Feb 1/European bourses fall badly/GLD adds a whopping 12.2 tonnes of gold/ Korea reports a huge 18.8% crash in its manufacturing sector last month/Chinese Mfg PMI and service PMI also falter/Late in the day Chinese investors find out that they have been a victim of a huge 7 billion USA ponzi scheme/Draghi trys sto jawbone the Euro down to no avail/Japanese 10 yr bond yield finishes the day at .05% signalling troubling times for the globe/Nigeria runs out of money and begs the world bank for funds/Atlanta Fed’s first estimate for first quarter GDP only 1.2%/USA debt surpasses 19 trillion USA/

Gold:  $1127.90 up $11.50    (comex closing time)

Silver 14.34 up 11 cents

In the access market 5:15 pm

Gold $1128.25

Silver:  $14.35

 

At the gold comex today, we had a good delivery day, registering 546 notices for 54,600 ounces. Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 199.90 tonnes for a loss of 103 tonnes over that period.

 

In silver, the open interest rose by 1514 contracts up to 158,439. In ounces, the OI is still represented by .792 billion oz or 113% of annual global silver production (ex Russia ex China).

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

In gold, the total comex gold OI rose by a smallish 182 contracts to 373,434 contracts as gold was up $0.80 with Friday’s trading.

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

We had a massive change in gold inventory at the GLD, a huge deposit of 12.20 tonnes   / thus the inventory rests tonight at 681.43 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 another change in inventory, a withdrawal of 1.143 million oz and thus/Inventory rests at 309.510 million oz.

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

 

1. Today, we had the open interest in silver rise by 1514 contracts up to 158,439 despite the fact that silver was up 1 cent with respect to Friday’s trading.   The total OI for gold rose by 182 contracts to 373,434 contracts as gold was up only $0.80 in price from Friday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

 

 

3. ASIAN AFFAIRS

i)Late  SUNDAY night,MONDAY morning: Shanghai DOWN 1.78%   / Hang Sang DOWN. The Nikkei UP BUT the rest of Asia closed in the RED . Chinese yuan DOWN  and yet they still desire further devaluation throughout this year.   Oil LOST ,FALLING to 32.48 dollars per barrel for WTI and 34.90 for Brent.  Stocks in Europe so far are all in the RED after Japan went NIRP. Offshore yuan trades at 6.6068 yuan to the dollar vs 6.5781 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/JAPAN INITIATES NIRP(LAST THURSDAY NIGHT). Chinese manufacturing and service pmi falter again!!

 

ii) First to report:  South Korea! South Korea reports a huge 18.5% crash in its manufacturing sector, the most since the crisis of 2008.  This is a huge ref flag and indicates that the globe trade has absolutely crashed in January:

( zero hedge)

 

iii)Chinese service and manufacturing PMI falter again:

( zero hedge)

 

iv) we have another ticking time bomb here if stocks continue to drop  (and they will as the P/E is still around 62) sending stocks further into the abyss:

( zero hedge)

 

v)Will Japan’s entry into NIRP create a silent bank run forcing citizens to flee with their capital to other jurisdictions?  I think it will as NIRP in Japan is signalling something awful is happening in the land of the rising sun!

( zero hedge)

 

vi) Late in the day we find out that Chinese investors found out that they have been a victim of a 7 billion ponzi scheme.
(zero hedge)

EUROPEAN ISSUES

 

Draghi again jawbones today trying to get the Euro/USA cross to fall.  What is very problematic for Draghi is the huge fall in European bank stocks
( zero hedge)

RUSSIAN AND MIDDLE EASTERN AFFAIRS:

i)Turkey again accuses Russia of violating Turkish airspace.  Then Turkish fighter who shot down that Russian plane a few months ago, takes credit for killing one of those Russian pilots.  Russia is demanding that the pilot be sentenced for war crimes:

( zero hedge)

 

ii) More devastation in Damascas on Sunday:

( zero hedge)
GLOBAL ISSUES

i) This morning we witness rates on sovereign global bonds plummeting in yields:

The Japanese 2 yr bond :  negative .15%.  The German bond yields are negative all the way out to 7 years:
( zero hedge)

ii) It sure looks like things are out of control in Sweden: 200 Swedes in masks strom the train station and beat migrant children:

( zero hedge)
iii) Trouble ahead for oil producing Nigeria as they run out of dollars.  They have now called for a massive dollar loans from the world bank to save the country
( zero hedge)
OIL MARKETS:
i) a terrific commentary from Steve St Angelo who points out that both shale gas production and shale oil production have hit their peak and are now entering a slippery downward slope.

a must read..

 

( Steve St Angelo/SRSRocco report)

 

ii) Goldman Sachs explains why low oil prices are here to stay for quite some time:

( Goldman Sachs/zero hedge)

iii) Late in the morning, WTI drops into the 31 dollar handle:

( zero hedge)

iv) Brent crashes 5%/WTI crashes 6%:

( zero hedge)
PHYSICAL MARKETS
i)Bron Suchecki reports on the phony silver fix on Friday:
(courtesy Bron Suchecki/Perth Mint director)

ii)William Middlekoop:  we are at the endgame and the big reset is upon us:

Gold will hit 8,000.00 usa per oz

( Bill Middlekoop)

iii)  Bill Holter’s commentary tonight is entitled:

“The Time for REAL Insurance has NEVER Been this Great!”

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER:

i) The consumer is saving and not spending:Personal income rises but personal spending dips which means that the consumer is saving.  This is not what the Keynesians desire:

( zero hedge)

 

ii) The Dallas Fed “responds” to zero hedges FOIA:  they didn’t answer anything!

( zero hedge)
iii)David Stockman talks about the ridiculous P/E of many of the USA stocks and that they always come back to earth:
( David  Stockman/ContraCorner)

iv) ISM manufacturing misses and contracts for the 4th month in a row:(courtesy zero hedge)

 

v) The Atlanta Fed first’s estimate of Q 1  GDP: only 1.2%

( Atlanta Fed/zero hedge)

vi) total USA debt surpasses 19 trillion dollars:

( zero hedge)

Let us head over to the comex:

 

The total gold comex open interest rose to 373,434 for a gain of 182 contracts as the price of gold was up $0.80 in price with respect to Friday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, the latter scenarios again was in order.   We now enter the big active delivery month is February and here the OI fell by 2276 contracts down to 4,194. We had 58 notices filed on Friday, so we lost 2218 contracts or 221,800 oz will not be standing for delivery. The next non active delivery month of March saw its OI fall by 210 contracts up to 1175.  After March, the active delivery month of April saw it’s OI rise by 3,974 contracts up to 251,834.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 101,245 which is poor. The confirmed volume Friday (which includes the volume during regular business hours + access market sales the previous day was poor at 150,039 contracts. The comex is in backwardation up until April. 

 

Today we had 546 notices filed for 54,600 oz.
And now for the wild silver comex results. Silver OI rose by 1514 contracts from 156,925 up to 158,439  despite the fact the price of silver was up by only 1  cent with respect to Friday’s trading. The next non active delivery month of February saw its OI rise by 8 contracts up to 111.  We had 0 notices filed on Friday, so we gained 8 contracts or an additional 40,000  oz will  be stand in this non active month of February. The next big active contract month is March and here the OI rose by 126 contracts up to 107,319. It seems that everyone again remained stationary.The volume on the comex today (just comex) came in at 29,020 , which is fair. The confirmed volume on Friday (comex + globex) was fair at 30,204. Silver is not in backwardation at the comex but is in backwardation in London. 
We had 0 notices filed for nil oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 1/2016

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 997.65 oz

Scotia

Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz   4822.500 oz

150 kilobars

No of oz served (contracts) today 546 contracts

( 54600 oz)

 

No of oz to be served (notices)  3648 contracts

(364,800 oz )

Total monthly oz gold served (contracts) so far this month 604 contracts (60,400 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 2605.15 oz
Today, we had 0 dealer transactions
We had 2  customer withdrawals
i) Out of Brinks:  32.15 oz
ii) Out of Scotia: 965.500 oz (close to 30 kilobars?)
total customer withdrawals; 997.65  oz
we had 0 dealer deposit:
We had 1 customer deposits:
 i) Into Scotia:  4822.500 oz (another of those dubious 150 kilobars)

Total customer deposits  4822.500  oz

we had 1 adjustment.

i) Out of Scotia:

48,225.000 oz was adjusted out of Scotia customer and this landed into the dealer account of Scotia:  This is exactly 1500 kilobars.

 

 

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 7774.663 oz or 0.2418 tonnes in its dealer or registered account.
***JPMorgan now has 401,421.230 or 12.48 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 546 contract of which 0 notice was stopped (received) by JPMorgan dealer and 214 notices were stopped (received)  by JPMorgan customer account. HSBC stopped 298 contracts in its customer account.
 
To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (604) x 100 oz  or 60,400 oz , to which we  add the difference between the open interest for the front month of February (4194 contracts) minus the number of notices served upon today (546) x 100 oz   x 100 oz per contract equals the number of ounces standing.
 
Thus the initial standings for gold for the February. contract month:
No of notices served so far (604) x 100 oz  or ounces + {OI for the front month ( 4194) minus the number of  notices served upon today (546) x 100 oz which equals 425,200 oz standing in this active delivery month of February ( 13.225 tonnes)
We thus have 13.225 tonnes of gold standing and 4.51094 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers will now do their best in cash settling as there is not enough registered gold to satisfy those that are standing.
Total dealer inventor 145,027.364 or 4.51094
Total gold inventory (dealer and customer) =6,430,863.553 or 200.02 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 200.02 tonnes for a loss of 103 tonnes over that period. 
JPMorgan has only 12.727 tonnes of gold total (both dealer and customer)
end
And now for silver

FEBRUARY INITIAL standings/

feb 1/2016:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 2,026,488.23 oz

Brinks,CNT,Delaware, HSBC,Scotia

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil
No of oz served today (contracts) 0 contractsnil oz
No of oz to be served (notices) 111  contracts

 

555,000 oz

Total monthly oz silver served (contracts) 0 contracts 

nil

Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month 2,054,5724.2 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 0 customer deposits:

 

total customer deposits: nil oz

We had 5 customer withdrawal:
i) Out of Delaware:1,958.100 oz
ii) Out of brinks: 606,708.820 oz
iii) Out of HSBC: 1,050,836.730 oz
iv) Out of Scotia:  30,449.180 oz
v) Out of CNT 336,535.400 oz
 

total withdrawals from customer account 2,026,488.23   oz 

 we had 0 adjustments:

 

 

 

 

 

The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (0) x 5,000 oz  = nil oz to which we add the difference between the open interest for the front month of February (111) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the February. contract month:
0 (notices served so far)x 5000 oz +(111) { OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals 515,000  of silver standing for the February. contract month.
 On Friday, we had a massive 7 million oz leave the dealer; today over 2 million oz leaves the customer account.
Total dealer silver:  28.53 million
Total number of dealer and customer silver:   156.239 million oz
end
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

 

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 THE GLD/Inventory rests at 657.92 tonnes

 

Feb 1.2016:  inventory rests at 681.43 tonnes

 

Now the SLV:
\
Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz
JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz
JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz
Jan 27.2017: no changes to inventory/rests at 310.653 million oz
Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz
Jan 25.no change in inventory at the SLV/inventory rests at 311.606 million oz
jan 22/we had a 2.0 million oz withdrawal at the SLV/Inventory rests at 311.606 million oz
Jan 21/2015: no change in silver inventory at the SLV/Inventory rests at 313.606 million oz
Jan 20/no change in silver inventory at the SLV/inventory rests at 313.606 million oz
Feb 1.2016: Inventory 309.510 million oz.
1. Central Fund of Canada: traded at Negative 8.3 percent to NAV usa funds and Negative 8.8% to NAV for Cdn funds!!!!
Percentage of fund in gold 63.4%
Percentage of fund in silver:36.6%
cash .0%( feb 1.2016).
2. Sprott silver fund (PSLV): Premium to NAV rises to  +.18%!!!! NAV (feb 1.2016) 
3. Sprott gold fund (PHYS): premium to NAV falls to- 0.91% to NAV feb 1/2016)
Note: Sprott silver trust back  into positive territory at +.18%/Sprott physical gold trust is back into negative territory at -0.91%/Central fund of Canada’s is still in jail.
end

 

 

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

 

Trading in gold and silver overnight in Asia and Europe
(COURTESY MARK O”BYRNE)

Gold and Silver Bullion Up 5.3% and 3.4% In January as Stocks Fall Sharply

Gold and silver rallied (5.3% and 3.4% respectively) in January, as stocks fell sharply.

Turmoil and sharp falls in Chinese and global stock markets, plunging oil prices, rising stress in credit markets and further signs of weak US and global growth led to a renewed bout of risk aversion in January.

Gold_silver
Finviz.com

This once again led to increased demand for traditional safe-haven assets – gold and silver.

Gold’s best monthly gain in dollar terms in a year, contrasted sharply with the sharp drop in US equities. For the month, the S&P 500 shed 5.1% – the sharpest fall in the S&P 500 index since the Greek debt crisis broke in May 2010. It was the S&Ps worst monthly start to a year since 2009 and other international stock indices had there worst monthly start to the year since 2008.

The DJIA lost 5.5%, for the biggest monthly losses since August and the biggest January declines since 2009. The Nasdaq plunged 7.9%, its worst month since May 2010.

U.S. stocks as measured by the Russell 3000 index fell 5.74% in the month. Tech darlings Apple and Amazon were the largest contributors to the decline. Apple fell 7.52% in the month, while Amazon fell 13.15%.

Europe’s benchmark Stoxx 600 saw January losses of 6.4pc and the DAX was 8.9% lower with vulnerable Deutsche Bank collapsing over 25%.

Emerging markets equities as measured by the MSCI Emerging Markets index fell 9.06%. The Chinese stock market, the Shanghai Composite Index, collapsed 23 percent, the biggest monthly drop since October 2008 and the worst performance among 93 equity indices tracked by Bloomberg internationally.

Brokers and Wall Street strategists had predicted another 10 percent gain for equities in 2016. Wall Street and others bullish predictions are now being revised downwards as measures of investor anxiety reach levels not seen in a few years.

The risk-off trade  saw flows into gold and silver and also into U.S. bonds. While the dollar fell versus gold, other currencies fared worse than the dollar. The New Zealand dollar fell more than 5% in the month vs. the U.S. dollar and sterling fell 3.66%.

Ultra loose monetary policies globally, the BOJ negative interest rates and increasing speculation that the Federal Reserve will have to delay further interest-rate increases is burnishing gold’s appeal and bodes well for gold in 2016.

Precious Metal Prices

1 Feb: USD 1,122.00, EUR 1,032.86 and GBP 785.60 per ounce
29 Jan: USD 1,112.90, EUR 1,019.89 and GBP 776.84 per ounce
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

Most Popular Guides In 2015

Protecting Your Savings In The Coming Bail-In Era

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

Essential Guide To Storing Gold In Singapore

Essential Guide To Storing Gold In Switzerland

7 Key Storage Must Haves

10 Important Points To Consider Before You Buy Gold

Essential Guide to Tax Free Gold Sovereigns

Please share our research with family, friends and colleagues who may benefit from being informed by it.

Mark O’Byrne

Research Director

Mark OByrne
 end
Bron Suchecki reports on the phony silver fix on Friday:
(courtesy Bron Suchecki/Perth MInt director)

Bron Suchecki: LBMA silver ‘price’ — a perfect storm of stupidity

Section:

9:30a ET Saturday, January 30, 2016

Dear Friend of GATA and Gold:

Whatever happened with the new London silver fix last week, the Perth Mint’s Bron Suchecki wrote yesterday, it was pretty stupid and invites traders to stop using it by suggesting that there is no mechanism to keep the fix in line with the rest of the silver market. Suchecki’s analysis is headlined “LBMA Silver ‘Price’: A Perfect Storm of Stupidity” and it’s posted at the Perth Mint’s research page here:

http://research.perthmint.com.au/2016/01/29/lbma-silver-price-a-perfect-…

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

 

end

 

(courtesy AGXIIK/silver doctors)

 

Why is gold and why is silver demonized with crushed values, daily manipulation of prices and constant propaganda against its use, categorizing it as a barbarous relic? Because it represents the last man standing, a Horatio at the Gate, fighting a constant rear guard action against the soldiers of the banksters and central banks with their million man armies.  
This barbarous relic represents the real money currency of the barbarian clans who see, at a visceral level, the type of damage created in the war against gold and silver and consequently the war against us. These wars are 6,000 years old and we are now forced to fight them again.
And this barbarian is hell bent on taking the battle back to the banksters.
Silver and gold will be his PERSONAL WAR CHEST in this coming battle…

 

Rounds

By AGXIIK: 

I see a connection to what happened during the 85 cent silver flash crash and NIRP.  It’s tenuous but there are linkages to any flash crash.

