Feb 9/Nikkei collapses by 5.4% last night/Japanese 10 yr bond yield now negative .02%/Another 5.06 tonnes of “paper gold’ added into the GLD/Deutsche bank stock continues to plummet while its credit default swaps rise/Saudi Arabia set to invade Syria/ 7 trillion out of a total of 21 trillion of world debt having negative interest rates/WTI falls into the 27 dollar handle again/

Gold:  $1198.70 up $.80    (comex closing time)

Silver 15.45 up 3 cents

In the access market 5:15 pm

Gold $11.89

Silver: $15.26

At the gold comex today, we had a poor delivery day, registering 14 notices for 1400 ounces. Silver saw 116 notices for 580,000 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 rose by a huge 1913 contracts up to 169,490. In ounces, the OI is still represented by .847 billion oz or 121% of annual global silver production (ex Russia ex China).

In silver we had 116 notices served upon for 580,000 oz.

In gold, the total comex gold OI rose by a huge 16,532 contracts to 414,039 contracts as gold was up $40.10 with yesterday’s trading.

We had another huge change in gold inventory at the GLD, an addition of 5.06 tonnes / thus the inventory rests tonight at 703.52 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 rise by 1913 contracts up to 169,490 as silver was up 65 cents with respect to yesterday’s trading.   The total OI for gold rose by 16,532 contracts to 414,039 contracts as gold was up $40.10 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) Gold trading from NY”

(zero hedge)

3. ASIAN AFFAIRS

i)Late  MONDAY night/ TUESDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei DOWN A WHOPPING  918.86 OF 5.4% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil GAINED  to 30.15 dollars per barrel for WTI and 33.18 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 STORY OF THE DAY FROM ASIA IS THE COLLAPSE ON THE NIKKEI/AND THE FALL IN THE 10 YR JAPANESE BOND YIELD TO NEGATIVE.02% (SEE BELOW)

Three commentaries:

a)Real wages fall as Abenomics fail.  The entire goal of Abenomics was to inflate wages.

( zero hedge)

b)Japanese 10 yr bond yields hit zero for the first time ever and then falls further into negative territory:  The Yen continues to rise causing massive headaches for Abe and his policy of Abenomics: During the night the 10 yr Japanese 10 yr bond yield broke into negative territory at -.02:

( zero hedge)
c)Japanese stocks fall badly as the bond yields collapse!( zero hedge)

EUROPEAN AFFAIRS

i) This morning, the entire globe started focusing on Deutsche bank.  Selling resumes even after the CEO stated that the bank has lots of liquidity and is rock solid.  The problem is he did not address their off balance sheet derivative mess:

( zero hedge)

ii)A very confused Deutsche bank seeks answers to the DAX crash and yet fail to address its credit default swap rise:  (a bet on its demise)

( zero hedge)

iii) Deutsche bank stock crashes to a record low:

( zero hedge)
iv) Now that the Bank of Japan has cut its rate to -.1%, JPMorgan predicts that the ECB will cut its deposit rate to -.5% next month and then in June to -.7% which should unleash an huge deflationary tsunami around the globe:

( JPMorgan/zero hedge)

v)Dave Kranzler on the possible demise of Deutsche bank:

(courtesy Dave Kranzler/IRD)

vi) As European credit markets seize as the total of non performing loans surpass 1 trillion euros, it is only a matter of time that we will witness an economic collapse

( UKTelegraph)

RUSSIAN AND MIDDLE EASTERN AFFAIRS 
 
i)Hezbollah and Iran are decimating the Syrian rebels as Turkey and Saudi Arabia decide what to do next:

( zero hedge)
ii) World tension increases as Saudi Arabia is set to send in special forces into Syria.No doubt this will cause Iran and Russia to enter the fray and potentially set off World War( zero hedge)

ii)Russia is not on high alert with respect to Syria invasion by Saudi Arabia:
( Isachenkov/Associated Press)
GLOBAL ISSUES
 
Seven trillion out of a global 21 trillion of bond issuance is now negative.
( zero hedge)
OIL MARKETS
 
 

i) This morning WTI plunges back below 30 dollars per barrel after Goldman warns that oil may drop into the teens:

( zero hedge)

ii WTI crashes into the 27 dollar handle/credit risk spikes higher/

( zero hedge)
iii) More trouble in the energy patch:  Anadarko slashes its dividend by 80%
( zero hedge)
iv)Inventory builds for both crude and gas

( zero hedge)

PHYSICAL MARKETS:

i) Bloomberg discusses the probability of negative interest rates in the USA

( GATA/Bloomberg)
ii)Lawrence Williams talks about Chinese official reserves and how they park their gold with commercial banks and other entities
 
 
 
 
 
(Courtesy Lawrence Williams/Sharp’s Pixley)

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

i) Markets early this morning:

They spiked the USA/Yen higher causing the Dow to rise over 200 points from this morning:
( zero hedge)

ii) USA investment grade credit risk spikes to a 5 yr high:

( zero hedge)
iii) A good visual as to what the USA’s number one problem:  huge build up of inventory and not enough sales:
( zero hedge)

Let us head over to the comex:

The total gold comex open interest rose to 414,039  for a gain o 16,532 contracts as the price of gold was up $40.10 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, only the first scenario was in order as we actually gained in amount standing in the active delivery month of February. In   February  the OI rose by 184 contracts up to 2416. We had 40 notices filed on yesterday, so we gained 224 contracts or an additional 22,400 oz will stand for delivery. The next non active delivery month of March saw its OI rise by 46 contracts up to 1554. After March, the active delivery month of April saw it’s OI rise by 12,602 contracts up to 296,035.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 180,997 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 268,647 contracts. The comex is in backwardation until April. 

 

Today we had 14 notices filed for 1400 oz.
And now for the wild silver comex results. Silver OI rose by 1913 contracts from 167,577 up to 169,490 as  the price of silver was up by 65 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI remain constant at  140.  We had 0 notices filed on yesterday, so we neither gained nor lost any silver contracts that  will stand in this non active month of February. The next big active contract month is March and here the OI fell by 2,645 contracts down to 98,584.  The volume on the comex today (just comex) came in at 55,446 , which is huge. The confirmed volume yesterday (comex + globex) was very good at 42,421. Silver is not in backwardation at the comex but is in backwardation in London.
 
We had 116 notices filed for 580,000 oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 9/2016

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 16,475.01 oz
500 kilobars
Scotia/Brinks
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  64,300.000 oz
Scotia
2,000 kilobars
No of oz served (contracts) today 14 contracts(1400 oz)
No of oz to be served (notices) 2402 contracts (240,200 oz )
Total monthly oz gold served (contracts) so far this month 846 contracts (84,600 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 503,217.9, oz
Today, we had 0 dealer transactions
total deposit: nil oz/total dealer withdrawals: nil
We had 2  customer withdrawals
i) Out of Scotia:
16,075.000 oz (500 kilobars) ??
ii) Out of Brinks: 400.01 oz
total customer withdrawals; 16,474.01  oz
we had 2 customer deposits:
i) Into Scotia;  64,300.000 oz  (2000 kilobars)  another of these dubious entries!!
total deposits;  64,300.00 oz

we had 1 adjustment.

i) Out of Delaware:

806.695 oz was adjusted out of the customer and this landed into the dealer of Delaware

ii) Out of Brinks:

192.900 oz was adjusted out of the dealer and this landed into the customer account of Brinks

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 14 contract of which 0 notice was stopped (received) by JPMorgan dealer and 4 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 (846) x 100 oz  or 84,600 oz , to which we  add the difference between the open interest for the front month of February (2416 contracts) minus the number of notices served upon today (14) 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 (846) x 100 oz  or ounces + {OI for the front month (2416) minus the number of  notices served upon today (14) x 100 oz which equals 324,800 oz standing in this active delivery month of February ( 10.102 tonnes)
 
we gained 224 contracts or an additional 22400 oz will stand for delivery
We thus have 10.102 tonnes of gold standing and 7.1344 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 229,374.740 or 7.1344
Total gold inventory (dealer and customer) =6,562148.908 or 204.11 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 204.11 tonnes for a loss of 99 tonnes over that period. 
 
JPMorgan has only 21.99 tonnes of gold total (both dealer and customer)
end
 
 
And now for silver

FEBRUARY INITIAL standings/

feb 9/2016:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory   51,445.97 oz oz

(Delaware,HSBC
Scotia)

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 597,092.363 oz,
HSBC
No of oz served today (contracts) 116 contracts 580,000 oz
No of oz to be served (notices) 140  contracts (700,000 oz)
Total monthly oz silver served (contracts) 116 contracts 580,000
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month 5,841,355.4 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 1 customer deposits:

i) Into HSBC:  597,092.363 oz

total customer deposits: 597,092.363 oz

We had 3 customer withdrawals:
 
i) Out of HSBC:  20,107.960  oz
ii) Out of Delaware 1,031.800 oz
iii) out of Scotia:  30,306.210. oz
 

total withdrawals from customer account 51,445.97   oz 

 we had 1 adjustment:

i) Out of CNT  a huge 374,493.900 oz was adjusted out of the customer and this landed into the dealer account of CNT

 

The total number of notices filed today for the February contract month is represented by 116 contracts for 580,000 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 (116) x 5,000 oz  = 580,000 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 (116) x 5000 oz equals the number of ounces standing
 
Thus the initial standings for silver for the February. contract month:
116 (notices served so far)x 5000 oz +(140 { OI for front month of February ) -number of notices served upon today (116)x 5000 oz   equals 700,000  of silver standing for the February. contract month.
 
