war. Still, it’s just a matter of time till Xi and Li either do it voluntarily or are forced to by ‘the market’.
What they are trying very hard NOT to communicate is how much pain their Ponzi debt burden has put them in. It’s not even fully clear to what extent Xi himself is aware of this, but he knows at least enough to keep his mouth shut on the topic. It’s quite possible that some of his top aides dare not reveal the real tally to their boss for fear of their jobs and heads.
In concert with denial and obfuscation, pride and hubris may be clouding the image the Chinese have of themselves and their economy. The rest of the world has followed them in that to a large degree, but it’s got to wake up at some point. If what the WSJ quotes a Beijing-based investor as saying is halfway true, and Xi realizes the opportunity it provides him, a huge devaluation may be imminent after all, if Shanghai shares keep falling the way they are.
The country is already littered with “zombie” factories, empty apartment blocks that form ghostly suburbs, mothballed power stations and other infrastructure that nobody needs. But yet more wasteful projects are in the pipeline, even as the government talks about cutting industrial overcapacity. “That’s the misalignment—everything else is noise,” says Rodney Jones, the Beijing-based principal of Wigram Capital Advisors, who was a partner at Soros Fund Management during the 1990s. If debt keeps piling up at the current rate, China faces an eventual financial crisis, perhaps leading to years of subpar growth, mirroring the fate of Japan after its bubble burst in the early 1990s.
Mr. Jones argues that global equity markets haven’t property adjusted to this risk, even after a 16% decline in U.S. dollar terms from their May peak. “The world will have to learn to live without demand from China,” he says. “It’ll come as a shock.” A sharp devaluation won’t fix these distortions, and might even make matters worse if, as likely, it were to trigger financial mayhem in China’s trading partners. An alternative—further clamping cross-border currency controls—would be a humiliating retreat from Beijing’s policy of making the yuan more international.
If China imports continue to fall the way they have recently, a development that has already relentlessly hammered global commodities markets and exporting emerging nations, the advantages of a large devaluation could become irresistible even for a proud president. With capital flight in 2015 estimated at $1 trillion, and a roughly equal chunk of foreign reserves thrown at attempts to ‘stabilize’ the yuan, that pride is getting costly.
But it occureed to me today that perhaps I simply haven’t been cynical enough yet when pondering the matter. The support for a strong yuan, the one thing that is constantly ‘communicated’ to the world, may be just another facade. Beijing may have long decided to go for the jugular. China will have to adjust to the popping of its growth fairy tale and Ponzi economy no matter what it tries to do to prevent it.
Might as well swallow the bitter pill in one go then and get it over with?! It would make exports much more attractive at a time when more expensive imports are much less of an issue. As nice example is the very disappointing sales of iPhones in the country, prompting this comment from Apple CEO Tim Cook today: “We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look.” I think he might want to consider that what happened before was extreme, not what is now.
Beijing did a few things recently that triggered my cynicism radar. First, they targeted George Soros.
Chinese state media has stepped up a salvo of biting commentaries against George Soros and other currency traders as the yuan comes under pressure, with the billionaire investor accused of “declaring war” on the unit. At the annual World Economic Forum in Davos last week, Soros told Bloomberg TV that the world’s second-largest economy was heading for more troubles. “A hard landing is practically unavoidable,” he said. Soros [..] pointed to deflation and excessive debt as reasons for China’s slowdown.
[..] Soros “publicly ‘declared war’ on China”, the paper said, citing the 85-year-old as saying that he had taken positions against Asian currencies. But some readers questioned whether the official rhetoric could fuel Chinese investors’ fears. “They say a lot of loud slogans, but do official media even know that Chinese investors are in hell?” said one poster on social media network Weibo. “I’m afraid that Chinese investors will die in a stampede before Soros even shows his hand.”
And I’m thinking: why should you go after Soros in a very public way when you know the whole world will take note and there’s nothing you can do other than stomp your feet and thump your chest? “Look, everyone, the world’s most notorious and successful short seller is after us, but we’re so much smarter!” Maybe they think Chinese mom and pop investor juggernauts will fall for their ‘whatever it takes’ tale, but they have to deal with the entire planet here.
Could this be simple stupidity? At a certain point that gets hard to believe. An even better example, and one that is really brow-raising, was the announcement of an inquiry into China’s statistics chief:
The head of China’s statistics bureau is being investigated for corruption, the country’s watchdog said on Tuesday. “Wang Baoan is suspected of severe disciplinary violations, he is currently under investigation,” the Central Commission for Discipline Inspection said in a one-line statement on its website, using a phrase that is usually used to refer to corruption. The announcement came just hours after Wang appeared at a media briefing in Beijing on China’s economy in 2015. Last week the National Bureau of Statistics released data that showed China’s economy grew at the slowest pace in 25 years. Wang reiterated on Tuesday that the country’s GDP calculations were reliable, Chinese media reported, despite widespread criticism of the data.
Here’s a guy seeking to soothe his audience, which in present circumstances includes the whole globe, and you cut him off at the knees just hours after? He says all’s fine, and then you sent a message to the world that he can’t be trusted?
The timing seems crucial here. They could have waited a week, or two, so the connection between the two events (Wang’s statement and the inquiry announcement) would have been much less obvious. They could also, of course, have had the inquiry but kept it hush-hush. Instead, as in the Soros case, there’s a big public declaration.
Wang is head of a statistics bureau that, says the NYT, is tasked with:
The statistics bureau has a variety of responsibilities that are hard to balance even in the best of times. The bureau is supposed to provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses, even while reassuring the public about growth and maintaining consumer confidence. It is also supposed to release enough detailed and accurate information for investors and corporate leaders to make sound decisions about economic and financial prospects.
That leads us right back to the start of this article. Wang must provide “enough detailed and accurate information” for investors”, but how can he do that if the real numbers are as bad as I strongly think they are? In that case, accurate information would drive most investors away and drive others towards shorting the yuan.
He must also “provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses”, and perhaps he screwed up there (too much varnish). Xi may have found out something real bad that Wang didn’t tell him about. But even then, the fact stands that Xi risks triggering exactly what he pretends to want to prevent, by taking this to the press.