The formalization of negative interest rates evolved in Europe for several reasons, and just migrated to Japan. I’m certain it’ll come to the US once NIRP’s wrecked its toll in these GDP heavy economies. The EU project with it’s failing currency,  bank debt,  leverage, business disabling socialist friction, crushingly high taxes, and thuggish control polices were quite predictable 5 years ago.  Even before that time the issues of uncontrolled borders and infiltration of migrants began to press on the movement of people and currency as the situation grew slowly to critical mass.

The Eurocrats are frightened that their experiment of social and economic control is failing. Europe is so far beyond the tipping point only ultra aggressive goon tactics will stall a complete  crash, beating into submission. That action will stay the tide only so long, before the people revolt but bureaucrats always resort to violence when their policies fail to work as the people refuse to be cowed.

The ECB, IMF and EU have declared war on cash and any other sort of transaction external to their DIGIFIAT  paradigm now that the death blow damage done during the Beta test bail in of Cyprus and Greece produced the desired results; cash confiscation and an economically brutalized populace.   The situations in the EU worsen by the day;  the Eurocrats grow more desperate and fearful by the hour. Their means to control the populace; their strident attempts to access the lifeblood of hard currency, even the simple Euro notes, speaks of their desperation.

There’s a very real war on currency; a real war on the precious metals that represent a counter balance form of currency. The war is fully engaged, complete with limitations even on how much a person can carry, subject to prosecution and confiscation if the amount is excessive. Cash withdrawals are limited in many areas. Payments by cash are heartily criticized.  Everyone is encouraged to use DIGIFIAT. People in Europe have yet to see the worst that is rapidly befalling them but harsh realities will soon come to their front doors.

This creates the perfect storm of total financial fear control. The controlling fear factor, coupled with armored police, tear gas and water cannons, is see as the only means to save the union from its inevitable demise. These moist soft Eurocrats always resort to violence when other means of control fail.  Total control, whether at the end days of the Roman Empire or East Germany, always involves a form of FINANCIAL RING FENCING and goon squads. The only thing that really chnanges is the formatting of order and the control everyone’s  access to their cash. Cash and precious metals represent freedom, bulwarks against statist thuggery

DIGIFIAT has a 100% counter party risk. There is no escape from this paradigm without a total break from the system.  Once the people’s capital, whether bank accounts, bond holdings, stock ownership or currency deposits of any type, are forced into the pig pen of electronic DIGIFIAT surveillance, the banks, central banks and governments can pick and chose the winners and losers in the race to save the Union, at the cost of any form of savings.

Once ring fenced by edict or convention, all forms of digital currency can be taken in first strike bail ins such as inflicted on Cyprus and Greece,  direct theft of bonds income, confiscation of bonds, forced bail ins by bond holders, direct and immediate confiscation of cash, property and pensions (10 separate instances of that in the EU since the crisis began in 2008) OR Negative Interest Rates. All are a direct attack against the people’s wealth.

The Eurozone is completely in the thrall of the Belgium ghouls who issue edicts to sovereigns, ordering them take anything of value. Failure to obey orders results in arrest, prosecution, fines, imprisonment, loss of jobs, benefits and retirement plans.  Even migrants see their cash taken, confiscated by the Danish government if value exceeds $1000.  No person in the Eurozone any longer owns their funds, whatever form that takes. The state is bankrupt, broke, insolvent and desperate.  Now that the ring fence is nearly 100% complete, the sheep are in the pens.

When they’re all penned up, the sheeple are sheared of their wool by the small subtle effects of the NIRP NIRP NIRPING of the Loomenmench’s shears removing their wool by the numbers.

Nibble, nibble, nibble, the demand deposits and bank accounts are steadily and stealthily drained.  It doesn’t seem like much does it-50 Basis points ?But if your account is being drained at negative 50 basis points, your account bleeds FIAT daily, right into the coffers of the central banks and central governments like a tapeworm’s lunch or a leech sucking your blood.  At first it doesn’t seem like much.  You can always eat more. Maybe you can get a blood transfusion. Maybe you can hold out longer than anyone else, thinking they will stop. Central Banks, like tapeworms, never stop eating. No matter where NIRP invaders hit the beaches, the tax increases, declining wages and pernicious inflation found all most consumer level make the 50 BPS leeching of your substance build quickly into a real wear and tear on your wealthy and capital accounts.

The ring fencing began in its worldwide efforts in earnest around 5 years, formalized by the central bankers bail in provisions signed 3 years ago; a story broken by Silver Doctors. Actions that stated FDIC and their like insurance coverage would not protect against bank and central bank confiscation if a serious banking crisis hit laid down the first dramatic marker of  the banker’s war against their account holders. FACTA and FBAR made all American bank accounts held abroad persona non grata.

When the G20 nations signed an agreement last year, formalizing policies that made your bank accounts the property of the bank, treated as nothing  that a bank liability; nothing more than any other unsecured creditor, subject to seizure by some super collateralized creditor at any time of their convenience, overnight the depositors found themselves thrust into ground zero of that second salvo in the banker war against us.

The third salvo is the now institutionalized policy of silent, stealthy theft of these deposits by Negative Interest Rates.  Now that your accounts are largely uninsured,  treated as unsecured creditors of a failing bank; (IMO 90% plus of all major banks are on death’s doorstep), you have very few places to protect your cash, deposits, currency and investments. Who ya gonna call?  Bank Busters?

We are all in the gun sights of the banksters who’re just biding their time to launch a major attack on their customers as well as the stock and bond holders in world wide brokerage houses and bourses.   No one’s safe and no one can escape these assaults. The bankers have declared war against us. If you leave yourself in the gun sights of the banksters, the total counterparty risk you run of having bank accounts taken falls on directly on you. Just because you decide to ignore the war does not mean the war will ignore you. Ask the Italian pensioneers how they’re faring after their pensions were stolen in recent weeks.

If you are stuck in the DIGIFIAT paradigm your counter party risk is total. It’s not a matter of if, it’s a matter of when; when  the American TBTF banks will implement NIRP. All banks are always connected all the time. The rot will cross the ocean in short order.  Japan just started down that road with a 10 year government bond that yields 10 BPS.  A year ago it yielded 40 BPS. 2 years ago it was 80 BPS.  The BOJ worm eats its tail.  How do you say WTF in Japanese? The Japanese are nothing more than a proxy in the US-inspired and enforced currency wars, with little control over their currency, banking system, economy and future.  As an island nation they are in a death spiral from which there is no escape.  Fukushima is just the radioactive cherry on top of this Wagashi cookie crap cake.

 

As the US slips in its economic strength, burdened by massive debt and declining economic fortunes, socialist policies and building tax rates, it’s launched a multi front war with nearly every GDP of any size in the world.  If it can’t invade, destroy and take  over a country, it will bribe its way in the front door. If it can’t bribe its way in the front door it’ll come in the back door with financing and debt to a country, securing valuable assets as collateral.
The IMF and its proxies undermine the country with an attacks on its currency, industries and commodities, thus making the debt unpayable, completes an economic coup. If a country finds itself in a zone of war, ask yourself what precipitated the war. Who was the aggressor? Who’s the victim? The answers become very clear.

Instead of helping build other countries, the US has become a parasite infesting other countries.  This was clearly seen in the subprime mortgage crash attack that cost trillions of losses in Europe. When the Goldman Sachs AAA rated toxic waste pits of garbage mortgages reached the saturation point in the US, this Vampire Squid offed the poisonous brew to the Europeans, Chinese and others.
GS just paid a $5 billion fine for the sub prime blitzkrieg waged against the world. That economic blow was so severe the EU is still digging themselves out of that mess. Their banks are still filled with junk bonds and mortgages, a financial brownfield of hazardous waste that issued from the bowels of this US bankster clan.

Crashing crude prices are another manifestation these wars in which the Saudis are trying to remove themselves from the thrall of the PETRDOLLAR.  They’re being hammered badly, bleeding cash, with wars on two fronts. They may lose their battle against the petrodollar. THey may lose their country, leaving the remains for jackals to feed upon. In their death throes, the countries that produce petroleum are seeing very hard damage in their oil production infrastructure as well as the debt used to finance their petroleum industries.  A kill shot of low crude prices actually works to the benefit of the top bankers as they’ll simultaneously get bailed in on bad loans while buying assets on the cheap.  This is just nice side benefit of currency wars and collateral damage that inures to the benefit of the uberbanksters.

All along the way, NIRP infestation, the leeching of hundreds of billions of FIAT from the tens of trillions of accounts just feeds the bankster war machine. The central banks of the world are working overtime to effect a total take over of the lives of every person on this planet.
So what’s with all this talk about silver and gold? Just rantings of the yapperti class? Not exactly. It is a conversation so vital that we might find it taking precedence over any other at the dinner table.

Why is gold and why is silver demonized with crushed values, daily manipulation of prices and constant propaganda against its use, categorizing it as a barbarous relic?  Because it represents the last man standing, a Horatio at the Gate, fighting a constant rear guard action against the soldiers of the banksters and central banks with their million man armies.
This barbarous relic represents the real money currency of the barbarian clans who see, at a visceral level, the type of damage created in the war against gold and silver and consequently the war against us. These wars are 6,000 years old and we are now forced to fight them again.  And this barbarian is hell bent on taking the battle back to the banksters.  Silver and gold will be his PERSONAL WAR CHEST in this coming battle.

Whether we are smart money, dumb money or Joe Average who smells gun smoke in the air, whatever reason we decided to start accumulate a PRECIOUS METAL WAR CHEST;  how much we have in our stack; whether 100 ounces or 100,000,  whether we started 20 years ago or 20 minutes ago, buying silver buffaloes for 59 cents over spot, we’re the shock troops living on the front lines of the currency and banker wars.

Right now it’s not particularly dangerous for the average person able to avoid direct conflict. We have the present day luxury of being the observers.  Unless you find yourself in country where the rule of law no longer exists,  where inflation is 200%, where basic consumer commodities are unavailable, or where someone like that freedom loving cowboy patriot who charged against the machine; like LaVoy Finicum,  murdered by the state because he and his people saw up close and first hand how the government steals from the people, (check my article about that under Prepper Jack on The News Doctors), you won’t see the mounting death toll that’s building in front of Democide’s death machine.

NIRP is one of the most violent, assaultive machineries of war waged against the people since the dawn of history. It’s theft pure and simple. It’s a punk with his gun in your ribs telling you “Give me your money or I’ll kill you”  It’s a  virus or cancer, spreading throughout the body, invading every organ, destroying everything it touches.  If NIRP hits our shores we will know that the war is now at our doorstep. What’s the antidote? It’s certainly not turning tail and walking away.

The countermeasures to stop this  viral cancer infestation must be aggressive, violent if necessary, with a total commitment to its full and absolute eradication.  Our tactics will evolve in time but evolve they must or we will go down without a whimper, done in by the friendly, smiling round face of your corner banker, replete with offers of free toasters and cheap pink plastic piggy banks made in China.
Can you hear me now? Oink Oink Oink!
What’s in your wallet?

 

end

 

 

William Middlekoop:  we are at the endgame and the big reset is upon us:

Gold will hit 8,000.00 usa per oz

(courtesy Bill Middlekoop)

 

 

The End Of Plan A: The Big Reset & $8000 Gold

Willem Middlekoop, author of The Big Reset – The War On Gold And The Financial Endgame, believes the current international monetary system has entered its last term and is up for a reset. Having predicted the collapse of the real estate market in 2006, (while Ben Bernanke didn’t), Middlekoop asks (rhetorically) -can the global credit expansion ‘experiment’ from 2002 – 2008, which Bernanke completely underestimated, be compared to the global QE ‘experiment’ from 2008 – present? – the answer is worrisome. In the following must-see interview with Grant Williams, he shares his thoughts on the future of the global monetary system and why the revaluation of Gold is inevitable

Middlekoop predicts the real estate crash in 2006… (ensure English Subtitles – Closed Captions – are enabled)

 

Bernanke did not… (stunning!!)

 

And now today, Middelkoop has some even more ominous concerns about the end of Plan A and where Plan B begins…

“By revaluing gold to a much higher level, to over $8000 an ounce, central bankers solve quite a lot of problems”

 

17:00 – “But we know Plan A – the current financial system – will end soon, we can’t go on this way… so we need a monetary reset… and a revaluation of gold has helped central bankers in the past, such as Roosevelt in the 1930s. It would help to restore the balance sheet of The Federal Reserve.”

 

But there are problems…

 

21:00 –  “It always ends in inflation.. certainly in 2016, we can expect more QE… and when that does not defeat deflation (driven by global over-indebtedness), further unorthodox measures will be taken (helicopter money).. and eventually a gold revaluation.”

In this episode of the Gold series, Willem Middelkoop, founder of the Commodities Discovery Fund, dives into the history of monetary shifts and explores a scenario where the US dollar could be debunked as the global reserve currency. Willem discusses the possibility of gold being incorporated back into the monetary system, outlining the knock-on effects and the role of central banks in this scenario.

Grab a glass of wine (or something stronger) and enjoy…

Source: Real Vision is the video on demand platform for finance, where the world’s best investors share their ideas.

Average:

 

 

an extremely important commentary tonight from Bill Holter

(courtesy Holter-Sinclair collaboration)

 

The Time for REAL Insurance has NEVER Been this Great!

 

Japan announced negative interest rates Friday which caused a bounce in Europe and then in the U.S..  It is as if “they saved the world”!  I have just a couple of comments before digging in to this, first, “why didn’t someone think of this before” and “if it were only this easy!”.
  Last summer as negative interest rates began to appear in Europe, especially BETWEEN financial institutions I wrote thishttp://www.globalresearch.ca/negative-interest-rates-debt-is-better-than-cash-whos-running-the-monetary-asylum-anyway/5444901 .  Rather than write a complete rehash today on negative rates I encourage you to read a past missive as the mission for today is to look at this from a very broad perspective. 
  Of course there are all sorts of ramifications with negative interest rates.  The most obvious is how it will affect the banking system?  Negative rates on deposits will certainly prod some to withdraw actual currency and dig a hole in their backyard.  It is said negative interest rates can (will) cause a bank run while others believe a move to digital currency will be used to stem the ability to withdraw from the system.  Both of these thoughts are likely.
  It must be understood that all monetary policy over the last 100 years has been an effort at “reflation”.  All monetary policy has been about “growth”.  Before you start screaming at me and calling me naïve, I am not talking about economic growth or “for the good of the people”, I am talking about expanding and assuring the global financial PONZI SCHEME continues!  You see, for the first 70 years or so, expanding the amount of debt was easy as assets and unencumbered collateral of all sorts were available to be lent against. 
  As the fractional reserve/Ponzi scheme matured it hit an inflection point around 1980 as interest rates spiked.  Rates have come down ever since as a means to allowing more and more debt to build up.  The next inflection point was 2008 when we reached debt saturation levels and interest rates have basically been zeroed out since then.  Any nominal interest rate level since that point would have blown up the game.  Now, in order to keep the game going, we must have negative rates because there is nowhere else to go.
  But what about the Fed raising interest rates last month?  We have seen what financial markets think of that decision.  Even looking at the Fed’s statement after the last meeting is “telling” as they did not include ANY “risks” in their statement.  Before and after the December rate hike, various Fed officials “floated” the possibility of negative interest rates.  I believe we will see another round of QE AND negative interest rates hit the U.S. as the current margin call evolves, there is no other option.

