Gold: $1127.30 down $0.60 (comex closing time)
Silver 14.28 down 6 cents
In the access market 5:15 pm
Gold $1129.00
Silver: $14.31
At the gold comex today, we had a fair delivery day, registering 24 notices for 2400 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 203.02 tonnes for a loss of 100 tonnes over that period.
In silver, the open interest fell by 329 contracts down to 158,110. In ounces, the OI is still represented by .791 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 huge 5301 contracts to 378,735 contracts as gold was up 11.50 with yesterday’s trading.
We had no changes in gold inventory at the GLD / 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 no changes in inventory, 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 fall by 329 contracts down to 158,110 despite the fact that silver was up 11 cents with respect to yesterday’s trading. The total OI for gold rose by 5,301 contracts to 378,735 contracts as gold was up $11.50 in price from yesterday’s level.
(report Harvey)
2 a) Gold trading overnight, Goldcore
(Mark OByrne)
3. ASIAN AFFAIRS
iii) The biggest ever Chinese corporate takeover: ChemChina purchases the Swiss Syngenta for 43 billion USA
iv) David Stockman comments on the huge scandal in China with respect to a 7 billion USA Ponzi scheme whereby 900,000 investors lost their money.
“Yucheng was raising capital through Ezubo at an annual interest rate of 14 percent and lending it out for 6 percent,” he said. The investor said he couldn’t understand how the company could be profitable (!) considering it was paying more to attract money than it was collecting in interest on loans.”
Also he harps on the damaging effects on NIRP throughout the globe
(courtesy David Stockman/ContraCorner)
v) This is a biggy!! Japan cancels its fixed 10 yr bond auctions due to sub zero rates. The variable rate is still auctionable and yesterday the yield came in at .078%. Now Japan has a problem: where are they going to find bonds to monetize? No question that they will purchase USA bonds in size.
(zero hedge)
EUROPEAN AFFAIRS
i)This morning European bank stocks are plunging. Since NIRP they are down 40%. NIRP destroys bank profits !
( zero hedge)
ii) Austria has had enough: they will pay migrants 500 euros to go back home. Good luck!
iii)The stock Ferrari on the Milan Stock exchange crashes today down 40%:
( zero hedge)
GLOBAL ISSUES
USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER
iii) Michael Snyder comments on empty shelves, and store closings all across the USA
iv) Negative Interest rate scenarios are already baked in as the Fed uses them in stress tests
v) as stocks were rising 1.8% last week, hedge funds were dumping
vi) A huge warning signal for the USA housing sector
And now your overnight trading in gold, MONDAY MORNING and also physical stories that may interest you:
Intraday Precious Metal Returns – Latest Research
Some interesting research looking at intraday precious metal returns has just been published by Brian Lucey, Jonathan Batten, Maurice Peat, Frank McGroarty and Andrew Urquhart in a paper entitled “Stylized Facts Of Intraday Precious Metal Returns”.
The authors note in the paper that has just been published on the Social Science Research Network (SSRN) website, that
“Precious metals are some of the most traded assets worldwide and they also play an important role for investor as well as comprising an important asset for central banks. Given the increased attention precious metals have received in the literature, the intraday dynamics are of great interest.”
They conclude that
“Initially, we show that the volume of trades of precious metals has increased substantially over the last 15 years’ while the bid-ask spread has decreased indicating the increase in efficiency and liquidity of precious metal markets. We also show strong evidence of intraday periodicity of precious metals volume of trades and volatility.
The intraday volume has increased over time, while the intraday bid-ask spread has decreased over time.
We also study interaction between volatility and returns of each precious metal and our correlation analysis shows that returns are negatively correlated with the contemporaneous volatility and the previous 5-minute volatility.
Furthermore, we find bi-directional Granger causality between volatility and returns suggesting that past volatility (returns) offers significant explanatory power in explaining current returns (volatility).”
The paper can be found here
Precious Metal Prices
2 Feb: USD 1,123.60, EUR 1,029.65 and GBP 780.01 per ounce
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
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
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Essential Guide to Tax Free Gold Sovereigns
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Mark O’Byrne
Research Director
World’s Largest Silver Producer Slams LBMA’s “Manipulated” Fix
Last week’s obvious silver market fix manipulation will not go quietly into the night,as we are sure LBMA would prefer.
But it will not, as BullionDesk.com’s Ian Walker reports, the world’s largest producer of silver, KGHM, has weighed in on last week’s hugely controversial silver price benchmark, which was set some six percent below the prevailing spot price on Thursday.
The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce on January 28. This was 84 cents below the spot and futures price at the time.
Since this has implications for any transactions based on the benchmark, there is a danger that the credibility of the process will be damaged and that users will seek other prices against which to do business, sources said.
KGHM, one of the largest producers of copper and the single largest producer of silver in the world, called the difference between the prices “very alarming” and called on the London Bullion Market Association (LBMA) to provide an explanation.
“The large discrepancy between the spot price and the fix is very alarming to us especially that it happened twice in a row,” KGHM head of market risk Grzegorz Laskowski told FastMarkets.
“I think the LBMA needs to make every effort to explain why it happened and needs to help to develop a system that would help to avoid these kind of situations in the future,” he added.
The ‘fix’ or ‘benchmark’, as it is now known, is still the global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.
While some traders continue to use the 24-hourly traded spot price, larger players prefer the snapshot-style daily benchmark to settle bulkier contracts on a traditionally over-the-counter (OTC) market.
The price is set every day by five participants – HSBC, JPMorgan Chase Bank, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters.
KGHM produced 40.4 million ounces (1,256 tonnes) of silver in 2014, according to The Silver Institute’s annual report.
Willem Middelkoop explains the coming ‘big reset’ to Grant Williams
Submitted by cpowell on Tue, 2016-02-02 03:00. Section: Daily Dispatches
9:58p ET Monday, February 1, 2016
Dear Friend of GATA and Gold:
Singapore fund manager Grant Williams, editor of the “Things That Make You Go Hmmm” letter and proprietor of Real Vision TV —
— has done an excellent interview with Dutch fund manager and author Willem Middelkoop about the trend toward a profound reform of the world financial system that entails a major upward revaluation of gold. The interview, conducted in London just before the recent upturn in the gold price, covers what appears to be a balancing of official gold reserves among the United States, Europe, and China. It also covers the gold price suppression by central banks that is happening in the meantime. Middelkoop has just published an expanded edition of his book “The Big Reset: The War on Gold and the Financial Endgame.”
While the interview is an hour long, it is packed with useful observations and it’s posted in the clear at You Tube here:
https://www.youtube.com/watch?v=WmuiAY2WiIU
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
end
As I pointed out to our readers: the 41.99 tonnes of deposit belonged to the UKraine, stolen by the USA and then given to Holland:
(courtesy Bron Suchecki/Perth Mint/GATA)
The release of Federal Reserve Bank of New York’s December gold stocks report provides and opportunity to analyse the progress of this current phase of withdrawals from its custodial stocks. I say “phase” because in recent times there have been periods of concentrated withdrawal activity in between periods of little or no activity, as the chart below from Nick Laird at Sharelynx shows.
It is interesting that these phase seem to correspond with economic turmoil – dot.com crash 2000/1, global financial crisis 2007/8, and today?
Note that during 2000 and 2001 the FRBNY was able to consistently ship out 40 tonnes a month. That works out at 2 tonnes a day over 20 business days a month. Commercial vaults designed for high throughput can do more than that but if you look at this National Geographic documentary on the Federal Reserve you can see it is not suited to high volumes. As I explained in this post, “those who think Germany could put 300 tonnes in a big plane or warship and move it in one or a few days have been watching too many Die Hard movies”. In any case, Germany’s 300 tonnes could therefore have been realistically repatriated in one year.
During 2014 and 2015 we know that Germany repatriated just under 190 tonnes and the Netherlands around123 tonnes. Given the reportednet withdrawals from the FRBNY (back calculated as they only report balance in millions of dollars @ $42.22, I calculate the following delivery schedule.
All figures represent withdrawals, except the one highlighted in yellow, which is a deposit. Note that every figure in this table is a multiple of either a 4.420 tonne or 5.157 tonne “lot”, eg 41.991 = (4.420 x 6 + 5.157 x 3). I have tried a number of possibilities but the above is the only realistic one I can find that fits the reported facts in the lot multiples. Out of this comes two observations:
- Another central bank(s) have been withdrawing metal from the FRBNY but not disclosing it, close to 40 tonnes to-date.
- Someone deposited 41.991 tonnes just as the Netherlands was about to withdraw 123 tonnes.
As the FRBNY is reporting physical custodial stocks, the only explanation for the deposit is either another central bank deposited physical, or the FRBNY moved some of its (ie America’s) gold reserves into the account of another central bank, which could be the result of:
- A new FRBNY lease/swap TO a central bank
- FRBNY repaying gold leased/swapped FROM a central bank in the past
Given how tight-lipped central bankers generally are, we are unlikely to know who the mystery (and coincidental) gold depositor was.
end
And now your overnight TUESDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan FALLS to 6.5793 / Shanghai bourse: in the Green by 2.29 %/ hang sang: RED
2 Nikkei closed down 114.55 or 0.64%
3. Europe stocks IN THE RED /USA dollar index DOWN to 98.93/Euro UP to 1.0916
3b Japan 10 year bond yield: RISES TO .086 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 10.77
3c Nikkei now just below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 30.71 and Brent: 32.96
3f Gold up /Yen UP
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil DOWN for WTI and DOWN for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to 0.336% German bunds in negative yields from 7 years out
Greece sees its 2 year rate fall to 11.73%/:
3j Greek 10 year bond yield fall to : 9.31% (yield curve deeply inverted)
3k Gold at $1125.15/silver $14.27 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 1 and 78/100 in roubles/dollar) 79.11
3m oil into the 30 dollar handle for WTI and 32 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 1.0213 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1149 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 + .336%/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 1.93% early this morning. Thirty year rate at 2.74% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Groundhog Day Trading: Stocks Slide As Oil Plunge Returns; BP Suffers Biggest Loss On Record
It certainly does feel like groundhog day today because while last week’s near record oil surge is long forgotten, and one can debate the impact the result of last night’s Iowa primary which saw Trump disappoint to an ascendant Ted Cruz while Hillary and Bernie were practically tied, one thing is certain: today’s continued decline in crude, which has seen Brent and WTI both tumble by over 3% has once again pushed global stocks and US equity futures lower, offsetting the euphoria from last night’s earnings beat by Google which made Alphabet the largest company in the world by market cap.
Among the drivers for today’s oil weakness was news that Russia pushed their oil output to fresh post-soviet highs amid the recent price slump, as crude output reaches 10.9mln bpd in Jan’16. At the same time JBC said that far from dropping, OPEC output actually rose to 32.42m b/d in Jan vs 32.38m in December.
