Feb 8/Feb 8/Bourses around the globe collapse/gold and silver skyrocket today/ Deutsche bank seems to have derivative problems/In China 100 billion USA leaves the country/The USA/Yen falters to 115 handle bringing down many yen carry traders/Venezuela to liquidate all of its gold holdings to pay for its debts.

Gold:  $1197.80 up $40.10    (comex closing time)

Silver 15.42 up 65 cents

In the access market 5:15 pm

Gold $1190.95

Silver: $15.35

At the gold comex today, we had a poor delivery day, registering 40 notices for 4000 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 202.62 tonnes for a loss of 100 tonnes over that period.

In silver, the open interest rose fell by a tiny 6 contracts down to 167,557. In ounces, the OI is still represented by .838 billion oz or 120% 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 5,608 contracts to 37,507 contracts as gold was up $0.20 with Friday’s trading.

We had no changes in gold inventory at the GLD / thus the inventory rests tonight at 698.46 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 308.999 million oz.

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

1. Today, we had the open interest in silver fall by 6 contracts down to 167,557 as silver was down 8 cents with respect to Friday’s trading.   The total OI for gold rose by 5,608 contracts to 397,507 contracts as gold was up $0.20 in price from Friday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) Gold trading from NY”

(zero hedge)


iLate  SUNDAY night/ MONDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei up 184.71 or 1.10% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil lost  to 30.04 dollars per barrel for WTI and 33.35 for Brent. Stocks in Europe so far all in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/The big report on USA dollars leaving China amounted to 100 billion USA a little lower than thought. (see commentary on 100 billion USA leaving China))

 ii)What is the big worry for the Chinese government?:  It is most fearful of a revolt by the people!( zero hedge)


i) Seems that our friends over at Deutsche bank are in serious trouble: they cannot stand the constant easing by central banks??????: SOMETHING BIG IS HAPPENING BEHIND THE SCENES!!

( zero hedge)

ii) Wow!! this is interesting:  BAFIN shuts down a Canadian Bank of German origin on grounds of money laundering and Libor malfeasance:

( zero hedge)
iii)  A, Credit default swaps on Deutsche bank and all European banks blow wider this morning( zero hedge/very early in the morning)

iii)  B. Late in the morning:  the bloodbath continues:  bonds crash as does stock markets:

( zero hedge)
iv)Sexual assaults continue unabated: Austrian 10 yr boy sexually assaulted by 20yr old Muslim
( zero hedge)

Looks like the Greeks are going to war with the EU boys over pension reforms
and debts due in June.  Bank stocks are plummeting as are other Greek equities.  The 10 yr Greek bond is also blowing higher in yield/lower in price
( zero hedge)
v) At 12:00 noon our time, Europe closed as Deutsche bank plunged 11% and is at 7 year lows:

(zero hedge)
vi) Your humour story of the day but it is true:

credit default swaps on Deutsche bank rising exponentially/Alpha Bank (Greek bank) falling:
(courtesy zero hedge
vii) At the end of the day, Deutsche bank had to defend itself as to whether it has enough cash. On the balance sheet, they do, the question is off balance sheet!
(courtesy zero hedge)
i)After Venezuela these guys are next! Ukrainian bonds crash after their economy minister resigns over high level corruption:
( zero hedge)
ii)Rhetoric between Iran, Syria and the Saudi/Turks become fierce:
( zero hedge)
iii) John Kerry just threw in the towel as Syrian forces along with Hezbollah surround Aleppo. It looks like their 5 yr battle for control over Syria is over in defeat:
( zero hedge)
iv) We knew this would happen:  Iran states that their oil will be priced in euros.  The huge dagger into the heart of the USA dollar/USA hegemony!
( zero hedge)
i) Early this money the large USA oil/gas operation Chesapeake plummets over 20% as it has hired bankruptcy attorneys:

( zero hedge)


i) Absolute doorknobs:  Venezuela prepares to liquidate all of its remaining gold holdings to pay or debt maturities:

( zero hedge)

Market watch omits Hunsader’s most important work:

(MarketWatch/ GATA

iii) Chris Powell will speak at both Hong Kong and Singapore conferences in April:

( Chris powell/GATA)

iv)Glencore announces a streaming gold deal with Franco Nevada as it tries to deleverage. It’s huge derivative mess could very easily blow up the entire world’s finances:

( London’s Financial Times/GATA)

v)Bill Murphy interviewed by Future Money Trends:


vi)  Bill Holter delivers two extremely important paper tonight entitled:

“You are watching it!”




i)Looks like the boys are getting the procedures ready for negative interest rates and then they will go cashless:

Two commentaries
( zero hedge)
ii) To our stock players (ex gold/silver equities) :  trouble ahead as our quant boys at JPM confirm the tech bubble has burst again!!

( JPM/zero hedge)
iii) All treasury yields plummet.  The 10 yr pushed below 1.80% signalling the huge downfall in world finances.  However it is the 5 yr rate that has everybody worried:

it is now at 1.17%.  What is most amazing is that the short interest at the treasury yield is held by speculators and the commercials are net long the bonds.
trouble ahead…
( zero hedge)
iv)An excellent commentary over the weekend from David Stockman on the phony jobs report on Friday.

( David Stockman/ContraCorner)


Let us head over to the comex:

The total gold comex open interest rose to 397,507  for a gain of 5608 contracts as the price of gold was up $0.20 in price with respect to Friday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order as the drop in gold ounces standing for delivery is contracting due to cash settlements.  We now enter the big active delivery month is February and here the OI fell by 158 contracts down to 2232. We had 5 notices filed on Friday, so we lost 153 contracts or an additional 15,300 oz will not stand for delivery. The next non active delivery month of March saw its OI rise by 102 contracts up to 1508. After March, the active delivery month of April saw it’s OI rise by 2,976 contracts up to 283,433.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 201,127 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair to good at 228,614 contracts. The comex is in backwardation until June. 

Today we had 40 notices filed for 4000 oz.
And now for the wild silver comex results. Silver OI fell by 6 contracts from 167,563 down to 167,557 as  the price of silver was down by 8 cents with respect to Friday’s trading. The next non active delivery month of February saw its OI rose by 3 contracts up to 140.  We had 0 notices filed on yesterday, so we  gained 3 silver contracts or an additional 15,000 oz  will stand in this non active month of February. The next big active contract month is March and here the OI fell by 3,464 contracts down to 101,229.  The volume on the comex today (just comex) came in at 42,421 , which is very good. The confirmed volume yesterday (comex + globex) was excellent at 65,131. Silver is not in backwardation at the comex but is in backwardation in London. 
We had 0 notices filed for nil oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 8/2016

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 6430.000 oz
200 kilobars
Deposits to the Dealer Inventory in oz 5001.000 oz???
Deposits to the Customer Inventory, in oz  nil
No of oz served (contracts) today 40 contracts( 4000 oz)
No of oz to be served (notices) 2192 contracts (219,200 oz )
Total monthly oz gold served (contracts) so far this month 832 contracts (83,200 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 486,742.9 oz
Today, we had 1 dealer transactions
We had one dealer deposit:
Into Brinks:  5,001.000 oz??
total deposit: 5,001.000 oz
We had 1  customer withdrawals
i) Out of Scotia:
6430.000 oz (200 kilobars) ??
total customer withdrawals; 6430.000  oz
we had 0 customer deposits:
total deposits;  nil oz

we had 1 adjustment.

i) Out of JPMorgan:

64,664.791 oz was adjusted out of the customer and this landed into the dealer of JPM

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account.
***JPMorgan now has 634,557.764 or 19.737 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 40 contract of which 0 notice was stopped (received) by JPMorgan dealer and 16 notices were stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (832) x 100 oz  or 83,200 oz , to which we  add the difference between the open interest for the front month of February (2232 contracts) minus the number of notices served upon today (40) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the February. contract month:
No of notices served so far (832) x 100 oz  or ounces + {OI for the front month (2232) minus the number of  notices served upon today (40) x 100 oz which equals 302,400 oz standing in this active delivery month of February ( 9.405 tonnes)
we lost 153 contracts or 153,000 oz will not stand for delivery and were cash settled.
We thus have 9.4059 tonnes of gold standing and 4.948 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing.
Total dealer inventor 228,760.945 or 7.1153
Total gold inventory (dealer and customer) =6,514,323.918 or 202.66 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 202.62 tonnes for a loss of 100 tonnes over that period. 
JPMorgan has only 21.99 tonnes of gold total (both dealer and customer)
And now for silver


feb 8/2016:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory   1,684,431.15 oz


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 891,901.115 oz


No of oz served today (contracts) 0 contracts nil oz
No of oz to be served (notices) 140  contracts (700,000 oz)
Total monthly oz silver served (contracts) 0 contracts nil
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month 5,789,909.4 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 2 customer deposits:

i) Into CNT:  572,685.100 oz

ii) Into JPM: 618,692.065  oz

total customer deposits: 1,191,377.165 oz

We had 2 customer withdrawal:
i) Out of CNT:  270,186.400 oz
ii) Out of Delaware 3022.65 oz
iii) out of Scotia:  618,692.065. oz

total withdrawals from customer account 891,891.115   oz 

 we had 0 adjustments:


The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (0) x 5,000 oz  = nil oz to which we add the difference between the open interest for the front month of February (140) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the February. contract month:
0 (notices served so far)x 5000 oz +(140) { OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals 700,000  of silver standing for the February. contract month.
we gained 15,000 additional silver ounces standing in this non active delivery month of February.
Total dealer silver:  28.53 million
Total number of dealer and customer silver:   156.059 million oz
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 8/no change in inventory/inventory rests at 698.46 tonnes

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

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

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

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

Feb 8.2016:  inventory rests at 698.46 tonnes

Now the SLV:
Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz
FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz
FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz
Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees
Inventory rests at 309.380 million oz
Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/
Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz
JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz
JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz
Jan 27.2017: no changes to inventory/rests at 310.653 million oz
Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz
Feb 8.2016: Inventory 308.999 million oz.
1. Central Fund of Canada: traded at Negative 6.1 percent to NAV usa funds and Negative 6.4% to NAV for Cdn funds!!!!
Percentage of fund in gold 63.8%
Percentage of fund in silver:36.2%
cash .0%( feb 8.2016).
2. Sprott silver fund (PSLV): Premium to NAV rises to  +1.10%!!!! NAV (feb 8.2016) 
3. Sprott gold fund (PHYS): premium to NAV rises to- 0.40% to NAV feb 8/2016)
Note: Sprott silver trust back  into positive territory at +1.10%/Sprott physical gold trust is back into negative territory at -0.40%/Central fund of Canada’s is still in jail.


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

Trading in gold and silver overnight in Asia and Europe

Gold and Silver Up 5% Last Week As Stocks Fall Sharply

Gold and silver surged over 5% last week as concerns about the U.S. and global economy saw more sharp stock market falls and reduced expectations of the Fed increasing interest rates.


Gold finished the week at $1,173.40 an ounce and has built on those gains today rising another 0.4% to $1,178.10 an ounce – taking its year-to-date gain to 11 per cent.

Stocks has another torrid week with the S&P 500 falling 3.1% and the Nasdaq down 5.4% while gold had its best week since July 2013.

Technically, gold is looking better and better and the gains last week were the third consecutive week of gains. The weekly higher close above the 200 day moving average ($1,129/oz) is leading to increasing conviction that gold prices have bottomed and we are in the early stages of a new bull market.

Momentum buyers and trend following funds are again making the “trend their friend.” This is seen in the increase in gold ETF holdings which have increased now for 15 consecutive days as retail and institutional investors diversify into gold to protect from increasing market volatility and concerns of new bear markets in stocks.

Gold has seen similar gains in euro and larger gains in sterling terms (+13% year to date) again showing gold’s currency hedging properties.

LBMA Gold Prices

8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce
3 Feb: USD 1,130.00, EUR 1,034.04 and GBP 781.25 per ounce
2 Feb: USD 1,123.60, EUR 1,029.65 and GBP 780.01 per ounce

Gold and Silver News and Commentary – Click here

Mark O’Byrne
Published in Weekly Market Update


Gold trading from NY:

(courtesy zero hedge)

Gold Spikes To 8-Month Highs, Silver Breaks Key Technical Level

The bid for precious metals is accelerating. Gold just broke above its October 2015 highs to 8-month highs. Silver is also bursting higher, soaring above its 200-day moving-average.

Gold at 8-month lows…

Silver breaks 200DMA…

As Gold continues to suggest The Fed screwed up…


Absolute doorknobs:  Venezuela prepares to liquidate all of its remaining gold holdings to pay or debt maturities:

(courtesy zero hedge)

Venezuela Prepares To Liquidate Its Remaining Gold Holdings To Pay Coming Debt Maturities

Last Thursday when we recounted the story of how Venezuela is now literally flying in paper money (using three dozen cargo Boeing 747s), we wrote that “Venezuela’s hyperinflation, already tentatively estimated at 720%, will likely add on a few (hundred) zeroes by this time next year. It is also quite likely that Venezuela the country, as we know it now, will no longer exist because once any nation is swept up in hyperinflationary rapids two things occur like clockwork: social uprisings and political coups.

But before it gets there, Venezuela’s president Maduro will be busy liquidating the nation’s roughly $12 billion in gold reserves, which his late predecessor fought hard in 2011 to repatriate back to Caracas. Sadly that gold was never meant to stay in Venezuela after all.

And sure enough, just a day later, Reuters writes that Venezuela’s central bank has begun negotiations with the suddenly troubled Deutsche Bank to carry out gold swaps “to improve the liquidity of its foreign reserves as it faces heavy debt payments this year”, payments which it won’t be able to fund unless it manages to “liquify” its gold.

One look at Venezuela’s CDS which imply a 78% probability of default in the next year reflect the $9.5 billion in debt service costs this year.

The problem is that around 64% 15.4% of Venezuela’s $15.4 billion in foreign reserves, or around $10 billion, are held in gold bars, “which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.”

As Reuters reminds us, in December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year.

Technically, gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.

The problem is that a swap when arranged with a technically insolvent nation is the equivalent of pledging gold for cash, which is precisely what Venezuela will do. Said pledge implies that once Venezuela has to fund the unwind of the swap, which will itself cost billions of dollars Maduro will not have, it will effectively hand over the gold to the counterparty, in this case Deutsche Bank.

Reuters also adds that according to its sources “Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions. BIS halted these operations last year, both sources said, as a result of concerns about the associated risks. BIS declined to comment.”

Meanwhile Venezuela has been burning down its gold reserves:

Under the rule of late socialist leader Hugo Chavez, the central bank used billions of dollars in cash reserves to finance social programs and off-budget investment funds. This meant that gold became a larger percentage of reserves.

The value of Venezuela’s monetary gold has declined by $3.5 billion in the 12 months ended in November to reach $10.9 billion, central bank data shows. This appears to reflect swap operations and a 10 percent decline in the price of gold. It was not immediately evident if the central bank has also been selling gold.

The central bank in 2015 carried out a swap with Citigroup Inc’s (C.N) Citibank, according to one of the sources. Citi declined to comment in 2015.