  Over the weekend, Zerohedge  put an article out explaining the situation in China.  They are in the exact same boat but they do have room to lower rates A Chinese Banker Explains Why There Is No Way Out .  The key passage as expressed by a junior banker at a Chinese commercial bank follows:
“If I don’t issue more loans, then my salary isn’t enough to repay the mortgage, and car loan. It’s not difficult to issue more loans, but lets say in a years time when the loan is due, if the borrower defaults, then I wont just see a pay cut, I’ll be fired, and still be responsible for loan recovery.
China has the exact same problem with too much leverage as does the West.  No doubt whether immediately or in the near future, China will also be forced to go the devaluation route.  This will send 1 billion+ trying to exit yuan ahead of devaluation.  But where will they run?  Certainly we will see some funds moving into the dollar (and out as official reserves are sold) but China is a culture who understands “money”.  Just as they have officially accumulated gold and urged their citizens to accumulate, a big “exit door” will be into gold.  I am of the belief that this accumulated gold will be their trump card …used only after the current currency game has no more breath.
  Do not be fooled by the jubilation of this past Friday.  As I said earlier, “if only it could be this easy”?  This goes back to the reality that no central bank or sovereign has EVER printed its way to prosperity.  Yes, devaluing does help a nation’s trade in relative terms to their partners but what we have today is the entire system shrinking together.  Will a larger slice of a smaller pie “be enough”?  Global trade, GDP and consumption are all shrinking at a time debt levels have never been higher.  This is akin to going on a buying spree all done on debt and then getting the bad news you are getting a pay cut! 
  As for Japan going “negative”, their action is simply part of the “race to the bottom”.  We have said all along we live in a world where central banks are in a “race to the bottom” with their currencies, Japan is only the latest illustration.  The world is already well into a collective margin call, the day is coming where investors will SELL into the “good news” of further rate cuts and negative rates.  Once this action begins it will say loud and clear “CENTRAL BANKS HAVE LOST CONTROL”!  Don’t get me wrong, this has already happened as they have no policy options left other than negative interest rates.  However, the key will be when market participants head for the exits and use whatever PPT/negative rate “bids” as their exit door. 
  To finish, negative interest rates are not even “real”.  A real and functioning system cannot exist with negative rates.  The same thing is true for backwardation in precious metals.  In a real system with a rule of law they theoretically cannot exist, in a correctly functioning system, backwardation certainly cannot exist.  Negative interest rates are a sign of outright panic by TPTB, the reaction on Friday will not last long once this understanding sinks in.  The coming global financial crash will be greater than anything ever before seen in history.  The time for REAL INSURANCE has never before been this great!
 
Standing watch,
Bill Holter,
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com
end\\\

 

 

 

 

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

1 Chinese yuan vs USA dollar/yuan FALLS to 6.5781 / Shanghai bourse: in the RED DOWN 1.78%/ hang sang: RED

2 Nikkei closed up 346.93 or 1.98%

3. Europe stocks IN THE RED  /USA dollar index DOWN to 99.39/Euro UP to 1.0866

3b Japan 10 year bond yield: FALLS PRECIPITATELY to .071   !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.38

3c Nikkei now just below 18,000

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

3e WTI:: 32.79  and Brent: 35.23 

3f Gold up  /Yen down

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

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

3h Oil 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 0.309%   German bunds in negative yields from 7 years out

 Greece  sees its 2 year rate fall to 12.21%/: 

3j Greek 10 year bond yield fall to  : 9.66%  (yield curve deeply  inverted)

3k Gold at $1123.05/silver $14.30 (7:45 am est) options expiry now over for LBMA/OTC 

3l USA vs Russian rouble; (Russian rouble down 71/100 in  roubles/dollar) 76.26

3m oil into the 32 dollar handle for WTI and 35 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.

JAPAN THURSDAY NIGHT, JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0214 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1099 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  + .309%/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 1.94% early this morning. Thirty year rate  at 2.75% /POLICY ERROR)

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

 

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

 

Rally Hobbled As Ugly China Reality Replaces Japan NIRP Euphoria; Oil Rebound Fizzles

It didn’t take much to fizzle Friday’s Japan NIRP-driven euphoria, when first ugly Chinese manufacturing (and service) PMI data reminded the world just what the bull in the, well, China shop is…

leading to a 1.8% drop on the first day of February after Chinese stocks slid 23% in January with the nation’s manufacturing sector faces strong galewind challenges as the government plans to reduce excess industrial capacity and unleash troubling mass unemployment, while a weakening currency is spurring capital outflows.

And then it was about oil once again, when Goldman itself – which recently has been quietly changing its tone on oil to bullish – said not to expect any crude production cuts in the near future, to wit: “The past week featured headlines suggesting that OPEC producers and Russia would meet in February to discuss a potential coordinated cut in production. Despite the sharp bounce in oil prices that these headlines generated, we do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists’ forecast.

Throw in some very cautious words from the sellside about what the BOJ’s move actually means and Friday’s month-end window dressing 2.5% surge is now just a distant memory.

As a result European stocks declined after the Chinese PMI fell to a three-year low in January. Nokia tumbles, dragging technology shares to biggest decline. Euro rose for an 8th day against the yen amid speculation the European Central Bank won’t be as aggressive as the Bank of Japan in boosting monetary stimulus.

“Investors are getting conflicting signals about global growth, Daniel Murray, London-based head of research at EFG Asset Management, told Bloomberg. “It’s all very confusing and it’s making people nervous. Even the smallest macro event or data point can tip sentiment either way.”

Asian stocks remained buoyed by the BOJ momentum rose for a 4th day as shares in Tokyo extended Friday’s rally after the Bank of Japan stepped up its monetary stimulus. Chinese shares extended their steepest monthly selloff since the global financial crisis after an official manufacturing gauge missed estimates.

“The BOJ’s action on Friday helped — it’s a situation where you get short-term relief when central banks make supportive announcements or ease policy,” Steven Milch, chief economist at Suncorp Wealth Management in Sydney, said by phone. “I’m not sure central bank actions are a panacea, but they do help in relation to investor sentiment. Uncertainty is clearly very high and it is possible that some markets have overshot on the downside. There’s a possibility that risk aversion and volatility diminish as we go forward.”

Here is where we stood as of this writing:

  • S&P 500 futures down 0.4% to 1924
  • Stoxx 600 down 0.1% to 342
  • FTSE 100 down 0.4% to 6057
  • DAX down 0.4% to 9757
  • German 10Yr yield up less than 1bp to 0.33%
  • Italian 10Yr yield unchanged at 1.42%
  • Spanish 10Yr yield up 1bp to 1.52%
  • MSCI Asia Pacific up 0.9% to 122
  • Nikkei 225 up 2% to 17865
  • Hang Seng down 0.4% to 19596
  • Shanghai Composite down 1.8% to 2689
  • US 10-yr yield up 2bps to 1.94%
  • Dollar Index down 0.22% to 99.39
  • WTI Crude futures down 1.4% to $33.14
  • Brent Futures down 0.4% to $35.83
  • Gold spot up 0.4% to $1,122
  • Silver spot up 0.4% to $14.31

Looking at global markets, we start in Asia where equities traded mixed with the Nikkei 225 (+2.0%) the notable outperformer as participants continued to digest last week’s BoJ decision while the ASX 200 (+0.80%) was pushed higher with strength in health care names. Shanghai Comp. (-1.8%) underperformed amid rising risks that the nation faces a structural downturn following soft Official Mfg. PMI at its lowest since Aug’12, offsetting better than expected Caixin PMI data. JGBs were bid throughout the session, with yields plummeting to record lows in the 2-yr and 10-yr following the Friday’s stimulus move by the BoJ, as such the yield curve has notably steepened.

Asian Top News

  • Mitsubishi UFJ’s Profit Falls 27% on Bond Trading, Lending: 3Q net 253b yen, est. 249.8b yen
  • Nippon Steel Plans Purchase, Stock Buyback to Weather Slump: Cut its full-year profit forecast by more than a fifth, announced a stock buyback and said it’s in talks to take control of domestic partner Nisshin Steel Co
  • BOJ Rate Cut No Solace for Top Japan Fund That’s in Cash: J Flag’s Osezawa expects more market volatility to follow
  • Yen Bulls Burned After BOJ’s Surprise Spurs Biggest Rout in Year: Bullish yen positions had reached most in almost 4 yrs
  • Macau Gaming Revenue Falls 21.4% in Lull Ahead of Lunar New Year: Jan. casino rev. falls 21.4% y/y vs est. 22% drop
  • Rupee to Restrain Rajan as India Deficit Risks Stoking Inflation: 36 of 38 economists surveyed see repo rate left at 6.75%

European equities trade mostly in the red following sentiment brought about by the release of soft Chinese Official manufacturing PMI data, which printed at its lowest since Aug’12 and showed the 6th straight month of contraction. Furthermore, the poor official figures offset better than expected Caixin PMI data, which still came in below 50, thus demonstrating contraction, highlighting the weak outlook for the global economy.

The IT sector is the laggard in the Eurostoxx50 (-0.7%), following an EU proposal for tough new data protection laws, which German giant SAP say could put companies at a disadvantage to their US counterparts. Dax underperforms in terms of indices, with ThyssenKrupp weighing on the German bourse, following negative sentiment in the metals complex.

Nokia Oyj dragged a measure of technology stocks to the worst performance of the 19 industry groups on the Stoxx 600, tumbling 11 percent after investors were disappointed by a court decision in a patent dispute with Samsung Electronics Co.  Energy-related shares were also among the worst performers as the price of oil slid, with service provider Seadrill Ltd. leading declines.

Luxottica Group SpA fell 8.7 percent after quarterly sales missed analysts’ projections. The maker of Ray-Ban eyeglasses also said its co-Chief Executive Officer resigned. BT Group Plc rose 2.5 percent after quarterly profit beat estimates. Ryanair Holdings Plc gained 3.3 percent after forecasting fourth-quarter traffic will grow more than previously expected and saying it will return 800 million euros ($868 million) to investors via a share-buyback program.

European Top News

  • Nokia Drops as Samsung Patent Ruling Disappoints Investors: An arbitration court of the International Chamber of Commerce settled the amount of additional compensation Samsung needs to pay to Nokia, the Finnish company said Monday, without providing exact financial details
  • Euro-Area Factories Cut Prices as Deflation Risks Loom Large: Markit Economics said price pressures “remained on the downside” and output charges fell for a fifth month
  • Domestic Demand Offsets Exports to Keep U.K. Factories Afloat: Markit Economics said on its factory gauge climbed to a 3-month high of 52.9 from a revised 52.1 in Dec.; forecast was 51.6
  • Julius Baer to Boost Dividend 10% as U.S. Probe Nears End: Proposes to increase dividend to CHF1.10/shr, annual operating income misses analysts’ estimates
  • Ryanair Doubles Quarterly Profit, Plans $868m Buyback: Fiscal 3Q profit after tax increased to EU103m from EU49m y/y, aided by a 25% surge in passenger numbers to 20m, will return EU800m to investors via a share-buyback program
  • BT Profit Tops Estimates as Former Monopoly Pushes Into Mobile: 3Q adj. Ebitda GBP1.61b vs est. GBP1.58b, adds fiber broadband customers in 3Q
  • Bankia Shares Climb After Fourth-Quarter Profit Beats Estimates: 4Q net profit EU185m, beats EU134.2m estimate
  • Vallourec to Raise $1.1 Billion With Nippon Steel’s Help: Nippon Steel, Bpifrance to each own 15% of company after deal

In FX, a cagey start to FX trade this week, with AUD/USD the notable mover in the overnight markets after the China manufacturing PMIs disappointed. However, the mid .7000’s look to be finding some support, so no further softening to report. Manufacturing PMIs the running theme for the day, but only the UK surprised (to the upside) to alleviate the heavy GBP tone from first thing. However, Cable running into fresh selling interest above 1.4300. USD/JPY has held 121.00-121.50; specs on the downside, and exporters capping. CAD (and the rest of the Oil related pairs) in consolidation mode despite slight WTI slippage. More comments from OPEC sources; Saudi’s open to cooperated ‘oil market management’, but no immediate need for emergency meetings. More large 1.0800 EUR/USD strikes; strong bids ahead still in place.

In commodities, oil trades lower in the European morning, with the ongoing production-cut saga still dominating price action in the market. The latest comments today came from OPEC sources in Saudi press, who stated that they ‘are ready to manage the market’, with the usual caveat of OPEC and non-OPEC co-operation. An uptick was observed initially, however this move was pared following comments from the same source, which stated it’s too early to talk about emergency OPEC meeting. Furthermore, Goldman Sachs see output cuts by Non OPEC members as highly unlikely. Brent and WTI have the USD 35.00 and USD 33.00 handles respectively, with any further price action today likely to be driven by further comments.

Aluminum was 0.6 percent lower at $1,509.50 a ton, and industrial precious metals platinum and palladium were also lower. U.S. natural gas futures fell 4.2 percent. Gold climbed 0.3 percent to $1,121.83 an ounce on haven demand.

Gold has started February in very positive fashion, as Chinese Official manufacturing PMI printed at its lowest since Aug’12, bolstering safe haven bids in the yellow metal. Furthermore, the poor official figures offset better than expected Caixin PMI data, which still came in below 50, thus demonstrating contraction, highlighting the weak outlook for the global economy which has had a knock on effect in the base metals. Copper on the LME trades in negative territory this morning and It’s a similar story for other base metals, whose prices are consolidating some of Fridays BoJ inspired gains.

Following a busy day of global PMIs, today on the US calendar we’ll get the December core and deflator PCE data along with personal income and spending, manufacturing PMI, construction spending and the important ISM manufacturing and prices paid.

 

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equities trade mostly in the red following sentiment brought about by the release of soft Chinese Official manufacturing PMI data
  • Oil trades lower in the European morning, with the ongoing production-cut saga still dominating price action in the market, however Brent and WTI hold the USD 35.00 and USD 33.00 handles respectively
  • Looking ahead highlights include: US ISM and PMI Manufacturing data with pre-market earnings from Sysco and Cardinal Health
  • Treasuries fall slightly in overnight trading as world equity markets mostly drop; today’s economic data brings personal income/spending, ISM.
  • China’s official factory gauge signaled a record sixth straight month of deterioration, raising the stakes for policy makers struggling to prop up the economy amid a second bear market in stocks since June and a currency at a five-year low
  • Currency interventions don’t work. That’s the gist of what the economist community is saying after Sweden’s central bank ratcheted up warnings that it may intentionally weaken the krona as it tries to spur inflation
  • Factories in the euro area slashed prices of goods by the most in a year in January, highlighting the deflationary risks that’s keeping alarm bells ringing at the European Central Bank
  • HSBC will impose a global hiring and pay freeze as part of its drive to cut as much as $5 billion in costs by the end of 2017. The measures will affect the consumer and investment banking businesses
  • Italy’s plan to use securitization to help relieve banks of their soured loans is an attempt to imbue securities backed by non-performing assets with some of the luster enjoyed by sovereign bonds, according to a senior official at the Treasury
  • Japanese banks extended losses in Tokyo following the central bank’s surprise move to start charging lenders for some of their deposits held at the institution
  • The central bank’s surprise move to negative interest rates on Jan. 29 could boost Japanese domestic demand, while the weaker currency that’s likely to result from the policy is a boon for exporters
  • Nigeria’s government is in talks for concessionary loans worth $3.5 billion from the World Bank and African Development Bank to help finance a planned record budget this year, Finance Minister Kemi Adeosun said
  • Iowans will have their say tonight on who should be the next U.S. president. Donald Trump (Republican) and Hillary Clinton (Democrat) leading narrowly in a Bloomberg Politics/Des Moines Register Iowa Poll released over the weekend
  • Sovereign 10Y bond yields little changed. Asian, European stocks mostly lower; U.S. equity-index futures drop. Crude oil and copper drop, gold rallies

 

Top Global News

  • Barclays, Credit Suisse Agree to Dark Pools Settlements: Barclays will pay $70m, split evenly between SEC and New York the largest fine levied on a dark pool operator, Credit Suisse will pay $84.3m
  • Clinton, Trump Face First Real Test as Iowans Head to Caucuses
  • Record China Factory Gauge Slump Adds to Monetary Policy Dilemma: Manufacturing PMI fell to 3-yr low of 49.4 in Jan.
  • HSBC to Freeze Hiring, Salaries in 2016 Amid Cost Reductions: CEO Stuart Gulliver is seeking $5b in savings by 2017
  • Google Defends U.K. Tax Accord as Legal, Not ‘Sweetheart Deal:’ U.K. business chief says deal will change corporate behavior
  • Symantec Completes Veritas Sale, Adds $2b to Capital Return Plan: Said it received ~$5.3b in after-tax cash proceeds from completion of Veritas sale
  • Oil Bulls Jump in at Fastest Pace in Five Years on Rebound Hopes: Net-long position jumped 35% through Jan. 26: CFTC
  • Global Yields Hit 12-Month Low With Japan 2-Year at Minus 0.16%: Yield on a Bank of America index of sovereign bonds dropped to 1.39%, the least since February 2015
  • Bond-Market Inflationistas Say They’re No Fools as Losses Mount: Goldman sees inflation headed higher, recommends 10-yr TIPS
  • Marissa Mayer to Make Case That Yahoo Can Be Turned Around: CEO to detail new initiatives this week as proxy fight looms
  • Yahoo’s Marissa Mayer Said Not Planning to Leave Co.: NYP
  • February the Longest Month for Investors Awaiting Central Banks: U.S., Japan, euro zone have no Feb. central bank meetings
  • ‘Kung Fu Panda 3’ Tops Weekend Box Office With $41m: Disney’s “The Finest Hours” opened in 4th place and the Open Road Films parody “Fifty Shades of Black” landed in ninth
  • IEX Debate Escalates With Public Knock to NYSE’s Systems: IEX posts letter saying NYSE has a ‘speed bump’ of its own
  • RCS Capital Files for Bankruptcy as Previously Announced: Company has said it will borrow $150m for restructuring
  • Blackstone Said to Shop Pactera Technology for Up to $1b: WSJ
  • FTC Review of TEVA/AGN Seen Closing in 2-3 Weeks: DealReporter
  • Sports Authority Confirms It Cut About 100 Jobs at Headquarters

DB’s Jim Reid concludes the overnight wrap

We’re straight to Japan this morning where the BoJ fuelled rally has extended for a second day with the Nikkei and Topix both up 2% in early trading. The Yen is more or less unchanged around 121.2. Japan aside though, it’s been a broadly mixed start for the rest of Asia however. The Hang Seng (-0.42%) and Shanghai Comp (-1.03%) in particular are trading with a much weaker tone, in part reflecting some more soft data out of China. The January manufacturing PMI has printed at 49.4 – a three year low – which was below expectations of 49.6 and also down from 49.7 in December to mark the sixth consecutive sub-50 print. The non-official Caixin PMI was also weak at 48.4, albeit up 0.2pts from the prior month. Meanwhile, the non-manufacturing PMI has printed at 53.5, down 0.9pts from December. Elsewhere this morning we’ve seen the ASX gain +0.75% while the Kospi is slightly firmer. Credit indices are around a basis point wider while Oil markets are currently down 1.5%.