The oil story was so dominant overnight that not even the surge in Chinese equities did anything to boost sentiment, with the Composite higher by 2.3%. Perhaps a reason for this was that China’s animal spirits are clearing fading, and as reported overnight, margin debt in China’s stock market shrank to the lowest level since December 2014, a sign that the stock market bubble has not only burst but is not coming back: the outstanding balance of margin debt on the Shanghai and Shenzhen stock exchanges dropped for 22 straight days to 897.6 billion yuan ($136.4 billion) on Monday. According to Bloomberg, it fell below the lows reached during a summer rout when the Shanghai gauge tumbled more than 40 percent from mid-June through its August low.
Compounding the bad commodity news was BP’s results, which posted a loss of $6.5 billion: the biggest in its history: 2015 was even worse for the London-based company than its 2010 Deepwater Horizon catastrophe which resulted in a $3.72 billion loss, as the company took charges of more than $40 billion to cover the legal, operational and environmental costs of the Gulf of Mexico oil spill.
Also not helping sentiment was a drop by UBS Group which slid after pretax profit at its investment bank trailed predictions.
“People are very spooked about what they can’t see, and at the moment they can’t see where global growth will come from,” Justin Urquhart Stewart, co-founder of Seven Investment Management in London, told Bloomberg. “In a market like this, less certainty around the U.S. election cycle will add further nerves. The last thing investors need is more background noise.”
A quick summary of where risk stands now:
- S&P 500 futures down 0.7% to 1918
- Stoxx 600 down 1.4% to 336.7
- FTSE 100 down 1.8% to 5953
- DAX down 1% to 9664
- German 10Yr yield down 4bps to 0.32%
- Italian 10Yr yield down 1bp to 1.46%
- MSCI Asia Pacific down 0.9% to 122
- Nikkei 225 down 0.6% to 17751
- Hang Seng down 0.8% to 19447
- Shanghai Composite up 2.3% to 2750
- US 10-yr yield down 2bps to 1.92%
- Dollar Index down 0.04% to 98.97
- WTI Crude futures down 3.4% to $30.54
- Brent Futures down 3.4% to $33.09
- Gold spot down 0.3% to $1,125
- Silver spot down 0.6% to $14.27
Looking at regional markets, we start in Asia where equities traded in mostly in negative territory with yet again oil prices the familiar culprit as hopes over cooperation between OPEC and Non OPEC members in regards to a production cut fades , alongside the tepid lead from Wall Street. As such, the ASX 200 (-1.00%) and Nikkei 225 (-0.6%) were dragged lower by energy names, with the latter also pressured by a stronger JPY. However, the Shanghai Comp (+2.2%) outperformed as the PBoC injected more liquidity into the market via open-market-operations, subsequently providing ample liquidity ahead of the Lunar New Year, while the central bank continued to set a firmer CNY fix. JGBs fell albeit marginally so following a lacklustre auction which drew a lower than prior b/c as well as the widest tail in 10-months.
“It’s still a volatile market,” said Rafael Palma Gil, a Manila-based trader at Rizal Commercial Banking Corp., which oversees about $1.8 billion in assets. “While central banks have become relatively more accommodating, this stance doesn’t remove the concern of a global economic slowdown, with the weakness in China.”
Asian Top News
- Nintendo Profit Falls 36% on Lack of Hit Games, Currency: Wii U, 3DS hardware sales languish despite Splatoon, Mario; 3Q oper. profit +5% to 33.5b yen vs est. 33.2b yen
- Nomura Profit Falls as Firm Postpones Overseas Earnings Goal: 3Q net income 35.4b yen; est. 38.7b yen; bank is on track for sixth straight annual pretax loss abroad
- China Eases Mortgage Down Payment to 20% for First Time Buyers: Will allow banks to cut the minimum required mortgage down payment to 20% from 25% for first home purchases
- PBOC Said to Ask Lenders to Control Wealth Management Funds: China’s central bank has told lenders it will require greater control over the amount of wealth management product funds they give to brokerages and other financial institutions to manage
- Singapore Seizes ‘Large Number’ of Accounts Amid 1MDB Probe: Officials investigate possible money laundering since mid-2015
- Japan Trading Houses Facing $13 Billion Hit on Commodity Misfire: As raw-material prices fall, focus shifts to other businesses
- China’s Top Macro Fund Wagers Against Consumption-Driven Growth: Congrong sees wage growth slowing abruptly in second quarter
- China Hands Investors Risk-Free Returns as IPOs Lure $1 Trillion: Benchmark’s top performers in 2016 are all newly issued stocks
- India Said to Ask Banks at Least $295 Million in Back Taxes: Notices may be issued by April
In Europe, oil once again dictates price action as this week’s continued softness in WTI and Brent translates into weakness in the major indices , led lower by the energy sector. BP is a notable laggard and despite the market being prepared for bad numbers, trades in negative territory by 8.1% after posting Q4 earnings, consequently the FTSE 100 (-1.7%) is a marked underperformer. UBS (-7.9%) also reported earnings today, missing on expectations and warning of further FX headwinds.
European Top News
- Euro-Area Unemployment Falls as ECB Weighs Stimulus Measures: Region’s jobless rate decreased to 10.4% from 10.5% in Nov., est. unchanged at 10.5%; rate at lowest since Sept. 2011
- German Unemployment Rate Falls to Record Low as Job Market Booms: Jobless rate fell to 6.2%, the lowest level since German reunification, from 6.3%; joblessness slid to seasonally-adjusted 2.73m
- Sainsbury Agrees to Buy Home Retail for About $1.9b: Sainsbury will pay about 161.3p in cash and stock per Home Retail share, a 63% premium above the closing price prior to the emergence of discussions, to lead to profit synergies of GBP120m or more
- Danske Bank Unveils $1.3b Share Buyback Program: Said will buy back another DKK9b ($1.3b) in shares; forecast 2016 net profit in line with 2015’s results, before goodwill impairments, 4Q adj. net DKK4.64b vs est. DKK3.74b
- Sanofi, Merck Said to Consider Exiting Vaccine Joint Venture: Sanofi CEO Brandicourt is reviewing the alliance because of a lack of promising assets in the business’s pipeline; venture had sales of about $330m in first half of 2015
- Kuoni Agrees to $1.4 Billion Takeover Bid From EQT Partners: EQT offering CHF370 per B share, 32% above Dec. 30 closing price
- Raiffeisen Shares Jump After Lower Provisions Lift 2015 Profit: Full yr Net income was EU383m compared with loss of EU617m yr ago; profit was better than anticipated because of lower provisions for impairments
- EU Nears Agreement on U.K. Demands After Talks Make Progress: Still ‘outstanding issues’ to resolve, EU President Tusk says
- Fiat Offers New Settings for Diesel Motors to Make Them Cleaner: Carmaker says vehicles have no defeat device to cheat tests, says all its cars comply with emission regulations
In FX, it has been another range bound morning early London, though Asia saw some volatility with AUD/USD swinging up and down in the aftermath of the RBA — which offered little fresh insight overall. However, London markets are testing support levels at .7040, with .7005 seen lower down. USD/JPY lows were extended to 120.33 on Oil losses prompting a knock on effect on stocks, but since consolidating above 120.50.
The euro advanced against all major peers, posting the biggest gains versus the currencies of raw-material producing nations including South Africa’s rand and the New Zealand and Austrian dollars. It climbed 0.2 percent to $1.0913, while the yen appreciated 0.2 percent to 120.79 per dollar.
Malaysia’s ringgit dropped 1.3 percent against the U.S. dollar. Bank accounts related to possible money laundering associated with state-investment company 1Malaysia Development Bhd. were seized by authorities in Singapore and the Swiss Attorney General announced it’s pursuing an investigation into alleged diversion of funds
CAD and other Oil related FX losses contained. USD/CNH pushing through 6.6200.
The Bloomberg Commodity Index, which measures returns from 22 raw materials, fell 0.7 percent, dragged down by falling oil prices. Gold retreated from a three-month high.
WTI and Brent continue to edge lower as North American participants come to their desks, with market expectations of an OPEC- Non-OPEC agreement to cut production waning . Brent is above the USD 33.00 handle, but only just and WTI trades below USD 31.00. Price action in today’s session will likely be dictated too by any further comments from OPEC or energy ministers, if not, then participants will await the release of API Crude Oil inventors to guide price action.
Gold was marginally softer overnight with the precious metal remaining near 3-month highs having touched USD 1,130.11/oz yesterday , near its 200 DMA of USD 1,131.25, while growing confidence in the yellow metal was reflected by holdings of SPDR Gold Trust rising 1.82%. Analysts have noted that this 200 DMA offers an important level of resistance with traders keeping one eye on the jobs report on Friday. Sport gold has retraced some of its gains in recent trade, and has just broken below the 1125.00 level.
Base metals rallied, with zinc climbing to the highest in almost three months, as news of further stimulus in China increased expectations of greater demand from the world’s top commodity consumer.
The move higher, which saw zinc lift 1.3 percent to $1,669 a metric ton and copper push to a three-week high, was amplified by short-covering, according to Citigroup Inc. analyst David Wilson.
In terms of the day ahead, this morning in Europe the focus looks set to be on the labour market reports where we’ll see the latest unemployment rate print for Germany and the Euro area in particular. Euro area PPI is also due out this morning. It’s a much quieter afternoon for data in the US with just the February IBD/TIPP economic optimism reading, along with January vehicles sales data due up. Away from the data we’ll hear from the ECB’s Coeure this morning while later this evening the Kansas City Fed’s George is due to speak on the US economic outlook and monetary policy at 6.00pm GMT. Earnings season continues with 31 S&P 500 companies set to report including Pfizer, Yahoo and Exxon Mobil.
Global Top News:
- Clinton Narrowly Edges Sanders in Iowa; Cruz Upsets Trump: Rubio comes in third in GOP contest marked by high turnout, Clinton’s victory is razor-thin in Iowa Democratic caucus; Iowa Results Slow Clinton’s March Toward the Nomination; Rubio May Consolidate Support as Alternative to Cruz, Trump
- Google Parent To Overtake Apple as World’s Most Valuable Company: Alphabet 4Q adj. EPS $8.67 vs est. $8.09; 4Q rev. ex-TAC $17.3b vs est. $16.9b
- BP Profit Falls 91%, Missing Estimates, as Oil Slump Deepens: 4Q adj. net $196m vs Est. $815m; net loss for the year was $6.5b, the most in at least 30 yrs; adj. profit drops y/y for 6 straight quarters
- Anadarko Cuts Spending as It Seeks to Rebound From Record Loss: Capital budget reduced by almost half to about $2.8b
- UBS Drops as Quarterly Profit Slumps at Wealth, Securities Unit: At the wealth-management unit 4Q pretax profit fell 47% to CHF344m, investment bank had drop of 63% to CHF80m, below estimates of analysts in a Bloomberg survey; raises div. to 85 centimes for 2015 from 75 centimes
- Pentagon Said to Seek 35% Fund Boost for Islamic State Fight: Will seek a 35% increase in funding for the fight against Islamic State in its next budget, bringing the request for U.S. military efforts against the terrorist group to $7.5b
- Goldman Censured by Hong Kong Regulator Over Wing Hang Deal: Goldman Sachs was censured by Hong Kong’s securities regulator for breaching the city’s takeovers code while advising Wing Hang Bank Ltd. on its acquisition by a Singaporean lender
- Google Search Probe by U.S. Should Get New Look, Utah Says: Utah, D.C. urge FTC to revisit case in light of EU complaint
- Fidelity Writes Down Snapchat Holding by 2 Percent: Snapchat had raised funds at $16b valuation last year
- Yahoo’s Employee Ranking Targeted in Mass Termination Lawsuit: Accused in a lawsuit of manipulating employee performance evaluations to justify firing hundreds of workers in order to meet its financial targets
- Monsanto-Created Weedkiller Is Most Used in History, Study Says: About 18.9b pounds of glyphosate have been used globally since sales began in 1974
- Texas Shale Drillers Lure $2b in New Equity to Permian: Drillers in the Permian Basin, the biggest U.S. shale field, have raised at least $2b from share sales over past 8 weeks
Bulletin Headline Summary from RanSquawk and Bloomberg
- WTI and Brent continue to edge lower as North American participants come to their desks, with market expectations of an OPEC/ non-OPEC agreement to cut production waning
- Continued softness in WTI and Brent translates into weakness in the major indices, with BP underperforming following poor Q4 earnings
- Highlights include, API crude oil inventories, dairy whole milk powder auction, comments from ECB’s Coeure and Fed’s George
- Treasuries rise overnight as world equity markets resume slide amid declining oil prices ahead of today’s vehicle sales and ISM reports.