And here is the punchline: “One of the sources said the central bank has taken an unspecified amount of gold out of the country so that it can be certified, which is required for gold that is used in such swaps. The gold lost its “certificate of good delivery” in 2011 when Chavez transferred it from foreign banks to central bank coffers, one of the sources said.

In other words, after Maduro’s predecessor Chavez worked hard to repatriate the nation’s gold in 2011, Maduro is already doing his best to unwind all such actions, which while proving that gold is indeed money contrary to popular misconceptions by U.S. central bankers, will likely leave a bitter taste in the mouth of Venezuela citizens who will soon realize that their ruler sold off the country’s last remaining assets just to avert debt defaults for a few months.

Finally for those interested when the gold may officially change ownership, if only on paper for the time being, they should just keep track of Venezuela’s upcoming bond maturities, which include $1.5 billion 2016 Global Bond comes due at the end of February, while state oil company PDVSA faces payments of $2.3 billion on its 2017N bond in October and $435 million on its 2016 bond in November.


Market watch omits Hunsader’s most important work:

(MarketWatch/ GATA

MarketWatch profile of Nanex’s Hunsader omits his most important work

Submitted by cpowell on Sat, 2016-02-06 16:34. Section: 

11:34a ET Saturday, February 6, 2016

Dear Friend of GATA and Gold:

MarketWatch this week published a profile of market data analyst Eric Scott Hunsader of Nanex in Winnetka, Illinois, who may have done more than anyone to expose the crookedness of high-frequency trading, quote stuffing, and spoofing on U.S. exchanges and whose work has been crucially publicized by Zero Hedge. While it’s great that Hunsader should get such recognition of his service to the restoration of free and transparent markets, the MarketWatch profile unfortunately omits what may be his greatest service, his disclosure of U.S. Securities and Exchange Commission and Commodity Futures Trading Commission documents showing that central banks and governments are secretly trading all major U.S. futures markets:



No major mainstream financial news organization in the world is yet prepared to acknowledge that there are no markets anymore, just interventions.

The MarketWatch profile of Hunsader, written by Anora Mahmudova, is headlined “This Man Wants to Upend the World of High-Frequency Trading” and it’s posted here:


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


Chris Powell will speak at both Hong Kong and Singapore conferences in April:

(courtesy Chris powell/GATA)

GATA secretary will speak at Hong Kong and Singapore conferences in April

Submitted by cpowell on Sun, 2016-02-07 15:52. Section: 

10:51a ET Sunday, February 7, 2016

Dear Friend of GATA and Gold:

Your secretary/treasurer will speak in April at the Mines and Money conference in Hong Kong and the Mining Investment Asia conference in Singapore.

Other speakers at the Mines and Money conference well known to GATA’s followers include Grant Williams, editor of the “Things that Make You Go Hmmm” newsletter and founder of Real Vision TV; Perth Mint research director Bron Suchecki; and Dutch fund manager Willem Middelkoop, author of “The Big Reset.”

The Mines and Money conference will be held from Tuesday to Thursday, April 5 to 7, at the Hong Kong Convention and Exhibition Centre. Details about the conference are here:


Speakers at the Mining Investment Asia conference who are well known to GATA’s followers include GoldMoney founder and GATA consultant James Turk and gold forecasting newsletter editor Bo Polny. Suchecki is schedule to speak at the Mining Investment Asia conference too.

The Mining Investment Asia conference will be held from Wednesday to Friday, April 13 to 15, at the Marina Bay Sands conference and hotel center in Singapore. Details about the conference are here:


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


Glencore announces a streaming gold deal with Franco Nevada as it tries to deleverage.
It’s huge derivative mess could very easily blow up the entire world’s finances:
(courtesy London’s Financial Times/GATA)

To cut debt, Glencore will assign future Chilean gold production to Franco-Nevada

Submitted by cpowell on Sun, 2016-02-07 17:21. Section: 

Glencore’s Streaming Plan Aims to Slash Debt

By Danny Fortson
The Times, London
Sunday, February 7, 2016


Glencore is set to unveil a deal to bring in at least $500 million as part of its frantic efforts to slash its debt.

The commodities giant is in advanced talks on a “streaming” deal under which it would hand future precious metal production from a mine in Chile to American gold specialist Franco-Nevada in exchange for an upfront payment. The agreement could be unveiled as early as this week.

It is part of a $13 billion fundraising campaign that Glencore launched last year to scotch concerns over its $30 billion net debt.

Glencore shares plunged 70 percent last year, making it the worst-performing stock in London’s FTSE 100 after rival Anglo American.

Miners and oil companies have been hit hard by the collapse in global raw material prices after a decade-long commodities boom came to a halt.


Bill Murphy interviewed by Future Money Trends:

(courtesy GATA)

GATA Chairman Murphy interviewed by Future Money Trends

Submitted by cpowell on Sun, 2016-02-07 19:14. Section: 

2:13p ET Sunday, February 7, 2016

Dear Friend of GATA and Gold:

GATA Chairman Bill Murphy, interviewed last week by Dan Ameduri of Future Money Trends, discussed indications that central banks are losing control of the gold market, the possibility of defaults in the Comex gold and silver contracts, and the increasing difficulties governments are having in propping up stock markets. The interview is 18 minutes long and can be heard at You Tube here:


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


Bill Holter delivers an extremely important paper tonight

(courtesy Bill Holter/Holter Sinclair collaboration:

You are watching it!

The most common question I hear is “when”.  When does the system collapse?  When will we experience a re set?  I think this is a very odd question.  Odd because if you stand back far enough you should be able to see “you are watching it”!  We are all so close and watching day by day movements, we are missing the big picture.  Don’t get me wrong, many know systemically we are a bust but the daily watch for the lights out moment goes on.  My point is this, the collapse is happening right before your eyes, “when” is a process and you are watching history!
The real global economy is in serious decline.  You need no more evidence than declining trade and oil prices.  If you would more evidence, Michael Snyder created a recent list http://theeconomiccollapseblog.com/archives/22-signs-that-the-global-economic-turmoil-we-have-seen-so-far-in-2016-is-just-the-beginning for you.  What is and has already happened is unprecedented.  Again, why ask “when” if you can already see it happening?
From a financial standpoint, we are also watching the collapse unfold.  Earnings are collapsing across many diverse industries.  Just as we saw leading up to the 1987 crash, 2000 and again in 2008 …we witness the “slaughter of the day” after the release of poor earnings or future guidance.  Credit default swaps are blowing out across many industries, the most obvious and probably most important is in the energy and banking sectors.  The global credit markets are seeing various corporate bonds collapse 5 and 10%  on a regular basis …and not industry specific!  Here again, you are watching the collapse unfold right before your eyes but question is still “when?”.
We of course arrived at this financial/economic point in history with the central banks driving the bus so to speak.  Looking back to 1987, 2000 and 2008 we can see each time the reaction was “easing”.  Each episode was more serious than the last and took more and more liquidity to keep the system together.  The last episode in 2008 took well more than $20 trillion to keep the system from seizing up.  Since then, central banks across the world and sovereign treasuries have overextended themselves to the point of insolvency yet many expect them to save the day again.  The only tool left is the only tool they have ever really had, “press the accelerator” further.
  The problem is now the “further” part.  “Further” can only mean negative interest rates which will render the system bankrupt by individual parts and then ultimately collectively.  There is no logical way to either understand negative interest rates or to expect them to work in any fashion.  Investors are screaming for negative rates and as evidenced by Japan’s announcement, negative rates are briefly cheered.  The reality however is quite different.  Zero percent interest rates and now negative interest rates have and are damaging the banking sector.   A Badly Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us  Please understand, Deutsche Bank is sitting on $75 trillion worth of derivatives (AND their CDS rates are beginning to elevate rapidly!), they are telling the central banks to not use the only tool they have!
  I have said all along, derivatives would be a reason for the lights out moment.  We now have volatility and decline resembling the precursor to the Lehman moment in 2008 …only this time with more debt, more derivatives and more interconnectedness within the system.  Can any different result than what happened in 2008 be expected?  The only difference I can see is the ability to reflate the system no longer exists in any fashion anywhere in the world.  The largest derivatives player screaming they are being crushed with low to negative interest rates is simply part of the default process …and you are watching it unfold!
  Before finishing I do want to point out the activity in gold and the mining shares.  Gold is up close to 10% this year and the shares are up a crazy 45% in just two weeks!  Something very big has changed.  Many are saying it is because negative interest rates are coming, I am not so sure this is why.  I believe big money and those running the clown markets understand where we are.  I believe they understand no effort at reflation can work this time as we’ve passed that point now.  It is my belief we are seeing gold move higher because it cannot “default” when the entire system defaults.  What I am saying is this, the deflationary event of derivatives blowing up and taking the financial system with it will also destroy the currencies.
  The recent announcement http://www.reuters.com/article/us-oil-iran-exclusive-idUSKCN0VE21S  by Iran regarding their non acceptance of dollars for current and past oil is also in the running as a “cause” for a “currency event”.  The question must be asked, where does this leave Saudi Arabia?  Can they afford to be the last oil producer who accepts dollars and only dollars for oil?  Add to this, the military failure by the U.S. in Syria An Exasperated John Kerry Throws In Towel On Syria: “What Do You Want Me To Do, Go To War With The Russians?!” , how does this bode for the support of a global petro dollar?  Call this deflation or hyper inflation, it really doesn’t matter what you call it as long as you understand that all currencies including the dollar are credit based.  They will collectively collapse along with credit and derivatives.  Gold will be the last man standing as “money will trump credit currency” and will be seen as the only lifeboat available.
  As for “when”, this is really not important because once the derivatives blow, there will not be a “dollar price” for gold as it will ultimately go no offer.  No one will be willing to sell their metal until the dust clears.  Once it does clear, new currencies will be issued.  I do not believe gold will appear for sale until some new currency is brought forth that can be trusted.
  You are watching the collapse firsthand on a daily basis and in real time.  It doesn’t make sense to ask “when?” if you understand you are living through it each day.  Your only job, if you understand what is happening is to be prepared.  Be prepared to the best of your ability, being just one second too late might as well mean forever!
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

You’ll know it when you see it!

A topic written about before, “GAPS”.  This is no acronym, simply a description of what is going to happen, probably quite soon!  If you don’t now what a gap is now, you will know it when you see it!  In technical terms, a “gap” opening is when a market opens either higher than the previous day’s high and does not trade down to that previous high …or, trades below the previous low and does not trade back up to that low.  On a chart this action will leave a “gap” of emptiness signifying no trading took place in the gap area.
  One place we are already seeing “gaps”, many in fact, are the gold and silver mining stocks.  Since the beginning of the year there have been four or five instances where these gaps have occurred.  Under “normal” circumstances, almost all gaps get “filled”.  Meaning the asset in question will ultimately trade back to the gap levels and “fill” in the chart.  We in my opinion are in no way living in “normal” times and the current and coming gap openings will be huge and never be filled.  “Never” is a very long time, in this case it will be a generation or more in many asset classes.
   As you know, I believe we are in the process of a financial meltdown that will alter the landscape on such a grand scale, history will call it something more severe than “the greatest depression”.  In fact, I believe many currencies will go away and be replaced by new currencies.  Credit will cease for a time and business will need to adjust to a new paradigm with far less credit but I digress.  
  The coming gaps will do some serious damage to psychology, let me explain.  From a psychological standpoint, gaps cause investors a “deer in the headlights” moment.  Meaning, when something trades at a new level, many investors are frozen.  The psychology of “I will buy on a pullback, or sell on a bounce” comes into play.  The only problem is the bounce or back never comes …which means neither does the purchase or the sale!  Just like Pavlov’s dog training, the filling of gaps always happens …until they don’t!  It has been my (and others) contention we currently live in a “controlled” financial world.  When saying controlled I am talking about the thought process “don’t worry, the government won’t ever let it happen”.  Gaps in the “wrong directions” will do serious damage to this prevailing psychology!

  You must also understand, market makers try their hardest to prevent gaps because it displays a serious mismatch between supply/demand dynamics.  But this is where we are today.  Our markets have been managed for such a long time and in such severe distortions, gaps will be Mother Nature’s natural way of restoration.  What has taken years to create will be “righted” in a small fraction of the time.
  In many past writings we talked about “holidays”.  A “financial holiday” will be the ULTIMATE GAP!  Any banking or market holiday will be a function of supply or demand that cannot be met.  In other words, market forces so large a “clearing price” cannot be found.  We saw a precursor to this back in the summer in the Chinese markets where they simply closed until order could be found …(they pulled the plug!).  
  Think of gaps as mini tremors leading to the massive tectonic shift.  Gaps will display the coming psychology where demand cannot meet supply in any fashion (or vice versa).  The final “gap” will be the closure of the markets for days or even weeks.  The reopening of markets in my opinion will be unrecognizable pricing.  In other words the “re set” will have occurred!  If the re set of asset cross pricing has not gone far enough, another closure will occur and the process continued until supply and demand finally come into balance with a true clearing price.  Governments and central banks will be totally overwhelmed in their efforts at “showing” you how things are.  It will then become apparent to everyone how things REALLY ARE!
  Please don’t tell me this cannot happen because the process has already started.  The “process” meaning a LOSS OF CONTROL!  This is exactly what is happening.  The “control” used to fool the masses that everything is OK is being lost because everything is NOT OK!  The Ponzi scheme grew too large and can no longer be funded as liquidity has and is drying up.  The use of negative interest rates being the most obvious tell.
  It is my opinion we will see huge resets where most financial assets collapse in purchasing power.  This will be a double whammy so to speak as currencies collapse versus everything from food to gold.  I would caution regarding stocks, particularly of companies that actually “make a product”.  The coming hyperinflation may (will) take these stocks higher after the collapse.  We have seen this many times.  Stock markets collapse and get bid higher versus the collapsing currency.  This does not happen however when measured in gold.  This leads me to finish with the question “why not just own gold now as it will be the measuring stick”?  You see, gold will not “go up”.  An ounce of gold will still be an ounce of gold.  The only thing that will change is the amount of gold necessary to “exchange” for a product.  What took an ounce prior to the “gap” (re set) may only take 1/10th or even 1/100th afterwards!
  I am sure there are those laughing at the above.  I would ask you this, what if oil producers (including the Saudis) took Iran’s lead and did not accept dollars for oil?  (As a side note, didn’t John Kerry just tell us the petrodollar would end if we did not sigh the Iran deal?  Maybe he had it backwards?)  Or what if China set a “price” for their currency in gold …and followed with an audited announcement of how much gold they have accumulated in a “we have shown you ours, now you show us yours” fashion? 
What sort of “gap, holiday or reset” would this cause?  
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com



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

1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / hang CLOSED

2 Nikkei closed UP 184.71 or 1.10%

3. Europe stocks all in the RED /USA dollar index UP to 97.17/Euro DOWN to 1.1121

3b Japan 10 year bond yield: slightly rises TO .045    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 116.83

3c Nikkei now well below 18,000

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

3e WTI:: 30.03  and Brent: 33.21 

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 0.294%   German bunds in negative yields from 7 years out

 Greece  sees its 2 year rate rise to 12.72%/: 

3j Greek 10 year bond yield rise to  : 9.55%  (yield curve deeply  inverted)

3k Gold at $1181.00/silver $14.01 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble up 33/100 in  roubles/dollar) 77.20

3m oil into the 30 dollar handle for WTI and 33 handle for Brent/

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


30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9939 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1055 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  + .294%/German 7 year rate negative%!!!