So Japan’s decision to cut rates into negative territory must surely have increased the probabilities of an easier bias to rates across the globe. I’ve long been of the opinion that the US will have to do more QE again in the next downturn and that we could still be in the early stages of a global money printing era. While I still think this, it’s possible that the recent international trend to negative rates will also be a big theme on and off in the years ahead. I’m no expert on the functioning of the US money market but it seems inevitable that the FED will also have to consider such a policy in the future. If growth continues to be structurally low and their peers are in negative rate territory they may have little choice. The FED’s dot plot forecasts certainly look stratospheric at the moment.

Speaking of which, it’s hard to imagine that the Q4 GDP report we got on Friday will do much to help the FED’s case. The +0.7% qoq saar print was slightly softer relative to expectations of +0.8% but more importantly was a strong signal of significant further deterioration in underlying demand with our US economists highlighting that the most troubling aspect was the lack of any meaningful inventory liquidation. With demand slowing and the latter elevated, our colleagues highlight further downside risks through the first half of this year as stockpiles become unwound, with the danger being that real GDP growth falls below last quarter’s meager rate. Meanwhile the data confirmed just a +2.9% yoy gain for nominal GDP last quarter which was 0.1% higher than the forecast we had in our chart on Friday. The reading confirmed however that for just the third time since 1955 covering 118 hikes, the Fed raised rates in a quarter where nominal GDP growth on a yoy basis was below 4.5%. The other two occasions were also statistical anomalies that were corrected in the subsequent quarters. See Friday’s EMR for the chart.

Friday’s price action was already being dictated by the BoJ however with the fall in global yields being a notable feature. 10y Bund yields finished nearly 8bps lower at 0.323% which is the lowest now since last May. 10y Treasury yields closed nearly 6bps lower and at 1.922%, finished at the lowest closing yield since April last year. The rally for risk assets saw the S&P 500 finish up +2.48% which helped to cap a second consecutive weekly gain in the process. European equities were up similar amounts (Stoxx 600 +2.20%) too while the better tone for risk was also helped by a decent finish to the week for Oil markets. WTI closed +1.20% at $33.62/bbl meaning it was up nearly +4.5% last week, but well over 20% from the low’s on the 20th of last month. The more impressive move has been in Brent however which was up +3.42% alone on Friday (to $35.99/bbl) and +9.5% over the five days last week (although both have weakened some 2% this morning).

In fact, Brent has closed higher on seven of the last nine trading days as rumblings around potential OPEC production cuts added to the positive sentiment generated from a dovish ECB and BoJ. As the US earnings season rumbles along however we’re gently reminded of the pain that is already evident at a micro level, with Chevron the latest big name to report. The oil giant reported its first quarterly loss since 2002 last quarter after posting weaker than expected earnings, while the company looks set to undergo a second bumper wave of job layoffs and capex cuts. Updating where we are with earnings season now, 201 S&P 500 companies have now reported their latest quarterlies with the current trend being 80% beating earnings guidance (which have been heavily beaten down) but just 48% beating revenue guidance. The latter continues to hover around the top end of recent quarterly trends however at 44%, 49% and 48% for Q3, Q2 and Q1 last year, however the number of positive earnings surprises is better than what we’ve recently seen at 74%, 75% and 73% respectively in the same time.

Wrapping up the rest of Friday’s data. While the latest GDP data failed to meet expectations, both Q4 ECI (+0.6% qoq) and Core PCE (1.2% qoq) printed in line with consensus estimates. The December advance goods trade deficit widened slightly to $61.5bn while the final January reading for the University of Michigan consumer sentiment print was revised down 1.3pts to 92.0 after the expectations print fell 3pts relative to December. Just to add some confusion to the data, the Chicago PMI printed at 55.6 on Friday which was well ahead of expectations of 45.3 and 12.7pts higher than the December reading. It was in fact the highest level in 12 months.

Meanwhile the first Fedspeak since the FOMC meeting last week saw San Francisco Fed President Williams acknowledge that he now sees slightly slower growth and inflation, along with slightly higher unemployment this year which argues for ‘just a smidgen slower process of normalizing rates’.

In terms of Fedspeak this week we’ve Fischer due to talk tonight and George scheduled to speak tomorrow evening. The other big focus of the week will of course be on the corporate earnings with 119 S&P 500 companies set to report with the highlights including Alphabet, Exxon Mobil, Pfizer, Merck and Kraft Heinz. Over in Europe meanwhile we’ve got 75 Stoxx 600 companies set to report their latest quarterlies including Royal Dutch Shell, GlaxoSmithKline and BP.

Let us begin:

 

ASIAN AFFAIRS

 

Late  SUNDAY night,MONDAY morning: Shanghai DOWN 1.78%   / Hang Sang DOWN. The Nikkei UP BUT the rest of Asia closed in the RED . Chinese yuan DOWN  and yet they still desire further devaluation throughout this year.   Oil LOST ,FALLING to 32.48 dollars per barrel for WTI and 34.90 for Brent.  Stocks in Europe so far are all in the RED after Japan went NIRP. Offshore yuan trades at 6.6068 yuan to the dollar vs 6.5781 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/JAPAN INITIATES NIRP(LAST THURSDAY NIGHT)

Chinese manufacturing and service pmi falter again!! (see below)

 

(courtesy zero hedge)

 

end

 

First to report:  South Korea! South Korea reports a huge 18.5% crash in its manufacturing sector, the most since the crisis of 2008.  This is a huge ref flag and indicates that the globe trade has absolutely crashed in January:

 

(courtesy zero hedge)

 

Global Trade Collapsed In January: Bellwether South Korea Exports Crash “Most Since Lehman”

As the first major exporting nation to report each month, all eyes and hopeful speculative capital was glued to tonight’s South Korean trade data. After a brief respite in November, December’s drop was worrisome, but January’s just reported 18.5% crash – the most since the financial crisis – has only been seen during a US economic recession. Worse still, South Korean imports plunged over 20% in January as it appears crashing crude and cliff-diving freight indices are less about supply and more about demand (there is none) after all.

Annother red flag in the US recession looming camp…

 

Furthermore, with China accounting for around one quarter of South Korean exports – and following a 16.5% YoY plunge in December – tonight’s headline data suggests January was a total disaster for the Chinese economy also… though later we will get the PMI data to explain everything.

end

 

As indicated above Chinese service and manufacturing PMI falter again:

(courtesy zero hedge)

 

“Stable” China’s Economic Bounce Is Over: PMIs Plunge In January

After an almost unprecedented surge in credit (total social financing) and over-invoicing enabled a bounce in China’s PMI data in December, both Manufacturing and Services data tumbled in January, confirming South Korean trade data. While manufacturing continues its contraction (dropping to 49.4, the weakest since Aug 2012), it is non-manufacturing’s plunge from a one-year high “transition is happening, see” narrative to practically the weakest print since 2008. But apart from that all that, China is “stabilizing” according to officials.

China’s economy is improving under medium-to high-speed growth,according to a People’s Daily commentary written by Zhong Sheng, who wasn’t identified.

There is consensus in the international community that long- term basic element in the Chinese economy is still strong: commentary

NOTE: Zhong Sheng is a homonym in Chinese for “voice of China” and commonly used in commentaries by the People’s Daily, which is published by the Chinese Communist Party

Does this look like stabilization to you?

Of course – if we just wait around long enough (like 45 minutes) Caixin’s PMI will print and explain all this ‘craziness’ away.

Time for some more devaluation – which is exactly what China’s CDS is implying.

There is approximately 1/2 trillion USA  (3. trillion yuan) in SCL’s which are securities held by owners of corporations trading on the Shanghai and Shenzen exchanges. Loans to executives are financed by individual investors.  Margin calls are initiated if the stock falls to levels deemed unsafe.

 

end

 

Thus we have another ticking time bomb here if stocks continue to drop  (and they will as the P/E is still around 62) sending stocks further into the abyss:

 

(courtesy zero hedge)

 

China’s 3 Trillion Yuan Margin Call Time Bomb Is About To Explode

 

 

Make no mistake, investors didn’t need any more reasons to be bearish on Chinese equities.

Mainland markets are veritable casinos dominated by retail investors who until last summer, were enthralled with the prospect of easy riches in an environment where shares only seemed to know one direction: up.

All of that changed last June when a dramatic unwind in the half dozen backdoor margin lending channels that helped to fuel the rally triggered an epic rout that became self-fulfilling once the retail crowd (which accounts for 80% of the market) became rip sellers rather than dip buyers.

Since then, successive efforts on the part of the CSRC to stabilize the situation by pouring CNY1.5 trillion into A-shares has met with limited success as periods of calm are interrupted by violent bouts of selling like those we saw earlier this month when China tried and failed to implement a circuit breaker.

Throw in the ongoing yuan deval fiasco and there’s every reason not to be involved in Chinese stocks.

But when it rains it pours, and now, analysts say margin calls on SCLs are the next landmine that may pose a “systemic risk” for China’s battered markets.

“Some companies that had pledged shares as collateral for loans are now faced with a stark choice – dump them under pressure from impatient brokers and banks and book a loss, or stump up fresh cash or other assets to make up for the difference in value,” Reuters writes.

This is a rather large problem. Over half of all listed companies have their shares pledged. As BofA notes, “1,411 A-share companies have had some of their shares been pledged for SCLs by their major shareholders, representing 50.2% of the total number of A-shares. The value of stocks pledged for SCLs has been rising consistently – from Rmb2.36tr on 1 July 2015 to Rmb3.05tr by 1 Jan 2016, i.e., up by 29% in 2H15.”

In short, the steep decline in margin financing paints an incomplete picture when it comes to understanding how much leverage is in the system.

On one hand, the headline figure on margin financing suggests quite a bit of deleveraging has taken place since things hit peak absurdity last spring. Here’s a look at how quickly the unwind materialized once things began to get dicey:

But as the SCL chart shown above demonstrates, the decline in headline margin debt only tells part of the story. Indeed, BofA says even the CNY3.05 trillion number for SCLs may be underestimate the amount of leverage in the market. “Our SCL data might have under-estimated the true extent of such activities because 1) only major shareholders, i.e., those who own more than 5% of a company’s stocks, are obliged to disclose their SCL activities; and 2) we have assumed a 12-month duration for the 2,889 deals, 44% of the total, that have no ending date disclosed vs. over 16 months on average for those that have,” the bank writes.

Where things get truly frightening is when one looks under the hood on these deals.

Have a look at the following table which shows that of companies with pledged shares, an astonishing 82% were trading at a multiple of 50X or more at the time of their pledging:

“The collateral value,” BofA says dryly, “is far from solid.”

“If the market continues to fall, equity pledging-related selling pressure could increase significantly,” Gao Ting, head of China strategy with UBS warns.

To let BofA tell it, fully a third of SCLs will face margin call pressure and some 371 of the 1,411 stocks pledged have already hit their triggers. “Assuming 40% loan-to-asset value at the time of SCL granting, our analysis suggests that by now, 371 stocks, worth Rmb641bn based on their current market values, have seen their share prices reached the stop-loss levels; and additional 281 stocks, worth Rmb310bn, the warning levels.”

What happens when the margin calls start you ask? Well, nothing good.

“When a position has to be closed for transactions using floating shares as collateral, the pledger sells on the secondary market, putting further pressure on the stock market,” Ting cautions.

Right. Which means stocks fall further and trigger more margin calls which means more forced liquidations in a never-ending, self reinforcing loop. Or, as Reuters puts it: “[It’s] a vicious cycle where further share price drops are likely to trigger more margin calls and threaten further forced sales.

And this isn’t some hypothetical – it’s already started. “On Jan 18, some stocks of a company used as collaterals for a SCL were liquidated by the lender, which prompted its share price to limit down the next day,” BofA recounts. “The stock had been suspended from trading since then. So far, at least 11 A-shares have been suspended as their prices approached the cut-loss levels.”

“On Thursday, trading in shares of Maoye Communication and Network Co Ltd was halted after it said it received notice that its controlling shareholder faces margin calls, one of at least eight companies that have made similar announcements so far this year,” Reuters adds.

Note that if this entire thing were to unwind it would be larger than if every bit of margin debt were squeezed out of the system. BofA figures the  average loan-to-asset value is about 40%. Apply that to the CNY3.05 trillion pile of collateralized stocks and you’ve got the potential for a CNY1.22 trillion unwind.

And it gets still worse. Remember China’s multi-trillion yuan black swan, the WMP industry? Well the WMPs are involved here too. Here’s an example, again from BofA:

We cite a recently reported example involving the controlling shareholder of Guangxi Future Technology. According to articles by Securities Times (Jan 19) and 21st Century Business Herald (Jan 20), in December 2015 Pudong Development Bank set up a WMP called Tebon Huijin No.1 Asset Management Plan to fund the shareholder’s purchase of its own company’s shares. Essentially, the WMP buyers, as the senior tranche investors, lent money for the shareholder to buy their own stock. Similar to other structured WMPs, this product has a stop-loss clause, and the company’s share price dropped below the stop-loss level on Jan 18. As the controlling shareholder did not put up additional margin, Pudong Development Bank liquidated all stock in the plan (equivalent to 2.13% of the company’s outstanding shares). This is the first case of forced liquidation by such products but in our view there could be additional cases given how sharply the market has declined in recent weeks.

In short, this is a house of cards built on a still enormous amount of leverage. At the risk of mixing metaphors, the problem here is that once the dominos start to fall, it will be impossible to stop the downward momentum.

The takeaway: “we’re going to need a bigger plunge protection team”…

 

END

 

Will Japan’s entry into NIRP create a silent bank run forcing citizens to flee with their capital to other jurisdictions?  I think it will as NIRP in Japan is signalling something awful is happening in the land of the rising sun!

(courtesy zero hedge)

 

 

“Pandora’s Box Is Open”: DB Warns Japan May Have Started A “Silent Bank Run”

As extensively discussed yesterday in the aftermath of the BOJ’s stunning decision to cut rates to negative for the first time in history (a decision which it appears was taken due to Davos peer pressure, a desire to prop up stock markets and to punish Yen longs, and an inability to further boost QE), there will be consequences – some good, mostly bad.

As Goldman’s Naohiko Baba previously explained, NIRP in Japan will not actually boost the economy: “we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years.”