- Australia’s central bank will weigh a strengthening jobs market against the impact of recent global financial turbulence in deciding whether to ease policy further, as bank Governor Stevens and his board kept the cash rate at a record-low 2%
- India’s central bank kept the benchmark repurchase rate at 6.75% for a second straight meeting as it awaits details of the government’s budget later this month, providing support for a currency battered by China-led market turmoil
- China’s central bank said it will allow banks to cut the minimum required mortgage down payment to 20% from 25% for first-home purchases to the lowest level ever as it steps up support for the property market
- China Banking Regulatory Commission Chairman Shang Fulin said at a meeting with lenders last month that banks need to avoid risks that could cause systemic problems for the banking sector
- U.S. Treasury Department will issue an estimated $250 billion in net marketable debt in the January-March quarter, compared with $165 billion estimated three months ago, according to a statement released Monday in Washington
- After seeing their borrowing costs rise to their highest level since 2012, U.S. companies may have at least one ray of hope: yield-starved foreign money managers are now holding a record percentage of U.S. corporate bonds outstanding, according to Federal Reserve data
- Nomura, dragged down by its money-losing business outside Japan, posted a 49% drop in third-quarter profit and said an earnings goal for overseas operations will be reached later than initially targeted
- BP Plc reported a 91% decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade; the company’s shares fell the most since August
- Hillary Clinton’s campaign declared victory in the closest- ever Iowa Democratic caucus while Senator Ted Cruz of Texas won the state’s Republican caucuses in an upset over billionaire Donald Trump
- Sovereign 10Y bond yields little changed. Asian, European stocks lower; U.S. equity-index futures drop. Crude oil and gold fall, copper rallies
DB’s Jim Reid concludes the overnight wrap
The relentless rally that we had seen across rates market so far this year finally paused for breath yesterday. European sovereign bond yields edged anywhere from 3 to 6bps higher (10y Bunds were up 3bps to 0.349%) while 10y Treasury yields finished the session up 2.8bps at 1.949% and off the recent cycle lows. In fact bond yields edged higher despite Oil prices trending steadily lower over the past 24 hours. The soft China manufacturing data as well as some chatter of pushback on an OPEC meeting to discuss potential production cuts combined to send WTI down $2 (-5.95%) and back below $32/bbl.
European equity markets closed with losses yesterday although the Stoxx 600 (-0.19%) did manage to stage a bit of a rebound into the close. In fact sentiment improved from the afternoon session in the US as the S&P 500, after being down as much as 1% managed to recoup all of the day’s losses to at one stage trade with a modest gain, before finishing near unchanged (-0.04%) by the closing bell. Dovish comments from Fed Vice-Chair Fischer helped the positive momentum. Fischer warned as to risks of a slowdown in US growth and inflation given recent global developments with risks of a persistent tightening of financial conditions. The Fed official also acknowledged the possibility of the unemployment rate overshooting the longer-run normal level based on FOMC projections.
Looking at markets this morning, aside from China it’s been a broadly weaker start across the region with no sign of that momentum carrying over from the US session last night. The BoJ-inspired rally in Japan has stuttered with the Nikkei currently down -0.64%, while the Hang Seng (-0.74%), Kospi (-0.75%) and ASX (-1.00%) are also lower. The moves aren’t being helped by another 2% drop for Oil, while US equity futures are also down around half a percent despite a bumper set of results from Alphabet which saw shares up over 9% in extended trading last night, leaving the company in pole position to overtake Apple as the world’s most valuable company today. The outlier in markets this morning is in China where the Shanghai Comp is up a sharp +2.33% despite no obvious newsflow. Meanwhile the RBA has left its cash rate unchanged at 2% as expected.
The other main overnight development has come in the US Presidential race, with the Iowa caucus in full swing. In what appears to be a surprising swing (given recent momentum) and with 85% of the votes accounted for in the Republican vote, Texas Senator Cruz looks set to beat Donald Trump after accumulating 28% of votes to Trump’s 24%. Significant also is the performance of third placed Senator Rubio, who has won 23% of votes which appears to be more than expected. Meanwhile it’s a closely thought contest for the Democrats with Clinton leading Sanders by less than 1%. The third Democratic who had been in the race, O’Malley, has dropped out. Expect confirmation of the final votes soon.
Back to markets. Yesterday’s economic data was centered on another disappointing ISM manufacturing print out of the US (48.2 vs. 48.4 expected and the fourth consecutive sub-50 reading). The print was 0.2pts higher than the downwardly revised December data but much was made of the drop in the employment component to 45.9 (-2.1pts) and the lowest since June 2009. This of course comes before Friday’s employment report. Meanwhile the December core PCE print was slightly below expectations at 0.0% mom (vs. +0.1% expected) while the same can be said for the deflator (-0.1% mom vs. 0.0% expected). Personal income was up a slightly better than expected +0.3% mom in December (vs. +0.2% expected) while personal spending missed (0.0% mom vs. +0.1% expected). Meanwhile construction spending notably undershot relative to consensus estimates at +0.1% mom (vs. +0.6% expected).
Moving on. Yesterday we also got some comments from ECB President Draghi who made reference to the effectiveness of recent QE measures, specifically that ‘second-round effects’ were occurring while reiterating that the ‘weaker than anticipated growth in wages together with declining inflation expectations call for careful analysis ahead of the upcoming meeting next month. Draghi also made some comments on the UK and specifically that ‘a solution that would anchor the UK firmly within the EU while allowing the euro area to integrate further would boost confidence’. As far as Brexit negotiations, EU President Tusk is set to send a draft proposal at some point this morning which is set to be the used to form the basis of discussion for EU heads of state at the February 18th/19thsummit around the UK’s future relationship with the EU. Tusk highlighted that good progress has been made with the hope that both sides can come to agreement ahead of a possible UK referendum as early as June.
Before we take a look at today’s calendar, the other notable takeaway from yesterday’s newsflow was the Fed’s latest survey of senior loan officers. The survey, covering Q4, showed that lenders were said to have tightened lending standards on commercial and industrial loans, and expect to tighten further in 2016. The survey did however suggest that banks had moderately eased standards for mortgages and auto loans for households.
In terms of the day ahead, this morning in Europe the focus looks set to be on the labour market reports where we’ll see the latest unemployment rate print for Germany and the Euro area in particular. Euro area PPI is also due out this morning. It’s a much quieter afternoon for data in the US with just the February IBD/TIPP economic optimism reading, along with January vehicles sales data due up. Away from the data we’ll hear from the ECB’s Coeure this morning while later this evening the Kansas City Fed’s George is due to speak on the US economic outlook and monetary policy at 6.00pm GMT. Earnings season continues with 31 S&P 500 companies set to report including Pfizer, Yahoo and Exxon Mobil.
(courtesy zero hedge)
The Hong Kong housing bubble suffered a spectacular collapses are sales plunge over 80% as demand dries up completely. Capital controls from the mainland is surely having an effect on Hong Kong housing. If Hong Kong is having this kind of lack of demand in one of the world’s most wealthiest enclaves, one can just imagine what is happening inside the mainland!
(courtesy zero hedge)
Hong Kong Housing Bubble Suffers Spectacular Collapse: Sales Plunge Most On Record, Prices Crash
Two months ago, we observed the record plunge in Hong Kong home sales when according to Land Registry data, a paltry 2,826 registered residential transactions were recorded, down 14.4% from October and what we thought was an amazing 41.7% less than in November last year. This was the lowest print in the history of the series.
Little did we know just how bad it would get just two months later.
As we said in our last check on the HK housing market, the weakness was sharp and widespread, with sales of new homes declining to a three-month low. In the primary residential market, the number of home sales also declined 26.4 per cent month on month to 1,023 last month, according to Centaline. The total value reached HK$8.97 billion, down 15.4 per cent from October’s HK$10.6 billion.
Lastly we presented some comments from local analysts, who perhaps unwilling to accept the reality, remained optimistic:
“The fall in transaction volume and value for new home sales due to an absence of big project launches early last month,” said Derek Chan, head of research at Ricacorp Properties. He expects to see an obvious increase in sales of new homes this month given more major projects are due to be offered for pre-sale. Most of new projects launches will focus in the western New Territories ,” he said.
We concluded in early December that while “optimism is good… if and when this global housing luxury weakness mostly due to the withdrawal of the Chinese marginal “hot money” buyer crosses back into the Chinese border, all bets about the so-called tepid Chinese economic will be off, and since it will be just the moment when China resumes cutting rates, devaluaing its currency and maybe even officially (as opposed to the ongoing unofficial iterations) launching QE, that will be when one should buy commodities, as China does everything in its power to keep the house of $30 trillion in cards from toppling and sending a deflationary tsunami around the entire world.”
So far China has only devalued, and so far there has been no effect on boosting commodity prices; meanwhile the deflationary tsunami is just getting worse as a result of the BOJ entering currency wars most recently by launching NIRP last week.
Which brings us to the latest Hong Kong housing data, and we can now officially say that any optimism about Hong Kong is officially dead.
First, as the chart below show, January Hong Kong home prices tumbled the most since July 2013, and after a 12 year upcycle, prices are now down a whopping 10% from the recent peak just four short months ago. Some analysts expect prices to fall more than 30 per cent by 2017 according to SCMP.
In other words, the bubble has clearly burst.
But not only has the Hong Kong housing bubble burst, it has done so in spectacular fashion: asquoted by the SCMP, the local Centaline Property Agency estimates that total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history!
Total transactions are likely to have hit 3,000, it said in a survey released on Sunday. With developers slowing down new launches, only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.
A similar picture emerges from another survey by Ricacorp Properties, which shows 2,908 deals were lodged with the Land Registry in the first 28 days of January.