3s The Greece ELA at  71.5 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 1.81% early this morning. Thirty year rate  at 2.65% /POLICY ERROR)

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

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

Futures, Global Stocks Tumble As Europe Bank, Periphery Carnage Unfolds

The biggest event of the weekend, if not the month, was China’s FX reserve outflow update, which at $100BN was slightly better than the $120BN expected (it pushed China’s reserves to the lowest in nearly 4 years) but it was in the “no man’s land” between the BofA best case scenario ($37.5BN), and the GS worst case ($197BN). And while there was some hope this number, together with China being offline for the next week could lead to some stability across markets, this is what we said yesterday about this indecisive number: “for markets, what this means is that the next month will likely be market by more of the same sharp, illiquid volatility that has characterized 2016 so far.”

So far this prediction has proven to be spot on, because while there was some initial risk on sentiment in the Asian ex-China session, where the Nikkei rose 1.1% on the back of an early ramp in the USDJPY (following the latest abysmal wage data out of Japan), everything went from bad to worse once Europe opened, and things started going “bump in the morning” across the European banking sector, where not only has it been more of the same with CDS spreads for major banks – most notably Deutsche Bank – continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014 and other peripheral nations following, such as Italy shown in the chart below:

Inline image 1

Here is a brief summary of the European carnage so far:

  • European banks decline, SX7P close to session low as of 11:52am CET (declines 2.6%, previously down as much as 3.3%).
  • Greek banks Eurobank Ergasias, Alpha Bank at record low; Monte Paschi follows as 3-worst performer today
    • Eurobank Ergasias sinks ~20% (as much as 21%)
    • Alpha Bank plummets 14% (as much as 18%)
    • Monte Paschi retreats 5.9% (as much as 8%)
  • AXIA Ventures notes first round of talks between Greek govt and heads of creditors’ representatives ended on Feb. 5; says all major issues still open, unclear when they’ll return to Athens to continue discussions
  • NOTE: Greek Bank Mgmt Review to Start End-Feb: Xenofos in Naftemporiki
  • Separately, Italian 10-yr spread with bunds widens for 3rd session; Currently at highest since July

Why the dramatic shift in European risk, where things were relatively stable for months on the heel of Europe’s QE? Perhaps Morgan Stanley’s note flagged last night had something to do with it. To wit:

One noteworthy aspect in the current risk-off environment is the lack of peripheral spread widening in Europe; this is unusual based on performance patterns during this cycle and most likely reflects the ECB’s substantial QE programme. While the region is often perceived as a relative consensus overweight among equity investors, we are more downbeat and prefer the US and Japan instead. Our European caution primarily reflects the prospect of further earnings disappointment across the region, but we are also wary of any resumption of geopolitical concerns.

Recent investor caution tends to focus on fears of excess USD strength, low oil prices and/or China, but we think it is quite plausible that Europe moves back up the pecking order (to its more usual place some would say!) as we move through 2016. The UK’s forthcoming referendum on EU membership, likely to take place in June, may appear the most plausible catalyst in the short term to raise regional risk premia, but the ongoing migrant issue risks eroding political cohesion over the medium term and political uncertainty is rising in the periphery. Greece has a daunting debt repayment due this summer, Spain is currently without a government, new European regulations are preventing Italy from adopting an effective ‘bad bank’ solution and the recently elected socialist government in Portugal is reversing course on prior austerity and competitiveness improvements. During a cyclical upswing, markets are prone to overlook such concerns, but the opposite would be true if growth starts to relapse.

Whatever the reason, one look at DB CDS which continue their relentless march into “something is very wrong with this counterparty” territory suggests that things are going from bad to worse for Europe’s banking sector.

It is not just DB: as we have been warning for the past month, and especially last Friday, the blow out across the entire European bank sector is starting to resemble Lehman levels:

Inline image 2

To be sure, DB appealing to both the BOJ and ECB to stop their easing, as we noted over the weekend, will hardly help things, and if anything will prompt more questions just how bad DB truly is.

And with Germany’s biggest bank once again on the ropes, and some even starting to casually throw out the “bailout” word, Germany’s stocks fared no better:


Worst of all, there are no near-term catalysts that can help Europe: the slow-motion trainwreck will continue until somehow confidence in eurobank solvency is restored, and now that neither QE nor NIRP can prop up the financial system suddenly Mario Draghi and his Davos “peer-pressuring” company have their jobs cut out for them.

So while the markets stress about the future, and whether Janet Yellen’s semi-annual congressional testimony mid week can achieve anything to shift risk sentiment, here is where we stand now.

Market Wrap:

  • S&P 500 futures down 1.1% to 1855
  • Stoxx 600 down 2.2% to 318.7
  • MSCI Asia Pacific up 0.3% to 121
  • US 10-yr yield down 2bps to 1.82%
  • Dollar Index down 0.18% to 96.86
  • WTI Crude futures down 1.9% to $30.31
  • Brent Futures down 2.2% to $33.31
  • Gold spot up less than 0.1% to $1,174
  • Silver spot down 0.3% to $14.97

Top Global News

  • Negative Rates Seen as Option for Fed as BOJ, ECB Pave the Way: probability of negative Fed rate climbs to about 13%
  • Casino Says to Sell Big C Stake for EU3.1b to TCC Holding: comments in statement yday
  • Qube Group Makes Sweetened A$9b Offer for Asciano: target says revised offer is higher than Brookfield’s bid
  • INCJ Said to Argue Its $8.5 Billion Sharp Bid Tops Foxconn’s: Sharp has until Feb. 29 to decide on Foxconn bailout plan
  • VW Trucks Chief Open to IPO, Deals in Expansion Strategy: unit eyes growth options, may include acquisitions, IPO
  • World’s Largest Energy Trader Sees a Decade of Low Oil Prices: Vitol CEO says crude to stay $40-$60 for 10 years

A quick look at regional markets, we begin in Asian where equities started the week on the front-foot in holiday-thinned trade, despite the sell off on Wall Street after the latest mixed NFP release. As participants digested the US jobs report, the ASX 200 (-0.02%) and the Nikkei 225 (+1.1%) pared initial losses amid a turnaround in sentiment, while the latter had pulled off worst levels amid a softening JPY across the board. JGBs slipped amid spill over selling in USTs with yields rising across the curve, as such notable underperformance in the belly of the curve. As a reminder, markets in China are closed due to the Lunar New Year.  

Asian Top News

  • Consumption Seen Dropping as Japan’s Workers Eke Out 0.1% Rise: Total wages haven’t risen more than 1% in any yr since 1997, labor ministry said
  • Gold Road Says Major Producers Interested in Gruyere Stake: AU gold explorer is prepared to discuss partnering on gold asset
  • Modi Budget Resolve Tested as Bonds Have Worst Start Since 2011: Investors confidence in PM Modi’s ability to meet budget targets dwindling as bonds and stocks posted steepest Jan. losses since 2011
  • China Venture Firm Raises $648 Million From Princeton, Duke: Qiming Venture Partners saw largest fund since it was founded in 2006, brings AUM to $2.5b

With much of Asia away from their desks this week for the Lunar New Year, European trade failed to find sentiment early on in the session, before equities began to selloff by mid-morning (Euro Stoxx: -2.4%). However, despite the weakness seen in equities, many of the ‘usual suspects are among the best performers today, with the materials the best performing on a sector breakdown, while the worst performing major European index YTD, the FTSE MIB (-1.9%) the best performing index of the day.

European Top News

  • Assa Abloy Profit Meets Estimates Amid Growth in U.S., Europe: Says growth in U.S. offset China sales decline
  • Randgold’s 4Q Profit Falls 10% as Gold Prices Drop: Aims to mine 1.25m-1.3m ounces of gold in 2016
  • Anglo Platinum Sees More Price Pain as It Halts New Projects: Impairments of 14b rand represents 30% of book value
  • BT Confirms Search Process for CFO Successor; No Decision Taken: Co. responds to press speculation
  • Linde Says Reitzle Proposed as Chairman of Supervisory Board: Proposes to elect Wolfgang Reitzle as of May 21
  • Millicom to Sell its Democratic Republic of Congo Business: Sells 100% of Oasis for total cash of $160m to Orange
  • Amundi, Primonial in Talks to Buy EU1.3b Gecina Assets, Figaro says: In exclusive talks to buy 74 clinics, medicalized retirement homes from Gecina for EU1.3b
  • Areva CEO to Discuss Possible Gamesa Stake Sale With Govt Echos says: Newspaper cites interview with Areva CEO
  • Pimco Sees Biggest Flows in Europe From Yield-Hungry Insurers: Insurance asset management ‘one of the main opportunities’

In FX, a largely consolidative market in FX this morning, with this widely anticipated given the absence of China this week. However, in recent trade, USD/JPY has slipped back under 117.00 with stocks and Oil prices leading the way, and having the inverse impact on EUR/USD which is some 40-45 ticks higher to tip 1.1180. AUD saw some modest catch up play on the upside, but this has been tempered by the broader mood. CAD poised for fresh weakness also, and eyeing a return through 1.3900. EM currencies on the softer side, but only off better levels despite concerns over funding/investment levels highlighted by the BIS numbers. GBP on the soft side, as EU fears starting to bubble up once again — EUR/GBP through .7700.

WTI and Brent crude futures have sold off heading into the North American crossover, with Brent Apr’16 and WTI Mar’16 futures breaking below the USD 34.00 and USD 31.00 levels respectively. This comes in spite of news over the weekend that the Venezuelan and Saudi Oil Ministers had positive discussion in regards to OPEC/non-OPEC cooperation to stabilize oil markets. Such news may have moved oil markets previously, but now the level of scepticism around the chances of such a meeting happening seems to have increased significantly. Furthermore, speculators cut bullish bets on US crude oil in the week to, according to the CFTC.

Gold prices fell over USD 7 shortly after the reopen of the week’s electronic trade amid touted profit taking having posted its best weekly gain since July’13 last week. However there has been strong inflows into gold ETF’s and CFTC says COMEX gold speculators increased their bullish bets in the yellow metal to 3 month highs.

There is no macro news in the US today.

Bulletin Headline Summary from RanSquawk and Bloomberg:

  • A largely consolidative market in FX this morning – widely anticipated given the absence of China this week
  • WTI and Brent crude futures have sold off heading into the North American crossover, with Brent  Apr’16 and WTI Mar’16 futures breaking below the USD 34.00 and USD 31.00 levels respectively
  • Today’s calendar is very quiet in terms of data, however highlights include: Canadian housing  starts and building permits as well as possible comments from BoC Deputy Governor Lane
  • Treasuries higher in overnight trading as European equities drop (China closed for holiday) ahead of this week’s Yellen testimony before Congress on Wednesday and Thursday.
  • China’s foreign-exchange reserves shrank to $3.23 trillion, the smallest since 2012, indicating that the central bank sold dollars as the yuan’s retreat to a five-year low exacerbated depreciation pressure
  • Federal Reserve Chair Yellen is preparing to walk a tightrope when she addresses lawmakers in Washington; she will have to strike a balance between sounding confident on the domestic economy and acknowledging increased risks from abroad
  • Signs of distress in financial markets are gathering force as concern over the state of the global economy deepens. European stocks are down for a sixth day, the cost of protecting European banks’ and insurers’ senior debt is on its worst run since March 2013 and yields on Germany’s 10- year bunds are the lowest since April
  • Core EGBs bull flatten as credit-spreads widen and stocks selloff; peripherals underperform sharply, wider by 9bps-18bps vs 10Y bunds
  • Goldman Sachs is betting “Mr. Market” is wrong in its recession warnings. While sliding stocks, declining long- term bond rates and higher credit yields are sounding the alert, the bank’s economics team is more confident about the outlook for the developed world
  • Societe General has turned to the U.K.’s finance regulator as it tries to loosen rivals’ grip on European junk-bond issuance. A lack of competition is harming both issuers and investors by reducing market efficiency, according to the bank
  • The investment banking downsizing has been hard on foreign- exchange desks; there were 2,300 people working in currency- market front-office jobs at the world’s biggest banks in 2014, down 23% from 2010
  • While investors pulled funds from Pimco in the wake of co- founder Bill Gross’s departure, yield-hungry insurance companies kept faith with the company
  • Sovereign 10Y bond yields mixed with Greece +38bp, Portugal +14bp. European stocks lower, Asian stocks mixed (China closed for holiday); U.S. equity-index futures drop. Crude oil and copper lower, gold rises

DB’s Jim Reid concludes the overnight wrap

So after what can only be described as a pretty noisy US employment report on Friday in which a disappointing headline payrolls number was shrugged off in favour of some unexpected improvement in the details, economists and investors will get another opportunity to sharpen (or blunt) Fed expectations this week when Fed Chair Yellen addresses the House Financial Services Committee on Wednesday and the Senate on Thursday at her semi-annual testimony (also formerly known as the ‘Humphrey-Hawkins Testimony’). While Friday’s data has seen futures markets since price in a slightly better than 50% chance of a hike this year (currently 53%), that put in the perspective of the four hikes implied by the dot plots and the huge gap still between the two means Yellen will have to choose her words wisely. The last couple of weeks have seen more evidence of a dovish leaning from Fed officials, including Fischer and Dudley and we’d expect Yellen to echo a similar acknowledgement of recent tightening in financial conditions and increased global growth concerns.

It’s likely that this will be somewhat balanced with upbeat commentary around the labour market in particular despite that below-market January payroll number (151k vs. 190k expected). In fairness this was about in line with the whisper number while much was made of the three-month moving average being at a still robust 231k. It was the details in the report which got most talking however. After expectations had been for no change, the unemployment rate declined one-tenth last month to 4.9% and a post-recession low. The broader U-6 measure held steady at 9.9%. Meanwhile average hourly earnings rose an impressive +0.5% mom (vs. +0.3% expected) meaning on a YoY rate earnings are +2.5%.

A short-lived sharp drop aside, the Dollar index closed up +0.58% on Friday following the data and helped to slightly dampen what was a rough week for the Greenback with the five-day fall for the index (-2.59%) the most since October 2011. Treasury yields initially jumped higher but then pared that entire move into the close. 10y Treasury yields were up as high as 1.894% (+5bps on the day) before falling back to 1.840% by the finish. The data was less kind to risk assets however although a weak day for tech stocks didn’t help (LinkedIn in particular tumbling 40% following some much softer than expected management guidance for Q1) with the S&P 500 eventually closing down -1.85% and the Nasdaq down a steep -3.25%. In credit markets CDX IG finished over 5bps wider. Oil resumed its downward march with WTI eventually finishing -2.62% and back below $31/bbl although Gold continued its strong run of late, closing up +1.54% for its sixth consecutive daily gain and at $1173/oz is now at the highest since the end of October.