What the BOJ’s NIRP will do, is result in a one-time spike in risk assets, something global stock and bond markets have already experienced, and a brief decline in the Yen, one which traders can’t wait to fade as Citi FX’s Brent Donnelly explained yesterday.

NIRP will also have at most two other “positive” consequences, which according to Deutsche Bank include 1) reinforcing financial institutions’ decisions to grant new loans and invest in securities; and 2) widening interest rate differentials to weaken JPY exchange rates, which in turn support companies’ JPY-based sales and profit, for whom a half of consolidated sales are from overseas.

That covers the positive consequences. The negative ones are far more troubling. The first one we already noted yesterday, when Goldman speculated that launching NIRP could mean that further QE is all tapped out:

we believe the BOJ thinks that JGB purchases will have reached their technical limit in quantitative terms eventually, and it is highly likely it was a last-ditch measure to somehow maintain the current pace of purchases for some time. If not, we would have expected the BOJ not to introduce a negative interest rate this time either and to have opted instead to further increase JGB purchases.

Today, Deutsche Bank’s Japan analyst Mikihiro Matsuoka jumps on the bandwagon and adds that “we are worried about a possible opening of a Pandora’s Box by explicitly removing the lower bound of nominal interest rates.

Here, according to Deutsche, are the most severe consequences of Japan opening the NIRP Pandora’s box :

  1. as the monetary base target of expanding by JPY80trn a year continues, the tax on financial institutions expands rapidly also, even if an upper bound on excess reserves that are subject to the negative rate is set. The net interest margin of Japanese commercial banks is lower than in other countries.
  2. it is unlikely to deliver a combination of the reduction in excess reserves and a rise in lending on private financial institutions’ balance sheets: financial institutions cannot avoid this tax. If they intend to shift reserves to loans and holding securities in order to avoid the tax from the negative interest rate, excess reserves (a part of the monetary base) should fall, which the BoJ would not accept. As long as the target for monetary base expansion is maintained, the mostly likely outcome would be increases in both excess reserves and bank loans (or the holding of securities). On the other hand, in order for the monetary base to continue to expand, there have to exist sellers of government securities to the BoJ. A downward shift of the yield curve could cause financial institutions to refrain from selling government securities with higher associated capital gains to the BoJ.
  3. the negative interest rate is, in effect, a tax on financial assets, and not the BoJ’s intention. This could lead to an opposite outcome to that of the initial intention, whereby the country encourages companies and households to engage in capital outflow.

It is that last bullet point which is most important because it leads us to the most disturbing topic of all for Japan – the risk that NIRP backfires and leads to another “China”, where the local citizens rush to park their assets offshore, resulting in a slow at first then rapidly accelerating capital outflow. This is how DB explains it:

if the negative interest rate continues for longer or goes deeper, commercial banks may have to set negative interest rates on deposits, which would expand not only the tax on commercial banks, but also on depositors (households and companies). This could lead to a ‘silent bank run’ via a shift of deposits to cash (banknotes), which in turn damages the sound banking system by enlarging the leakage of funds from the credit creation mechanism in the banking system.

That, and the capital outflow noted above. The good news is that Japan has a lot of physical banknotes to allow the NIRP bank run to continue for quite a while before collapsing the financial system.

In short, to grasp the worst possible consequence of Japan’s panicked response to a rising Yen and plunging Nikkei look no further than China’s unprecedented capital control attempts to stem the monetary outflow.

And if that wasn’t cheerful enough, here is DB’s conclusion which confirms that just a month after the Fed made a policy mistake, it is Japan’s turn to follow in Yellen’s shoes:

We wonder whether removing the last breakwater of the lower bound at a zero interest rate could end up being an expensive choice in the long run. The factor which pushed the BoJ down this path is probably its view that causality runs from economic activity to wages and then to prices, which we do not agree with. Our view is that causality runs from economic activity to prices and then to wages, and we do not share the argument that inflation does not rise because wages have not risen.

 

We believe the additional room that the BoJ has to lower rates on bank reserves is smaller than in other countries that have already introduced a negative interest rate, because of the lower net interest margin of commercial banks in Japan. However, if the BoJ pursues this path, we could reach the point of the trade-off of possibly damaging the soundness of the banking system.

By then, however, a Davos peer-pressured Kuroda will be long gone, and the doomed attempt to keep the system together will be someone else’s problem. For now, all that matters is that stocks bounced… if only for a very brief period of time.

 

end

 

Over in Japan, the 10 yr bond yield plummets all the way down to .07%. The two year rate: -.15%.

(courtesy zero hedge)

 

Japanese Bond Yields Continue To Collapse As China Margin Suffers Longest Losing Streak On Record

Following Kuroda’s panic policy measures from Friday, JGB yields continue to collapse across the curve (though notably 30Y is selling off – is someone actually concerned about long-term survival risk?). 2Y Yields have collapsed all the way to BoJ’s -10bps rate, 5Y is plunging – now close to -9bps, and 10Y has dropped 20bps to just over 6bps… with BofA warning a negative 10Y rate looms. However, Japan is not having all the excitement as China’s margin debt (driver of all animal spirits) dropped again today – making this the longest losing streak in history as China’s stock market investors continue to leave the levered building screaming fire.

JGB yields are collapsing… not exactly the risk-on stock-buying euphoria Abe and Kuroda were hoping for

With 10Y JGB yields closing in on negative, the percentage of global debt below 0% will explode.

*  *  *

And then there is China… where margin debt has collapsed for the longest losing streak in history…

The outstanding balance of Shanghai margin debt dropped for 21st consecutive day on Friday, the longest streak since the exchange began compiling the data on April 1, 2010.

 

But apart from that – everything is stable.

end
Late in the day we find out that Chinese investors found out that they have been a victim of a 7 billion ponzi scheme.
(zero hedge)

Caught On Tape: Chinese Investors Find Out They Got Fleeced By A $7 Billion Ponzi Scheme

When it comes to all things China, the old adage “go big or go home” certainly applies.

The country’s monumental expansion in the wake of the financial crisis was financed by borrowing on a massive scale, as the country’s debt burden rose from “just” $7 trillion in 2007 to more than $28 trillion today. That’s big.

Last year, at the peak of the country’s equity bubble, margin financing outstanding amounted to 18% of the SHCOMP’s free float market cap. Also big.

When the PBoC moved to devalue the yuan last August, Beijing ended up triggering an enormous amount of volatility that reverberated through global markets and culminated with an 8% one-day decline for the SHCOMP on August 24 and a 1,000 point drop in the Dow the same day. Again, big.

On Monday we got the latest “big” news out of China when Beijing announced it had arrested 21 people over a $7.6 billion P2P fraud Ezubao. 900,000 people were defrauded, making the fiasco the biggest ponzi scheme in history by number of victims.

Ezubao’s model was simple: they pitched the “business” as a P2P lending company through which investors could fund a variety of projects. The problem: 95% of the projects didn’t exist. Ezubao just made them up and used the new money to repay existing investors who were promised annual returns of between 9% and 15%.

(the locked door at Ezubao’s office in Hangzhou)

Zhang Min, the former president of Yucheng Group, Ezubao’s parent, calls the company “a complete Ponzi scheme.”

Yes, a “complete ponzi scheme”, and one that was quite lucrative for Yucheng chairman Ding Ning who allegedly bought extravagant gifts for friends including a CNY12 million pink diamond ring and a CNY50 million green emerald.

The company’s assets have been frozen since December. Investments were pitched to unsuspecting Chinese as “high yield, low risk.”

“According to more than one suspect confessed, Ding Ning and several closely related group of female executives, their private life extremely extravagant, spendthrift to suck money,” a highly amusing Google translation of the original Xinhua story reads.

Ding Ning paid his brother CNY100 million per month, Xinhua says.

“Police used two excavators and dug for 20 hours to unearth 80 bags of evidence that Ezubo executives had buried six meters underground on the outskirts of Hefei, a city in the eastern province of Anhui,” Bloomberg adds.

On thing we’ve discussed at length over the past year is the extent to which China is teetering on the verge of social unrest. Between the stock market meltdown, the cratering economy (which will invariably lead to massive job losses) Chinese policymakers are going to have their hands full explaining what went wrong to the country’s 1.4 billion people (see here for more).

Needless to say, the revelation that 900,000 people were defrauded in a ponzi scheme run through China’s largely unregulated P2P space won’t help matters. “Cases of illegal fund-raising related to peer-to-peer lending have grown quickly in the past two years, according to the local authorities, and officials pledged in December to tighten regulation of the industry,”The New York Times writes. “Because of the enormous sums involved and the large investor base, the collapse of a major online-financing platform could raise concerns over confidence in the security of such investments.”

Here’s a clip of Ezubao’s defrauded “clients” protesting late last month. Expect more of this to come. And not just as it relates to ponzi schemes.

end

Draghi again jawbones today trying to get the Euro/USA cross to fall.  What is very problematic for Draghi is the huge fall in European bank stocks
(courtesy zero hedge)

EURUSD Slides As Draghi Repeats Same Talking Points As Last Week

When Draghi speaks (or releases his statement), the algos obey.. and sell EURUSD. No new news at all – just a repeat of the same statements that “QE is deemed effective’ (by whom we ask), and arecalibration is in order (as the situation has changed since December). His biggest problem from what we can tell is the fact that the banking industry’s collapse augurs very badly for industrial production and an economic recession across Europe.

The headlines from Draghi’s prepared remarks…

  • *ECB’S DRAGHI SAYS QE MEASURES DEEMED EFFECTIVE
  • *DRAGHI SAYS ECB WILL REVIEW AND MAY RECONSIDER STANCE IN MARCH
  • *DRAGHI SAYS ECB MONETARY POLICY IS WORKING
  • *DRAGHI SAYS THERE ARE RISKS THAT COULD UNDERMINE RECOVERY PATH
  • *DRAGHI: EMERGING MKTS EXPOSED TO ABRUPT SHIFT IN RISK SENTIMENT
  • *DRAGHI SAYS ENSURING RESILIENCE OF EURO ECONOMY IS ‘PARAMOUNT’

And sure enough EURUSD tumbles…

Perhaps this is why Draghi is so worried – as it appears the Banking ‘Canary’ In Europe’s Economic ‘Coalmine’ Is Dying

end
RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

 

 

Turkey again accuses Russia of violating Turkish airspace.  Then Turkish fighter who shot down that Russian plane a few months ago, takes credit for killing one of those Russian pilots.  Russia is demanding that the pilot be sentenced for war crimes:

 

 

(courtesy zero hedge)

 

 

Tempers Flare Anew As Turkey Accuses Russia Of Violating Airspace

 

Back in November, Turkey very nearly started a world war when Ankara decided it would be a good idea to shoot down a Russian warplane near the Syrian border.

Only one of the two Su-24 pilots survived after the plane was ambushed by two Turkish F-16s.

The other pilot was killed by the Syrian resistance and in a brazen move, the FSA destroyed a Russian search and rescue helicopter with a US-supplied TOW hours after the plane was downed.

That incident triggered a rather heated war of words between Ankara and Moscow, with The Kremlin launching a PR campaign that accused Turkey of aiding and abetting Islamic State by, among other things, facilitating the group’s illicit oil trafficking business.

Since then, Russia has also deployed S-400 advanced missile defense systems to Latakia which effectively means that Turkish F-16s are no longer allowed in the skies above Syria.

Well, just when you thought the tensions between Erdogan and Putin were calming down,Turkey has summoned the Russian ambassador over what Ankara claims was another violation of Turkish airspace by Russian jets.

Turkey said Saturday that a Russian warplane breached its airspace, accusing Moscow of seeking to escalate tensions and warning of consequences two months after Turkish F-16s downed a Russian jet for violating its territory from Syria,” WSJ reports. “A Russian Su-34 entered Turkey’s airspace at 11:46 a.m. local time on Friday, despite repeated warnings from Turkish radar operators in Russian and English, the Foreign Ministry in Ankara said in an emailed statement Saturday.”

We are issuing an explicit and clear call to the Russian Federation to act responsibly in the matter of not violating the Turkish airspace, and therefore NATO airspace,” Turkey said, as though Russia had somehow forgotten that Turkey was a NATO member.

We hope cooler heads will prevail in Ankara this time around because if Erdogan shoots down another Russian plane, they’ll be long range bombers over Erdogan’s $615 million palace.

In any event, we’re sure Erdogan will write this off as a misunderstanding.

After all, it was the Turkish President himself who in 2012 said “a short-term border violation can never be a pretext for an attack.”

Meanwhile, assuring tensions between the two nations remains at their highest in years, a Turkish ultranationalist who bragged about killing the pilot of a Russian bomber shot down by Turkish fighter jets has showed up for the funeral of a fellow militant in Istanbul. Moscow has demanded the man’s arrest on war crime charges.

Alparslan Celik is a Turkish citizen, the son of a former district mayor elected from Turkey’s Nationalist Movement Party (MHP) and a member of the party’s unofficial youth military arm, Bozkurtlar.

He appeared in Istanbul on Wednesday for the funeral of Ibrahim Kucuk, the head of the MHP bureau in Istanbul’s Fatih district, who was killed in an airstrike in a Turkmen village in Syria, the Hurriyet newspaper reported.

“The martyr [Kucuk] was our friend. He was with us in Bayirbucak and Turkmen Mountain. We were together,” he told journalists referring to the northwestern region of Syria, where ethnic Turks are an ethnic majority. The Turkish government has been supporting Turkmen militias in Syria, including the group in which Celik is deputy commander.

Alparslan Celik is seen during an interview with the Do?an news agency in northwestern province of Kocaeli on Jan. 28. (Photo: DHA)

Previously Celik challenged the Russian threat to his life, vowing he will continue to fight to defend the Turkmens’ territory in Syria against government forces backed by Russia.

He confirmed that rebel groups fighting against Syrian government forces in the Turkmen region have been getting military support from Turkey.

Underlining the rebels’ need to have air defense weapons to protect themselves against Russian jets, Celik reportedly praised Turkey’s assistance that has been given to Turkmens in the region; however, he said the amount of support is still not sufficient.

 

He complained about still being provided with the same rudimentary weapons as the ones those given to them while they were fighting Syrian and Iranian forces — before the involvement of Russia on the side of the Syrian government.

He reportedly told the news agency: “The same [kind of] weapons are coming today when we are fighting against Russia, which is a world power. We are not equipped with the weapons to counter their high-tech devices. But they [weapons] are certainly coming from the Turkish state. The [sort of] weapons that work in combat at close quarters. But we don’t have an air defense system… What we are asking from the Turkish state is to provide us with air defense weapons.”

Celik previously implied he had killed Oleg Pe?kov, a Russian pilot, as he parachuted from his plane, which was hit by a Turkish jet for allegedly violating Turkish airspace. A Turkish F-16 shot down the Russian pilot’s Su-24 on Nov. 24, an act that has led to a crisis in relations between the two countries. Pe?kov was one of the two pilots in the downed jet that fell over Syrian territory near the Turkish border after being hit by a missile.

The video of the mid-air execution can be found here.

As for Russian threats, he is not afraid: “I have no such fear [of death]. We will continue our fight to the last person, the last breath, [and] the last drop of blood,” Celik told the Dogan news agency on Thursday.

Putin may promptly oblige.

 

 

 

 

 end
More devastation in Damascas on Sunday:
(courtesy zero hedge)

 

60 Dead In Massive ISIS Suicide Attack On Syrian Capital

 

On Saturday, a delegation from Syria’s “main opposition” showed up in Geneva for UN-brokered peace talks, in what is supposed to represent the first steps towards some manner of negotiated settlement to the country’s protracted civil war.

“The 17-strong team from the Saudi-backed Higher Negotiation Committee (HNC), including political and militant opponents of Assad in the country’s 5-year-old civil war, is expected to have a first meeting with the U.N. mediator Staffan de Mistura on Sunday,” Reuters reports.

Well, those talks will begin beneath a pall of violence, because earlier today, some 60 people were killed by a car bomb and two suicide bombers in Damascus.

ISIS claimed responsibility for the attack (perhaps they were angry at not being invited to Geneva) saying they had “hit the most important stronghold of Shi’ite militias in Damascus.”

According to SANA, militants detonated a car bomb at a public transportation garage in Sayeda Zeinab district of Damascus, the site of Syria’s holiest Shiite shrine.

As rescuers moved in, two suicide bombers detonated their belts.