In other words, the market is in shock from the collapse in demand, and has effectively been halted until it regroups as sellers, clearly not desperate to chase collapsing bids, simply withdraw offers.
Sure enough, according to SCMP, “the recent withdrawals of government land sales as a result of poor bids and the return of negative-equity homeowners are adding to strains in a rapidly weakening Hong Kong property market, with analysts saying developers will be forced to cut prices aggressively to stay afloat.”
What is causing this unprecedented collapse? One explanation is the infamous Fed butterfly flapping its rate hike wings and leading to a housing market crash half way around the world:
Analysts said developers slowed down new launches after the US implemented its first interest rate in a decade. Hong Kong commercial banks are expected to follow suit in the coming months, pulling up mortgage rates.
“Developers have to offer very attractive prices if they want to find buyers for their flats,” said Derek Chan, head of research at Ricacorp, adding that developers might even have to offer units at prices below the secondary market.
There’s that, or there is the far simpler Chinese response to the Fed rate hike which has sent shockwaves everywhere from the Chinese forex market to the Hong Kong interbank market where liquidity a few weeks ago virtually disappeared overnight as the PBOC tried to crush and squeeze offshore Yuan sellers. It also means that mainland Chinese buyers, suddenly facing a draconian escalation in capital controls, are suddenly unable to park hot money in the HK market.
As for the local housing market expect it to remain in a state of suspended animation for a long time.
Developers are eager to add to their land banks when the market is good but may become more selective in tougher times, especially given the anticipated new supply set to hit the market in the next two to three years, said Chow. “More withdrawals will be seen if the government does not revise the reserved prices.”
And then there was the issue of negative equity mortgages which somehow have appeared despite just a modest 10% correction from all time highs. One can only imagine the kind of leverage involved in these transactions:
The Hong Kong Monetary Authority (HKMA) on Friday announced that the estimated number of residential mortgage loans that are in so-called negative equity had hit 95 as of December, according to its latest survey. The total value of these home loans amounted to HK$418 million.
This was the first time the surveyed authorised instiatutions reported negative equity cases since the end of September 2014, said the HKMA.
According to HKMA data, the number of homeowners with negative equity – before the phenomenon resurfaced again lately – had fallen to zero from its peak at 105,697 in July 2003 at the height of a property downturn when home prices plunged up to 70 per cent.
Amusingly, last February, the HKMA supposedly tightened the loan-to-value ratio to 60 per cent from 70 per cent for flats under HK$7 million. New owners hence have a 40 per cent equity buffer, said Chow, but said some negative-equity cases would occur among those who have borrowed from non-bank financial companies. That, or the regulations of the monetary authority were simply ignored because, just like in the US in 2005, housing could only go up: just ask Ben Bernanke.
Well, now it is not only not going up, but it is crashing, and if the situation on the margin is this bad in one of the world’s wealthiest enclaves, one can only imagine what is happening in mainland China.
In Biggest Ever Chinese Corporate Takeover, ChemChina Set To Buy Swiss Syngenta For $43 Billion
The ink was not yet dry on the seemingly endless Monsanto-Syngenta on again/off again takeover drama, when moments ago in a shocking development the newswires were lit up with news that a new, and very much unexpected, bidder has emerged for the Swiss pesticides giant Syngenta: China National Chemical Corp, or ChemChina as it is known, which according to WSJ and BBG is set to pay $43.7 billion to acquire a piece of Swiss corporate history.
According to Bloomberg, China National Chemical Corp. is nearing an agreement to buy Syngenta for CHF 43.7 billion as the state-backed company extends its buying spree with what would be the biggest-ever acquisition by a Chinese firm, said people familiar with the matter.
More details:
ChemChina, as the closely-held company is known, offered about 470 francs a share in cash to acquire Syngenta and a deal could be announced as early as Wednesday when the Swiss company reports earnings, the people said, asking not to be named as the details aren’t public. That’s 24 percent higher than Syngenta’s last close of 378.40 francs on Feb. 1. Its shares rose 7.1 percent to 405.1 francs as of 1:26 p.m. in Zurich.
The deal would help Chairman Ren Jianxin transform ChemChina into the world’s biggest supplier of pesticides and agrochemicals, while snatching an asset coveted by St. Louis-based Monsanto Co. It also underscores the importance China attaches to owning seed and cropcare technology that can boost agricultural output and help feed the world’s biggest population.
Bloomberg notes that if successful, the $43 billion purchase would be the largest acquisition by a Chinese firm, surpassing China Unicom Hong Kong Ltd.’s $29 billion purchase of China Netcom Group Corp. in 2008. It remains to be seen whether Europe’s anti-trust authorities, let alone the Swiss, will greenlight such a massive incursion into the heart of corporate Europe. As a reminder, in recent year major Chinese purchases of both U.S. and Canada-based companies have been frowned upon. Perhaps Europe will decide that it is in its best interest to open its markets to the one country that suddenly is finding it needs to park “hot money” abroad and M&A is just the way to do it.
end
David Stockman comments on the huge scandal in China with respect to a 7 billion USA Ponzi scheme whereby 900,000 investors lost their money.
“Yucheng was raising capital through Ezubo at an annual interest rate of 14 percent and lending it out for 6 percent,” he said. The investor said he couldn’t understand how the company could be profitable (!) considering it was paying more to attract money than it was collecting in interest on loans.”
Also he harps on the damaging effects on NIRP throughout the globe
(courtesy David Stockman/ContraCorner)
Slouching Toward The Dark Side
by David Stockman • February 1, 2016
Last Wednesday we noted there is something rotten in the state of Denmark, meaning that the world’s great potemkin village of Bubble Finance is unraveling. The evidence piles up by the day.
To wit, now comes still another story about the Red Paddy Wagons rolling out in China. This time they are rounding-up the proprietors of a $7.6 billion peer-to-peer (P2P) lending Ponzi called Ezubao Ltd.
Ezubo investors lined up outside a government office in Beijing last month; having shut down the online peer-to-peer investing.The particulars of this story are worth more than a week of bloviating by the Wall Street economists, strategists and other shills who visit bubblevision the whole day long. That’s because it exposes the rotten foundation on which the entire Red Ponzi and the related world central bank regime of Bubble Finance is based.
Needless to say, these dangerous, unstable and incendiary deformations are not even visible to the Keynesian commentariat and policy apparatchiks. They blithely assume that what makes modern economies go is the deft monetary, fiscal and regulatory interventions of the state. By their lights, not much else matters——and most certainly not the condition of household, business and public balance sheets or the level of speculation and leveraged gambling prevalent in financial markets and corporate C-suites.
As that pompous fool and #2 apparatchik at the Fed, Stanley Fischer, is wont to say—–such putative bubbles are just second order foot faults. These prosaic nuisances are not the fault of monetary policy in any event, and can be readily minimized through a risible scheme called “macro-prudential” regulation.
After all, if the Keynesians had any inkling that debt was a problem they wouldn’t have attempted to radically subsidize it with 84 straight months of ZIRP. In that respect, they might especially have noted that US credit outstanding has soared from $54 trillion to $63 trillion or 17% since the eve of the financial crisis. That is, since the nation’s mountain of debt blew-up the first time around.
So here’s what happened with Ezubao. It’s parent (Yucheng Group) was an equipment leasing operation, having gotten started way back near the dawn of the Red Ponzi. That is, it apparently started about 2012 in the business of supplying rentable equipment and factoring services via the shadow banking system during China’s fixed asset boom.
Yucheng Group was definitely not China’s equivalent of General Electric; it was apparently organized by a gang of military buccaneers who have occupied a certain Chinese speaking province of northern Myanmar.
But by July 2014 the infrastructure boom and leasing demand were cooling so it opened up a new operation in P2P lending. Quicker than a flash it became China’s #2 player in that suddenly flourishing sector, or as the company described it:
Founded in 2012, Yucheng started as one of the pioneers of finance leasing and focused on fulfilling the financing needs at the county level. Yucheng quickly grew its business by expanding into different cities and continued to develop innovative solutions to address their clients’ evolving financing demands. In 2014, Yucheng successfully launched Ezubo.com, a disruptive A2P (asset-to-peer) online platform that bridges borrowers and lenders to facilitate a more efficient transactional process. As of June 2015, Ezubo.com is ranked second in terms of daily average investment amount. Yucheng now sets the industry benchmark by offering a comprehensive range of market leading finance lease and factoring solutions to large and medium-sized companies, international corporations, small and private enterprises to individuals.
Well, not exactly. Ezubao was shutdown on December 8th by Chinese authorities, meaning that in just 18 months it had bilked 900,000 investors of nearly $8 billion in a fraud that was so blatant that it now appears upwards of 95% of investor deposits never were invested at all. Some of the money was just send back to earlier investors, upwards $1 billion apparently went to fund the company’s military adventures in Myanmar and the rest to fund the chairman’s lavish lifestyle.
The company’s leader was perhaps appropriately named Ding Ning, and according to today’s Wall Street Journal,
…….. prosecutors said that Ezubo didn’t invest the money it collected, but rather used it to pay down earlier debt—and to fund lavish lifestyles for Yucheng’s Mr. Ding and several female executives. Mr. Ding allegedly gave one favored colleague a 130 million yuan ($19.7 million) villa in Singapore, a pink diamond worth 12 million yuan, luxury cars and 550 million yuan in cash.
Xinhua said Ezubo employees sought to conceal evidence as prosecutors closed in, at one point burying more than 1,200 accounting books in 80 plastic bags six meters underground in the outskirts of Hefei, the capital of China’s eastern province of Anhui.
Charles Ponzi himself might have been impressed, but apparently not its gullible P2P lenders. As one smaller investor told a Caixin reporter,
Yucheng was raising capital through Ezubo at an annual interest rate of 14 percent and lending it out for 6 percent,” he said. The investor said he couldn’t understand how the company could be profitable (!) considering it was paying more to attract money than it was collecting in interest on loans.
No, Ezubao wasn’t a one-off outlier. It reflects the sum and substance of the craziest credit and construction boom in human history. As I noted last week:
China’s construction infrastructure, for example, is grotesquely overbuilt—— from cement kilns, to construction equipment manufacturers and distributors, to sand and gravel movers, to construction site vendors of every stripe. For crying out loud, in three recent year China used more cement than did the United States during the entire 20th century!
That is not indicative of a just a giddy boom; its evidence of a system that has gone mad digging, hauling, staging and constructing because there was unlimited credit available to finance the outpouring of China’s runaway construction machine.
Or as Jim Kunstler put it this morning,
When so many loans end up networked as collateral in some kind of bet against previous bets against other previous bets, you can be sure that cascading contagion will follow. And so that is exactly what’s happening as China’s rocket ride into Modernity falls back to earth. Like most historical fiascos, it seemed like a good idea at the time: take a nation of about a billion people living in the equivalent of the Twelfth Century, introduce the magic of money printing, spend a gazillion of it on CAT and Kubota earth-moving machines, build the biggest cement industry the world has ever seen, purchase whole factory set-ups, and flood the rest of the world with stuff. Then the trouble starts when you try to defeat the business cycles associated with over-production and saturated markets.