To summarize: yes, it’s possible that Beijing has a communication problem. I’ve never had the idea that Xi understands that now his power dream has come true, he finds that power is not absolute, if and when he wishes to have a financial market that allows for China to get richer through trade. That he realizes the price to pay for that is having much less than total control.
Still, after glancing through this stuff, I wouldn’t be at all surprised if the decision for a very substantial devaluation of the yuan has already been taken. It would be a panic move, with largely unpredictable consequences, but then Beijing has plenty to panic about.
And I can’t wait to see what Lagarde has to say when she figures out her new currency basket baby turns around to bite her in the ass.
PS: Something I scribbled last week: Time and again, I see ‘experts’ claim that the fact that the Chinese services sector now makes up half of GDP, is a positive. But, even if we forget for now that much of its growth is due to financial services, the real meaning is the opposite. The services sector has been able to become so important simply because the manufacturing sector is plunging as badly as it is.
A terrific commentary explaining how China’s paper economy will implode and take the globe with it:
(courtesy David Stockman/ContraCorner)
There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula——even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations.
In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.
The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington assumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition. That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption.
Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel.
So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything. It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.
And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century.
In fact, China is the rotten epicenter of the world’s two decade long plunge into an immense central bank fostered monetary fraud and credit explosion that has deformed and destabilized the very warp and woof of the global economy. But in China the financial madness has gone to a unfathomable extreme because in the early 1990s a desperate oligarchy of despots with machine guns discovered a better means to rule—— the printing press in the basement of the PBOC—-and just in the nick of time (for them).
Print they did. Buying in dollars, euros and other currencies hand-over-fist in order to peg their own money and lubricate Mr. Deng’s export factories, the PBOC expanded its balance sheet from $40 billion to $4 trillion during the course of a mere two decades. There is nothing like that in the history of central banking—–nor even in economists’ most febrile imagings about its possibilities.
The PBOC’s red hot printing press, in turn, emitted high-powered credit fuel. In the mid-1990s China had about $500 billion of public and private credit outstanding—hardly 1.0X its rickety GDP. Today that number is $30 trillion or even more.
Yet nothing in this economic world, or the next, can grow at 60X in only 20 years and live to tell about it. Most especially, not in a system built on a tissue of top-down edicts, illusions, lies and impossibilities, and which sports not even a semblance of financial discipline, political accountability or free public speech.
To wit, China is a witches brew of Keynes and Lenin. It’s the financial tempest which will slam the world’s great bloated edifice of central bank fostered faux prosperity.
So the right approach to the horrible danger at hand is not to dissect the pronouncements of Beijing in the manner of the old Kremlinologists. The occupants of the latter were destined to fail in the long run, but they at least knew what they were doing tactically in the here and now.
By contrast, and not to mix a metaphor, the Red Suzerains of Beijing have built a Potemkin Village. But they actually believe its real because they do not have even a passing acquaintanceship with the requisites and routines of a real capitalist economy.
Ever since the aging oligarch(s) who run China were delivered from Mao’s hideous dystopia by Mr. Deng’s chance discovery of printing press prosperity, they have lived in an ever expanding bubble that is so economically unreal that it would make the Truman Show envious. Any rulers with even a modicum of economic literacy would have recognized long ago that the Chinese economy is booby-trapped everywhere with waste, excess and unsustainability.
Here is but one example. Somewhere near Shanghai some credit-crazed developers built a replica of the Pentagon on 100 acres of land. This was not intended as a build-to-lease deal with the PLA (People’s Liberation Army); its a shopping mall that apparently has no tenants and no customers!
One of the more accurate things I have ever said is that the USA’s Pentagon was built on a swampland of waste. That is, I do take my anti-statist viewpoint seriously and therefore firmly believe that the Warfare State is every bit as prone to mission creep and the prodigious waste of societal resources as is the Welfare State and the bailout breeding backrooms of Washington.
But our Pentagon at least has a public purpose and would return some benefit to society were its mission shrunk to honestly defending the homeland. By contrast, China’s “Pentagon” gives waste an altogether new definition.
Projects like the above—–and China is crawling with them—–are a screaming marker of an economic doomsday machine. They bespoke an inherently unsustainable and unstable simulacrum of capitalism where the purpose of credit is to fund state mandated GDP quota’s, not finance efficient investments with calculable returns.
Accordingly, the outward forms of capitalism are belied by the substance of statist control and central planning. For example, there is no legitimate banking system in China—just giant state bureaus which are effectively run by party operatives.
Their modus operandi amounts to parceling out quotas for national GDP and credit growth from the top, and then water-falling them down a vast chain of command to the counties, townships and villages below. There have never been any legitimate financial prices in China—all interest rates and FX rates have been pegged and regulated to the decimal point; nor has there ever been any honest financial accounting either—-loans have been perpetual options to extend and pretend.
And, needless to say, there is no system of financial discipline based on contract law. China’s GDP has grown by $10 trillion dollars during this century alone——-that is, there has been a boom across the land that makes the California gold rush appear pastoral by comparison. Yet in all that frenzied prospecting there have been almost no mistakes, busted camps, empty pans or even personal bankruptcies. When something has occasionally gone wrong with an “investment” the prospectors have gathered in noisy crowds on the streets and pounded their pans for relief—-a courtesy that the regime has invariably granted.
Indeed, the Red Ponzi makes Wall Street look like an ethical improvement society. Developers there built an entire $50 billion replica of Manhattan Island near the port city of Tianjin—– complete with its own Rockefeller Center and Twin Towers—– but have neglected to tell investors that no one lives there. Not even bankers!
Stated differently, even at the peak of recent financial bubbles in London, NYC, Miami or Houston they did not build such monuments to sheer economic waste and capital destruction. But just consider the case of China’s mammoth steel industry.
It grew from about 70 million tons of capacity in the early 1990s to just shy of 1.2 billion tons or 60% of the world’s entire capacity at present. Needless to say, it’s a sheer impossibility to expand efficiently the heaviest of heavy industries by 17X in a quarter century.
The fact is, China will be lucky to have 500 million tons of true sell-through demand—-that is, on-going demand for sheet steel to go into cars and appliances and rebar into replacement construction once the current pyramid building binge finally expires—- or just 40% of its massive investment.