The shrine houses the grave of the daughter of Ali ibn Abi Taleb, the cousin of Prophet Mohammed, whom Shi’ites consider the rightful successor to the prophet,” Reuters writes adding that “Syrian Ambassador Bashar Jaafari, head of the government delegation at Geneva, said the blasts in Damascus just confirmed the link between what the government says are a Saudi-led and funded Islamist ‘opposition’ and terrorism.”

Among the dead were dozens of Shiite militiamen who were fighting alongside the SAA.

Here are the visuals:

And so, just as the Saudis send a delegation comprised of opposition elements to Geneva, Sunni extremists who follow the very same ultra puritanical version of Islam as that espoused by Riyadh have just killed 60 people at a Shiite shrine.

Meanwhile, Saudi officials have begun offering nearly $2 million for information that would help prevent militant attacks. As Bloomberg reported on Sunday, “authorities will pay a 1 million riyal-reward to anyone who ‘provides information about a terrorist, [while] information that leads to uncovering a terrorist cell will be rewarded with 5 million riyals.”

If Saudi Arabia is serious about “preventing militant attacks”, perhaps the Wahhabists in Riyadh should simply look in the mirror.

You’re welcome Saudi Arabia. You can make the $2 million check payable to Tyler Durden.

end
GLOBAL ISSUES
This morning we witness rates on sovereign global bonds plummeting in yields:
The Japanese 2 yr bond :  negative .15%.  The German bond yields are negative all the way out to 7 years:
(courtesy zero hedge)

Rates Are “Screaming” That Investors Are In Panic Mode, Trader Warns

 

Haruhiko Kuroda’s move to NIRP and Mario Draghi’s implicit promise to ramp up PSPP in March underscore the extent to which Janet Yellen has made a policy mistake by hiking at a time when the US economy (not to mention the global economy) looks to be decelerating and the disinflationary impulse looks to be gathering steam.

January marked a rather inauspicious start to the new year with wild swings in Chinese markets fueling volatility across the globe and crude carnage taking its toll on investors’ collective psyche. Oil managed to ramp but China is still a (big) problem, as we explained this morning in the overnight wrap.

With Beijing set to export its deflation to the rest of the world and with central bankers in panic mode, investors are piling into core paper like there’s no tomorrow. Below, find some insightful commentary from former FX trader Mark Cudmore.

From Bloomberg
 
For all the January focus on oil and China, and both have certainly provided much of the volatility, the largest asset shift so far in 2016 has been in core sovereign bonds.
  • Friday’s surprise move to negative rates by Japan may have provided the ceremonial flourish, sending Japanese yields to record lows. But that’s far less noteable than moves elsewhere. Japan’s two-year rate has dropped 14 basis points this year, which is dwarfed by other sovereigns
  • Mario Draghi’s commitment that the European Central Bank will soon ease further has seen German two-year yields also hit record negative levels; the drop there has been 14 basis points as well
  • However, both pale in comparison to what is happening in the equivalent paper in the U.S. and U.K. The former has seen a 28 basis point plunge, while U.K. two-year yields are currently trading at the lowest level in over a year after plummeting 32 basis points
  • A year ago, we were debating whether the U.K. might even raise rates before the U.S. -– now markets are indicating the Bank of England’s next move is more likely to be a cut
  • Rates are either screaming out that the deflation battle is far from over or they’re implying that investors are so worried about 2016 that they’d prefer to pay the German government 0.5% per year to keep their cash “safe.” In other words they see deflation in financial assets, if not in consumer prices
  • With that in mind, Brent crude’s rebound of more than 30% from the January 20 intraday low, prompts two thoughts
  • The first is that the risk of headline consumer-price deflation is much less than it was two weeks ago, which suggests that fear is indeed the dominant driver of rates markets
  • The second is that when one of the world’s key economic inputs, oil prices, can rally 30% but still be down on the month, then investors may have a valid reason to be scared
 end
It sure looks like things are out of control in Sweden: 200 Swedes in masks strom the train station and beat migrant children:
(courtesy zero hedge)

200 Swedes Storm Occupied Stockholm Train Station, Beat Migrant Children

Sweden is losing its patience with refugees.

In the wake of the sexual assaults allegedly perpetrated by men of “Arab origin” in Cologne, Germany on New Year’s Eve, the Swedish press revealed what certainly appeared to be a coverup related to a wave of similar incidents that apparently occurred at a youth festival and concert in central Stockholm’s Kungsträdgården last August.

That ruffled the feathers of quite a few Swedes and then, earlier this week, we learned that a 22-year-old asylum center worker was murdered in a knife attack carried out by a 15-year-old Somali migrant named Youssaf Khalif Nuur, shown below.

Alexandra Mezher (the victim) had been working at the shelter in Molndal for “a few months” when she was killed while working a night shift.

And speaking of unaccompanied refugees, Stockholm’s central train station has apparentlybeen overrun by Moroccan migrant children who, according to reports, spend their days drinking, stealing, and accosting women.

On Thursday, Interior Minister Anders Ygeman said the country is set to deport some 80,000 of the 163,000 people who entered the country seeking shelter last year, but that wasn’t good enough for the “football hooligan scene”, who on Friday night “went on a rampage” at the train station in Stockholm where “hundreds” of masked men beat migrant children. 

“A mob of black-clad masked men went on a rampage in and around Stockholm’s main train station last night beating up refugees and anyone who did not look like they were ethnically Swedish,” The Daily Mail reports. “Before the attack, the group of 200 people handed out xenophobic leaflets with the message ‘Enough now’.”

The “thugs” were “allegedly linked to Sweden’s football hooligan scene” – whatever that is.

“I was passing by and saw a masked group dressed in black … start hitting foreigners,” one witness said. “I saw three people molested.”

Here are the visuals:

http://www.dailymail.co.uk/embed/video/1248216.html

And here’s the text of the flyer the “football hooligans” distributed ahead of the assault to wrest control of the train station from the iron grip of preteen Moroccan migrant children:

All over the country, reports are pouring in that the police can no longer cope with preventing and investigating the crimes which strike the Swedish people.’

‘In some cases, for example, in the latest murder of a woman employed at a home for so called ‘unaccompanied minor refugees’ in Molndal, it goes as far as the National Police Commissioner choosing to show more sympathy for the perpetrator than the victim,’ it continues.

‘But we refuse to accept the repeated assaults and harrassment against Swedish women.’

‘We refuse to accept the destruction of our once to safe society. When our political leadership and police show more sympathy for murderers than for their victims, there are no longer any excuses to let it happen without protest.’

‘When Swedish streets are no longer safe to walk on for normal Swedes, it is our DUTY to fix the problem,’ the leaflet reads.

‘This is why, today, 200 Swedish men gathered to take a stand against the north African ‘street children’ who are running rampage in and around the capital’s central station.’

‘Police have clearly showed that they lack the means to stop their progress and we se no other way than to hand down the punishment they deserve ourselves.’

‘The justice system has walked out and the contract of society is therefore broken – it is now every Swedish man’s duty to defend out public spaced against the imported criminality.’

 

‘Those who gathered today are neither your politician, your journalist or your policeman. We are your father, your brother, your husband, your colleague, your friend and your neighbour.

You’ll recall what we said in the wake of Mezher’s murder: “Yes PM Löfven, we believe that you are correct to say that ‘there are quite many people in Sweden who feel a lot of concern’ and make no mistake, if European politicans do not find an effective way to get the situation under control, the public will remove them – either with the ballot or with the torches and pitchforks.”

The text of the leaflet distributed ahead of the train station “rampage” is proof positive that at least some Swedes are prepared to stage an open revolt against a government they now view as standing in violation of the social contract.

When social contract theory breaks down, you’re left with a Hobbesian state of nature and as you can see from the video shown above, it is indeed “nasty and brutish” and may well end up being quite “short” for the hundreds of unaccompanied North African migrants who fled their countries for the “safety” of Sweden.

There was no word on whether the “football hooligan” crowd managed to retake the station or whether the Moroccan migrant children remain dug in.

end
Trouble ahead for oil producing Nigeria as they run out of dollars.  They have now called for a massive dollar loans from the world bank to save the country
(courtesy zero hedge)

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged “don’t panic” just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a “Treasury Single Account” (TSA) at the central bank.

 

The policy is part of new President Muhammadu Buhari’s drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa’s biggest economy – playing havoc with banks’ liquidity ratios.

 

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria’s energy revenues that has hit the naira currency and triggered flows of capital out of the country.

 

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

 

Since taking office in May, Buhari has vowed to rein in Nigeria’s dependency on oil exports which account for 90 percent of foreign currency earnings. However, he has faced criticism from investors for failing to appoint a cabinet yet or outline concrete policies.

Amid confusion over the implementation of the single account policy, overnight interbank lending rates spiked to 200 percent, but Emefiele denied the policy had provoked a liquidity crisis.

“There is no shortage of liquidity,” he said, pointing to an oversubscribed sale of treasury bills on Wednesday. “A spike is a momentary action. It’s sentiment.”

 

“I do not think there is any need for anybody to panic,” he added.

But with CDS markets now implying a drastic devaluation (and capital controls already in place), it seems the time to panic has come…

 

We warned of the looming dollar shortage in March of last year, and most recently in December we warned that Africa was bearing the brunt as some of continent’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, restricted access to the greenback to protect dwindling reserves.

But, as The FT reports, it seems time is up for Nigeria, as the troubled nation has asked the World Bank and African Development Bank for $3.5bn in emergency loans to fill a growing gap in its budget in the latest sign of the economic damage being wrought on oil-rich nations by tumbling crude prices.

Nigeria’s economy is Africa’s largest and has been hit hard by the fall in crude prices — oil revenues are expected to fall from 70 per cent of income to just a third this year.

 

Finance minister Kemi Adeosun told the Financial Times recently that she wasplanning Nigeria’s first return to bond markets since 2013. But Nigeria’s likely borrowing costs have been rising alongside its budget deficit. A projected deficit of $11bn, or 2.2 per cent of gross domestic product, had already risen to $15bn, or 3 per cent, as a result of the recent turmoil in oil markets.

 

 

The country’s financial buffers are also eroding. The central bank’s foreign exchange reserves have nearly halved to $28.2bn from a peak of almost $50bn just a few years ago. A rainy-day fund that had $22bn in it at the time of the 2008-09 global financial crisis now has a balance of $2.3bn.

 

 

“I think we all agree that Nigeria is facing significant external and fiscal accounts challenges from the sharp fall in . . . oil prices, as of course are all oil exporters,” Gene Leon, the IMF’s representative in Nigeria, told the FT. But he added that Nigeria was not in immediate need of an IMF programme. “We are not in that space at all.”

 

…the new government is also facing questions about its handling of the economy.Capital controls introduced last year have weighed on growth and the IMF has called for Mr Buhari to pursue alternatives.

 

The central bank introduced the first controls before Mr Buhari took office last May, but many new measures have been imposed since and the president has repeatedly voiced his support for them.

During a January visit Christine Lagarde, the IMF’s managing director, urged the government to allow the naira to trade more freely so that it could help absorb economic shocks.

“It can also help avoid the need for costly foreign exchange restrictions, which we don’t really support,” she said in an address to parliament.

But Mr Buhari and his government are likely to resist a full IMF rescue programme.

The former military ruler butted heads with the IMF while leading the government in the 1980s and many observers believe he would be reluctant to invite the fund in again.

The question is – will the $3.5bn loan be used to keep social unrest from exploding on the streets or to further attempt to sustain an unsustainable peg?

As we previously warned,defending one’s currency is a losing game as not only Argentina most recently, but the Swiss National Bank most infamously, will admit.

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

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

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

end

 

 

 

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

 

Euro/USA 1.0866 up .0037 (Draghi’s jawboning still not working)

USA/JAPAN YEN 121.38 up 0.247 (Abe’s new negative interest rate (NIRP)

GBP/USA 1.4375 up .0034

USA/CAN 1.4035 up .0061

Early this MONDAY morning in Europe, the Euro rose by 37 basis points, trading now just above the important 1.08 level rising to 1.0866; 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 down in value (onshore). The USA/CNY up in rate at closing last night: 6.5781 / (yuan down and will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP  (SEE BELOW) . The yen now trades in HUGE SOUTHbound trajectory as IT settled DOWN  in Japan again by 34 basis points and trading now well ABOVE  that all important 120 level to 121.38 yen to the dollar.

The pound was up this morning by 34 basis point as it now trades just below the 1.43 level at 1.4275.

The Canadian dollar is now trading down 61 in basis points to 1.4035 to the dollar.

Last night, Asian bourses mostly in the red with Shanghai DOWN 1.78% .  All European bourses were in the RED 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/and now NIRP)

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 MONDAY morning: closed down 122.47 or 0.71%

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

2/ Asian bourses green/ Chinese bourses: Hang Sang RED (massive bubble forming) ,Shanghai in the RED by 1.78%  (massive bubble bursting), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the RED /

Gold very early morning trading: $1122.05

silver:$14.30

Early MONDAY morning USA 10 year bond yield: 1.94% !!! par in basis points from last night  in basis points from FRIDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.75 up 1 in basis points from FRIDAY night.  ( still policy error)

USA dollar index early MONDAY morning: 99.39 down 39 cents from FRIDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers MONDAY MORNING

 

 

OIL MARKETS

 

a terrific commentary from Steve St Angelo who points out that both shale gas production and shale oil production have hit their peak and are now entering a slippery downward slope.

 

a must read..

(courtesy Steve St Angelo/SRSRocco report)

Another Nail In The US Empire Coffin: Collapse Of Shale Gas Production Has Begun

Via SRSroccoReport.com,

The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun.  This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.

Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry.  Without energy, the U.S. economy would grind to a halt.  All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal.  Energy drives the economy and finance steers it.  As I stated several times before, the financial industry is driving us over the cliff.

The Great U.S. Shale Gas Boom Is Likely Over For Good

Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015.  Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015:

Top-U.S.-Shale-Gas-Fields-Production

As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011.  Here are the production profiles for each shale gas field:

Barnett-Shale-Gas-Field

According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high.  The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d.  Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year.

Haynesville-Shale-Gas-Field

The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d.  This was a huge 50% decline from its peak.  Not only is the drilling rig count in the Haynesville down 57% in a year, it fell another five rigs this past week.  There are only 18 drilling rigs currently working in the Haynesville.

Eagle-Ford-Shale-Gas-Field

The EIA reports that shale gas production from the Eagle ford peaked in July 2015 at 5 Bcf/d and is now down 6% at 4.7 Bcf/d.   As we can see, total drilling rigs at the Eagle Ford declined the most at 117 since last year.  The reason the falling drilling rig count is so high is due to the fact that the Eagle Ford is the largest shale oil-producing field in the United States.

Marcellus-Shale-Gas-Field

Lastly, the Mighty Marcellus also peaked in July 2015 at a staggering 15.5 Bcf/d and is now down 3% producing 15.0 Bcf/d currently.  The Marcellus is producing more gas (15 Bcf/d) than the other top three shale gas fields combined (12.1 Bcf/d).

I have posted the Haynesville shale gas production chart below to discuss why U.S. Shale Gas production will likely collapse going forward:

Haynesville-Shale-Gas-Field

What is interesting about the Haynesville shale gas field, located in Louisiana and Texas, is the steep decline of production from its peak.  On the other hand, the Barnett (chart above in red) had a much different profile as its production peak was more rounded and slow.  Not so with the Haynesville.  The decline of shale gas production at the Haynesville was more rapid and sudden.  I believe the Eagle Ford and Marcellus shale gas production declines will resemble what took place in the Haynesville.

All you have to do is look at how the Eagle Ford and Marcellus ramped up production.  Their production profiles are more similar to the Haynesville than the Barnett.  Thus, the declines will likely behave in the same fashion.  Furthermore drilling and extracting shale gas from the Haynesville was a “Commercial Failure” as stated by energy analyst Art Berman in his Forbes article on Nov 22 2015:

The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells in that play that cost $8-10 million apiece to sell gas at a loss into a over-supplied market.

 

Haynesville-Shale-EUR-Map-Berman

 

At $6 gas prices, only 17% of Haynesville wells break even (Table 3) and approximately 115,000 acres are commercial (Figure 2) out the approximately 3.8 million acres that comprise the drilled area of the play.

 

The Haynesville Shale play is a commercial failure. Encana exited the play in late August. Chesapeake and Exco, the two leading producers in the play, both announced significant write-downs in the 3rd quarter of 2015.

Basically, the overwhelming majority of the shale gas extracted at the Haynesville was done so at a complete loss.  So, why do they continue drilling and producing gas in the Haynesville?