Over the weekend the main news of note is out of China where the latest FX reserves data is in. Reserves declined $99.5bn in the month of January to $3.23tn (vs. $3.21tn) – the third consecutive month that reserves have fallen and the second most on record. With Chinese New Year kicking off today and markets there subsequently closed (as well as in a number of other Asia economies), markets are a bit more muted in Asia this morning. In Japan we’ve seen the Nikkei (+0.77%) pare some early steep losses to trade higher, while in Australia the ASX (-0.03%) is back to near unchanged. WTI is up 1% after a meeting between Oil Ministers from Saudi Arabia and Venezuela on the weekend was said to be ‘productive’ but seemingly yielded nothing more. US equity market futures are signaling some small gains.

Moving on. In the wake of Friday’s data, DB’s Chief US Economist Joe Lavorgna has revised down 2016 growth and inflation forecasts, while at the same time has altered his Fed rate call to just one hike this year which he expects to be in December. Highlighting tighter financials conditions, elevated inventories, weak global growth and depressed energy-related capital spending, Joe has reduced his estimates of Q1, Q2 and Q3 real GDP growth in 2016 to 0.5%, 1.0% and 1.2% from 1.5%, 2.2% and 2.1% respectively. Consequently, he expects full-year 2016 real GDP growth, as measured on a Q4-over-Q4 basis to now be 1.3% (from 2.0%). With regards to core CPI, Joe is forecasting 1.9% yoy in Q1, followed by 1.8% in Q2-Q4.

In terms of the rest of Friday’s data, the December US trade balance revealed a modest widening in the deficit by just over $1bn to $43.4bn (vs. $43.2bn expected). Post the market close we got the latest consumer credit data covering December which was much higher than expected at $21.3bn (vs. $16.0bn expected). Reflecting the latest forecast for real consumer spending growth post Friday’s employment report and also for real gross private domestic investment growth, the Atlanta Fed upgraded their Q1 2016 real GDP growth forecast to 2.2% from 1.2% on February 1st.

European risk assets succumbed to much of the post-payrolls weakness on Friday too with the likes of the Stoxx 600 (-0.87%) and DAX (-1.14%) closing lower following a fairly choppy session. It’s been the moves in credit however and specifically financials which are starting to take up more attention. Main closed +5.5bps on Friday, while Crossover finished +17bps, but it was the moves for senior (+13bps) and sub-financials (+28bps) which were more eye catching. In fact, YTD the sub-fins index is +122bps wider, which compares to Crossover which is +107bps wider. Senior financials are now +44bps wider while Main is +33bps wider. A lot of this reflects what’s been a particularly disappointing quarter for earnings in the sector which is adding to the energy and global growth related worries, but the concern is that it could be something more and is certainly something else for Draghi to consider ahead of next month. It’s noticeable also that there are a number of bank share prices now approaching or even slightly below 2008/09 levels.

That takes us to the latest in earnings season which in the US has now passed the half way mark. There wasn’t much to report from Friday’s reporters, but with 315 S&P 500 companies having now reported, we’ve seen 244 (77%) beat on earnings but just 146 (46%) beat at the sales line. A reminder of how that compares to previous quarters. From Q1 to Q3 last year we saw 73%, 75% and 74% beat at the earnings line, but just 48%, 49% and 44% report beats at the top line. So a fairly mixed bag this quarter. European earnings season is still to get going properly and so far we’ve seen 199 Stoxx 600 companies report with 50% beating earnings guidance and 64% sales guidance. It’s worth highlighting that the data for European earnings is a lot more inconsistent however.

Onto the week ahead now. It’s a fairly quiet start to proceedings this week with the only data of note in Europe being German industrial production for December and confidence indicators for the Euro area and France. The usual post-payrolls lull in the US means there’s no data due across the pond today. Tuesday’s highlights include trade reports covering the December month out of both Germany and the UK, while across the pond the January NFIB small business optimism reading is due out, along with the December JOLTS report and wholesale inventories and trade sales data for the same month. Turning to Wednesday we’re starting in Japan where the latest January PPI numbers are due out. In Europe we’ll get regional industrial production reports for Italy, France and the UK while the sole release in the US in the afternoon is the January Monthly Budget Statement. It’s a particularly quiet day for data on Thursday with nothing of note in Europe and just initial jobless claims data due in the US. It looks like we’ll have a busy end to the week on Friday with Euro area Q4 GDP and industrial production, French employment data and German Q4 GDP and CPI all due out. In the US the big focus will be on the January retail sales data along with the first reading for the University of Michigan consumer sentiment print for February and December business inventories data.

Arguably the focus of the week will be away from the data and instead reserved for the aforementioned Fed Chair Yellen’s semi-annual testimony to the House Financial Services on Wednesday and the Senate on Thursday. Also due to speak will be the Fed’s Williams on Wednesday and Dudley on Friday. Meanwhile we’ll also see the attention for the US presidential election move to New Hampshire which is due to hold the first-in-the-nation primary on Tuesday.

Elsewhere, earnings season rumbles on and we’ve got 64 S&P 500 companies set to report including Coca-Cola, Walt Disney and Cisco. In Europe we’ve got 80 Stoxx 600 companies reporting including Total, L’Oreal, Heineken and Nokia.


Let us begin:


Late  SUNDAY night/ MONDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei up 184.71 or 1.10% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil lost  to 30.04 dollars per barrel for WTI and 33.35 for Brent. Stocks in Europe so far all in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/The big report on USA dollars leaving China amounted to 100 billion USA a little lower than thought. (see below)

The Number Everyone’s Been Waiting For: Chinese Reserves Plunge By $100BN – What Does It Mean For Markets?

As we previewed on Thursday, the biggest event of the week, and perhaps of the month, was not Friday’s nonfarm payroll report, but the January update of China’s FX reserves, which the PBOC released last night. The number came out at $3.2309 trillion, down $99.5 billion from the prior month, and $8 billion less than the December outflow of $107.6 billion.

And even as China added $3.4 billion to its gold reserves, which rose to $63.6 billion or an increase of half a million ounces to 56.66 million, this reduced the total amount of Chinese foreign reserves to the lowest level since May 2012, and down from the $4 trillion peak in the summer of 2014 when the US Dollar started its rapid appreciation on rate hike concerns, and led to nearly a trillion dollars in Chinese capital outflows.

Recently, an important question that has emerged is for how much longer can China sustain its FX intervention before tapping out and letting the hedge funds win with their short Yuan bets once total reserves drop below the critical redline of approximately $2.7 trillion as calculated by the IMF – the answer is between 5 months and 10 months assuming monthly reserve burn rates of $130BN to $60BN.

That, however, is a bridge we will cross some time in the summer of 2016.

For now  the real question is what does the January Chinese FX outflow mean for risk come Monday’s open, and how will it affect markets when they start opening tonight, if not in China which is closed for the week for its new year celebrations.

Recall that in our Thursday preview we warned that according to one of the more prominent bears from BofA, Michael Hartnett, had the reserve outflow come in well below expected, it would unleash a “vicious bear market rally.

This is what we said:

According to consensus estimates, China will report that its total FX reserves declined to $3.2125 trillion from $3.33 trillion: a drop of $118 billion, or modestly higher than the massive December $108 billion outflow.

In other words, a reported number below, and certainly substantially below, $118 billion for the January outflow and it would be off to the races as a massive short squeeze will grip all the commodity and materials-linked sectors.

That said, keep in mind that BofA itself had a far more optimistic forecast than consensus:

We forecast China FX reserve changes and estimate a USD37.5bn fall in January – (USD29.1bn decline adjusting for a negative FX valuation effect). Note that the standard error of the forecast is large at USD24.5bn, which would give us a downside of USD84.5bn fall. We caution that this is guidance and we attempt to be as transparent as possible so investors can gauge the odds in what is a key release for the markets. Note too this is based on onshore CNY FX volumes and our estimate maybe biased down as there are no real time volumes for offshore CNH.

And then there was Goldman, because just as a far smaller than expected number would be very bullish, so a far greater outflow would be bearish. According to estimates by Goldman Sachs, not only did outflows not slow down as dramatically as BofA believes, but they in fact soared to an all time high $185 billion in January.

This is what Goldman said: “There has been around $USD 185bn of intervention (with the recent intervention predominantly taking place in the onshore market)” split roughly $143 billion on the domestic side and $42 billion on the offshore Yuan side.” In the last few days, Goldman actually bumped up this forecast to $197 billion to account for valuation adjustments.

This is how we concluded:

So there is your bogey, one which will set the mood for risk over the next month: this weekend, China will announce its January reserve outflows which are expected to decline by about $120 billion. Should the number be far less (ostensibly closer to BofA’ estimate of $37.5 billion) expect a whopper of a bear market rally coupled with a huge short squeeze. If Goldman is right, however, with its record ~$200 billion in FX intervention and implied outflows, then all bets are off.

The actual number (whether it is fabricated or not, and since this is China, all bets are on the former) came in at $100 billion, modestly below the consensus estimate of $120 billion, well below the Goldman worst case scenario of $197 billion, and well above the BofA “best case” of 37.5 billion.

Or smack in the middle of a Goldilocksian no man’s land.

What does it mean for markets? Ironically, this may have been the most unfavorable outcome, because had China admitted the true severity of its outflows, there would have been a downward flush in asset prices, after which the market could focus more on fundamentals and rise from there with the Chinese capital outflow threat no longer dangling overhead; alternatively, a shockingly small number would have crushed the shorts only to let them re-establish bearish positions after the initial spike higher.

As it stands now, however, what is really happening with the biggest risk factor to commodity, credit and capital markets, remains a mystery, and instead of getting some much needed clarity from China’s January reserve number, the world’s traders and investors will now have to wait for the February reserve update one month from now to learn if China has managed to slay its capital outflow demons, or if these were just getting started.

For markets, what this means is that the next month will likely be market by more of the same sharp, illiquid volatility that has characterized 2016 so far.



The USA/Yen plunges to the 115 handle blowing up more of our yen carry traders;

(courtesy zero hedge)

Peter Pan(ic) Policy Plunges USDJPY To 17-Month Lows

USDJPY has tested down to 115.00 this morning as the blowback from Kuroda’s “Peter Pan” policymove into NIRP continues to ripple through the world’s largest carry trade. Most troubling is last week’s jawboning  of “no limits” made the situation worse as desperation was clear, erasing all of USDJPY’s gains since it unleashed QQE2 after The Fed ended QE3.

And as goes USDJPY, so goes the world’s over-inflated risk asset classes.


What is the big worry for the Chinese government:  It is most fearful of a revolt by the people!

(courtesy zero hedge)

Chinese Factory Worker Explains What “The Government Is Most Fearful Of”

No it is not, a slowing economy crippled by 346% in debt/GDP; it’s not the artificially high exchange rate (which was pegged to a dollar when it was plunging during QE1-3 and is now soaring) yet which China can’t aggressively lower either as that would mean a disorderly flight of capital from the mainland; it’s not the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments; it’s not the recently burst housing bubble; nor is it the burst stock market bubble which recently popped, or the bond bubble which is about to blow; nor is it the country’s non-performing loans, which may be as high $4 trillion.

According to ordinary Chinese workers, i.e., those who know best, what the local government is most fearful of is precisely what we said three months ago is the “biggest and most under reported risk facing China.” From Reuters:

At a printing factory in the western city of Chongqing, a Reuters reporter was present when a local official visited last week to make sure the boss paid his workers before the Year of the Monkey begins.

The official declined to speak with Reuters, although the boss later said it was an attempt to prevent unrest.

“That’s what the government is most fearful of,” said the factory owner, who did not want to be named.

Indeed it is, and all those economic and financial factors, while ultimately leading to social unrest, are secondary: what Beijing is most terrified about is an accelerating to the recent surge in worker anger and increasing incidents of violence.

According to Reuters laborer Fan Fu and 20 or so colleagues working on the Zixia Garden apartment complex in Hebei province have not joined China’s legion of migrant workers returning home to celebrate new year with their families.

Instead, they have camped in the offices of the property developer’s subcontractor, demanding almost a year’s unpaid wages and too angry and proud to go back to native towns and villages empty-handed.

As we warned in November, “with China’s economy growing at its slowest in 25 years, more workers face Fan’s predicament and labor unrest is on the rise, a concern for Beijing as it seeks to avoid social unrest even as financial pressures build.

“The developer has kept using the fact that they have no money as an excuse. As of now they haven’t paid us a single penny,” said Fan, who brought others from his home town in the western province of Sichuan to work on the apartments.

“We really don’t have any other options,” he told Reuters in the subcontractor’s offices, crowded with bedding and personal possessions.

The group had earlier petitioned local authorities for redress and staged protests outside government offices in Qian’an, a city in Hebei in China’s north.

However, while the government will do almost anything to cool tempers, it won’t do what is critical: provide the underpaid workers with what they are owed for the simple reason that China, unlike western nations, simply does not have an established welfare state with features comparable to unemployment insurance. Fan and about 530 other workers on the apartment project are owed paychecks of between 20,000 and 50,000 yuan ($3,000-$7,500). They said the government had offered each non-local laborer 2,000 yuan in cash if they left for the holidays. It was unclear if they would get some extra cash if they never came back.

One thing is certain: worker anger is building at a torrid pace, and it is only a matter of time before the fury of of millions of angry recently unemployed or unpaid workers spills over on the streets.

As travel ramped up ahead of the holiday, beginning on Sunday, it was not only construction workers who prepared to celebrate with less money in their pockets.

An online survey by the job recruitment company Zhilian Zhaopin said two-thirds of more than 10,000 white-collar workers it surveyed were not expecting Lunar New Year bonuses.

In Dongguan, a city in the southern province of Guangdong known as a manufacturing hub, some factories sit idle behind locked, rusty gates, with advertisements pasted on their walls seeking new tenants.

Some of those still in business were withholding bonuses until after the Lunar New Year, workers, factory owners and recruiters interviewed by Reuters said.

Brothers Zhang Guantian, 23, and Zhang Guanzhou, 21, quit temporary, hourly paid jobs at two plants, one making earphones, the other computer cables, to go home for the holiday.

“It’s hard to find a permanent job now,” said the elder Zhang, while waiting for a bus with two large suitcases.

Still, he is hopeful of finding another job when he comes back to Dongguan in mid-February. “My aim is to find a permanent job after Chinese New Year, something I like. But it will be difficult.”

It will be almost impossible, and soon even those with temporary jobs will be considered lucky.

Finally, Reuters uses a data set first presented on this website, one showing the record surge in labor strikes. Its data show that in December and January, there were 774 labor strikes across China, from 529 in the previous two months, most of them over wage arrears.

Finally, here is why what as recently as three months ago was the “most underreproted risk facing China” is suddenly the most popular topic of coverage among the mainstream press:



Seems that our friends over at Deutsche bank are in serious trouble: they cannot stand the constant easing by central banks:

(courtesy zero hedge)

A Badly Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us

Ten days ago, when Deutsche Bank stock was about 10% higher, the biggest German commercial bank declared war on Mario Draghi, as we put it, warning him that any further easing by the ECB would only push stocks (with an emphasis on DB stock which has gotten pummeled over the past few months) lower. What it got, instead, was a slap in the face in the form of a major new easing program when the Bank of Japan announced it is unveiling negative rates just three days later.