That’s why on Sunday the Beijing State Council made a rather remarkable announcement. To wit, it will close 100 million to 150 million tons of steel-making capacity. That would mean cutting capacity by an amount similar to the total annual steel output of Japan, the world’s No. 2 steel maker, and nearly double that of the US.
These are not simply gee whiz comparisons. It took the fastidious Japanese nearly five decades to erect the world leading steel industry on the back of tens of thousands of engineering and operational improvements. China created the same tonnage each and every year after the financial crisis, but it was all based on just on great pell mell field of dreams endeavors.
The same is true for its cement industry, ship-building, solar and aluminum industries—to say nothing of 70 million empty luxury apartments and vast stretches of over-built highways, fast rail, airports, shopping mails and new cities.
In short, the flip-side of the China’s giant credit bubble is the most massive malinvesment of real economic resources—-labor, raw materials and capital goods—ever known. Effectively, the country-side pig sties have been piled high with copper inventories and the urban neighborhoods with glass, cement and rebar erections that can’t possibly earn an economic return, but all of which has become “collateral” for even more “loans” under the Chinese Ponzi.
China has been on a wild tear heading straight for the economic edge of the planet—-that is, monetary Terra Incognito— based on the circular principle of borrowing, building and borrowing. In essence, it is a giant re-hypothecation scheme where every man’s “debt” become the next man’s “asset”.
Thus, local government’s have meager incomes, but vastly bloated debts based on stupendously over-valued inventories of land. Coal mine entrepreneurs face collapsing prices and revenues, but soaring double digit interest rates on shadow banking loans collateralized by over-valued coal reserves. Shipyards have empty order books, but vast debts collateralized by soon to be idle construction bays. Speculators have collateralized massive stock piles of copper and iron ore at prices that are already becoming ancient history.
So China is on the cusp of the greatest margin call in history. Once asset values start falling, its pyramids of debt will stand exposed to withering performance failures and melt-downs. Undoubtedly the regime will struggle to keep its printing press prosperity alive for another month or quarter, but the fractures are now gathering everywhere because the credit rampage has been too extreme and hideous.
Like Mao’s gun barrel, the printing press has a “sell by” date, too
China will now use public funds to cover losses on some failed venture capital
(courtesy zero hedge)
A Whole New Level Of Moral Hazard: China Will Use Public Funds To Cover Venture Capital Losses
It should surprise nobody that when it comes to perpetuating the global central bank “put”, China – which is at daily danger of having its house of trillions in non-performing loan card collapse at any moment – has perfected moral hazard better than any western central banker. However, even the staunchest cynics will be stunned by the latest development out of the Shanghai government where starting next month, venture capital firms which invested in high-tech startups since the beginning of 2015 can apply for government compensation if their investment loses money.
In other words, while until now the government had bailed out corporate bond and bank loan investors, and was actively micromanaging the burst stock bubble (unsuccessfully), it will now enter the venture capital and private equity arena in what may be the grossest misallocation of capital unleashed by China to date.
The policy is laid out in a regulation dated December 29 that the city’s Science and Technology Commission put on its website on January 21. Under the regulation, if the sale of a VC’s stake in a startup fails to cover its original investment, it can ask the government for a payout amounting to 30 or 60 percent of the shortfall depending on the size and revenue of the firm it backed.
The most any VC firm can receive in one year is 6 million yuan. The limit on individual investment projects is 3 million yuan although we are confident both these limitations will be breached grossly and repeatedly.
Shanghai is not the first Chinese city to implement this lunacy: an investor with a financial institution in Shanghai said the city did not invent the idea of subsidizing high-risk private financial investment. Other local governments in China have implemented similar rules but none of them offer quite as much compensation, he said.
With other local governments it was more of an ad hoc arrangement, he said. “You go to the government’s public finance bureau, asking for money, and they will tell you to wait as they go over their budget. Usually they’ll return and say there are no funds left, so you’ll have to wait until the next year and see.”
According to Caixin, the payout offer is intended to encourage private VC investment to support innovation and the development of Shanghai as a global high-tech center, the document says. The policy is to last for two years.
Of course, what it will encourage instead is another round of massive fraud, and investing in idiotic projects that have zero hope of recovery let alone return, because when one is spending with a full government backstop – like during episodes of QE – the last thing one cares about is trivial concepts like “risk.” There is only the guarantee of return and as Allan Meltzer put it best, “Capitalism without failure is like religion without sin. It doesn’t work.”
What it does do is assure that an even greater bust will take place once this particular bubble bursts, however in the process billions in taxpayer funds will be “allocated” to a handful of individuals who will promptly abuse China’s capital controls and end up purchasing luxury apartments in Manhattan.
Surprisingly, instead of keeping their mouth shut and just accepting the government’s risk-free money, some have dared to speak out against this idea which can only be classified as sheer idiocy:
The idea will have a “disastrous” impact on the principles of the capital market, said Andrew Y. Yan, managing partner of private equity investment firm SAIF Partners.
“A fundamental principle of the market economy is the match between risk and return,” he said. “VC investments are extremely risky and limited to only a very few people and institutions. The negative consequences of using public money to compensate investment losses will be unimaginable.”
Xie Zuoqiang, vice president of the PE firm Prosperity Investment, said the new policy provides no clear standards and procedures on calculating losses, leaving loopholes that can be abused to cheat tax payers’ money. He also said the two-year life of the regulation creates uncertainties because VC investments often last longer than that. “The policy may be well-intentioned,” he said, “but supporting an industry is a long-term initiative.”
Actually the policy is beyond idiotic, however it is clearly designed to enrich a handful of “venture capitalists” who like U.S. bankers have purchased local government puppets to do their bidding for them.
That said, there may be a silver lining: very soon the infamous “zero-corn” Theranos may liquidate in the US only to be reconsistuted in Shanghai, where its fraud will guarantee massive taxpayer funds are spent to boost the bank accounts of every criminal involved.