Accordingly, China has become such a den of speculative madness that one giant scam after another literally springs up over night. During about 60 trading days between March and mid-June of 2015, for instance, China’s stock market soared by $4 trillion and margin loans and other speculative capital poured into its 379 million trading accounts literally like lemmings surging toward the sea.
Most of that $4 trillion disappeared in less than 20 trading days through the June/early July crash last year. And not withstanding the subsequent massive stock buying by the authorities and the police state dragnet thrown up against stock sellers, more than $8 trillion has now completely evaporated after January’s wipeout on the Shanghai market.
The P2P lending story is the same. As investors sought alternatives to the sagging real-estate market and volatile stocks, they poured into online peer-to-peer lending platforms with alacrity.
According to the WSJ, there were 2,600 platforms operating at the end of 2015 compared to only 800 twenty-four months earlier. More significantly, the outstanding volume of loans soared from $5 billion to $67 billion during the same period.
That’s right. Another 14X eruption in no time flat——so not surprisingly P2P lending has become one steaming pile of financial crap:
Failed P2P platforms have become so common that the industry data provider Wangdaizhijia Co. keeps a data sheet called “problematic platforms”—a list that by the end of last year had grown to 1,263 platforms from 104 at the start of 2014. Analysts say most are cases of “runaway bosses,” in which senior executives flee as financial problems rise at their firms.
Nor is this the only scam that came to light over the weekend with respect to the Red Ponzi. It turns out that a certain kind of shadow banking system instrument called Directional Asset Management Plans (DAMPs) or Trust Beneficiary Rights (TBRs) have soared from $300 billion in 2012 to $1.8 trillion at present.
Yes, this is another 8X eruption in record time, but it doesn’t take much investigation to see what is going on. Bad loans are literally being vacuumed off bank balance sheets into phony SIV-like entities of Citigroup circa 2007 vintage, and then carried not as loans but “investment receivables”.
And then, presto, the challenges of NPLs, capital support and bad debt charges to the income statements disappear entirely. As explained by one journalistic account,
To provide a buffer against tough times, banks are required to set aside capital against their credit assets – the riskier the asset, the more capital must be set aside, earning them nothing.
Loans typically carry a 100 percent risk weighting, but these investment products often carry a quarter of that, so banks can keep less money in reserve and lend more.
Banks must also make provision of at least 2.5 percent for their loan books as a prudent estimate of potential defaults, while provisions for these products ranged between just 0.02 and 0.35 percent of the capital value at the main Chinese banks at the end of June, Moody’s Investors Service said in a note last month.
At China’s mid-tier lender Industrial Bank Co, for example, the volume of investment receivables doubled over the first nine months of 2015 to 1.76 trillion yuan ($267 billion).
This is equivalent to its entire loan book – and to the total assets in the Philippine banking system, filings showed.
Industrial Bank declined to comment for this story.
Needless to say, there is an endless amount of financial madness where Ezubao, DAMPs and TBRs came from. Yet China is only the tip of the iceberg. If China’s buccaneers and gamblers are slightly more crude, what they are doing is essentially no different than the outpouring of OTC structured finance deals manufactured day in and day out by Goldman Sachs and the rest of the world’s financial market banksters.
And they don’t even compare to the financial scam that is at the very heart of present day central banking.
No one with a passing acquaintance with history and logic could believe that any Ponzi can be sustained for very long; nor is it possible to believe that massive debt monetization via printing press credit and a sustained regime of negative real, and now nominal, interest rates will not eventually end in catastrophe—–most especially in a world where governments positively cannot stop accruing unrepayable and soon unserviceable debt.
Yet after last Friday’s lunatic move to negative interest rates by the BOJ, the Japanese 10-year bond is now trading at just 6 basis points; and it will be in negative territory along with all of the government’s shorter maturities any day now. So why would Mr. Ding Ning not have a go at the blatant Ponzi reflected in Ezubao?
Japan’s work force and population is disappearing into a colossal demographic bust; its fiscal deficit is still upwards of 40% of its annual budget outlays; and its national debt is off the charts. So as its retirees liquidate their savings at an accelerating rate, Japan will desperately need to borrow from the rest of the world to support its old age colony.
What it has elected to do, however, is trash its currency and ensure that in a few short years its monetary system will collapse. There can be no other result because negative interest rates will cause capital to flee, even as its massive bond purchase programs swallows up most of the public debt, along with an increasing quotient of corporate bonds and even ETFs and stock.
In a word, the utter fools running Japan Inc. have become so befuddled by Keynesian groupthink that they are self-inflicting a monetary Hiroshima on their entire economy and society.
Likewise, the madness of NIRP is probably no longer containable since it already infects the eurozone, Sweden, Switzerland, Denmark, Japan——-and, after last night’s shocking trade report for January, South Korea can’t be far behind. Its exports are now down 18.5% year over year, and have plunged to levels not seen since the bottom of the Great Recession.
Literally speaking, world trade is being asphyxiated by the deflationary burden of the $225 trillion credit bubble created by the Fed and its fellow-traveling convoy of global central banks over the last two decades. And now they are aggressively making matters worse by doubling down on a monumentally failed experiment in crank economics.
Already they have driven nearly $6 trillion of sovereign debt below the zero bound. Even a decade ago every student of economics 101 knew that is a recipe for calamity.
Yet now just a few dozen monetary apparatchiks in the world’s major central banks and their shills in the world’s financial casinos are driving the system straight toward the monetary dark side.
What will be uncovered when it finally blows will cause the depredations of Charles Ponzi and Mr. Ding Ning to be reduced to mere footnotes in the annals of monetary infamy.
end
This is a biggy!! Japan cancels its fixed 10 yr bond auctions due to sub zero rates. The variable rate is still auctionable and yesterday the yield came in at .078%. Now Japan has a problem: where are they going to find bonds to monetize? No question that they will purchase USA bonds in size.
(zero hedge)
Behold Unintended Consequences: Japan Cancels 10Y Auction For First Time Ever Due To Sub-Zero Rates
Dear Bank of Japan, how do you spell unintended consequences:
- PLANNED MARCH SALE OF 10-YEAR JAPANESE GOVERNMENT BONDS THROUGH BANKS TO BE CANCELED AMID EXPECTED BELOW-ZERO YIELDS – NIKKEI
- JAPAN’S MINISTRY OF FINANCE IS EXPECTED TO ANNOUNCE WEDNESDAY THE FIRST-EVER DECISION TO CALL OFF SALES OF 10-YEAR JGBS- NIKKEI
Here is the full Nikkei report on this absolute stunner of a development:
The planned March sale of 10-year Japanese government bonds through banks to retail investors, municipalities and others will be canceled amid expected below-zero yields following the Bank of Japan’s recent move to adopt negative interest rates.
The Ministry of Finance is expected to announce Wednesday the first-ever decision to call off sales of 10-year JGBs.
The JGBs in question are sold through Japan Post Bank and regional banks in 50,000 yen ($415) units. The holder can cash out this new type of bond ahead of maturity. With the ministry already having suspended sales of two- and five-year instruments, all sales will end. But variable-rate 10-year JGBs for retail investors will still be offered.
Winning bids at the ministry’s auction of 10-year JGBs on Tuesday translated to a record-low average yield of 0.078%. As of Monday, nearly 70% of JGBs on the market already had negative yields, according to the Japan Securities Dealers Association.
Corporations and municipalities have started delaying their own issuances. Daiwa Securities Group has dropped plans to set conditions later this week for the issuance of seven- and 10-year straight bonds this month. The brokerage decided to take a fresh look at JGB yields and investor demand and said it has not decided when to proceed.
The Nagoya Expressway Public Corp., which had planned to float bonds later this week, has postponed the setting of conditions to next week.
Some have gone ahead with plans. Osaka Prefecture issued Monday two-year bonds with a coupon rate of 0.001%. A prefectural official said this was effectively the minimum interest rate, since lower bids were not accepted.
As a reminder, Japan can’t monetize more debt – the only thing that is keeping its yields from spontaneously exploding – unless it can concurrently issue more debt. After all the only reason the BOJ did NIRP is because it already faced a limit on how many bonds it can monetize.
So what next: a complete shutdown of Japan’s debt-funding machinery, which the country with the 250% debt/GDP is entirely reliant upon?
Oops.
“Wait, what’s that, policy failure less than 3 days after I announced NIRP? Unpossible.”
So… what does the most indebted country in the world do now? Treasurys, of course, are delighted: if Japan can’t buy Japanese debt, it will buy US paper and will do so in size.
And the real question: how is it even possible that Japan can do this without anticipating that its 10Y yields would promptly go sub zero and thus clog up its bond issuance machinery, unless that outcome was precisely the intended one?
EUROPEAN AFFAIRS
This morning European bank stocks are plunging. Since NIRP they are down 40%. NIRP destroys bank profits !
(courtesy zero hedge)
European Bank Stocks Plunge To Cycle Lows – What NIRP Has Wrought
Coming to Japanese bank stocks soon…
European bank stocks are down almost 40% from the day Draghi unleashed NIRP in Europe. Today’s plunge takes out recent lows, pushing prices back to almost “whatever it takes” lows.
Austria To Pay Migrants €500 To Go Back Where They Came From
Late last month, we noted that Austrian Foreign Minister Sebastian Kurz was set to cut social benefits for refugees who failed to attend “special integration training courses.”
Austria, like Germany and multiple other countries in the Schengen zone, is struggling to cope with the influx of asylum seekers fleeing the war-torn Mid-East. Of particular concern is the “integration” process whereby those hailing from “different cultures” are having a decidedly difficult time blending into polite Western society.
Austria has sought to ameliorate the problem by providing helpful flyers featuring cartoons that depict acceptable and unacceptable behavior and by offering classes designed to teach migrants “laws and social norms.”
Still, policymakers are skeptical. “Let’s not delude ourselves,” Kurz said in January. “We have an intensive long lasting integration process ahead of us.”
That “intensive, long lasting process” will be mitigated by a plan to deport some 50,000 refugees. “Last year Austria had 90,000 asylum applications,” Kurz told Aargauer Zeitung. “This number is too high for a small country, and measured in terms of population, it is the second highest in Europe after Sweden.”
Yes, “the second highest after Sweden” – and we all know how things are going in Sweden.
“We have reached the limit of feasibility,” Kurz explained, in an interview with APA. “I think 50,000 is realistic [in terms of a number to deport].”
As a reminder, Austria has already suspended Schengen, so the deportation announcement doesn’t exactly come as a surprise, especially in light of similar announcements from Sweden and Finland.
What was surprising (not to mention sadly amusing) is Austria’s plan to boost voluntary repatriations. According to a summary of an agreement between the interior, defense and integration ministries published on Sunday, the country will now pay migrants €500 to leave. “Now the government has decided to carry out at least 50,000 deportations over the next four years,” Reuters reports. “It will also offer up to 500 euros ($542) to migrants whose asylum applications have been turned down if they agree to be deported.”
“We are already among the countries with the most deportations,” said Interior Minister Johanna Mikl-Leitner. “But we will increase the rate further.”