The reason Art Berman states is this:

What we see in the Haynesville Shale play are companies that blindly seek production volumes rather than value, and that care nothing for the interests of their shareholders. The business model is broken. It is time for investors to finally start asking serious questions.

Chesapeake is one of the larger shale gas producers in the Haynesville as well as in the United States.  According to its recent financial reports, Chesapeake received $1.05 billion in operating cash in the first three-quarters of 2015, but spent $3.2 on capital expenditures to continue drilling.  Thus, its free cash flow was a negative $2.1 billion in the first nine months of 2015.  And this doesn’t include what it paid out in dividends.

The same phenomenon is taking place in other companies drilling for shale gas in the other fields in the U.S.  This insanity has Berman perplexed as he states this in another article from his site:

This has puzzled me because the shale gas plays are not commercial at less than about $6/mmBtu except in small parts of the Marcellus core areas where $4 prices break even. Natural gas prices have averaged less than $3/mmBtu for the first quarter of 2015 and are currently at their lowest levels in more than 2 years.

The reason these companies continue to produce shale gas at a loss is to keep generating revenue and cash flow to service their debt.  If they cut back significantly on drilling activity, their production would plummet.  This would cause cash flow to drop like a rock, including their stock price, and they would go bankrupt as they couldn’t continue servicing their debt.

Basically, the U.S. Shale Gas Industry is nothing more than a Ponzi Scheme.

The Collapse Of U.S. Shale Gas Production Even At Higher Prices

I believe the collapse of U.S. shale gas production will occur even at higher prices  Why?  Because the price of natural gas increased from $2.75 mmBtu in 2012 to $4.37 mmBtu in 2014, but the drilling rig count continued to fall:

U.S.-Gas-Drilling-Rigs-vs-Spot-Price

As the price of natural gas increased from 2012 to 2014, gas drilling rigs fell 40% from 556 to 333.  Furthermore, drilling rigs continued to decline and now are at a record low of 127.  Just as Art Berman stated, the average break-even for most shale gas plays are $6 mmBtu, while only a small percentage of the Marcellus is profitable at $4 mmBtu.

Looking at the chart again, we can see that the price of natural gas never got close to $6 mmtu.. the highest was $4.37 mmBtu.  Thus, the U.S. Shale Gas Industry has been a commercial failure.

Now that the major shale gas producers are saddled with debt and many of the sweet spots in these shale gas fields have already been drilled, I believe U.S. shale gas production will collapse going forward.  If we look at the Haynesville Shale Gas Field production profile, a 50% decline in 4 years represents a collapse in my book.

The Two Nails In The U.S. Empire Coffin

As I stated in several articles and interviews, ENERGY DRIVES THE ECONOMY, not finance.  So, energy is the key to economic activity.  Which means, energy output and the control of energy are the keys to economic prosperity.

While the collapse of U.S. shale gas production is one nail in the U.S. Empire Coffin, the other is Shale Oil.  U.S. shale oil production peaked before shale gas production:

Top-4-Shale-Oil-Fields-Production

This chart is a few months out of date, but according to the EIA’s Productivity Reports,domestic oil production from the top four shale oil fields peaked in April of 2015… three months before the major shale gas fields (July 2015).

Unfortunately for the United States, it was never going to become energy independent.  The notion of U.S. energy independence was built on hype, hope and cow excrement.  Instead, we are now going to witness the collapse of U.S. shale oil and gas production.

The collapse of U.S. shale oil and gas production are two nails in the U.S. Empire coffin.  Why?  Because U.S. will have to rely on growing oil and gas imports in the future as the strength and faith of the Dollar weakens.  I see a time when oil exporting countries will no longer take Dollars or U.S. Treasuries for oil.  Which means… we are going to have to actually trade something of real value other than paper promises.

I believe U.S. oil production will decline 30-40% from its peak (9.6 million barrels per day July 2015) by 2020 and 60-75% by 2025.  The U.S. Empire is a suburban sprawl economy that needs a lot of oil to keep trains, trucks and cars moving.  A collapse in oil production will also mean a collapse of economic activity.

Thus, a collapse of economic activity means skyrocketing debt defaults, massive bankruptcies and plunging tax revenue.  This will be a disaster for the U.S. Empire.

 

end
Goldman Sachs explains why low oil prices are here to stay for quite some time:
(courtesy Goldman Sachs/zero hedge)

Crude Sinks To Day Lows After Goldman Explains Why No Oil Production Cuts Are Coming

Moments ago, following last week’s torrid crude oil price rebound driven entirely by now-denied hopes of some production cut consensus between oil suppliers, namely Russia and Saudi Arabia, oil halted its four-day rally as weak Chinese manufacturing data added to economic demand concern.

“The risk seems to be the greatest on the downside again” and speculation of OPEC production cuts has “faded fast,” says Saxo Bank head of commodity strategy Ole Hansen. “China and South Korea are both helping the market return to fundamental focus where it is worried about demand.”

But the biggest downward catalyst overnight as noted previously, was a note by Goldman’s Damien Courvalin who warned quite explicitly that “cuts are unlikely” in what Goldman dubs the New Oil Order, and that in the current rebalancing phase, oil prices will “remain between $40/bbl (financial stress) and $20/bbl (operational stress) until 2H16. This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set.” Here’s why:

The past week featured headlines suggesting that OPEC producers and Russia would meet in February to discuss a potential coordinated cut in production.Despite the sharp bounce in oil prices that these headlines generated, we do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists’ forecast. This view is anchored by our belief that such a cut would be self-defeating given the short-cycle of shale production and the only nascent non-OPEC supply response to OPEC’s November 2014 decision to maximize long-term revenues. As a result, we reiterate our view that prices need to remain low enough to force fundamentals to create the adjustment back towards a new equilibrium. We believe this inflection phase requires oil prices to remain between $40/bbl (financial stress) and $20/bbl (operational stress) until 2H16. This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set.

The full list of Goldman points listed below, which incidentally are quite accurate, is a useful primer for any oil bull who hopes that a prompt supply cut is in the cards:

  1. The potential for production cuts became once again a key driver to oil prices following headlines last Wednesday (January 27) that Russian officials had decided to talk to Saudi Arabia and other OPEC members about output cuts of 5% although no discussions are scheduled at this time and other headlines suggested the move was instead initiated by Saudi Arabia or Venezuela. On Thursday, ministers from Saudi Arabia and the UAE were instead commenting on their continued oil field investments to sustain production. Despite this lack of clarity, oil prices rallied 7% last week, taking 1-month oil price volatility to 70%, its highest level since April 2009.
  2. We continue to view a coordinated production cut as highly unlikely and ultimately self-defeating. The decision made by OPEC in November 2014 and again in December 2015 to sustain production is the one that maximizes their revenues medium term. While fiscally difficult in the short term, it was nonetheless necessary in the face of strongly growing higher-cost non-OPEC production (see The New Oil Order, October 2014). And after a 14-month wait, the strategy is finally bearing fruit, with non-OPEC producer guidance pointing to production declines since oil prices fell below $40/bbl a few weeks ago. We had identified this as the required pain threshold to see sufficient financial stress and shut funding markets to finally impact forward production (see Lower for even longer, September 2015). As such, a cut that would bring prices above $40/bbl now would undermine this only nascent adjustment. Exacerbating the difficulty of enacting a correctly sized cut in our view are (1) the current high price volatility, (2) the remaining uncertainty on the size of the oil oversupply, (3) the continued rapid fill of remaining storage capacity, and (4) the potential for US production to quickly respond.
  3. We believe that the spring 2015 rally in oil prices has increased the resolve of core OPEC producers to stick to their policy of sustaining production and let oil prices rebalance this market (as they have repeatedly commented in recent months). Specifically, last year’s price rally was quickly followed by an increase in the US oil rig count and we would expect such a response once again should prices rally near $60/bbl. In fact, recent E&P cost and efficiency guidance and producer comments at our equity analysts’ Energy Conference in January suggest that this threshold is now likely even lower. Further, the velocity of such a response will be much greater this time as the average number of days from beginning of drilling to production collapsed by 40% from 1Q to 3Q15 to reach 80 days in the Permian. The magnitude of such a response will also be supported by the acreage highgrading that occurred last year, lower legacy decline rates and average first 3 months’ production for new wells up by 25% over that period.
  4. Such a production cut would further require cooperation between OPEC members. And while Venezuela, Algeria and Iraq – which for the first time last week hinted at welcoming cuts – would agree to such a decision, Iran’s production ramp up would likely be a significant hurdle to any OPEC action. While Iranian officials have commented on their desire to not flood the market, their production recovery target remains aggressive and their desire to regain market share steadfast. Iranian observed exports have already picked up in January to their highest level since April 2014 despite these remaining to destinations permitted under sanctions given reported caution in granting ship insurance to vessels carrying Iranian crude to new customers. As a result, a production cut would likely need to accommodate continued growth in Iranian production, an agreement which seems unlikely given recent tensions with Saudi Arabia.
  5. For Russia, the desire to join a coordinated production cut would need to come from the government as our Russian energy analyst, Geydar Mamedov, estimates that Russian oil producers remain free cash flow positive even at $30/bbl given the concurrent Ruble depreciation (we continue to expect steady production growth in 2016 and 2017). The strain of low oil prices are visible at the government level however as $30/bbl oil prices would leave the 2016 federal budget deficit reaching 5% of GDP vs. the government’s/President Putin’s 3% target according to our Russian economist Clemens Graffe. Since oil taxation is progressive and causes the deficit to widen faster as oil prices decline, current prices raise the risk of a potential increase in oil taxation and in turn lower production, which should it occur, would be an incentive to have other countries cut output at the same time. While a risk, our Russian economist estimates that given the need for legislative changes in order to institute tax changes and consensus expectations for prices to recover from current levels in 2H16, the pressure would likely be instead on better collection rates and an increased allocation of spending into regional budgets or off-budget to meet the 3% deficit threshold (see Russian budget pressures shifting from discretionary to structural, December 2015).
  6. Despite our belief that no cut will occur, we nonetheless reviewed the recent history of production cuts as well as their price impacts. First and foremost, OPEC and non-OPEC (mainly Russia, Norway, Mexico and Oman) coordinated production cuts occurred in periods of weak economic and oil demand growth, which despite current concerns are not our economists’ forecasts. That was the case in 2009 (Financial Crisis), 2001 (September 11 attacks) and 1998-1999 (Asian Crisis). As we have argued before, we believe that weak global growth also remains a required condition for OPEC production cuts this time around. Second, while the headline cuts were large and did help support prices upon announcement, compliance was weak initially with production cuts delayed (by a year in 1998-1999). Consequently, prices only sustainably recovered once inventories started to draw which coincided with the lagged cuts in production.
  7. As a result, should a cut occur, its impact on inventories would matter most, just as the current non-OPEC guidance cuts will only support prices once inventories stop to build. While prices may rally initially upon announcement, we would expect this move to fade and the oil forward curve to remain in contango until inventories decline, just as was the case in 1998-1999. Consistent with our current forecasts, the rise in long-dated prices would only occur once the inventory normalization is well under way as only then will new production need to be incentivized.
  8. Most importantly, given the likely time necessary to enact such cuts, the continued large builds in US and global inventories and the fast pace at which US Gulf Coast spare storage capacity is filling, it may already be too late for OPEC producers to be able to prevent another large decline in prices. As a result, we reiterate our view that prices need to remain low enough to force fundamentals to create the adjustment back towards a new equilibrium with this inflection phase requiring oil prices to remain between $40/bbl (financial stress) and operational stress at $20/bbl (well-head cash costs) until 2H16 with the price lows of this phase likely still to be set.

And the charts:

Exhibit 1: The US shale production response to higher prices will be rapid
Days to production – quarterly mean of Permian wells

Exhibit 2: OPEC production cuts in 1998 occurred because of weak demand and did not generate sustained rallies…
WTI oil prices and forward curves ($/bbl)

Exhibit 3: … as OPEC production cuts were well shy of agreed targets
WTI oil prices (lhs, $/bbl); OPEC crude oil production (thousand barrels per day, rhs)

Exhibit 4: Oil prices troughed only once inventories started to draw 
WTI price ($/bbl, lhs); OECD commercial stocks (crude and products, million barrels, rhs)

END
Late in the morning, WTI drops into the 31 dollar handle:
(courtesy zero hedge)

Portuguese 10 year bond yield:  2.93% up 5 in basis pointsfrom FRIDAY

Japanese 10 year bond yield: .055% !! down a whopping 7 full  basis points from FRIDAY and lowest on record!!
Your closing Spanish 10 year government bond,MONDAY up 5 in basis points
Spanish 10 year bond yield: 1.56%  !!!!!!
Your MONDAY closing Italian 10 year bond yield: 1.47% up 5 in basis points on the day:
Italian 10 year bond trading 9 points lower than Spain.
IMPORTANT CURRENCY CLOSES FOR MONDAY
Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 
Euro/USA: 1.0891 up .0062 (Euro up 62 basis points)
USA/Japan: 120.97 down 0.165(Yen up 17 basis points)
Great Britain/USA: 1.4423 up .0182 (Pound up 182 basis points)
USA/Canada: 1.3941 down 0.0033 (Canadian dollar up 33 basis points despite oil being lower in price )
This afternoon, the Euro rose by 62 basis points to trade at 1.0891.
The Yen rose to 120.97 for a gain of 17 basis points as they entered NIRP.
The pound was up 182 basis points, trading at 1.4323.
The Canadian dollar rose by 99 basis points to 1.3941  even the price of oil price fell  to around $31.32 per barrel/WTI).
The USA/Yuan closed at 6.5782
Your closing 10 yr USA bond yield: up 1 in basis points from FRIDAY at 1.95%// (trading well below the resistance level of 2.27-2.32%) policy error
USA 30 yr bond yield: 2.76 par in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
 Your closing USA dollar index: 99.05 down 60 in cents on the day  at 2:30 pm

Personal income rises but personal spending dips which means that the consumer is saving.  This is not what the Keynesians desire:

 

(courtesy zero hedge)

end

Dallas Fed “Responds” To Zero Hedge FOIA Request

Two weeks ago, Zero Hedge reported an exclusive story corroborated by at least two independent sources, in which we informed our readers that members of the Dallas Federal Reserve had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.

The Dallas Fed took the opportunity to respond (on Twitter), when in a tersely worded statement it said the following:

We thanked the Fed for answering even if its response was in itself a lie, and further since we fully stood by our story, we asked the Federal Reserve chaired by Goldman Sachs veteran, Robert Kaplan, to answer several follow up questions regarding this matter which is of significant public interest.  To wit:

  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, met with U.S. bank and other lender management teams in recent weeks/months and if so what was the purpose of such meetings?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, requested that banks and other lenders present their internal energy loan books and loan marks for Fed inspection in recent weeks/months?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, discussed options facing financial lenders, and other creditors, who have distressed credit exposure including but not limited to:
    • avoiding defaults on distressed debtor counterparties?
    • encouraging asset sales for distressed debtor counterparties?
    • advising banks to avoid the proper marking of loan exposure to market?
    • advising banks to mark loan exposure to a model framework, one created either by the creditors themselves or one presented by members of the Federal Reserve network?
    • avoiding the presentation of public filings with loan exposure marked to market values of counterparty debt?
  • Was the Dallas Fed, or any other members and individuals of the Federal Reserve System, consulted before the January 15, 2016 Citigroup Q4 earnings call during which the bank refused to disclose to the public the full extent of its reserves related to its oil and gas loan exposure, as quoted from CFO John Gerspach:

    “while we are taking what we believe to be the appropriate reserves for that, I’m just not prepared to give you a specific number right now as far as the amount of reserves that we have on that particular book of business. That’s just not something that we’ve traditionally done in the past.”

  • Furthermore, if the Dallas Fed, or any other members and individuals of the Federal Reserve system, were not consulted when Citigroup made the decision to withhold such relevant information on potential energy loan losses, does the Federal Reserve System believe that Citigroup is in compliance with its public disclosure requirements by withholding such information from its shareholders and the public?
  • If the Dallas Fed does not issue “such” guidance to banks, then what precisely guidance does the Dallas Fed issue to banks?

We assumed (correctly) there would be no Twitter, or any other unofficial response to this list of questions, which is why two weeks ago we, in collaboration with several readers (due to obvious reverse FOIA purposes), also requested an official response from the Fed through a Freedom Of Information Act submission. Surely if the Fed would go so far as to call us liars, it would have no problem either responding or providing the required information.