Which is why overnight a badly wounded Deutsche Bank has expanded its war against the ECB to include the BOJ as well, and in a note titled “The Risks From Further ECB and BOJ Easing” it wants that with the Zero Lower Bound already breached in nearly a third of global markets, the benefits to risk assets from further easing no longer exist, and in fact it says that while central banks have hoped that such measures would “push investors out the risk spectrum” the “impact has been exactly the opposite.”

In other words, we have reached that fork in the road within the monetary twilight zone,where Europe’s largest bank is openly defying central bank policy and demanding an end to easy money. Alas, since tighter monetary policy assures just as much if not more pain, one can’t help but wonder just how the central banks get themselves out of this particular trap they set up for themselves.

Here is DB’s Parag Thatte explaining the “The risks from further ECB and BOJ easing”

The BOJ surprised with a move to negative rates last week, while ECB rhetoric suggests additional easing measures forthcoming in March. While a fundamental tenet of these measures, in particular negative rates, has been to push investors out the risk spectrum, we remind that arguably the impact has been exactly the opposite:

  • Declining bond yields have been robustly associated with larger inflows into bonds at the expense of equities. Though a large over allocation to fixed income at the expense of equities already exists as a result of past Fed QEs and a lack of normalization of rates, further easing by the ECB and BOJ that lower bond yields globally will only exacerbate the over allocation to bonds;
  • Asynchronous easing by the ECB and BOJ while the Fed is on hold risks speeding up the dollar’s up cycle, pushing oil prices lower and exacerbating credit concerns in the Energy, Metals and Mining sectors. It is notable that the ECB’s adoption of negative rates in mid-2014 which prompted the large move in the dollar and collapse in oil prices, marked the beginning of the now huge outflows from High Yield. These flows out of High Yield rotated into High Grade, ironically moving up not down the risk spectrum. The downside risk to oil prices is tempered somewhat by the fact that they look cheap and look to be already pricing in the next leg of dollar strength;
  • Asynchronous easing by the ECB and BOJ that is reflected in the US dollar commensurately raises the trade-weighted RMB and increase the risk of a disorderly devaluation by China. The risk of further declines in the JPY is tempered by the fact that it is already very (-29%) cheap, but there is plenty of valuation room for the euro to fall.

Broad-based move across asset classes towards neutral amidst uncertainties

  • US equity fund positioning inched closer to neutral; as anticipated the returning buyback bid is being offset by large persistent outflows (-$42bn ytd);
  • European equity positioning is also close to neutral amidst slowing inflows; Japanese funds trimmed exposure from very overweight levels while flows turned negative for the first time in 2 months;
  • The large short in US bond futures has started to be cut; 2y bond shorts were cut by half this week while short-dated rates futures are already long. Robust inflows into government bond funds which began this year have continued while the pace of outflows from HY and EM funds has slowed;
  • A move toward neutral was also evident in FX positions. The surprise BoJ cut to negative rates caught yen longs by surprise, with the large initial subsequent depreciation in the yen partly reflecting a paring of positions. Meanwhile, the euro rose to a 3 month high as crowded leveraged fund shorts were being covered despite the ECB’s dovish rhetoric;
  • As the dollar fell, net speculative long positions in oil rose, reflecting mainly an increase in gross longs while shorts remain at record highs; copper shorts continue to edge back from extremes; gold longs are rising.

Declining bond yields mean larger inflows into bonds at the expense of equities

  • A fundamental tenet of central bank easing has been to push investors out the risk spectrum. The impact has arguably been exactly the opposite
  • Beyond any negative signal further monetary easing sends on underlying growth prospects, historically falling bond yields with the attendant capital gains on bonds have seen inflows rotate into bonds at the expense of equities. The correlation between equities and bond yields remains strongly positive. Notably, the best period of inflows for equities was after the taper announcement in 2013 when bond yields rose sharply

Large over-allocation to fixed income already

  • Past Fed QEs, a lack of normalization of Fed rates and easing by other central banks means that a large over-allocation already exists in fixed income while the underallocation in equities remains massive
  • Additional easing by the ECB and BoJ by encouraging inflows into bonds will only exacerbate the over allocation to fixed income

Asynchronous easing behind decline in oil and flight from HY

  • Asynchronous monetary easing by the ECB or BoJ while the Fed is on hold puts upward pressure on the dollar, downward pressure on oil prices and heightens credit concerns in the Energy, Metals and Mining sectors
  • It is notable that the huge outflows from HY began to the day with the ECB’s adoption of negative rates in Jun 2014. Those outflows from HY moved into HG, ironically moving up not down the risk spectrum
  • The risk to oil prices is somewhat tempered by the fact that oil prices are cheap to fair value and look to be pricing in the next leg of dollar strength

Asynchronous easing that is reflected in a higher dollar is reflected commensurately in the trade-weighted RMB

  • By virtue of the near-peg to the US dollar, by early 2015 the trade-weighted RMB had risen along with the US dollar by 32% in trade-weighted terms and has been in a relatively narrow range since
  • A variety of Chinese economic indicators have been strongly negatively correlated with the US dollar: Chinese data surprises (-42%); IP (-65%); and retail sales (-59%)

Further dollar strength raises the risk of a disorderly Chinese devaluation

  • Asynchronous easing by the ECB and BOJ reflected in the US dollar and in turn the trade-weighted RMB increases the risk of a disorderly devaluation by China
  • The risk of further declines in the JPY is tempered by the fact that it is already very cheap (-29%), but there is plenty of valuation room for the euro to fall
  • The surprise BoJ easing in January prompted a paring of longs, while investors are unwinding short positions in the euro despite dovish rhetoric by the ECB

* * *

A few last words. Since DB, whose CDS has soared to very dangerous levels in recent days suggesting the market is suddenly concerned about its counterparty status, is effectively the Bundesbank, one can make the argument that any incremental easing by the jawboning Mario Draghi during the ECB’s next meeting suddenly looks very precarious.

On the other hand if Draghi once again isolates Weidmann and does cut rates to -0.40% as the market has largely priced in, because the ECB head fulfills the desires of his former employer Goldman Sachs first and foremost, one would wonder if as we speculated last summer Deutsche Bank is not indeed the next Lehman, if for no other reason than Goldman has decided the German financial behemoth should be the next bank to fail, and unleash the next global taxpayer-funded bailout episode.


Wow!! this is interesting:  BAFIN shuts down a Canadian Bank of German origin on grounds of money laundering and Libor malfeasance:
(courtesy zero hedge)

Germany Shuts Down Canadian Bank Tied To Money Laundering

For the first time since 2012, Bafin – Germany’s banking regulator, which for a minute looked like it might actually accuse Anshu Jain of lying about LIBOR – has closed a bank.

All financial transactions by Maple Bank of Canada’s German subsidiary have been halted on the grounds the operation has too much debt or, as BaFin put it, there’s “a prohibition on transfer of ownership and payment, due to imminent over indebtedness.”

Maple – which describes itself as having expertise in “equity and fixed income trading, repos and securities lending, deposits, structured products and institutional sale” – has obligations of around €2.6 billion and assets of €5 billion meaning it “has no systemic relevance” – to quote BaFin again.

It is however, “relevant” for National Bank – Canada’s sixth largest financial institution which has a 24.9% stake in Maple. National will now take a full reserve against that stake, the carrying value of which is CAD165 million. “That means National Bank’s CET 1 capital ratio will take a 13-basis-point hit,” WSJ notes, adding that “this isn’t the first time that National Bank has seen its regulatory capital level dented in recent months.”

No, it’s not, and this “isn’t the first time” that Maple Bank has been under the microscope.

As The New York Times reminds usMaple “played a prominent role in attempts by the Porsche family to take over Volkswagen several years ago [by] helping Porsche lock up Volkswagen shares using a complex combination of derivatives.”

Former Porsche CEO Wendelin Wiedeking and former CFO Holger Härter are on trial in Stuttgart, where the pair face allegations that they purposefully lied to investors in 2008 to inflate VW shares. “Porsche was threatened financially at the time, according to prosecutors, because a sharp decline in Volkswagen shares forced it to post cash to protect Maple Bank from losses,” The Times adds.

In other words, Maple Bank was the institution at the center of the infamous short squeeze that caused VW shares to soar in October of 2008 when the automaker briefly became the most valuable company on the planet. At the time, the company’s market cap was greater than Apple, Philip Morris, and Intel combined.

Maple Bank is also under investigation for tax “irregularities.” Last September, German prosecutors raided the bank’s offices and homes tied to its employees in what Reuters called“a probe of serious tax evasion and money laundering connected to dividend stripping.” Prosecutors alleged that at least 11 people illegally claimed some €100 million in tax paid using an illegal dividend arb. “Previous cases of dividend stripping in Germany have involved buying a stock just before losing rights to a dividend, then selling it, taking advantage of a now-closed legal loophole that allowed both buyer and seller to reclaim capital gains tax,” Reuters said, outlining the circumstances behind the infraction.

Apparently, once Maple Bank made the government mandated provisions for taxes, its financial situation deteriorated meaningfuly. In other words, Germany effectively put the bank out of business. “Frankfurt prosecutors allege that Maple Bank and its business partners have bilked the taxpayer of some 450 million euros,” Reuters added on Sunday. “The bank has an equity capital of just 300 million euros.”

As for National Bank, the lender said on Sunday that it “has advised the German authorities that if it is determined portions of dividends received from Maple Financial Group Inc. could be reasonably attributable to tax fraud by Maple Bank, arrangements will be made to repay those amounts to the relevant authority.” CEO Louis Vachon is “surprised” at the developments, but says his bank’s results will not be materially affected by developments in Germany.

Now if only BaFin would get serious about investigating Europe’s largest bank which, unlike Maple, has quite a bit of “systemic relevance,” we might be able to take the regulator seriously.


Credit default swaps on Deutsche bank and all European banks blow wider this morning

(courtesy zero hedge)

Very early this morning:  6 am

Is This The Reason For Europe’s Sudden Bloodbath

While the ongoing slaughter in European bank credit, and mostly counterparty risk, is troubling, it is nothing new: we have been showing it for over a month, most recently on Friday in “European Bank Risk Soars To 3 Year Highs, US Risk Rising.”

And yet there is a new element to the latest European selloff, one which turned vicious just minutes after Europe opened for trading this morning with not just commercial banks (who are now all subject to bail-ins courtesy of the BRRD) being dumped with the Deutsche Bank water, but peripheral spreads and equity markets have all joined in.

Case in point: Spanish, Portuguese and Italian yields and spreads to Germany are blowing out…

… while the Athens stock market just dropped to the lowest level since 1990, as the Greek banking index just crashed over 21% to a new all time low.

Why the sudden and broad revulsion to everything European? Isn’t China’s devaluation and capital outflow enough worries for the shaky stock market? Or does China being offline for the next week demand that the market find something else to obsess over?

Perhaps the reason for the shift in market sentiment, which appears to have realized once more that Europe is not at all fixed, had to do with the following note out of Morgan Stanely’s equity strategist, Graham Secker, which we highlighted yesterday, and which admitted that in addition to everything else, it is time to once again panic about Europe.

One noteworthy aspect in the current risk-off environment is the lack of peripheral spread widening in Europe; this is unusual based on performance patterns during this cycle and most likely reflects the ECB’s substantial QE programme. While the region is often perceived as a relative consensus overweight among equity investors, we are more downbeat and prefer the US and Japan instead. Our European caution primarily reflects the prospect of further earnings disappointment across the region, but we are also wary of any resumption of geopolitical concerns.

Recent investor caution tends to focus on fears of excess USD strength, low oil prices and/or China, but we think it is quite plausible that Europe moves back up the pecking order (to its more usual place some would say!) as we move through 2016. The UK’s forthcoming referendum on EU membership, likely to take place in June, may appear the most plausible catalyst in the short term to raise regional risk premia, but the ongoing migrant issue risks eroding political cohesion over the medium term and political uncertainty is rising in the periphery. Greece has a daunting debt repayment due this summer, Spain is currently without a government, new European regulations are preventing Italy from adopting an effective ‘bad bank’ solution and the recently elected socialist government in Portugal is reversing course on prior austerity and competitiveness improvements. During a cyclical upswing, markets are prone to overlook such concerns, but the opposite would be true if growth starts to relapse.

Yesterday, we promptly thanked Mr. Secker for the reminder…

from zero hedge

MS: “One noteworthy aspect in the current risk-off environment is the lack of peripheral spread widening in Europe”. thanks for the reminder

… and, judging by today’s action where Europe is once again not only not fixed, but suddenly very much broken once more, so are all other capital markets.

Late in the morning:  the bloodbath continues:  bonds crash as does stock markets:
(courtesy zero hedge)

European Bank Bloodbath Crashes Bond, Stock Markets

Just as we warned, not only is it time to panic but the panic is ‘contagion’-ing over into the sovereign risk market. European banks are in freefall, down over 4.3% broadly, crashing to 2012’s “whatever it takes” lows.

European bank risk has gone vertical… Today’s spike is the largest since April 2010

TBTF banks are all seeing credit risk explode – to 52-week highs and beyond…

Slamming European bank stocks back to near “whatever it takes” lows…

Dragging the entire European stock market down 24% from its highs to 16-month lows…

And that risk is syetmically crushing peripheral sovereign bond markets…

Time to panic? You betcha! All eyes are focused on the synthetic run on Deutsche Bank…

So since Europe unleashed their “Bail-In” regulations, European banks have utterly imploded with Deustche most systemically affected as it seems more than one person is betting that Deutsche will be unable to raise enough capital and will be forced to haircut depositors on up in the capital structure.

Finally – for those desperate dip-buyers hoping for another move from Draghi – don’t hold your breath… As Deutsche Bank itself warned, any more easing by The ECB or BOJ will only hurt banks (and certainly Deutsche). In other words, they are all officially trapped now.

Your humour story of the day but it is true:
credit default swaps on Deutsche bank rising exponentially/Alpha Bank (Greek bank) falling:
(courtesy zero hedge)

Don’t Show Wolfgang Schaeuble This Chart

At this rate, Germany will be asking Greece for a bailout…

Germany’s largest bank’s credit risk is accelerating unbelievably… as Greek banks improve.

Is it time to panic yet?

At the end of the day, Deutsche bank had to defend itself as to whether it has enough cash. On the balance sheet, they do, the question is off balance sheet!
(courtesy zero hedge)

After Crashing, Deutsche Bank Is Forced To Issue Statement Defending Its Liquidity

The echoes of both Bear and Lehman are growing louder with every passing day.

Just hours after Deutsche Bank stock crashed by 10% to levels not seen since the financial crisis, the German behemoth with over $50 trillion in gross notional derivative found itself in the very deja vuish, not to mention unpleasant, situation of having to defend its liquidity and specifically assuring investors that it has enough cash (about €1 billion in 2016 payment capacity), to pay the €350 million in maturing Tier 1 coupons due in April, which among many other reasons have seen billions in value wiped out from both DB’s stock price and its contingent convertible bonds which are looking increasingly more like equity with every passing day.