As for how the deportations will be carried out, Austria will reportedly load migrants up on C-130 Hercules military aircraft and drop them off in their home countries. Hopefully after landing.
Kurz also says Austria will place an upper limit on the number of asylum seekers it accepts. The cap will amount to no more than 1.5% of the population. “Anything else would overwhelm our country,” Kurz says.
Meanwhile, Angela Merkel is proposing a modified Marshall Plan in an attempt to cope with the problem. “German Chancellor Angela Merkel seeks to raise money for refugee camps in Syria’s neighboring states to add jobs in strategy similar to the Marshall Plan that helped rebuild Germany after World War II,” Bloomberg reports, citing Handelsblatt. “Refugees would get cash for work in camps.”
Countries bordering Syria “like the plan,” Handelsblatt says.
Clearly, the desperation is kicking in. Even if viable, Merkel’s idea will take months (at best) to implement and Austria’s plan to give migrants €500 to take a voluntary C-130 trip back where they came from reeks of desperation.
There was no immediate word on whether refugees could negotiate for larger sums in exchange for an agreement to go back home.
end
The stock Ferrari on the Milan Stock exchange crashes today down 40%:
(courtesy zero hedge)
Ferrari Crashes
Another “no brainer” bites the dust. Ferrari is halted limit down in Milan trading and is crashing in US trading – now down over 40% from its “successful” IPO day highs…
Carnage…
Or Carnage…
- *FERRARI SUSPENDED IN MILAN LIMIT DOWN
Blame The Chinese –
- *FERRARI 2015 CHINA SALES DOWN 22%, JAPAN UP 33%
end
GLOBAL ISSUES
Coming to a store near you….!!!!
(courtesy zero hedge/Jim Reid/Deutsche bank)
Paying A Corporation To “Buy” Its Debt? It’s Coming Soon, Jim Reid Warns
As a result of the rush to global NIRP, which now sees central banks and their sovereigns accounting for over 25% of global GDP, amounting to around $6 trillion in government bonds, trading with negative yields, a question has emerged: when will corporate bonds follow this govvie juggernaut and how soon until investors pay not government but companies to borrow?
That is the focal piece in today’s note by our favorite DB credit strategist Jim Reid who muses as follows:
There is starting to be chatter as to what the incentive is to buy Euro corporate bonds at a negative yield if it ever happens. It may well be tested very soon as one consequence of the recent ECB/BoJ hint/action has been the strong rally in global fixed income.
A scatter of the European non-financial corporate yield universe (in today’s pdf) shows we have so far resisted such a move (bar 3 bonds with a bid yield a basis point or two sub-zero). There is a perception that investors won’t buy corporates with a negative yield and therefore a deeper rally in Government bonds would be a spread widener. Whilst this makes some sense the evidence of spread behavior as yields have gone lower and lower doesn’t necessarily support this. 1-3yr and 3-5yr Euro AA spreads have been range bound in the last 6 months – a period that 2 and 4 year Bund yields have rallied around 30bp and 40bps respectively and deep into negative territory. So one might have expected some widening if the zero bound was a hard floor for corporates.
Our central view is that zero might be a temporary resistance point if Government yields rally further but that at some point the dam will break and corporates will trade on a spread basis and go sub-zero.
Obviously this all depends on whether a further deeper rally occurs. At the moment 2 year bunds are at -0.47% and 1-3yr AA spreads at +58bps so we’re getting closer to testing the theory, especially for the tighter bonds in the index.
Is Jim Reid right, and will NIRP soon result in paradoxical outcome of companies paying down debt by issuing debt? The answer is a resounding yes, especially if the ECB cuts its deposit rate lower to -0.4% as the market now largely expects, which in turn forces Japan to cut to -0.2%, forces China to devalue more, and so on, as the next deflationary wave is unleashed in the global race to debase.
Surging Bank Risk Screams The Rebound In Stocks Is Over
BMO’s Mark Steele is a man of few words, preferring pictures to make his points… but they matter:
Let’s just keep it simple. When bank risk breaks to the upside, it’s bad for equities…
European bank risk is breaking out…
which has arrested the pullback in U.S. bank risk – which is now soaring…
And that bodes ill for global stocks…
Stocks have had a nice counter-trend rebound on the back of a counter-trend rebound (from deeply oversold) in the price of oil. That rebound is also fading, with WTI eyeing the $30 mark once again.
We believe portfolios should be structured towards what the market rewards in this environment:
- As our relative strength breadth heat map points out, that appears to be Utilities and Staples, with a great divide between those sectors and anything else.
- Equities aside, treasuries look great.
Something systemic this way comes.
end
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/TUESDAY morning 7:00 am
Euro/USA 1.0916 up .0020 (Draghi’s jawboning still not working)
USA/JAPAN YEN 120.77 down 0.083 (Abe’s new negative interest rate (NIRP)
GBP/USA 1.4407 down .0015
USA/CAN 1.3990 up .0036
Early this TUESDAY morning in Europe, the Euro rose by 20 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: 6.5793 / (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 a slight southbound trajectory as IT settled UP in Japan again by 3 basis points and trading now well ABOVE that all important 120 level to 120.77 yen to the dollar.
The pound was down this morning by 15 basis point as it now trades just above the 1.44 level at 1.4407.
The Canadian dollar is now trading down 36 in basis points to 1.3990 to the dollar.
Last night, Asian bourses mostly in the red with Shanghai UP 2.29% . 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 TUESDAY morning: closed down 122.47 or 0.71%
Trading from Europe and Asia:
1. Europe stocks all in the RED
2/ Asian bourses mostly in the red/ Chinese bourses: Hang Sang RED (massive bubble forming) ,Shanghai in the GREEN by 2,29% (massive bubble bursting), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the RED /
Gold very early morning trading: $1125.00
silver:$14.27
Early TUESDAY morning USA 10 year bond yield: 1.93% !!! down 2 in basis points from last night in basis points from MONDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.74 down 2 in basis points from MONDAY night. ( still policy error)
USA dollar index early TUESDAY morning: 98.92 down 12 cents from MONDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers TUESDAY MORNING
OIL MARKETS
WTI Crude Crashes Back Below $30
What goes up (on short-squeeze-driven hope and rumors), must come down (on supply, demand reality and denials)…
After a 26% spike off the late-January lows, WTI Crude is now down 14% from last Thursday’s highs…
Turns out – surprise surprise – that most OPEC members are against an emergency meeting!
Exxon Halts Stock Buybacks As Oil Production Surges
It may not be quite as dramatic as halting a dividend for already profusely sweating investors, but when it comes to the impact on the stock price, buybacks traditionally pack far more punch. Or, as the case may be with what until not that long ago was the world’s biggest company by market cap, and is today set to be eclipsed by Facebook and slide into 5th spot after GOOGL, AAPL, MSFT and FB, no longer pack any punch because as XOM announced in its just released Q4 earnings which beat estimates of $0.64 by 3 cents, starting in Q1, Exxon will no longer repurchase stock simply to prop up its stock price.
From the Q4 earnings release:
During the fourth quarter of 2015, ExxonMobil purchased 9.4 million shares of its common stock for the treasury at a gross cost of $754 million. These purchases included $500 million to reduce the number of shares outstanding, with the balance used to acquire shares to offset dilution in conjunction with the company’s benefit plans and programs. In the first quarter of 2016, the corporation will continue to acquire shares to offset dilution in conjunction with its benefit plans and programs, but does not plan on making purchases to reduce shares outstanding.
What is ironic is that with the stock price trading at $74 in the pre-market, this means that the past 7 years of stock buybacks have effectively been a wash as far as management is concerned, due to the blended average repurchase price of $76.91, roughly 4% above the current stock price.
But while the suspension of buybacks is something shareholders will have to stew over, there was more bad news in the Exxon report, this time for Saudi Arabia, because as the chart below shows, not only did the energy giant boost oil production sequentially by 150,000 bpd…
… annual oil production has soared to the highest since 2010.
Hardly validation that the Saudi gambit to crush the marginal oil producer is working.
“Prospects For Social Disintegration Are Huge” As Wave Of Oil Refugees Looms
Authored by Michael Meyer, originally posted at Project Syndicate,
The idea that oil wealth can be a curse is an old one – and it should need no explaining. Every few decades, energy prices rise to the heavens, kicking off a scramble for new sources of oil. Then supply eventually outpaces demand, and prices suddenly crash to Earth. The harder and more abrupt the fall, the greater the social and geopolitical impact.
The last great oil bust occurred in the 1980s – and it changed the world. As a young man working in the Texas oil patch in the spring of 1980, I watched prices for the US benchmark crude rise as high as $45 a barrel – $138 in today’s dollars. By 1988, oil was selling for less than $9 a barrel, having lost half its value in 1986 alone.
Drivers benefited as gasoline prices plummeted. Elsewhere, however, the effects were catastrophic – nowhere more so than in the Soviet Union, whose economy was heavily dependent on petroleum exports. The country’s growth rate fell to a third of its level in the 1970s. As the Soviet Union weakened, social unrest grew, culminating in the 1989 fall of the Berlin Wall and the collapse of communism throughout Central and Eastern Europe. Two years later, the Soviet Union itself was no more.
Similarly, today’s plunging oil prices will benefit a few. Motorists, once again, will be happy; but the pain will be earth-shaking for many others. Never mind the inevitable turmoil in global financial markets or the collapse of shale-oil production in the United States and what it implies for energy independence. The real risk lies in countries that are heavily dependent on oil. As in the old Soviet Union, the prospects for social disintegration are huge.
Sub-Saharan Africa will certainly be one epicenter of the oil crunch. Nigeria, its largest economy, could be knocked to its knees. Oil production is stalling, and unemployment is expected to skyrocket. Already, investors are rethinking billions of dollars in financial commitments. President Muhammadu Buhari, elected in March 2015, has promised to stamp out corruption, rein in the free-spending elite, and expand public services to the very poor, a massive proportion of the country’s population. That now looks impossible.
As recently as a year ago, Angola, Africa’s second largest oil producer, was the darling of global investors. The expatriate workers staffing Luanda’s office towers and occupying its fancy residential neighborhoods complained that it was the most expensive city in the world.Today, Angola’s economy is grinding to a halt. Construction companies cannot pay their workers. The cash-strapped government is slashing the subsidies that large numbers of Angolans depend on, fueling popular anger and a sense that the petro-boom enriched only the elite, leaving everyone else worse off. As young people call for political change from a president who has been in power since 1979, the government has launched a crackdown on dissent.
On the other side of the continent, Kenya and Uganda are watching their hopes of becoming oil exporters evaporate. As long as prices remain low, new discoveries will stay in the ground. And yet the money borrowed for infrastructure investment still must be repaid – even if the oil revenues earmarked for that purpose never materialize. Funding for social programs in both countries is already stretched. Ordinary people are already angry at a kleptocratic elite that siphons off public money. What will happen when, in a few years, a huge and growing chunk of the national budget must be dedicated to paying foreign debt instead of funding education or health care?