This Could Be A Problem: China’s Debt-To-GDP Rises To A Gargantuan 346%
In early 2015, after years of China’s massive debt pile being roundly ignored by most so-called experts (despite being profiled here many years prior), McKinsey released a report showing that not only has the world not delevered since the financial crisis, adding well over $60 trillion in debt (through 2016), but also revealing in a format so simple even an economist could grasp it, just how massive China’s all-in leverage has become.
Many were shocked when they read that China’s total debt/GDP had risen by 125% in under 7 years, hitting 282% as of Q2 2014.
Those same people may be just as shocked to learn that according to the head of financial markets research Asia Pacific at Rabobank, Michael Every, not only has China not begun to delever at all, but since McKinsey’s update, its debt has risen by another 70% of GDP!
According to Every, China’s 2015 debt-to-GDP might be as high as 346%, and while that is in line with wealthier developed economies but is “vastly higher” than any EM peer.
Cited by Bloomberg, Every adds that the time-frame for debt accumulation pre-crisis varies, but what always follows is a major currency drop afterwards, as has happened even with reserve currencies such as dollar, yen, euro and pound.
He also adds that nominal GDP needs to rise faster than debt for a sustained period if deleveraging is to truly be under way, aka Dalio’s beautiful deleveraging thesis. The problem, however, is that with even Goldman admitting that China’s real GDP growth rate is about 4.5%, China’s debt load is rising orders of magnitude faster than its underlying economy and is on the daily verge of entering the final phase of the Minsky Moment breakdown.
While no surprise to people with common sense, Every concludes that debt must be repaid with interest, which acts as a drag on economic activity, and is the reason why such monstrous debt loads always lead to an economic collapse; making matters worse is that in China cheap credit is channeled to state-owned firms with low or no profitability.
So what happens next? Every believes that China has no choice but to proceed with a massive devaluation, far bigger than the prevailing consensus, and expects the Yuan to plunge to 7.60 against the dollar over the next year.
Some more thoughts from the Rabobank analyst:
“Despite vociferous PBoC rebuttals that such currency forecasts are “ridiculous” and “impossible” there are a wide variety of arguments to explain that view, including: Slower growth, interest rate differentials with the US as monetary policy diverges, declining export competitiveness and net capital outflows and declining FX reserves.”
And of course, massive debt, record NPLs and a wave of commodity-related bankruptcies. Every said that the single strongest reason to be bearish on CNY is the debt build-up. When debt-to-GDP rises as rapidly as it has, and to as high (and rising!) a level as it has in China, a weaker currency invariably follows.
In short, a CNY decline of 6% to date is nowhere near an adequate response to the fundamental problems China has.
As such, 2016 is likely to see CNY remain under downward pressure.
“So will the economy, which is desperately in need of real reforms. Of course, China has shown that it can take radical action when needed. However, the most recent example was to drain the CNH market of liquidity rather than allowing it to continue to depreciate and so reflect the lack of radical action elsewhere. CNH is now compliant, but the internationalization of the currency has been significantly set back. Let’s hope that same energy can be channeled into a broader reform process ahead.”
We are far less optimistic: yes, there will be reforms, but only after the government has no other choice, which means that they will take place only after the crash.
(via JewsNews) — A 34 year old immigrant from Somalia was arrested for savagely attacking a woman next to the parking garage of a Sheraton hotel in Sweden.
The woman died while being raped. Police say the perpetrator continued to rape the woman’s corpse well after she had died. The Somalian was apprehended by police while still in the act of raping the murdered woman.
Sweden and Norway are in the middle of a massive epidemic of violent rapes. Crime statistics show that rapes in both countries are overwhelmingly perpetrated by Muslim immigrants.
2013 figures were given in a recent report by Swedish Public Radio. In the first seven months of 2013, over 1,000 Swedish women reported being raped by Muslim immigrants. Over 300 of those were under the age of 15. The number of rapes is up 16% compared to 2012 numbers.
Historic Quota and Governance Reforms Become Effective
Press Release No. 16/25
January 27, 2016The conditions for implementing the International Monetary Fund’s (IMF) 14th General Quota Review, which delivers historic and far-reaching changes to the governance and permanent capital of the Fund, have now been satisfied.
The amendment to the IMF’s Articles of Agreement creating an all-elected IMF’s Executive Board (Board Reform Amendment) entered into force yesterday. The Board Reform Amendment was part of a broader package of quota and governance reforms, which also included a doubling of IMF quotas under the 14thGeneral Review of Quotas and a major shift in quota shares toward dynamic emerging market and developing countries. The quota increases under the 14th Review, which were conditional on the entry into force of the Board Reform Amendment, are expected to come into effect in the coming weeks. [Link:http://www.imf.org/external/np/sec/misc/consents.htm#a2]
The reforms represent a major step toward better reflecting in the institution’s governance structure the increasing role of dynamic emerging market and developing countries. The entry into force of these reforms will reinforce the credibility, effectiveness, and legitimacy of the IMF. For the first time four emerging market countries (Brazil, China, India, and Russia) will be among the 10 largest members of the IMF. The reforms also increase the financial strength of the IMF, by doubling its permanent capital resources to SDR 477 billion (about US$659 billion).
“I commend our members for ratifying these truly historic reforms,” IMF Managing Director Christine Lagarde said. “These reforms will ensure that the Fund is able to better meet and represent the needs of its members in a rapidly changing global environment. Today marks a crucial step forward and it is not the end of change as our efforts to strengthen the IMF’s governance will continue.”
Background information and useful links:
The entry into force of the Board Reform Amendment approved by the Board of Governors in 2010 required the acceptance by three fifths of the Fund’s members representing 85 percent of the total voting power. The entry into force was also a general effectiveness condition for the quota increases under the 14thGeneral Review of Quotas. With the entry into force of the Board Reform Amendment and all other general effectiveness conditions met, members can now pay for their quota increases to make them effective. This process is expected to be substantially completed within one month.1
The 2010 Quota and Governance reforms were approved by the IMF’s Board of Governors in December 2010 (see Press Release No. 10/477) and built on an earlier set of reforms that were approved by the Governors in April 2008.
Main Outcomes of the 2010 Quota Reforms:
• The quotas of each of the IMF’s 188 members will increase to a combined SDR 477 billion (about US$659 billion) from about SDR 238.5 billion (about US$329 billion).