DB did not stop there, but also laid out that for 2017 it was about €4.3BN in payment capacity, however before the impact of 2016 results, which if recent record loss history is any indication, will severely reduce the full cash capacity of the German bank.

From the just issued press release:

Ad-hoc: Deutsche Bank publishes updated information about AT1 payment capacity


Frankfurt am Main, 8 February 2016 – Today Deutsche Bank published updated information related to its 2016 and 2017 payment capacity for Additional Tier 1 (AT1) coupons based on preliminary and unaudited figures.


The 2016 payment capacity is estimated to be approximately EUR 1 billion, sufficient to pay AT1 coupons of approximately EUR 0.35 billion on 30 April 2016.


The estimated pro-forma 2017 payment capacity is approximately EUR 4.3 billion before impact from 2016 operating results. This is driven in part by an expected positive impact of approximately EUR 1.6 billion from the completion of the sale of 19.99% stake in Hua Xia Bank and further HGB 340e/g reserves of approximately EUR 1.9 billion available to offset future losses.


The final AT1 payment capacity will depend on 2016 operating results under German GAAP (HGB) and movements in other reserves.

The updated information in question:

As a reminder, the last time serious “developed market” banks had to publicly defend their liquidity, the result was a multi-trillion taxpayer bailout.

However, there is probably some time before that happens: first German regulator Bafin will likely ban short selling in Deutsche Bank shares. That always is the first step in the endgame.

For now, however, the market is no longer asking questions but merely selling: Deutsche CDS has entered the dreaded “viagra” formation at 245 bps and going vertical.

Looks like the Greeks are going to war with the EU boys over pension reforms
and debts due in June.  Bank stocks are plummeting as are other Greek equities.  The 10 yr Greek bond is also blowing higher in yield/lower in price
(courtesy zero hedge)

Greek Tragedy: Pension Pandemonium Sparks Bank Crash, Stocks At 26 Year Lows

And you thought Greece was “fixed”…

The last 3 days have seen Greek bank stocks cut in half…

Which has slammed Greek stocks to their lowest since December 1989…breaking below Draghi’s “Whatever it takes” lows…

And Greek bond yields are back above 10% – the highest since last year’s crisis…

Greece is no longer “fixed” as it appears the troubled nation is once again facing a funding crisis (looming in June) unable to meet “Europe”‘s demands on its pension reform and refugee aceptance. As MNI reports,

Greece’s negotiations with international creditors could take months if Athens does not cooperate fully on its fiscal consolidation plan and officials are not expected to return to Athens before they receive concrete and acceptable proposals, Eurozone officials told MNI Monday.

Furthermore, the officials warn that any attempt by the Greek government to politicise the negotiations in order to get relaxation will not be tolerated by the majority of the currency area member states.

One high-ranking official said that “the talks carried out last week were just exploratory” and that the institutions “did not make specific demands” as they lack hard data, despite leaks from the Greek government on potential taxation increases and pension cuts.

“There is still a big gap between what we ask and what the Greek government has submitted so far. We have not defined yet the fiscal gap for this year, which is a crucial component for the evaluation,” the source said.

Another source said that despite the goodwill expressed by Greece’s European creditors – the European Commission, the European Central Bank and the European Stability Mechanism – to discuss counter-measures to offset certain unpopular ones such as cutting further primary pensions and the minimum wage, “Greece seems unable to deliver such measures.”

“There is a lot work to be done. We agreed to disagree. Judging from (last week’s) talks, the negotiations could drag for months. Anyway, I don’t see any real funding needs for Greece until June,” the official claimed.

The comments come amid massive reaction in Greece by farmers protesting potential tax increases and social unrest for the formation of immigration camps in certain islands and the north of Greece.

In other words – prepare for another ATM-halting, crisis-confronting Spring and Summer in Europe as Schaeuble goes to war with Tspiras once again… obver pension reforms and refugee concessions.

At 12:00 noon our time, Europe closed as Deutsche bank plunged 11% and is at 7 year lows:
(courtesy zero hedge)

Europe Closes “On The Lows”: Deutsche Bank Plunges 11% To 7 Year Lows

BTFD? Deutsche Bank stock crashed over 11% today (the most since July 2009) to its lowest since January 2009 record lows. We have detailed at length why this is a major systemic problem and we wonder how anyone can view this chart and not question their full faith in central planners engineering of the ‘recovery’. Nothing is fixed and it’s starting to become very obvious!

Does this look like a buying opportunity? At EUR13.465 today, DB is within pennies of the all-time record lows of EUR13.385…

As we explained earlier, since Europe unleashed their “Bail-In” regulations, European banks have utterly imploded with Deustche most systemically affected as it seems more than one person is betting that Deutsche will be unable to raise enough capital and will be forced to haircut depositors on up in the capital structure.

Finally – for those desperate dip-buyers hoping for another move from Draghi – don’t hold your breath… As Deutsche Bank itself warned, any more easing by The ECB or BOJ will only hurt banks (and certainly Deutsche). In other words, they are all officially trapped now.



Sexual assaults continue unabated:
(courtesy zero hedge)

10-Year Old Austrian Boy Raped By Iraqi Refugee Due To “Sexual Emergency”

Someone didn’t read the refugee pool rules cartoon.

As you might have heard, quite a few of the millions of asylum seekers that have inundated Western Europe are having a rather difficult time adjusting. Specifically, there seems to be some confusion about pool etiquette.

Last month, Bornheim – a town of 48,000 some 30 km south of Cologne, Germany – banned adult male asylum seekers from the public swimming pool after numerous reports of sexual harassment and “chatting up” – whatever that means.

“There have been complaints of sexual harassment and chatting-up going on in this swimming pool … by groups of young men, and this has prompted some women to leave (the premises),” deputy mayor Markus Schnapka told Reuters. “This led to my decision that adult males from our asylum shelters may not enter the swimming pool until further notice.”

Bornheim’s decree came two weeks after “gangs” of “Arabs” allegedly assaulted scores of women amid New Year’s Eve festivities in Cologne and other cities across Europe.

This weekend, we learn that on December 2, a 20-year-old Iraqi migrant apparently raped a 10-year-old boy at the Resienbad pool in Vienna.

The attack wasn’t reported to the press at the time in order to protect the victim who ran crying to a lifeguard after the assault which took place in a “cubicle.”

The refugee – who at that point had gone back to swimming and diving – was arrested on the spot and taken into custody where he told police that he was experiencing a “sexual emergency.”

“I followed my desires,” the man said, adding that he “hadn’t had sex in four months.” He went on to say that although he was fully aware that his actions were “forbidden in any country in the world,” he had “a marked surplus of sexual energy.”

The man said he had a wife and a daughter in Iraq.

Asked if information about the attack was deliberately withheld from the public in order to avoid sparking a backlash against asylum seekers, Thomas Keiblinger, spokesman for the state police in Vienna said that the fact the man was Iraqi had nothing to do with the decision not to publicize the crime. “It played no role whatsoever,” he told Kronen Zeitung.

Needless to say, that seems like a dubious proposition. The anti-migrant sentiment is palpable in Austria (the country has suspended Schengen) and Iraqis raping 10-year-old boys at swimming pools likely wouldn’t reflect all that well on officials who have agreed to take in asylum seekers.

In any event, we’re reasonably sure that the perpetrator’s “sexual emergency” excuse isn’t going to fly with the Austrian public, so you can expect this rather unfortunate event to add fuel to a fire that, as evidenced by Saturday’s bloc-wide PEGIDA rallies, is already burning brightly.



After Venezuela these guys are next! Ukrainian bonds crash after their economy minister resigns over high level corruption:
(courtesy zero hedge)

Ukraine Bonds Crash After Economy Minister Resigns Over “High-Level Corruption”

While the rest of the world’s bond yields are collapsing and prices soaring (as NIRP sweeps the globe), Ukraine’s ‘young’ implicitly-US-taxpayer-backed bonds have plunged to record lows. The reason – aside from simply disturbing economics…

…is, as The FT reports, the dramatic resignation of the economy minister accusing a senior presidential ally of blocking his attempts to root out graft and stymieing his plans for reform. Abromavicius exclaimed, of the Washington-installed elite at Kiev’s heart, “I realised there is an intention to unwind the process of making all of this transparent.”

Speaking in Kiev, Aivaras Abromavicius said he had no desire “to serve as a cover-up for covert corruption, or become puppets for those who, very much like the old government, are trying to exercise control over the flow of public funds”.

Ukraine already ranked dismal last among European nations for Corruption (rubbing off from its Washington overlords?)

As The FT details, Mr Abromavicius also made an acid reference to his presentation on behalf of Ukraine at the annual gathering of economic and business luminaries at the world economic forum in Switzerland, saying:

“I am not willing to travel to Davos and talk about our successes to international investors and partners, all the while knowing that certain individuals are scheming to pursue their own interests behind my back.”

Mr Abromavicius is the highest-profile departure so far from Ukraine’s governing coalition, which is struggling to deliver on the promise of the pro-European Maidan revolution that brought it to power two years ago.

As the government has floundered, many Ukrainians have come to fear a repeat of the Orange revolution a decade earlier, when infighting and corruption dashed similar hopes.

Widespread anger at entrenched corruption and the slow pace of reform is sparking calls for early elections — yet the results could jeopardise attempts to implement reforms agreed under the country’s $40bn rescue package, led by the International Monetary Fund.

The upheaval is also threatening the peace process in eastern Ukraine, which also requires Petro Poroshenko, the president, to push unpopular measures through a hostile parliament.

Mr Abromavicius told the Financial Times he decided to resign after his attempts to restructure Ukraine’s state-owned companies ran into resistance from powerful figures with vested interests.

“We just hit a wall recently,” Mr Abromavicius said. “We have come to a point where, unfortunately, the technocrats within the government are simply no longer needed.”

And the result is a further loss of faith in the Washington-installed elite as the youngest bonds plunge to record lows…

And as The FT concludes, Abromavicius’ allegations are already reverberating among the western allies on whom Ukraine depends to avoid default and stave off Russian pressure.

A group of ambassadors, including those representing the G7 nations, released a joint statement echoing his concerns, saying: “It is important that Ukraine’s leaders set aside their parochial differences, put the vested interests that have hindered the country’s progress for decades squarely in the past, and press forward on vital reforms.”

Mr Poroshenko’s reticence has particularly worried Washington, which has asked him to fire the prosecutor-general several times and threatened to make further financial support conditional on progress against corruption.

But a senior Ukrainian official said the allegations of Mr Abromavicius were likely to lead to a broader government reshuffling rather than early elections, despite constant political infighting.

“At the very least, Poroshenko is deaf to information about corruption. He will only act when society forces him to do it,” said Serhii Leshchenko, a critical MP in his party.

Balazs Jarabik, a visiting fellow at the Carnegie Endowment for International Peace, said western policymakers were also likely to back Ukraine’s coalition due to fears over Russian pressure and the country’s economic fragility. “If you push too hard, this country may not stand,” he said.


Rhetoric between Iran, Syria and the Saudi/Turks become fierce:
(courtesy zero hedge)

“They’ll Return To Their Countries In A Wooden Coffin”: Iran, Syria Warn Saudis, Turks Against Ground Troops

Two days ago, a Saudi military spokesperson told AP that the kingdom is ready to send ground troops to Syria “to fight ISIS.”

That served as confirmation of what we’ve been saying for months and represented an affirmative answer to the following question that we posed in December: “Did Saudi Arabia just clear the way for an invasion of Syria?

Four months ago, we previewed the “promised” battle for Aleppo, Syria’s second largest city, which is controlled by a mishmash of rebels and is one of the hardest hit urban centers in Syria. In October, Iran called up Shiite militias from Iraq, rallied thousands of Hezbollah troops, and coordinated with the Russian air force on the way to planning an assault on the city. Victory would mean effectively restoring Assad’s grip on power. So important was the battle, that Iran sent Quds commander Qassem Soleimani to the frontlines to spearhead a kind of pep rally prior to the assault.

Fast forward four months and Russia, Iran, and Hezbollah are on the verge of routing the Syrian opposition. After an arduous push north from Russia’s air field in Latakia, Aleppo is now encircled. Rebels and terrorists alike (assuming there’s a difference) are cut off from their supply lines in Turkey and Moscow’s warplanes are bearing down. Tens of thousands of people are fleeing the city ahead of what promises to be a truly epic battle.

Put simply: this is it. It’s almost over for the opposition.

That’s not to say ISIS isn’t still operating in the east. That, as we’ve said on a number of occasions, is another fight.

But the “moderate” opposition backed by the West and its regional allies is on the ropes. That’s why Saudi Arabia is floating the ground troop trial balloon. It has nothing to do with Islamic State and everything to do with making a last ditch effort to keep arch rival Iran from restoring the Alawite government in Damascus on the way to preserving the Shiite crescent and the supply line to Hezbollah in neighboring Lebanon.

Now, it’s do or die time. Either the Saudis and the Turks invade or it’s all over for the rebels.

And Iran knows it.

I think Saudi Arabia is desperate to do something in Syria,” Andreas Krieg of the Department of Defence Studies at King’s College London, told AFP. He also notes that “the ‘moderate’ opposition is in danger of being routed if Aleppo falls to the regime.”

“Turkey is enthusiastic about the ground troop option since the Russians started their air operation and tried to push Turkey outside the equation,” Mustafa Alani of the independent Gulf Research Centre added, underscoring Russia’s warning that Turkey may be preparing a ground assault.

On Saturday, Tehran openly mocked the Saudis. “They claim they will send troops (to Syria), but I don’t think they will dare do so,” Maj. Gen. Ali Jafari told reporters. “They have a classic army and history tells us such armies stand no chance in fighting irregular resistance forces.”

In other words, Iran just said the Saudis are useless when it comes to asymmetric warfare.

Readers will recall what we said back in October: “… it’s worth noting that using Hezbollah and Shiite militias to fight the ground war decreases the odds of Moscow getting mired in asymmetric warfare with an enemy they don’t fully understand.”

In other words, Hezbollah has no problem engaging in urban warfare – they practically invented it.

The Saudis – not so much. “This will be like a coup de grace for them,” Jafari continued. “Apparently, they see no other way but this, and if this is the case, then their fate is sealed.”

Yes, “their fate will be sealed,” or, as Syrian Foreign Minister Walid al-Moualem said on Saturday, “I assure you any aggressor will return to their country in a wooden coffin, whether they be Saudis or Turks.”


John Kerry just threw in the towel as Syrian forces along with Hezbollah surround Aleppo. It looks like their 5 yr battle for control over Syria is over in defeat:
(courtesy zero hedge)

An Exasperated John Kerry Throws In Towel On Syria: “What Do You Want Me To Do, Go To War With The Russians?!”

“Russian and Syrian forces intensified their campaign on rebel-held areas around Aleppo that are still home to around 350,000 people and aid workers have said the city – Syria’s largest before the war – could soon fall.”