The view from North Africa is equally bleak. Two years ago, Egypt believed that major discoveries of offshore natural gas would defuse its dangerous youth bomb, the powder keg that fueled the Arab Spring in 2011. No longer. And to make matters worse, Saudi Arabia, which for years has funneled money to the Egyptian government, is facing its own economic jitters. Today, the Kingdom is contemplating what was once unthinkable: cutting Egypt off.
Meanwhile, next door, Libya is primed to explode. A half-decade of civil war has left an impoverished population fighting over the country’s dwindling oil revenues. Food and medicine are in short supply as warlords struggle for the remnants of Libya’s national wealth.
These countries are not only dependent on oil exports; they also rely heavily on imports. As revenues dry up and exchange rates plunge, the cost of living will skyrocket, exacerbating social and political tensions.
Europe is already struggling to accommodate refugees from the Middle East and Afghanistan. Nigeria, Egypt, Angola, and Kenya are among Africa’s most populated countries. Imagine what would happen if they imploded and their disenfranchised, angry, and impoverished residents all started moving north.
The biggest USA energy companies have all been downgraded by and S and P
(courtesy zero hedge)
Crude Chaotic After API Reports Bigger Than Expected Inventory Build
Against expectations of a 3.75mm expectation (and following last week’s massive build), API reports that crude inventories saw a very slightly bigger than expected 3.8mm build. WTI crude had plunged into the data and went entirely chaotic as it hit (swining in a 50c range) before settling lower. The biggest reason for the adverse reaction is not so much the headline build as the jump in distillates: gasoline inventories surged 6.6MM in the past week, after dropping in the previous week, on expectations of a far smaller 1.7MM gasoline build, once again hinting that the problem is as much demand as it is supply.
Coming into this week’s print, gasoline builds continue to stymie crude (which saw a huge build) but Cushing saw a draw…
And then API reported a slightly bigger than expected 4mm build…
Oil’s reaction was chaotic…
And finally, don’t forget that U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression.
Charts: Bloomberg
Portuguese 10 year bond yield: 2.98% up 5 in basis points from MONDAY
New York equity performances plus other indicators for today:
Oilpocalypse Wow! Stocks, Bond Yields Plunge As Bank Risk Soars
What The Bank of Japan gives, The Japanese Finance Ministry taketh away…
Artist’s impression of the last few days in crude, JPY, and US stocks…
Oil closed under $30 after Russian productiuon and OPEC denials… From bull market to correction in 2 days – This was the worst 2-day drop in oil since January 2009…
And today’s other major driver – exploding US bank risk…
USDJPY started to snap today as JPY and NKY erased half their post-BOJ NIRP shifts…
But everything was awesome yesterday? US equities erased all the post-BOJ NIRP gains…
The worst performer today was Trannies and Small Caps as even Nasdaq was hammered despite GOOG earnings hope…
Since The Fed hiked rates, Bonds & Bullion have soared as Crude and Stocks have plunged…
Why F.A.N.G performance diverging? FB and GOOG both very strong sets of #s – and both are ad rev plays unlike AMZN and NFLX (both of which are underperforming).. but in the end the selling pressure was universal in high beta tech.
As YHOO flounders around desperately…
Sectors breakdown…
- E&P weakness– APC’s Al Walker on his CC seemed to be complaining, for lack of a better term, about how Moody’s and how the other rating agencies may change the methods by which they rate E&P companies. Causing some concern today along with poor S&P 500 and WTI Mar ’16 technicals – Sisto, sector specialist
Energy credit was a bloodbath…
- Media underperforming – GOOG and FB competitors for the media ad revenues, some think the strong GOOG #s show them taking money from the media plays
- Transports weak DAL prasm # inline, F and GM #s show Car sales continue to be very weak
- Healthcare lower; More neg press on drug price hikes “Shkreli Not Alone in Drug Price Spikes as Skin Gel Soars 1,860%” http://washpost.bloomberg.com …VRX hit on speculation of circulation of House of Rep committee documents that mention the company specifically with regards to drug prices -ttn
- Financials hit as US 10Y falls to multi month lows
It’s not over yet…
- Utes outperformance is impressive. The group has now outperformed the S&P by 14.5% since the day of the fed hike. Flows continue to be driven by LO buyers, but todays action feels XLU driven as i’m quiet and haven’t seen any meaningful prints go up
Vroom…
VIX started to pick up… but remains anything but panic land. It would appear that equity exposure is being reduced dfirectly rather than synthetically through a hedge…
Many traders have noticed that volatility in the last hour of trading has increased significantly in recent weeks.
CS notes that while true, we find that the increase is not isolated to the end of the day. Rather, the effect stems from an increase in overall intraday volatility levels throughout the day. The ratio of the high-low move in the last hour compared to the whole day is actually not far from the norm. In January, the price swing in the last hour was about 40% as big as the whole day’s swing.
Treasury yields collapsed today… 10Y at 1.85% is the lowest since April 2015…
Today’s yield plunge was the biggest drop since June 2015
The yield curve has collapsed… 2s10s is flattest since Dec 2007!!
The USDollar Index extended its losses today… very notable strength in JPY today as commodity currencies gave some recent gains back…
Gold & Silver were flat today as copper and crude flailed…
The crude oil roller coaster continues… with increasing volatility…
Charts: Bloomberg
USA 10 yr treasuries now down to 1.90%
( ZERO HEDGE)
10Y Treasury Yield Crashes To 10-Month Lows, Down 40bps Since Fed Rate-Hike
Since The Fed hiked rates mid-December, 10Y Treasury yields have plunged around 40bps with today’s 6bps drop taking out 1.9015% Black Monday lows, all the way back to March 2015 lows.
ISM New York Tumbles Most Since August As Revenues Crash
While Chicago’s business outlook managed a miraculous bounce in January, New York did not. ISM New York printed 54.6, plunging most since August from December’s 62.0 level. The extremely noisy time series continues to swing, this time lower, as the underlying components deteriorate with Revenues collapsing to at least 3 year lows.
Headline data tumbled…
But Revenues crashed to the lowest since at least 2013…
Retail Apocalypse: 2016 Brings Empty Shelves And Store Closings All Across America
ubmitted by Michael Snyder via The End of The American Dream blog,
Major retailers in the United States are shutting down hundreds of stores, and shoppers are reporting alarmingly bare shelves in many retail locations that are still open all over the country. It appears that the retail apocalypse that made so many headlines in 2015 has gone to an entirely new level as we enter 2016.
As economic activity slows down and Internet retailers capture more of the market, brick and mortar retailers are cutting their losses. This is especially true in areas that are on the lower portion of the income scale. In impoverished urban centers all over the nation, it is not uncommon to find entire malls that have now been completely abandoned. It has been estimated that there is about a billion square feet of retail space sitting empty in this country, and this crisis is only going to get worse as the retail apocalypse accelerates.
We always get a wave of store closings after the holiday shopping season, but this year has been particularly active. The following are just a few of the big retailers that have already made major announcements…
-Wal-Mart is closing 269 stores, including 154 inside the United States.
-K-Mart is closing down more than two dozen stores over the next several months.
-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.
-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.
-The Gap is in the process of closing 175 stores in North America.
-Aeropostale is in the process of closing 84 stores all across America.
-Finish Line has announced that 150 stores will be shutting down over the next few years.
-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.
But these store closings are only part of the story.
All over the country, shoppers are noticing bare shelves and alarmingly low inventory levels. This is happening even at the largest and most prominent retailers.
I want to share with you an excerpt from a recent article by Jeremiah Johnson. The anecdotes that he shares definitely set off alarm bells with me. Read them for yourself and see what you think…
*****
I came across two excellent comments upon Steve Quayle’s website that bear reading, as these are two people with experience in retail marketing, inventory, ordering, and purchases. Take a look at these:
#1 (From DJ, January 24, 2016)
“Steve-
[Regarding the] alerts about the current state of the RR industry. This is in line with what I’ve been noticing as I visited our local/regional grocery store, Walmart, and Target this week in WI. I worked in big box retail for 20 years specializing in Inventory Management. These stores are all using computerized inventory management systems that monitor and automatically replenish inventory when levels/shelf stock get low. This prevents “out of stocks” and lost sales. These companies rely on the ability to replenish inventory quickly from regional warehouses.
As I shopped this week and looked at inventory levels I was shocked. There were numerous (above and beyond acceptable levels) out of stocks across category lines at all three retailers.
And even where inventory was on the shelf, the overall levels were noticeably reduced. Based on my experience, working for two of these three organizations in store management, they have drastically/intentionally reduced their inventory levels. This is either due to financial stresses/poor sales effecting their ability to acquire new inventory, or it could be the result of what was mentioned earlier regarding the transporting of goods to these regional warehouses. Either way this doesn’t bode well for the what’s to come. Stock up now while you can!”
#2 (From a Commenter following up #1 who didn’t provide a name, January 26, 2016)
“I’d like to tailgate on the SQ Alert “based on my experience…” regarding stock levels in big box stores. This weekend we were in two such stores, each in fairly isolated communities which are easily the communities’ best source for acquiring grocery items in quantity.
I myself worked in retail (meat) for thirty years so I know exactly what a well-stocked store looks like, understand the key categories and category drivers, and how shelves are stocked and displays are built to drive sales and profits. I also understand supply chain and distribution methodologies quite well.
Each of the stores we were in were woefully under-stocked. This time of year-the few weeks following the holidays-is usually big business in groceries and low stock levels suggest either poor ordering at the store level, poor purchasing at the distribution level or a purposeful desire to be under-stocked.
Anyone familiar with the retail grocery industry is also familiar with how highly touted “the big box store’s” infrastructure is. They know exactly when demand is high and for what items and in what quantities. It is very unlikely that both stores somehow got “surprised” by unusually high demand. It is reasonable then to imagine that low stock levels in rural areas with few options is a purposed endeavor to assure that both the budget conscious and the folks in more remote areas are not fully able to load up their pantries.
Simply put I believe the major retailer in question is doing their part to limit the ability of rural America to be sufficiently prepared. Nevertheless, we are wise to do our best to keep ahead of the curve. God bless your efforts, Steve.”
*****
Yes, this is just anecdotal evidence, but it lines up perfectly with hard numbers that we have been discussing.
Exports are plummeting all over the globe, and the Baltic Dry Index just plunged to another new all-time record low. The amount of stuff being shipped around by air, truck and rail inside this country has been dropping significantly, and this tells us that real economic activity is really slowing down.
If you currently work in the retail industry, your job is not secure, and you may want to start evaluating your options.
We have entered the initial phases of a major economic downturn, and it is going to be especially cruel to those on the low end of the income spectrum. Do what you can to get preparednow, because the economy is not going to be getting better any time soon.
Negative Interest Rates Already In Fed’s Official Scenario
Over the past year, and certainly in the aftermath of the BOJ’s both perplexing and stunning announcement (as it revealed the central banks’ level of sheer desperation), we have warned (most recently “Negative Rates In The U.S. Are Next: Here’s Why In One Chart“) that next in line for negative rates is the Fed itself, whether Janet Yellen wants it or not. Today, courtesy of Wolf Richter, we find that this is precisely what is already in the small print of the Fed’s future stress test scenarios, and specifically the “severely adverse scenario” where we read that:
The severely adverse scenario is characterized by a severe global recession,accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.