• More than 6 percent of quota shares will shift to dynamic emerging market and developing countries and also from over-represented to under-represented IMF members.
• Four emerging market countries (Brazil, China, India, and Russia) will be among the 10 largest members of the IMF. Other top 10 members include the United States, Japan, and the four largest European countries (France, Germany, Italy, and the United Kingdom).
• The quota shares and voting power of the IMF’s poorest member countries will be protected.
• For the first time, the IMF’s Board will consist entirely of elected Executive Directors, ending the category of appointed Executive Directors (currently the members with the five largest quotas appoint an Executive Director).
• The scope for appointing a second Alternate Executive Director in multi-country constituencies with seven or more members has been increased to enhance these constituencies’ representation in the Executive Board. As a result, 13 constituencies—including both African constituencies—are currently eligible to appoint an additional Alternate Executive Director.
• Advanced European countries have committed to reduce their combined Board representation by two chairs.
• Following the effectiveness of the 14th General Review of Quotas, the focus will now turn to work on the 15th General Review of Quotas and securing the necessary broad consensus, including on a new quota formula.
IMF Executive Board Approves Major Overhaul of Quotas and Governance
IMF Quota and Governance Publications
How the IMF Makes Decisions Factsheet
1 To make their respective new quotas effective, members must make their quota payments within 30 days of the latter of (i) the date on which the member consents to its new quota or (ii) the date on which the 14th Review General increase in quotas goes into effect. As of January 26, 2016, members representing close to 98 percent of total quotas had already consented to their quota increases.
“The Level Of Alarm Is Extremely High” As Zika “Spreading Explosively” WHO Warns
Meet the new Ebola.
Well over a year since the global fears over the Ebola epidemic sent US stocks reeling in late 2014 ahead of an even sharper rebound, today the head of the World Health Organization delivered a very stern warning when she said that the Zika virus, a mosquito-borne pathogen that may cause birth defects when pregnant women are infected, has been “spreading explosively” in South and Central America.
“The level of alarm is extremely high,” WHO director general Margaret Chan said Thursday in an e-mailed statement according to Bloomberg. Chan said she will convene an emergency meeting on Feb. 1 in Geneva to consider whether to declare the outbreak a “Public Health Emergency of International Concern,” which can coordinate government responses to direct money and resources at the virus. She added that the spread of the mosquito-borne disease had gone from a mild threat to one of alarming proportions.
Bloomberg adds that according to Chan researchers are working to determine the exact link between the virus and birth defects such as microcephaly, which causes babies to be born with abnormally small heads and potential developmental problems. “The possible links, only recently suspected, have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions,” Chan told members of the WHO executive board in Switzerland.
One way in which the Zika virus is comparable to Ebola is that in both cases there is no vaccine and it could take years before one is available.
Another way the Ebola scenario could come back with a vengeance is that the WHO said that it expects the infection to eventually become common in the U.S. Travelers from countries with outbreaks have already been diagnosed on their return to America.
A report from Reuters confirmed this, when it noted that according to the WHO, the Zika virus may affect “between three million and four million people.”
The WHO’s director-general said the spread of the mosquito-borne disease had gone from a mild threat to one of alarming proportions.
Marcos Espinal, an infectious disease expert at the WHO’s Americas regional office, said: “We can expect 3 to 4 million cases of Zika virus disease”. He gave no time frame.
The WHO also added that it wants to prevent inappropriate trade or travel limits due to Zika, but it may be too late for that:
The WHO said it is working to increase surveillance and diagnosis of the virus to spot new cases. Public health officials may also work on methods of mosquito control, hoping to control the virus’s spread by reducing the vector it uses to travel from host to new victim.
That could be difficult because of the El Nino weather pattern, Chan said, which will bring unusually heavy rains, creating puddles and pools where the bugs can breed.
The new threat is that the virus, which has long been present in Africa and equatorial Asia, has spread to 23 countries in the Americas, according to the WHO. While many populations where the virus has long been present have immunity, that’s not the case in newly affected areas, which has raised the agency’s level of concern.
Without a vaccine or effective treatment, some countries have told women to put off getting pregnant for several years.
But the worst news from this outbreak may be for Brazil which has reported 3,893 suspected cases of microcephaly, the WHO said last week, more than 30 times more than in any year since 2010 and equivalent to 1-2 percent of all newborns in the state of Pernambuco, one of the worst-hit areas.
Workers in hazmat suits fumigate the Sambadrome ahead of Carnival celebrations in Rio de Janiero, Brazil.
It is so bad that Brazil has warned the viral outbreak may affect the 2016 Summer Olympics, with the government admitting that it has been a formidable fight. Earlier this week, Brazilian Health Minister Marcelo Castro said the country was losing the battle.
Rio’s authorities have been particularly alarmed by the statement, as the city, usually a hotspot for dengue, will receive hundreds of thousands of visitors during the upcoming Carnival and the Olympic Games set to open in August.
The anxiety over the spread of the Zika virus has become international after several Latin American countries reported hundreds of Zika cases.
Earlier this week, the United States reported its first microcephaly case related to the Zika virus. The mother of the infected baby has been to Latin America. Some countries have issued alerts warning pregnant women not to travel to Zika-affected regions.
Will the Zika panic reach Ebola proportions? For now the story has been mostly contained domestically, however several more Zika cases on US soil and the fear and loathing of October 2014 may quickly repeat once again.
Brazil’s Easy-Money Problem
Brazil is undergoing what is considered its worst economic crisis in seventy years, and there is usually no agreement when it comes to the causes of this situation.President Rousseff and the Labor Party say that it was the corollary of the “International Crisis,” a ghost of the 2008 depression created in their minds. The reality, however, is different. Since ex-president Lula Da Silva of the Labor Party entered office in 2003, thegovernment has clung to the typical Keynesian project of growth-by-government-spending. Interest rates were lowered constantly, the amount of loans grew to an unprecedented level, savings per capita dropped, and government spending continued to grow.
For the advocates of government intervention, the country’s economy was heaven on earth. It should be of no surprise that Paul Krugman, the defender of America’s Quantitative Easing, said that Brazil was not a vulnerable country. However, those policies so strongly defended by some economists and by bureaucrats led the country toward the terrible situation in which it is now.