This is what we got back.

We appreciate the “response.”

With regard to [1] and [2], we find it disturbing that the Dallas Fed not only does not keep internal logs of who visits the Fed (or whom the Fed visits), but especially that there is no internal log of whom the President meets with as part of ordinary course of business.

This is troubling when one considers that as part of its routine disclosures, the NY Fed not only keeps a detailed log of the President’s daily schedules but also makes them publicly available each quarter (link to the most recent one). One wonders how the Board, and the president, holds itself “reasonably” accountable to the public if there is no internal record at all of any in house meetings, which clearly become a relevant topic in issues such as this.

As for [3], we will gladly readdress the question in the proper semantic protocol, and will follow back with another FOIA requesting the explicit financial records of bank energy loan books which the Fed has collected as part of its recent diligence efforts to uncover which banks are underreserved, the same diligence that prompted the Fed to pursue the procedure that prompted our article in the first place, a procedure which the Dallas Fed alleges “there is no truth” to.

We look forward to discovering what excuse the Dallas Fed will provide to not supply the requested information in that particular FOIA request.

 

end
David Stockman talks about the ridiculous P/E of many of the USA stocks and that they always come back to earth:
(courtesy David  Stockman/ContraCorner)

Apple, FANGS And Monetary Fools

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This week the great tree of Apple finally stopped growing toward the sky. During its latest quarter, in fact, i-Pad sales were down 25%, Mac volume came in 4% lower and even the i-Phone barely breached the flat line.

In all, Apple’s mighty machine of double digit growth posted a revenue gain of just 1.7% over prior year, while its net income was essentially flat. The real news, however, was that management is now projecting an actual 11% y/y decline in sales during the current quarter.

Don’t get me wrong. Apple has been the most awesome fount of product invention, global production and supply chain proficiency, logistics and marketing innovation and consumer brand value creation in modern history—-perhaps ever.

Its products—especially the smart phone—did fundamentally transform the daily life of the world. Apple’s installed base of one billion devices is a living testimonial to its fanatical focus on bringing to the consumer a truly transformative digital age experience.

Yet it all happened in well less than 10 years. Indeed, while the tech world was booming in the 1990s, APPL was struggling. Between 1990 and 2004, revenue grew at only 4% per annum and earnings did not increase by one thin dime.

That’s right. Apple’s net income stalled out at $500 million per year for a decade and one half—-or at a level equal to two days profits during the quarter just reported.

That wasn’t much to write home about under any circumstance, but was especially wimpy compared to Microsoft, where sales and net income grew at a 27% CAGR during that period; or Cisco, where sales and earnings soared by 50% annually for 15 years running.

And that brings us to the lunatic valuation of the FANGS, which was also on display again this week, and why 100X+ PE multiples are always and everywhere a deformed artifact of central bank driven Bubble Finance, not the emission of an honest capital market.

The fact is, the greatest technology-based businesses of modern times accomplished its dramatic growth spurt in just over 20 quarters between 2011 and 2015. That was after the i-Phone incepted and the i-Pad worked up a serious head of steam.

Now Apple is pancaking or worse, and it is hard to believe that gimmick products like Apple Watch or Oculus can fill the hole from the fast fading i-Pad and the stalling i-Phone. No harm done, of course, and its entirely possible the APPL will have another modest growth run.

But here’s the thing. Apple essentially proves you can’t capitalize anything at 100X except in extremely rare cases because of the terminal growth rate barrier. That is, after a few years of red hot growth almost every large company’s organic growth rate bends toward the single digit path of GDP.

 

In this respect, Microsoft and Cisco surely prove the rule. After their blistering 1990’s growth, the were valued at 75X and 230X reported earnings, respectively, at the tech bubble peak in 2000. But the terminal year growth rates implied in those towering multiples were not to be——even for two of the most inventive companies of the digital age.

During the last fifteen years, Microsoft’s net income has grown at a 5.9%annual rate and Cisco’s at 7.8%. Technology shifts, competition and global macroeconomic trends together conspired to bend their red hot growth trajectories toward the flat line.

As a consequence, they have spent the entirety of this century shedding market cap and enduring PE multiple compression.
MSFT Market Cap Chart

MSFT Market Cap data by YCharts

As can be seen above, between December 1999 and the end of 2014, Microsoft’s market cap declined from $600 billion to $380 billion, meaning it shed $220 billion of valuation, as its PE contracted from 75X to 18X (its market cap currently is slightly higher at $420 billion).

Likewise, Cisco’s market cap plunged from $530 billion to $140 billion. Thus, despite 15 years of respectable growth it was forced to shed $410 billion of market cap, while its PE multiple ended up resembling Ross Perot’s famous sucking sound to the south, plunging from 230X at the tech bubble peak to 19X at the end of 2014.

Since these two companies are among the best long term performers and profit generators of all time, they speak powerfully to the terminal year growth barrier. In effect, when “investors” capitalize a growth company’s hot years at a triple digit PE they are drastically overvaluing its terminal year potential.  And virtually without exception, they spend the post growth streak years in PE compression and market cap shrinkage.

At best, these high flyers turn out to be 10-20% long term growers, or at worst shooting stars like Lucent or Dell where 80-100% of the peak market cap gets wiped out by the passage of time and events.

Consider the 25-year growth rate of five important and surviving growth icons of modern times. Apples’ quarter-century net income CAGR ending in the year just reported is 20%. That for Cisco is 18%, Microsoft 17.5%, Intel15% and Berkshire Hathaway 15%.

Yet today every one of these companies trade at market caps well below their boom year peaks—–even after giving consideration to the balance sheet deterioration resulting from debt-financed stock buybacks. Specifically, relative to its peak market cap, Cisco is current down by 80%, Intel by 68%, Microsoft by 32%, Apple by 26% and  Berkshire Hathaway by15%.

So there’s the skunk in the woodpile. What is going on under the heading of “growth” company valuation is just pure speculation in the casino. There is absolutely nothing rational or economically efficient about the 100X PEs. The latter get attached to the casino’s trading sardines of the month or year which get temporarily designated as “growth”  stars.

History virtually proves that you can’t go wrong selling the high flyers if you have the patience and capital depth to wait out the serial bubble cycles of the world’s out-of-control central banks. In that respect, this week brought another raft of just that kind of opportunity.

Yes, Amazon disappointed the absurdly precise and ultra aggressive “growth” targets of Wall Street analysts and traders. But so what?

Its PE ratio was marked down from 900X to 475X, meaning it’s still a screaming sale. Back up the trucks!

After all, when you spend 25 years creating a monstrous machine that is resolutely and  maniacally focussed on spending every dime of revenue on global empire building, it will never generate a measureable profit or return on capital. Well, at least not more than the anemic 3.3% pre-tax return it posted for 2015.

Thus, it is only a matter of time before unforeseen external events, such as an ordinary business cycle downturn, to say nothing of the impending global deflation, trigger a drastic re-rating and PE compression. Then the fast money and robo machines will dump the stock hand over fist as usual—–and long before the inattentive home gamers wake up to find themselves the victim of another epic slaughter.

Likewise, Facebook purportedly “surprised” to the upside, and is now trading at close to 90X. But here’s the thing. If you wish to believe that FB really has 1.6 billion carbon unit-based monthly users, you might also want to check into some Florida swampland.

Otherwise recognize that the social media sphere is crawling with silicon-based fake users and mercenary bots, and that their contamination of Facebook’s preposterous user stats is undoubtedly beyond reckoning. Yes, FB occasionally purges the worst incursions, but surely Justin Beiber’s 3.5 million fake fans was only a drop in the bucket.

Besides that, it doesn’t really matter what the mix of carbon vs. silicon based units is in FBs massive user stats. At the end of the day, Facebook is essentially a digital billboard. It’s a place where mostly millennials idle their time in or out of their parents’ basement. Whether they grow tired of Facebook or not remains to be seen, but one thing is certain.

Namely, advertising is slaved to GDP growth and always takes a hit when the business cycle turns south. Indeed, the pool of advertising dollars is relatively fixed at about $175 billion in the U.S. and $575 billion worldwide and grows in the low single digit zip code after you take account of the severe cyclical fluctuations which always slam the ad spend. For instance, during the Great Recession, the U.S. advertising spend declined by 15% and the worldwide spend dropped by 11%.

And therein lies another skunk in the woodpile. Due to its sharp cyclicality, the ad spend is a distinctly low-growth pool of money. And that pool of money is fiercely competed for by the various media venues. Thus, the U.S. ad spend of $177 billion in 2015 was only $5 billion greater than the $172 billion spend way back in 2008.

So when you average out the cyclical fluctuations, the trend growth in U.S. ad spending has been about 0.5% per annum. Likewise, the global ad spend increased from about $490 billion in 2008 to $575 billion in 2015, reflecting a growth rate of 2.3% annually.

Yes, there has been a rapid migration of dollars from TV, newspapers and other traditional media to the digital space in recent years. But the big shift there is already over.

The digital share of the U.S. ad pool, in fact, rose from 13.5% in 2008 to an estimated 32.5% last year. But even industry optimists do not expect the digital share to gain more than a point or so per year going forward. After all, television, newspapers, magazines and radio and highway billboards are not going to disappear entirely.

Moreover, roughly half of the digital share comes in the form of search advertising. FB does not even participate in that sector, where Google has upward of a 55% market share.

Consequently, there are not remotely enough advertising dollars in the world to permit the endless gaggle of social media space entrants to earn revenue and profits commensurate with their towering valuations and the sell side’s hockey stick growth projections.

So once again we have the delusion that the 52% revenue growth that FB booked in its most recent quarter can be continued indefinitely, when it will, in fact, by pulled-down to the GDP growth line in only a matter of time.

Accordingly, now would be an excellent time to sell the stock, and back up the trucks. You can’t  capitalize a one-time share shift in the quasi-static ad spending pie as if it represents a permanent rate of growth. Indeed, most especially not in a world heading into an extended period of deflation and static or even shrinking nominal GDP.

And do believe that this third and greatest central bank driven bubble of this century is well past its sell-by date. The central bankers are getting downright deranged, as Kuroda-san demonstrated on Friday.

Japan is an old age colony sinking into the Pacific. The very last thing it needs is more inflation to erode the purchasing power of its massive and growing retired population, and then tax their bank accounts with a negative interest rate to boot.

After what amounts to 20 years of ZIRP and QE the grand Keynesian monetary experiment of the present era has been proven an utter failure in Japan, which is now sliding into its 5th recession in seven years.

Why do they keep resorting to madcap expansion of central bank balance sheets, and thereby the systematic falsification of financial asset prices? Ostensibly, the aim is to reverse a deadly run of consumer price deflation. But here’s Japan’s CPI over the last 35 years. That is not deflation!

Japan Consumer Price Index (CPI)

In fact, the 2% mantra has no basis in economic logic or proof in financial history. Its just a giant cover story that the world fraternity of central bankers have invented to justify there massive and constant monetary intrusion.

But here is the real reason why Japan went to NIRP. The Nikkei was down 24% from its June peak, and desperate fools who run the BOJ voted 5-4 to stop the hissy-fit.
^N225 Chart

^N225 data by YCharts

That will provide a few days of relief at best, but then the implosion of the world’s monumental financial bubble will continue, and even gather pace.

Why? Because the central banks have shot their wad. Two decades of madcap credit expansion have brought Japan and most of the rest of the world to a condition of peak debt, which means that the central banks are now simply pushing on a credit string.

For the better part of seven years that foolish endeavor has generated massive unsustainable inflation of financial asset values.  It has fueled the lunacy of 100X growth company bubbles.

But as the global economy sinks into the deflationary recession that is inherent in a crack-up boom, it will become increasingly evident that they are powerless to alter the course of the real economy.

Eventually the prospect of recession that can’t be cured by the central bank printing presses will ignite sheer panic in the casino. Then the monetary fools running them will be reviled to the ends of the earth. But not before the lunatic 100X valuations of the FANGs implode like those of all the high flyers which have gone before.

For the third time this century it is time to sell the bubble. Yes, do back up the trucks!

 

end

 

ISM manufacturing misses and contracts for the 4th month in a row:

(courtesy zero hedge)

 

US Manufacturing Remains In Recession As ISM Misses, Contracts For Fourth Month

While January’s final manufacturing PMI print disappointed (52.4 vs 52.6 expectations) and dropped from its initial print, its still managed a seasonally-adjusted bounce off December’s  two year lows. As Markit warned, this is still one of the worst prints in the last 2 years as “the manufacturing sector continues to struggle against the headwinds of weak global demand, the strong dollar, slumping investment in the energy sector and rising financial market uncertainty.” ISM Manufacturing also rose very modestly but disappointed as December’s data was revised lower still with employment crashing to June 2009 lows.

This is the 5th month in a row since ISM manufacturing has been above 50…

Commenting on the final manufacturing data, Chris Williamson, chief economist at Markit said:

“Despite picking up slightly, the January PMI reading is one of the worst seen over the past two years, highlighting the ongoing plight of the manufacturing sector.

 

“One bright light appeared, in that order book growth picked up, led by an upturn in domestic demand. However, hiring remained in the doldrums, suggesting that firms remain cautious in relation to the business outlook and reluctant to expand capacity.

And then ISM Manufacturing data hit…

 

Notably employment collapsed and New Export orders crashed from December’s hopeful bounce.

 

Respondents were broadly pessimistics:

“The oil and gas sector continues to be challenged by low oil and gas prices. Risk of suppliers filing for bankruptcy and reducing their workforce is becoming an increasing risk. Our company workforce is also declining.” (Petroleum & Coal Products)

As Markit concludes…

The manufacturing sector continues to struggle against the headwinds of weak global demand, the strong dollar, slumping investment in the energy sector and rising financial market uncertainty, all of which mean the goods-producing sector looks set to act as a drag on the wider economy again in the first quarter of 2016.”

end
The Atlanta Fed first’s estimate of Q 1  GDP: only 1.2%
(courtesy Atlanta Fed/zero hedge)

Atlanta Fed Sees Q1 GDP Growth At Just 1.2%, 50% Below Wall Street Consensus

Compared to the Wall Street Consensus, which had originally expected Q4 2015 GDP to rise as much as 3% only to admit Q4 was a total bust (and this time not even the weather was to blame) when last Friday the BEA’s first estimate of Q4 growth revealed GDP had risen a minimal 0.7% – a number which will be reduced following today’s big construction spending miss – the Atlanta Fed’s 1.0% pre-announcement estimate seems like a bulls eye.

Which is why the fact that according to the Atlanta Fed’s just launched Q1 GDP tracker the US economy will grow another barely above-recession 1.2%, more than 50% below the Wall Street consensus of 2.3%, should be very troubling, as it suggests there will barely be any growth in the quarter in which the 2015 inventory liquidation was supposed to have taken place, and instead the economic weakness will persist well into the year in which the Fed has signalled it will hike rates 4 times, a number which the market which sees just one rate hike in the next 11 months, vigorously disagrees with.

This is what the Altanta Fed said:

The initial GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 1.2 percent on February 1. The final model nowcast for fourth-quarter real GDP growth was 1.0 percent, 0.3 percentage points above the advance estimate of 0.7 percent released last Friday by the U.S. Bureau of Economic Analysis.

 

Time for triple seasonal adjustments?

end
total USA debt surpasses 19 trillion dollars:
(courtesy zero hedge)

Total U.S. Debt Surpasses $19 Trillion; Rises $8.4 Trillion Under President Obama

Two months ago, when we calculated that the US would need a new “debt ceiling” of $19.6 trillion to last until after Obama’s tenure, we may have been too optimistic: since the increase in the hard debt limit of $18.15 trillion which was raised at the end of October, the US appears to be growing its debt at a far faster pace than we had originally expected, and according to the latest public debt data, as of the last day of January, total US debt just hit 19,012,827,698,417.93.

This means that if the nominal US GDP as of December 31 which was $18.12 trillion grows at the 1.2% rate expected by the Atlanta Fed, total debt to GDP is now on pace to hit 105% at the next GDP tabulation, and rising fast from there.

It also means that since his inauguration in January 2009, the US debt has now risen by a whopping 78.9%, or $8.4 trillion. It was $10.6 trillion when Obama came into office.

Indicatively, the Congressional Budget Office forecasts that the national debt will hit $22.6 trillion by 2020 and will rise to $29.3 trillion by 2026.

end

 

See you on Tuesday night

h.

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