As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative ½ percent by mid-2016 and remain at that level through the end of the scenario.
And so the strawman has been laid. The only missing is the admission of the several global recession, although with global GDP plunging over 5% in USD terms, we wonder just what else those who make the official determination are waiting for.
Finally, we disagree with the Fed that QE4 is not on the table: it most certainly will be once stock markets plunge by 50% as the “severely adverse scenario” envisions, and once NIRP fails to boost economic activity, as it has failed previously everywhere else it has been tried, the Fed will promtply proceed with what has worked before, if only to make the true situation that much worse.
Until then, we sit back and wait.
Here is Wolf Richter with Negative Interest Rates Already in Fed’s Official Scenario
The Germans, with Teutonic precision, call them “Punishment Interest.” Negative interest rates are spreading from the ECB’s negative deposit rate across the bond market and to some savings accounts in the Eurozone. The idea is to enrich existing bond holders and flog savers until their mood improves. Stock prices are allowed to get crushed by reality.
Negative interest rates destroy one of the most essential mechanisms in an economy: the pricing of risk. Investors end up taking huge risks with no reward. Many of them will get cleaned out down the road.
In Switzerland, punishment interest already causes “perverse unpredictable effects,” as mortgage rates have started to soar. It’s wreaking havoc in Denmark and Sweden. Bank of Canada Governor Stephen Poloz let the idea float that he’d unleash punishment interest to destroy the Canadian dollar. The Bank of Japan announced Friday morning – timed for maximum market effect – that it too would inflict negative interest rates on its subjects.
In the US, Ben Bernanke has been out there preaching to the choir about them. Over-indebted corporate America, except for the banks, would love this absurdity; it would allow them to actually make money off their mountain of debt.
“Potentially anything – including negative interest rates – would be on the table,” Fed Chair Janet Yellen told a House of Representatives committee in early November.
Fed Vice Chair Stanley Fischer has been publicly obsessing about them for a while. Monday, during the Q&A after his speech at the Council on Foreign Relations, he said that negative interest rates are “working more than I can say I expected in 2012.”
It seems to be just talk. But negative interest rates are already baked into the official scenario for 2016. It’s in the Board of Governors’ new report on the three scenarios to be used in 2016 for the annual stress test that large banks are required to undergo under the Dodd-Frank Act and the Capital Plan Rule.
The scenarios – baseline, adverse, and severely adverse – start in the first quarter 2016 and also include economic factors in the Eurozone, the UK, Japan, and the weighted aggregate of China, India, South Korea, Hong Kong, and Taiwan.
In the “severely adverse scenario,” things get interesting.
But don’t worry, the Fed emphasizes that “this is a hypothetical scenario” for the purpose of a bank stress test and “does not represent a forecast of the Federal Reserve”:
The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.
GDP begins to tank in Q1 2016 and by Q1 2017 is 6.25% below pre-recession peak. The unemployment rate hits 10% by mid-2017. Headline CPI rises from an annual rate of 0.25% in Q1 2016 to 1.25% by the end of the recession. Asset prices “drop sharply,” with stocks down “approximately 50%” through the end of this year, accompanied by a surge in volatility, “which approaches the levels attained in 2008.” Through Q2 2018, home prices plunge 25%, commercial real estate prices 30%.
“Corporate financial conditions are stressed severely, reflecting mounting credit losses, heightened investor risk aversion, and strained market liquidity conditions.” Bond spreads blow out, with the yield spread between investment-grade corporates and Treasuries jumping to 5.75% by the end of 2016.
So things are going to get ugly. And here is what the Fed is going to do next:
As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative ½ percent by mid-2016 and remain at that level through the end of the scenario.
Short-term Treasury rates can only fall to a negative 0.5% if the fed funds rate is at that level.
And the whole yield curve comes down, with the 10-year Treasury yield collapsing to 0.25% by the end of this quarter, but then “rising gradually” all the way to a whopping 0.75% by the end of the recession and to 1.75% by Q1 2019 (it’s 1.93% now).
The international component “features severe recessions” in the Eurozone, the UK, and Japan, and a mild recession in developing Asia, along with a “pronounced decline in consumer prices.”
Due to “flight-to-safety capital flows,” the dollar appreciates against the euro, the pound, and the currencies of developing Asia, but will “depreciate modestly” against the yen, “also in line with flight-to-safety capital flows.”
One of the differences between the severely adverse scenarios for 2015 and 2016? The scenario this year “features a path of negative short-term U.S. Treasury rates.”
Who are the winners? Existing holders of long-term Treasuries who will benefit from “larger gains on the existing portfolio of these securities.”
However, the Fed makes no promises about stocks, having seen the debacle playing out in Europe where stocks have plunged despite negative interest rates. And banks will get hit as “negative short-term rates may be expected to reduce banks’ net interest margins and ultimately, to lower PPNR [pre-provision net revenue].
And there you have it. The Fed already has a “path” to negative interest rates.
But note: not a single word about QE.
If the stock market crashes 50% this year, as the “severely adverse” scenario spells out, all the Fed will do is slash the fed funds rate to a negative 0.5%. And if stocks crash only 25% this year, instead of 50%?
That’s the case in the Fed’s middle scenario, the merely “adverse” scenario. Short-term rates will “remain near zero” it says – maybe slightly below where they’re right now. So no negative interest rates. And no QE either. Stocks can go to heck, the Fed is saying. It’s worried about credits, particularly high-grade credits. Junk bonds and stocks are on their own.
And this concept of switching to negative interest rates and away from QE is even in line with the Bank of Japan’s desperate head fake. Read… QE in Japan Nears End: Daiwa Capital Markets
* * *
Don’t believe it? Here it is, straight from the Fed:
The Numbers Are In: Hedge Funds Furiously Dumped The Rally; Selling Was “Biggest In Nearly Two Years”
As we wrote yesterday when reviewing the latest note from JPM’s Mislav Matejka, according to the JPM strategist not only had the window to buy stocks into the torrid S&P500 rebound closed, but traders should “start fading it within days” as JPM stuck “to the overriding view that one should use any strength as an opportunity to reduce equity allocation.”
Today, when reading the latest report by BofA’s equity and quant strategy team looking at what the “smart money” – institutions, hedge funds and private clients – are doing, we find that JPM’s advice was heeded, and the rally was indeed sold with reckless abandon.
From BofA:
Last week, during which the S&P 500 rallied another 1.8%, BofAML clients were net sellers of US stocks for the first time in five weeks, in the amount of $1.2bn. Net sales were led by hedge fund clients, who had previously been net buyers for the prior five weeks, while private clients and institutional clients were also net sellers. (Institutional clients have alternated between buying and selling in recent weeks, while private clients have been sellers for the last three weeks.)
Perhaps just as notable is that according to BofA, buybacks by corporate clients decelerated last week to their lowest level year-to-date, but on a four-week average basis buybacks are well above last January’s levels.
In other words, just as we suggested yesterday, much of the February buybacks expected by Goldman’s David Kostin to come to the rescue of the market, have been pulled forward into January, leaving far less dry powder available for the month of February.
What was the smart money selling?
Net sales last week were chiefly in large caps, while small caps also saw outflows; clients continued to buy mid-cap. Previously, all three size segments had seen net buying every week of 2016.
Among the details, one sector stands out: recent hedge fund darling, the healthcare sector, is seeing a furious exit by existing holders with sales “the biggest in seven months and the third-largest in our data history” as what worked until now no longer works. Tech was also slammed and sakes were “the largest in fifteen months and the fourth-largest in our data history.”
Net sales last week were led by Tech and Health Care stocks, despite overall 4Q earnings for these sectors coming in better than expected. Health Care—which has been one of the most crowded sectors within the S&P 500—was the worst-performing sector last week, and we’ve noted that revision and surprise trends have been rolling over for this sector. This is the only sector with a multi-week net selling trend, and outflows from Health Care stocks last week were the biggest in seven months and the third-largest in our data history (since ’08), led by hedge funds. Sales of Tech were the largest in fifteen months and the fourth-largest in our data history, led by institutional clients. Energy stocks saw the biggest net buying by our clients last week amid the rally in oil prices; with inflows from all three client groups. This sector has now seen four consecutive weeks of buying by our clients, suggesting increasing conviction that oil has bottomed. Financials stocks also saw net buying for the fifth consecutive week amid the sell-off in this sector, while clients also continued to buy Telecom stocks for the fifth week.
But nobody sold more than the very pinnacle of smart money: hedge fund investors, where “net sales last week by hedge funds were the biggest in nearly two years and the fourth-largest in our data history. This follows near-record levels of net buying by this group in early January.”
One final observation:
“overall for the month of January, clients were net buyers of single stocks, while ETFs saw more muted net buying. This would be the first year in our data history (since ’08) that clients bought single stocks.”
A return to normalcy perhaps?
Finally, while weekly flows tend to be notoriously volatile, the long-term trend across all three investor classes are clear.
A Warning Signal For The Housing Market
PennyMac (PFSI) is a mortgage finance company that describes itself as a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. The stock has been getting crushed and insiders have been dumping shares:
The graph above (click on image to enlarge) shows PFSI vs. the BKX banking index. Other mortgage finance stocks have been getting hammered as well. That steep decline that started on Dec 24 in the graph above was not accompanied by any news triggers. In fact, PFSI signed a new “warehouse finance” credit line with Credit Suisse for $100mm at the end of the year. That should be great news if you are a housing and mortgage finance perma-bull.
When stocks decline steeply with no related news events to set-off the price-drop – and when one of the largest individual holders, Leon Cooperman, is unloading shares – it’s the market’s way of signalling problems not yet recognized by the peanut gallery. PFSI reported its Q3 earnings on November 4 and with a cursory glance they looked to be what the market expected. The stock did not do anything unusual.
The action in PFSI’s stock and in some other related mortgage finance and real estate stocks tells me that the “invisible hand” in the market is signalling a significant downturn coming in both home sales volume and mortgage finance volume. Per the invaluable work of John Williams (Shadowstats.com), when you remove the statistical manipulation and annualization of the existing home sales report for December, it turns out that existing home sales evaluated on an unadjusted monthly basis for the fourth quarter was down 20% from the third quarter. That’s not something that you’ll hear about or read in mainstream media or on venues like Seeking Alpha or Realmoney.com or the Motley Fool or Business Insider.
That is what I believe the market is seeing and is why stocks like PFSI are taking a beating outright and relative to the overall banking sector. Anecdotally, I just got a call from a friend who told me that a house that would have sold for $620k on his block last year was put on the market two weeks ago for $599. The neighbors all thought the price was too low. Two weeks later, today, the price was lowered to $579. I bet that price will be lowered at least once or twice more before it sells. And this is an area that was still seeing bidding wars last summer.
Sometime in the next few weeks I’ll be featuring another mortgage-related stock in my Short Seller’s Journal that still has a LONG way to fall before it gets back to its 2008 great financial crisis, pre-QE price. My picks this week are significantly outperforming the market. SHORT SELLER’S JOURNAL
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