From the Brazilian government’s point of view, it could hardly get any worse: the country is facing an economic depression that is likely to last at least two more years, the country’s rating was downgraded to junk by Standard & Poor’s, and a corruption scandal may lead to the impeachment of the country’s president, Dilma Rousseff. We must recognize, however, that even though this was the result of the government’s action, it simply put in practice the most prevalent ideologies of the country, which is a mixture of Marxism in politics and in the universities with Keynesianism in economics. This national ideology praises, in general, a complete dependence of the people on the government. The fact that “Brazil’s tax burden already amounts to 36 per cent of GDP” is held with pride by professors and economists throughout the country, who spread the word that public policies will create jobs and contribute to people’s welfare.
Brazil and the Austrian Business Cycle Theory
In order to grasp what is happening to Brazil, and to understand why some economists have long ago predicted the current disaster, it is crucial to understand Austrian business cycle theory, since it yields a concrete critique of government’s involvement with currency and credit expansion — two factors that the Brazilian government used as tools for economic growth — and its misuse is what generated the crisis.
As Mises pointed out, “the cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business.”
Indeed, those “boom-bust” cycles, as the one that happened in Brazil, are generated by monetary intervention in the market in the form of bank credit expansion. Thus, they are an outcome of central planning and government intervention, the very opposite of a free market.
It is, however, important to make the distinction between bank credit expansion in the form of loans to business and other forms of credit expansion. The former is usually a method that government uses to boost the economy of the country, lowering the interest rates “below the height at which the free market would have fixed it,” and this is why it is so important in our analysis.
On the graph below we can see the absurd rise in the amount of loans (given in millions of reais, the Brazilian currency) made to businesses, especially since 2006 (and reinforced from 2008 on, as a way to “fight” the international crisis) when the government tried to generate an unsustainable boom. (The red line represents the loans given by public banks and the blue line the loans given by private banks.)
Figure 1. Amount of Credit Lent to Business in Brazil Over Time
This new type of credit that would not be available without the interference of the government generating the so-called “boom.” This boom caused businessmen to, as described by Rothbard in America’s Great Depression, “take their newly acquired funds and bid up the prices of capital and other producers’ goods, and this stimulate[d] a shift of investment from the ‘lower’ (near the consumer) to the ‘higher’ orders of production (furthest from the consumer) — from consumer goods to capital goods industries.”
This shift of investment from consumer to capital goods is a characteristic mark of the boom and explains, as opposed to other theories, why capital goods’ industries are affected first in the beginning of the depression. We can see on the next graph how those industries were affected in the Brazilian scenario. The green line represents the capital goods industries, and the slump that we see happened during the very early stages of the depression, in the end of 2013.
Figure 2. Index of Industrial Production and Key Components
It is also worth noticing that this slump happened right after the government started to raise the interest rates again, which occurred after a period of an all-time low in the interest rates of the country. As we can see below the Brazilian government lowered the interest rates to an unprecedented low level, and when the government tried to raise interest rates to curb the inflation generated by its “easy money” policies, the boom came to an end.
Figure 3. Brazil’s Interest Rates Over Time (Source: Financial Times.)
As Murray Rothbard observed (again from America’s Great Depression),
businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption — investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful. Businessmen were led to this error by the credit expansion and its tampering with the free-market rate of interest.
As observed by Mises in his essay “Middle-of-the-Road Policy Leads to Socialism,” we must pay attention to the fact that “the attempts to lower interest rates by credit expansion generate, it is true, a period of booming business,” which in Brazil’s case occurred mostly between 2006 and 2013. “But the prosperity thus created is only an artificial hot-house product and must inexorably lead to the slump and to the depression.People must pay heavily for the easy-money orgy of a few years of credit expansion and inflation.” The depression that is currently happening in the country is, therefore, not an evil that should be fought against with more and more government policies. The depression is the cure.
As we have seen, most of what the Austrian business cycle theory described can be well applied to Brazil. It is important to admit that other factors also played important roles, such as the price of the dollar relative to the real and the slowdown of China’s demand on Brazilian commodities, but most of them were usually, and to some extent, only a consequence of the policies that we have already analyzed. The bottom line is that the country went through a major credit and money supply expansion, together with years of low interest rates. It is crucial to note that, contrary to other explanations, “Mises’s theory of the trade cycle … meshes closely with a general theory of the economic system. The Mises theory is, in fact, the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion.”
Consequently, we can see how Brazil’s current crisis is nothing but an outcome of government’s meddling with the market. The scenario of the country’s economy is indeed scary, but we have reason to believe that Brazil’s intellectual situation is going through a new and promising change. It may be true, as Lord Keynes said, that “in the long run we are all dead,” but if we are to get out of this terrible crisis, to prosper and to enjoy a constant improvement in our standard of living, “it is high time to transform the country’s state capitalism into a free market system.”
your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/THURSDAY morning 7:00 am
Euro/USA 1.0911 up .0009 (Draghi’s jawboning not working)
USA/JAPAN YEN 118.80 up .326
GBP/USA 1.4296 up .0053
USA/CAN 1.4104 up .0005
Early this THURSDAY morning in Europe, the Euro rose by 9 basis points, trading now just above the important 1.08 level rising to 1.0911; 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 threat of continuing 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: 6.5762 / (yuan up 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 SOUTHbound trajectory as settled DOWN again in Japan by 33 basis points and trading now well below that all important 120 level to 118.80 yen to the dollar.
The pound was up this morning by 53 basis point as it now trades just below the 1.43 level at 1.4296.
The Canadian dollar is now trading down 5 in basis points to 1.4104 to the dollar.
Last night, Asian bourses were mixed with Shanghai down a huge 2.85%. All European bourses were all down badly as they start their morning.