Can you spot what’s wrong with that quote, from a Reuters piece out today? Here’s the problem: “could soon fall” implies that Aleppo is on the verge of succumbing to enemy forces. It’s not. It’s already in enemy hands and has been for quite some time. What Reuters should have said is this: “…could soon be liberated.”

While we’ll be the first to admit that Bashar al-Assad isn’t exactly the most benevolent leader in the history of statecraft, you can bet most Syrians wish this war had never started and if you were to ask those stranded in Aleppo what their quality of life is like now, versus what it was like in 2009, we’re fairly certain you’ll discover that residents aren’t particularly enamored with life under the mishmash of rebels that now control the city.

In any event, Russia and Iran have encircled Aleppo and once it “falls” (to quote Reuters) that’s pretty much it for the opposition. Or at least for the “moderate” opposition. And the Saudis and Turks know it.

So does John Kerry, who is desperate to restart stalled peace negotiations in Geneva. The problem for the US and its regional allies is simple: if Russia and Iran wipe out the opposition on the battlefield, there’s no need for peace talks. The Assad government will have been restored and that will be that. ISIS will still be operating in the east, but that’s a problem Moscow and Tehran will solve in short order once the country’s major urban centers are secured.

As we noted on Saturday, Riyadh and Ankara are extremely concerned that the five-year-old effort to oust Assad is about to collapse and indeed, the ground troop trial balloons have already been floated both in Saudi Arabia and in Turkey.For their part, the Russians and the Iranians have indicated their willingness to discuss a ceasefire but according to John Kerry himself, the opposition is now unwilling to come to the table.

Don’t blame me – go and blame your opposition,’” an exasperated Kerry told aid workers on the sidelines of the Syria donor conference in London this week.

America’s top diplomat also said that the country should expect another three months of bombing that would “decimate” the oppositionaccording to Middle East Eye who also says that Kerry left the aid workers with “the distinct impression” that the US is abandoning efforts to support rebel fighters.

In other words, Washington has come to terms with the fact that there’s only one way out of this now. It’s either go to war with Russia and Iran or admit that this particular effort to bring about regime change in the Mid-East simply isn’t salvageable.

“He said that basically, it was the opposition that didn’t want to negotiate and didn’t want a ceasefire, and they walked away,” a second aid worker told MEE.

“‘What do you want me to do? Go to war with Russia? Is that what you want?’” the aid worker said Kerry told her.

MEE also says the US has completely abandoned the idea that Assad should step down. Now, apparently, Washington just wants Assad to stop using barrel bombs so the US can “sell the story to the public.” “A third source who claims to have served as a liaison between the Syrian and American governments over the past six months said Kerry had passed the message on to Syrian President Bashar al-Assad in October that the US did not want him to be removed,” MEE says. “The source claimed that Kerry said if Assad stopped the barrel bombs, Kerry could ‘sell the story’ to the public, the source said.”

Of course Kerry won’t be able to “sell” that story to the Saudis and the Turks, or to Qatar all of whom are now weighing their oppositions as the US throws in the towel. “Kerry’s mixed messages after the collapse of the Geneva process have put more pressure on Turkey and Saudi Arabia,” MEE concludes. “Both feel extreme unease at the potential collapse of the opposition US-recognised Free Syrian Army.”

And so, as we said earlier this week, it’s do or die time for Riyadh, Ankara, and Doha. Either this proxy war morphs into a real world war in the next two weeks, or Aleppo “falls” to Assad marking a truly humiliating defeat for US foreign policy and, more importantly, for the Saudis’ goal of establishing Sunni hegemony in the Arabian Peninsula.

The only other option is for John Kerry to face the Russians in battle. As is evident from the sources quoted above, Washington clearly does not have the nerve for that.



We knew this would happen:  Iran states that their oil will be priced in euros.  The huge dagger into the heart of the USA dollar/USA hegemony!
(courtesy zero hedge)

Iran Says No Thanks To Dollars; Demands Euro Payment For Oil Sales

Iran enjoys trolling the United States. In fact, it’s something of hobby for the Ayatollah, who has maintained the country’s semi-official “death to America” slogan even as President Rouhani plays good cop with Obama and Kerry.

The ink was barely dry on the nuclear accord when Tehran test-fired a next-gen surface-to-surface ballistic missile with the range to hit archrival Israel, a move that most certainly violated the spirit of the deal if not the letter. Two months later, the IRGC conducted live rocket drills in close proximity to an American aircraft carrier and then, on the eve of President Obama’s final state-of-the-union address, Iran essentially kidnapped 10 American sailors in what amounted to a truly epic publicity stunt.

All of this raises serious questions about just how committed Tehran is to nurturing the newfound relationship with America, a state which for years sought to impoverish Iran as “punishment” for what the West swears was an illegitimate effort to build a nuclear weapon.

As regular readers are no doubt aware, Iran is now set to ramp up crude production by some 500,000 b/d in H1 and by 1 million b/d by the end of the year now that international sanctions have been lifted. In the latest humiliation for Washington, Tehran now says it wants to be paid for its oil in euros, not dollars.

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month’s sanctions relief,”Reuters reports. “In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery,” an National Iranian Oil Co. said. Here’s more:

Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter.

Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram.

Switching oil sales to euros makes sense as Europe is now one of Iran’s biggest trading partners.

“Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros,” said Robin Mills, chief executive of Dubai-based Qamar Energy.

Iran’s insistence on being paid in euros rather than dollars is also a sign of an uneasy truce between Tehran and Washington even after last month’s lifting of most sanctions.

U.S. officials estimate about $100 billion (69 billion pound) of Iranian assets were frozen abroad, around half of which Tehran could access as a result of sanctions relief.

It is not clear how much of those funds are oil dues that Iran would want back in euros.

India owes Tehran about $6 billion for oil delivered during the sanctions years.

Last month, NIOC’s director general for international affairs told Reuters that Iran“would prefer to receive (oil money owed) in some foreign currency, which for the time being is going to be euro.”

Indian government sources confirmed Iran is looking to be paid in euros.

Iran has pushed for years to have the euro replace the dollar as the currency for international oil trade. In 2007, Tehran failed to persuade OPEC members to switch away from the dollar, which its then President Mahmoud Ahmadinejad called a “worthless piece of paper“.

Of course all fiat money amounts to “worthless pieces of paper” and as things currently stand, the USD is the least “worthless” of the lot which means that Iran’s insistence on being paid in a currency that Mario Draghi is hell bent on devaluing might seem strange to anyone who knows nothing about geopolitics.

Put simply, this has very little to do with economics and a whole lot to do with sending a message. “Iran shifted to the euro and canceled trade in dollars because of political reasons,” the same NOIC source told Reuters.

Right. So basically, Iran is looking to punish the US for instituting years of economic tyranny by de-dollarizing the oil trade.

This comes at a time when the petrodollar is under tremendous pressure. Russia and China are already settling oil sales in yuan and “lower for longer” crude has broken the virtuous circle whereby producing countries were net exporters of capital, recycling their USD proceeds into USD assets thus underwriting decades of dollar dominance.

The question, we suppose, is whether other producers move away from the dollar just as Russia and Iran have. If there’s a wholesale shift away from settling oil sales in greenbacks, another instrument of US hegemony will be dismantled and Washington’s leverage over “unfriendly” producers will have been broken.

The irony is this: if Iran follows through on its promises to flood an already oversupplied market, crude might not fetch any “worthless pieces of paper” at all – dollars or euros.


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

Euro/USA 1.1121 down .0032

USA/JAPAN YEN 116.12 down 0.657 (Abe’s new negative interest rate (NIRP) not working

GBP/USA 1.4419 down .0083

USA/CAN 1.3915 up .0006

Early this MONDAY morning in Europe, the Euro fell by 32 basis points, trading now well above the important 1.08 level rising to 1.1121; 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 flat in value (onshore). The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat but 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   . The yen now trades in a  northbound trajectory as IT settled UP in Japan again by 66 basis points and trading now well BELOW  that all important 120 level to 116.12 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE

The pound was down this morning by 83 basis point as it now trades just above the 1.44 level at 1.4419.

The Canadian dollar is now trading DOWN 6 in basis points to 1.3915 to the dollar.

Last night, Chinese bourses were closed  All European bourses were mixed  as they start their morning.

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

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

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

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

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this MONDAY morning: closed up 184.71 or 1.10%

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

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed ,Shanghai in the closed  Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red /

Gold very early morning trading: $1177.30


Early MONDAY morning USA 10 year bond yield: 1.81% !!! down 2 in basis points from last night  in basis points from FRIDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.65 down 3 in basis points from FRIDAY night.  ( still policy error)

USA dollar index early MONDAY morning: 97.17 up 12 cents from FRIDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers MONDAY MORNING


Early this money the large USA oil/gas operation Chesapeake plummets over 20% as it has hired bankruptcy attorneys:

(courtesy zero hedge)

Chesapeake Plummets Over 20% On Report It Has Hired Bankruptcy Attorneys

The saga of the gas giant Aubrey McClendon’s built, Chesapeake Energy, enters its endgame, when moments ago following a Debtwire report that the company has hired Kirkland and Ellis as its restructuring/bankruptcy attorney – typically a step taken just weeks ahead of a formal Chapter 11 filing – the stock has plunged 22% to $2.40, the lowest price in the 21st century, and for all intents and purposes, ever.

In a few weeks we will see just how many banks were properly “provisioned” for this now imminent bankruptcy that may just unleash the default wave so many have been waiting for.

And now for your closing MONDAY numbers:

Portuguese 10 year bond yield:  3.13% up 10 in basis points from FRIDAY

Japanese 10 year bond yield: .045% !! up 2 full  basis points from FRIDAY which was lowest on record!!
Your closing Spanish 10 year government bond, MONDAY up 11 in basis points
Spanish 10 year bond yield: 1.75%  !!!!!!
Your MONDAY closing Italian 10 year bond yield: 1.68% up 12 in basis points on the day:
Italian 10 year bond trading 7 points lower than Spain.
Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
Euro/USA: 1.1199 up .0045 (Euro up 45 basis points)
USA/Japan: 115.38 down 1.390(Yen up 139 basis points) and a major disappointment to our yen carry traders and Kuroda’s NIRP
Great Britain/USA: 1.4428 down .0071 (Pound down 71 basis points)
USA/Canada: 1.3942 up .0031 (Canadian dollar down 31 basis points with oil being lower in price )
This afternoon, the Euro rose by 45 basis points to trade at 1.1199.(with Draghi’s jawboning not doing much)
The Yen fell to 115.38 for a gain of 139 basis points as NIRP is a big failure for the Japanese central bank
The pound was down 71 basis points, trading at 1.4428.
The Canadian dollar fell by 31 basis points to 1.3942 as the price of oil price fell to around $31.25 per barrel/WTI, down 47 cents).
The USA/Yuan closed at 6.5710
the 10 yr Japanese bond yield closed at a record low of .045%
Your closing 10 yr USA bond yield: down 10 in basis points from FRIDAY at 1.74%//(trading well below the resistance level of 2.27-2.32%) policy error
USA 30 yr bond yield: 2.56 down 12 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
and did not buy the USA rally today.
 Your closing USA dollar index: 96.57 down 48 in cents on the day  at 2:30 pm
Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for MONDAY
London: down 158.70 points or 2.71%
German Dax: down 306.87 points or 3.30%
Paris Cac down 134.36 points or 3.20%
Spain IBEX up 377.40 or 3.20%
Italian MIB: down 809.06 points or 4.44%
The Dow down 177.10  or 1.10%
Nasdaq: down 79.39  or 1.42%
WTI Oil price; 31.29  at 2:30 pm;  31.03 at 5 pm.
Brent OIl:  33.91
USA dollar vs Russian rouble dollar index:  78.29   (rouble is down 1 and  26/100 roubles per dollar from yesterday) with the fall in oil
This ends the stock indices, oil price, currency crosses and interest rate closes for today.
New York equity performances plus other indicators for today:

Dead-Cat-Bounce Saves Stocks From Bankmageddon

Are the “fiction peddlers” winning?


Since the “great” jobs report, stocks are tanking, the dollar has roundtripped, and bonds & bullion are surging…


On the day, Nasdaq was the worst with FANGs FUBAR. Note that Stocks bounced off the European Close and the NYMEX Close…and Trannies made it green


Dow Futures dropped almost 500 points from overnight highs before a 250 point ramp in an hour shaved half the losses…


The almost standard buying panic was back in the last hour as USDJPY spiked but bonds were not buying it…


AAPL was mega-ramped to run friday’s VWAP levels…


Financials (and homebuilders) are collapsing year-to-date…


As US bank risk continues to surge (yes contagiously)…


With energy stocks plunging after Chesapeake denied bankruptcy (while its bonds didn’t)…


As FANGs have crashed over 13% in the last 4 days – worse than August’s Black Friday plunge and the most on record…


As “Most Shorted” has collapsed since The Fed ended QE3 to 2009 lows…


Credit contionues to crumble to 2009 levels and the QE3 overvaluation is being unwound…


Treasury yields collapsed today…


With 5Y breaking below its 3-year channel… the lowest close in 5Y since June 2013


The USD was dumped again led by Swissy (intervention) and JPY strength…


Gold and Silver soared today as Copper and Crude faded…


With WTI ending back below $30…


And Gold pushing above $1200.. to six month highs…Today was gold’s biggest single-day rise since Dec 2014…and the biggest 6-day gain since Oct 2011.


Finally, for anyone “hoping” that this is nearly over… it’s not! There is no signs of capitulation or panic – the S&P 500 SKEW index (tracking bets on extreme outlier moves) has plunged back towards 8-month lows as it is increasingly clear that investors are derisking, unwinding actual exposure as opposed to hedging for a short-term dip (Equity weakness and SKEW collapse implies lifting hedges and reducing exposure overall)..


On the other side of the coin Gold 1M skew has flattened significantly in recent weeks due to strong call buying, and skew is now near its most inverted in almost 5-years…



Charts: Bloomberg

Bonus Chart: It seems US banks have collapsed far more than CAD banks – we suspect this will revert


And now for USA stories:
Looks like the boys are getting the procedures ready for negative interest rates and then they will go cashless:
Two commentaries
(courtesy zero hedge)

And Now “Some Important News About JPMorgan’s New Cash Policies”

Want to deposit cash at JPMorgan Chase? Then prepare to be treated if not like a criminal, then certainly a suspect of a very serious crime. The charge: being in possession of that “barbarous relic” known as cash.

Soon, as cash becomes increasingly frowned upon, cash deposits will be slowly but surely phased out in their entirety forcing those few savers left in Obama’s grand economic “recovery” experiment, to engage in commerce only in a way that allows the government to keep track of every single transaction.


JPMorgan Unveils The “Bogey” For NIRP In The US

Ever since early 2015, we have repeated that with the world caught in a negative rate “race to the bottom”, which even S&P now admits, it is inevitable that the US will join the rest of the DM central banks, especially after the flawed and much delayed attempt to hike rates into what is at least a quasi recession.