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 THURSDAY morning: closed down 122.47 or 0.71%
Trading from Europe and Asia:
1. Europe stocks all in the red
2/ Asian bourses mixed/ Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai in the red by 2.85% (massive bubble bursting), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the red /
Gold very early morning trading: $1121.25
Early THURSDAY morning USA 10 year bond yield: 1.99% !!! down 1 in basis points from last night in basis points from WEDNESDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.80 par in basis points from last night. ( still policy error)
USA dollar index early THURSDAY morning: 98.85 down 7 cents from WEDNESDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers THURSDAY MORNING
Oil soars to 3 weeks high on a supposed Saudi proposal for a 5% cut in production from all nations. However Iran spoils the party suggesting that they want to recoup lost market share:
(courtesy zero hedge)
Oil Soars To 3 Week High On Saudi Production Cut Confusion; Iran Spoils The Party
Headline hockey continues in the energy complex as earlier confirmation of a pending OPEC meeting possible in February has seen more color added, via Reuters, that Saudi Arabia made a proposal that OPEC members cut production by a maximum of 5%. There remains confusion however as Bloomberg reports simply that Russian energy minister has said they “may discuss it,” as opposed to being a specific proposal.
Reuters seems confident that The House of Saud has backed down and prosposed the cut…
- RUSSIAN ENERGY MINISTER STATES THAT SAUDI ARABIA MADE A PROPOSAL TO REDUCE OIL OUTPUT BY EACH COUNTRY BY A MAXIMUM OF 5%
But Bloomberg is less confident that this is an actual proposal…
- RUSSIA’S NOVAK SAYS OPEC MEETING MAY DISCUSS 5% OUTPUT CUT: RIA
- NOVAK: 5% CUT TALKS MAY INVOLVE ALL OIL PRODUCING NATIONS: RIA
- NOVAK: OPEC, PRODUCER MEETING WOULD BE MINISTER LEVEL: RIA
And further, Interfax reports that this is nothing new…
- NOVAK: SAUDI ARABIA 5% OIL CUT PROPOSAL WAS MADE EARLIER: IFX
- DJ RUSSIA ENERGY MINISTER: TOO EARLY TO TALK OF ANY AGREEMENT ON POTENTIAL CUTS- DOW JONES
- RUSSIA ENERGY MIN: FEB OIL MTG MAY DISCUSS 5% CUT, DJ SAYS
Iran wants to recover its position as OPEC’s second-largest producer behind Saudi Arabia, which it lost in 2012 to Iraq when sanctions over its nuclear work forced Tehran to cut exports. Now, the recovery of market share is central, sources say.“Because of the international sanctions, we lost 1.1 million barrels per day of our exports. So we have to go back to our share of the market,” a source familiar with Iranian thinking said on Thursday.With sanctions lifted this month, Iran says it is increasing its oil output by 500,000 barrels per day (bpd) and boosting exports, a plan that other OPEC sources say makes any global cut agreement harder.“Any deal is difficult to reach,” said a non-Iranian OPEC source, who added Iran would need to keep output flat or raise it by, say, 100,000 bpd “since higher prices would mean more revenue without the need to raise production. But I doubt it, really.”
Oil is reacting…
So no US ally Iran is to blame if there are no production cuts?
Then this happened: “OPEC: there is no plan for a meeting with Russia”
Brent and WTI still rising despite that news.
(courtesy zero hedge)
Saudi Production Cut Story Rejected: OPEC Delegates Say “No Plan For Meeting With Russia”
Headlines about “oil production cuts” are the new “Greece is saved” trial balloon.
Following today’s dizzying surge in crude oil on speculation by the Russian energy minister that the Saudis have proposed a 5% supply cut, which was subsequently trimmed to merely a statement that a “meeting may be called where a production cut could be discussed” we asked how long until the denial:
The answer: 15 minutes when the following rejection hit:
- OPEC DELEGATES SAY NO PLAN YET FOR MEETING WITH RUSSIA
And now that the squeeze is over, oil can resume tumbling.
Portuguese 10 year bond yield: 2.98% up 3 in basis points from WEDNESDAY
And to give you an idea of how bad it is out there for Caterpillar..just take a look:
(courtesy zero hedge)
This $250,000 Caterpillar Bulldozer Can Be Yours For The Low, Low Price Of $55
After today’s CAT earnings, in which the company not only announced a steep drop in revenues, profits and cash flow but also obliterated its guidance, cutting the midpoint of the 2016 revenue range (set just three months ago) from $45.5 billion to $42 bilion, it should have become clear to everyone just how bad the company’s income statement is.
But what about its balance sheet and specifically that $10 billion in inventory? We got a glimpse back in November when we showed how at an auction in Australia, CAT loaders, excavators and tractors, with MSRPs in the millions, were selling for sub-pennies on the dollar, or as low as $15,000 for a machine that was originally sold for $2.9 million.
The post quickly went viral and while many readers were impressed by the collapse in demand (as reflected by the auction prices) for CAT equipment, some wished they too could participate in the bidding process: after all, what better way to make an impression on one’s neighbors than to take a leisurely stroll down the street in a bulldozer, especially if its costs virtually nothing.
To all readers who wrote us complaining about this, you are in luck.
Below we present a Caterpillar D6T Bulldozer, a machine which has a “new” MSRP of over a million dollars, and which with over 5,000 hours of use, sells through reputable dealer channels, for around $250,000 each.
Or, as the case may be, does not sell because while $250,000 is well below the MSRP, it is clearly still too high for that occasional leisurely drive around the neighborhood. Or for any other purpose for that matter.
But what about $50?
Because that is what the bid is on the exact same dozer (one which has even less total use, or just 3680 hours) currently offered for sale on Proxibid, where with 20 hours left until the end of the auction, $50 is all someone is willing to spend for this heavy machinery marvel.
Here are some more photos of the gorgeous, barely used machine you could be the proud owner of for the low, low price of $55.00
Cherry on top: the high-end audio system comes included in the price.
What are the terms of the auction? Well, what you buy is pretty much what you get “as is.” But surely there is a catch, like $249,950 shipping? Well no – you just have to go to Louisiana and pick it up.
But what if $50 feels too rich for this bulldozer? There is always this $10 Komatsu may be more up your alley.
Perhaps a bulldozer is not what you need: then how about this $110 Volvo excavator?
Or maybe neither a bulldozer nor an excavator is your cup of tea? That’s fine: judging by these (lack of) bids, nobody else has an urge to splurge either.
Which brings us to our original question: if a bulldozer which retails new for over $1 million, can not sell via official channels For 250,000 and has a true price discovery in the hundreds if not tens of dollars, what does that suggest about i) the true mark on Caterpillar’s $10 billion in Inventory, and ii) the losses that CAT’s banks are starting at if they ever are forced to liquidate the “collateral” that backs their loans?
Next on tap is the total destruction in the capital goods arena:
durable good orders crashed!!
(courtesy zero hedge)
Durable Goods Devastation: Capital Goods Orders Crash To Fresh Crisis Lows, Scream Recession
Durable Goods Orders crashed 5.1% MoM, far below the worst Wall Street forecast…
… and turned back negative YoY as both sets including and ex-transports continues to deteriorate, flashing that a recessionary environment is already upon us (if not an actual recession).
However, it is in the core – non-defense ex-aircraaft – segment that we see the real bloodbath as shipments plunged and new orders collapsed 7.5% YoY – another “worst since Lehman” moment. Of course we still have bartenders and waitresses to maintain the US economy so this is just transitory weakness in the stock market’s most-dependent segment of the economy.
Headline data turned back red YoY.
Ex-Transports remains in recessionary negative territory.
Actual shipments of core capex tumbled along with everything else:
And finally the real carnage – capital goods orders are collapsing at the fastest rate since… Lehman. Note that the US economy has never seen a decline like this in recent history without it being in recession, or just ahead of one.
Of course – this is all nothing that a good rate hike won’t fix, with all its confidence-inspiring sentiment.
Biotech Bloodbath As Investors Seek Safety Of Facebook 83x P/E
Biotechs are getting crushed, extending losses of the last few days as it appears the earnings beat for Facebook has sparked a great rotation from everything into the social network.
Because nothing says safety like a stock trading 83.5x P/E…
With Biotechs now down over 47% from their record highs… (Maybe Janet was right after all)
Yes we know Fwd P/E is “just” 35x… This has dragged FB back into the green for the year but TSLA and NFLX are getting hammered…
Want To Know What The S&P500 Does Next? Just Look At The Fed’s Balance Sheet
Over the past 7 years, we as well as others (if not those who believe in magic money trees, or managing other people’s money while blogging) have repeatedly said that when it comes to “market” returns, look no further than the size of the Fed’s balance sheet – the single best indictor of where the S&P500 is headed to next.
That is precisely what DB’s Jim Reid did overnight. This is what he says:
Today we update a chart and table we used a fair amount in 2013/4 looking at the Fed balance sheet and equity and credit performance.
The relationship works best with a 3 month lag (i.e. asset prices move ahead of the Fed) with the table breaking down the post-GFC period into alternate periods of US QE and non-QE. As can be seen apart from the initial Lehman related collapse period, asset prices have done extremely well in the QE periods and generally negatively when the Fed has held fire. The current period is no different.
Obviously such a relationship can’t last forever but it provides evidence of how much influence the central banks have had on asset prices post 2009 and therefore how important they still are. Markets continue to be addicted to stimulus.
Generally we feel that with inflation so low they can provide more if they so desire. Obviously in recent quarters the Fed has tried to withdraw from such a game but we continue to think it’s going to be very very difficult for them to get very far with the danger of a policy error high.
As we said on many occasions last year if you didn’t know the level of Fed Funds and were just given the global data and financial landscape you may easily conclude that the next move should be an easing.
Indeed, and as even the Fed admitted yesterday, it hiked rates just as the “economy was slowing down.” In other words, the first step of admitting policy error has been taken.
The are just two questions left:
How much more pain can the Fed take (in S&P500 selling terms) before it does a U-turn and confirms what we have said all along – that after its now aborted attempt to stimulate the economy by boosting rates, it will either cut, or boost QE, or both.
Will the market dare to call the Fed’s bluff and continue selling off the S&P 500 until it finds just where this “max pain” point is, after which Yellen will relent and send the stock “market” to new all time highs courtesy of the next Fed balance sheet expansion.
This is going to do wonders for the USA housing markets as HSBC halts mortgages to Chinese nationals:
(courtesy zero hedge/Mike Krieger)
HSBC Halts Mortgage Options To Chinese Nationals Buying U.S. Real Estate
Two days ago, I published a post explaining how the super high end real estate bubble had popped, and how signs of this reality have emerged across America. Here’s an excerpt from that post, The Luxury Housing Bubble Pops – Overseas Investors Struggle to Sell Overpriced Mansions:
The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to real estate agent Kanney Zhang.
Zhang is shopping it for a discounted $3.68 million, but nobody’s biting. Her clients, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.
In the Los Angeles suburb of Arcadia, where Zhang is struggling to sell the six-bedroom home, dozens of aging ranch houses were demolished to make way for 38 mansions built with Chinese buyers in mind. They have manicured lawns and wok kitchens and are priced as high as $12 million. Many of them sit empty because the prices are out of the range of most domestic buyers, said Re/Max broker Rudy Kusuma, who blames a crackdown by the Chinese on large sums leaving the country.
Well, I have some more bad news for mansion-flipping Chinese nationals.
Europe’s biggest lender HSBC will no longer provide mortgages to some Chinese nationals who buy real estate in the United States, a policy change that comes as Beijing is battling to stem a swelling crowd of citizens trying to get money out of China.
An HSBC spokesman in New York told Reuters on Wednesday that the new policy went into effect last week, roughly a month after China suspended Standard Chartered and DBS Group Holdings Ltd from conducting some foreign exchange business and as authorities try to limit capital outflows.
Realtors of luxury property in cities like New York, Los Angeles, and Vancouver, said more than 80 percent of wealthy Chinese buyers have ties to China.
Luxury homes news website Mansion Global, which first reported the HSBC policy change, said it would affect Chinese nationals holding temporary visitor ‘B’ visas if the majority of their income and assets are maintained in China.
HSBC’s pivot away from lending to some Chinese nationals abroad comes as other international banks clamor to lend more to wealthy Chinese.
The Royal Bank of Canada scrapped its C$1.25 million cap on mortgages to borrowers with no local credit history last year in a bid to tap into surging demand for financing from wealthy immigrant buyers.
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