Now, with sellside chatter that it is only a matter of time before the Fed will likewise join the fray despite stern warnings by the likes of Deutsche Bank that more easing will only exacerbate conditions for global financial firms, JPM’s Michael Feroli has set the “bogey” or the catalyst for what will be needed for the Fed to finally admit defeat and go not only back to zero but below it. To wit:

While we earlier mentioned that negative nominal rates should affect the economy no differently than ordinary policy easing, there is some evidence that the exchange rate channel is particularly pronounced in the case of NIRP. The leadership role of the Federal Reserve in the global monetary system may lead to some hesitancy to engage in what may be uncomfortably close to a skirmish in the currency wars. Lastly, there is the political issue. To be sure, political concerns about NIRP are not unique to the Fed; presumably one reason central bankers abroad sought to limit the pass-through to retail depositors was to avoid pushback from the political establishment. Even so, it seems reasonable to judge that the Fed’s current political situation is more parlous than is the case among its overseas counterparts. For all of the above reasons, we believe the hurdle for NIRP in the US is quite high, and we would need to see recession-like conditions before the Fed seriously considered this option.

So the “hurdle is quite high”, but all that will be needed for Yellen and co. to surpass this hurdle is for “recession-like” conditions to emerge.

Which means be on the lookout for “recession-like” conditions because a few more days of stocks crashing and wiping out years of the Fed’s carefully planned out “wealth effect” and the Fed will have no choice but to beg the Department of Commerce to come up with quadruple seasonal adjustments that make every data release as bad as during the depth of the credit crisis, something which will be urgently needed to provide the Fed with the much needed “political cover” to admit the latest central bank defeat.

To our stock players (ex gold/silver equities) :  trouble ahead as our quant boys at JPM confirm the tech bubble has burst again!!
(courtesy JPM/zero hedge)

Momo Bad News: JPM’s Quant Guru Kolanovic Confirms Tech Bubble Has Burst… Again

Just over two weeks ago, JPM’s Marko Kolanovic, whose unprecedented ability to predict short-term market moves is starting to seem a little bizarre, warned that the next “significant risk for the S&P500” was the bursting of the “macro momentum bubble.” Specifically, he said that there is an emerging negative feedback loop that is “becoming a significant risk for the S&P 500” adding that “as some assets are near the top and others near the bottom of their historical ranges, we are obviously not experiencing an asset bubble of all risky assets, but rather a bubble in relative performance: we call it a Macro-Momentum bubble.”

In retrospect, following tremendous valuation repricings of several tech stocks, last week’s LinkedIn devastation being the most notable, he was once again right. And over the weekend, he did what he has every right to do: take another well-deserved victory lap.

This is what he said in his February Market Commentary: “Tech Bubble Burst?”

In our 2016 outlook and recent reports, we identified a macro momentum bubble that developed over the past years. We explained its drivers (central banks, passive assets/momentum strategies, etc.) and called for value to outperform momentum assets. We also highlighted the risk of a bear market and recommended increasing exposure to gold and cash as well as increasing exposure to nondollar assets relative to the S&P 500 (EM Equities, Commodities, Value Stocks, etc.). Our view was that a likely catalyst would be the Fed converging toward ECB/BOJ (rather than proceed with planned ~12 rate hikes by end of 2018). In line with these published forecasts, the best performing assets YTD have been Gold (+9%) and VIX (+20%) while S&P 500 and DXY are down (-7%, and -2%, respectively). Momentum stocks are down more than 10% with an acceleration of the selloff in last days. Emerging Market and Energy stocks are starting to outperform the S&P 500 (MSCI Latin America by +5% and Energy by +1% vs. S&P 500 YTD). This specific pattern of asset moves is consistent with a Value-Momentum convergence. We think the outperformance of value assets over momentum assets is likely to continue.

Investors often ask us how significant are distortions and risks in equity sectors that are related to a “macro momentum bubble.” Specifically, the question is that of valuations in the Technology sector, i.e., “is there a Tech bubble”? Before we share our views, let’s first review how passive investing and momentum strategies may have impacted performance of various equity sectors.

Imagine a world in which most of the assets are passively managed and investors are focused on liquidity and short-term risk/reward. Companies that increased in size recently would keep on increasing, and those that got smaller would see further outflows. Past winners would also be considered low-risk holdings compared to past losers. The most successful managers would be those that replace fundamental valuation with a simple rule: buy what went up yesterday and sell what went down. Passive funds would do the same. It is hard to imagine this makes economic sense long term, but it is close to what equity markets experienced over the past several years. In 2013, the Sharpe ratio of the S&P 500 was ~2.7. Assuming a normal distribution of active asset returns, one could (incorrectly) conclude that being just an average (passive) investor one will outperform ~95% of all active investors. In 2014 and 2015, various momentum strategies delivered Sharpe ratios >2. The winning strategy was not just to go with the crowd, but to do what the crowd did yesterday. This type of trend following does not only apply to extrapolating price trends, but also extrapolating trends in fundamental stock data such as growth and earnings. Beyond a certain point, passive investing and trend following are bound to result in distorted equity valuations and misallocation of capital.

While some parts of the Technology sector certainly have reasonable and even low valuations (see our US equity strategy outlook), segments of the Tech sector disproportionally benefited from momentum investing as well as investing based on extrapolation of past growth rates. For instance, a popular group of stocks held by investors is known by the abbreviation “FANG” (Facebook, Amazon, Netflix, Google). We use these stocks as an illustration for a broader group of similar stocks that have the highest rankings according to momentum and growth metrics (and surprisingly in some cases even low volatility metrics). Given that traditional value metrics look expensive when applied to this group, one can compare these momentum/growth companies on a new set of metrics. For instance, one  can look at the ratio of current price to earnings that the company delivered over all of its lifetime (instead of just the past year). Another metric could be a ratio of CEO or founder’s net worth to total company earnings delivered during its lifetime (see below):

Aggregating all FANG earnings since these companies were listed, one arrives at a ratio of current price to all earnings since inception of ~16x. This can be contrasted to a ratio of price to last years’ earnings for all other S&P 500 companies also at ~16x. We think this is extraordinary given that FANGs are neither small nor new companies. In fact, these are some of the largest companies in the S&P 500 and among the largest holdings of US retirees. Given that the three largest FANG stocks are now twice more valuable than the entire US S&P small-cap universe (600 companies), a legitimate question to ask would be “is such a high allocation by long-term investors to these stocks prudent?” Statistically, over a long period of time smaller companies outperform mega-caps ~75% of times. Note also that the current size ratio of mega-cap stocks to small-cap stocks is at highest level since the tech bubble of 2000.Furthermore, such allocation is also questionable from a risk angle. For example, the idiosyncratic risk of holding three stocks in one sector is certainly much higher than the risk of owning, e.g., ~1,000 medium- or small-cap companies diversified across all sectors and industries.

Investors in high-growth stocks expect innovations to drive growth and sustain high valuation. They may even put their hopes in moonshot projects such as cars built by electronics makers, car makers building spaceships, or internet companies building drones. While many of these could result in important technological breakthroughs, they may also be signs of excess and destruction of shareholders’ capital in the future. Recent examples of capital impairment in the tech sector are illustrated here and here, and more peculiar examples of past excess can be found here and here. In addition to extrapolated and often optimistic growth forecasts, some of the tech sub-industries have high idiosyncratic risks that are likely underappreciated by the market. Standard valuations models incorporate revenue, growth, and profit forecasts but often do not discount for the lifecycle risk of a business. To illustrate: while we are still traveling in aircraft designed over 40 years ago, social network users’ preferences have changed drastically over the past decade (e.g., Friendster and Myspace). A shorter lifecycle is related to low barriers to entry and rapid changes in what is deemed fashionable by young generations (e.g., one cannot build a jetliner in a dorm room, and they don’t go out of fashion as apps do).

In summary, we think that the biases of momentum investing and passive indexation have resulted in valuation distortions across assets as well as equity segments including Technology. Over the past years this trend has picked winning assets, sectors, and stocks often with less regard to fundamental valuation and more regard to momentum and extrapolated growth. We believe that2016 may result in a reversion of this trend that will give an opportunity to active and value investors to outperform passive indices and momentum investorsEven if this rebalancing comes as a result of market volatility and broader equity declines, long term it will benefit capital markets and the efficient allocation of capital.

* * *

Only problem is that this capital reallocation will means countless momentum chasers ‘smart money managers’ will be out of a job in very short notice.

Then again, judging by some initial reactions, even formerly steadfast believers in the FANGs are starting to bail: moments ago CNBC reported that Mark Cuban announced that he purchased options to sell against his entire stake in Netflix, to wit: “For those of following my stock moves, I just bought puts against my entire Netflix position.

Cuban posted comments on Cyber Dust social media platform on Friday. Result: NFLX already down -4%, with FB and other tech momos hot on its heels.

All treasury yields plummet.  The 10 yr pushed below 1.80% signalling the huge downfall in world finances.  However it is the 5 yr rate that has everybody worried:
it is now at 1.17%.  What is most amazing is that the short interest at the treasury yield is held by speculators and the commercials are net long the bonds.
trouble ahead…
(courtesy zero hedge)

Treasury Yield Collapse Leaves 5Y At Crucial Cliff

US Treasury yields are collapsing across the entire curve, down  9-10bps from their pre-opening highs this morning. While 10Y pushed below 1.80% (to one-year lows), it is 5Y yields that have traders the most anxious as they look to break out below three-year channel lows…

What happens next? We suspect more of the same as Net Shorts remain near record highs…

In the 5-Yr part of the curve, since large speculators are typically trend followers and commercial hedgers typically build positions against the trend, it is incredibly odd to see large speculators now holding their shortest position ever, while commercial hedger net-long positions are sitting just shy of historic levels (99.6 %ile).


An excellent commentary over the weekend from David Stockman on the phony jobs report on Friday.
(courtesy David Stockman/ContraCorner)


Why The Bulls Will Get Slaughtered

by  • February 6, 2016

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Well, they got that right. Detecting that “parts of the U.S. jobs report for January seem fishy” MarketWatch offered this pictorial summary:

Needless to say, none of that stink was detected by Steve Liesman and his band of Jobs Friday half-wits who bloviate on bubblevision after each release. This time the BLS report actually showed the US economy lost 2.989 million jobs between December and January. Yet Moody’s Keynesian pitchman, Mark Zandi described it as “perfect”

Yes, the BLS always uses a big seasonal adjustment (SA) in January——so that’s how they got the positive headline number. But the point is that the seasonal adjustment factor for the month is so huge that the resulting month-over-month delta is inherently just plain noise.

To wit, the seasonal adjustment factor for the month was 2.165 million. That means the headline jobs gain of 151k reported on Friday amounted to only7% of the adjustment amount!

Any economist with a modicum of common sense would recognize that even a tiny change in the seasonal adjustment factor would mean a giant variance in the headline figure. So the January SA jobs number cannot possibly reveal any kind of trend whatsoever—-good, bad or indifferent.

But that didn’t stop Beth Ann Bovino, US chief economist at Standard & Poor’s Rating Services, from dispatching the usual all is swell hopium:

“Today’s numbers are about momentum, so while 151,000 new jobs in January is below expectations and off pace from prior months, the data shows America’s recovery is continuing. Amid all the global economic turmoil and domestic market gyrations, positive job growth, the drop in the unemployment rate to 4.9%, and the uptick in wages show the U.S. is heading in the right direction.”

Actually, it proves none of those things. For one thing, the January NSA (non-seasonally adjusted) job loss this year of just under 3 million was173,000 bigger than last January—-suggesting that things are getting worse, not better. In fact, this was the largest January job decline since the 3.69 million job loss in January 2009 at the very bottom months of the Great Recession.

So are we really “heading in the right direction” as claimed by Bovino, Zandi and the rest of the Cool-Aid crowd?

Well, just consider two alternative seasonal adjustment factors for January that have been used by the BLS in the last five years. Had they used the January 2013 adjustment factor this time, the headline gain would have been 171,000 jobs; and had they used the 2010 adjustment factor there would have been a headline loss of 183,000 jobs.

We could say in a variant of the Fox News motto—–we report, you decide. But believe me, you can look at years of seasonal adjustment factors for January (or any other month) and not find any formula. They make it up, as needed.

Likewise, you would think anyone paying half attention would realize by now that the 4.9% official unemployment rate (U-3) is equally meaningless due to the vast number of workers who have exited the “labor force”. In a nearby post, Jeff Snider puts this in perspective by juxtaposing the bottom dwelling trend of the adult employment-to-population rate with the U-3 headline.

His graph makes plain as day that when the U-3 unemployment rate dropped in the past, it was logically correlated with a rising share of the civilian population being employed; and that 5% or better unemployment usually meant a 63-64% employment ratio for the civilian population.

Since the financial crisis of 2008, however, that correlation has broken down completely, and the ratio still has not broken 59.5%. Yet given the 250 million adult population today, it would take about 10 million more jobs than reported on Friday to achieve the reported 4.9% unemployment rate at the historic 63.5% employment ratio.

ABOOK Feb 2016 Payrolls Unem Rate Emp Ratio Longer

The larger point is that the monthly jobs report has now become the essential vehicle for propagating a false recovery narrative that serves the interest of Wall Street and Washington alike. Month after month the artificially concocted and misleading headline jobs number is used to drive home the meme that the nightmare of the financial crisis and recession is fading into the rearview mirror; that the Fed and Washington have fixed the underlying ills, for instance, via Dodd-Frank; and that the soaring value of stocks and other financial assets since the March 2009 bottom are real, sustainable and deserved.

In that context, Obama’s crowing about the alleged success of his economic policies, as evidenced by the 4.9% unemployment rate reported on Friday, was especially annoying. You might have thought that the former community organizer would have noticed that notwithstanding the unfailing appearance of improvement in the BLS charts that prosperity does not seem to be trickling down.

Food stamp participation rates are the still the highest in history, and bear no resemblance to where these ratios stood at early points of so-called full employment in the business cycle. In a word, 4.9% unemployment can’t be true in a setting were the food stamp participation rate is nearly 15%.

Nor did he mention that “good jobs” aspect of the usual Washington blather about employment. The chart below is the reason why. There has been no recovery in the number of full-time, full-pay jobs since the pre-crisis peak.

On the margin, the US economy swapped-out 1.4 million manufacturing jobs for only a slightly higher number of waiters and bar-tenders. Never mind the fact that the average manufacturing job pays $55,000 on an annualized basis compared to less than $20,000 for gigs in restaurants and bars.

We have called this the bread and circuses economy in the past, and the January numbers once again did not disappoint. Nearly one-third of the 151,000 gain for January was in this category alone. Moreover, the 1.83 million job gain since the December 2007 pre-crisis peak accounts for 38% of all the net new jobs generated by the entire US economy during that period.

Bread and Circuses Jobs

Another large—–and aberrant chunk of the January job gain was in retail. Consist with normal post-holiday patterns the NSA count of retail sector jobs dropped from 16.3 million in December to 15.7 million in January, representing a loss of nearly 600,000 jobs. By in defiance of all logic, the BLS seasonally adjusted the number to a gain of 58,000 or more than one-third of the total.

(To be continued)

see you Tuesday night



  1. David Roberts · · Reply

    The statement by the Deutsche Bank CEO must have been written by the same person who made the Lehman announcement only one week before it failed. Freakishly similar.


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