we neither gained nor lost any silver ounces standing in this non active delivery month of February.
Total dealer silver:  28.904 million
Total number of dealer and customer silver:   156.604 million oz
end
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 9./a huge addition of 5.06 tonnes of gold into the GLD/Inventory rests at 703.52 tonnes/ (no doubt that this addition is paper gold/not physical/

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 9.2016:  inventory rests at 703.52 tonnes

 

Now the SLV:
Feb 9/no change in inventory at the SLV/Inventory rests at 308.999 million oz/
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 9.2016: 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 9.2016).
2. Sprott silver fund (PSLV): Premium to NAV falls to  +0.85%!!!! NAV (feb 9.2016) 
3. Sprott gold fund (PHYS): premium to NAV falls to- 0.65% to NAV feb 9/2016)
Note: Sprott silver trust back  into positive territory at +0.85%/Sprott physical gold trust is back into negative territory at -0.65%/Central fund of Canada’s is still in jail.
 
 
 

end

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

 

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

“Gold’s Fundamentals and Technicals Look Better and Better”

Gold surged another 1.5% higher yesterday, and had its best closing level since mid-June as strong physical demand and concerns about the global economy, the banking sector and the risks of a new global financial crisis saw further gains.

gold beach ball
Gold jumped $34.70, or 3%, to $1,192.40 an ounce and registered its best single-session point and percentage gain since December 2014.

“Gold was like a beach ball that had been pushed too low in the water and is now bouncing higher with a vengeance,” Mark O’Byrne, research director at GoldCore, told MarketWatch:

But prices have climbed by more than 12% higher in just 5 weeks so a “correction is quite possible and may take place when gold reaches $1,200 per ounce.”

He says a correction is likely on tap, but the “more important question is whether gold has bottomed and we are in a new bull market.”

“We believe we are and gold’s fundamentals and technicals look better and better,” said O’Byrne.

Global stock markets are facing sharp losses amid more signs that international growth is tapering, led by the world’s second-largest economy, China.

Market participants said this week’s start of the Lunar New Year—a holiday in China and many parts of Asia—was helping drive physical demand for gold.

“While the Chinese Lunar New Year is the high point for Chinese gold demand, it does not drop off significantly afterward as the steady current of growing middle classes continues to attract demand,” said Julian Phillips, a founder and contributor to GoldForecaster.com.

“This is not just a one-off purchase when they become middle class—it signals the start of a continuous purchasing pattern,” he said.

Other metals on Comex traded mostly higher. March Silver, outpaced the gains in gold to gain 55.7 cents, or 3.8%, to $15.34 an ounce.

LBMA Gold Prices

9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
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

Gold and Silver News and Commentary – Click here

VAT Free Silver Coins for Delivery and Storage in Ireland, UK and EU

We are now delivering legal tender silver coins, VAT free, in Ireland, the UK and the EU including the Perth Mint’s new Silver Kangaroos (2016). U.S. buyers already enjoyed not having to pay sales tax on silver bullion coins.

GoldCore continue to believe that silver is set to outperform most assets and even gold and believe that $100 per ounce will be achieved in the coming years.

More importantly, legal tender silver bullion coins – like Silver Kangaroos (Nuggets), Britannias, Eagles, Maples and Philharmonics are great forms of insurance against currency debasement and financial collapse. They also make great gifts for loved ones and are a great way to pass on wealth to the next generation.

Call Us Today For Your Silver Bullion Coins

US +1 (302) 635 1160
UK +44 (0)203 086 9200
IRL +353 (0)1 632 5010

Published in Daily Market Update
 

Mark O’Byrne

end
Bloomberg discusses the probability of negative interest rates in the USA
(courtesy GATA/Bloomberg)

The probability of negative U.S. rates is on the rise

Submitted by cpowell on Mon, 2016-02-08 18:57. Section: 

By Alexandra Scaggs
Bloomberg News
Monday, February 8, 2016

Global central banks have opened the door to negative U.S. interest rates, in Wall Street’s view.

After the Bank of Japan cut some rates below zero last month to spur growth and inflation, strategists are weighing the Federal Reserve’s options in case of a crisis. If the world’s biggest economy weakens enough that traditional policy measures don’t help, the Fed may consider pushing rates below zero, according to Bank of America Corp. and JPMorgan Chase & Co.

That step would broaden the Fed’s toolkit beyond what was available during the financial crisis, when it slashed its overnight benchmark near zero and bought bonds to stimulate the economy. In 2012, New York Fed researchers said negative rates could prompt individuals to avoid depositing money in banks, potentially weakening the financial system. …

… For the remainder of the report:

http://www.bloomberg.com/news/articles/2016-02-08/negative-rates-seen-as…

 
 
 
end
 
 
Lawrence Williams talks about Chinese official reserves and how they park their gold with commercial banks and other entities
(Courtesy Lawrence Williams/Sharp’s Pixley)
 
 

LAWRIE WILLIAMS: China still building gold reserves, running down forex

Feb
09

As the Chinese New Year begins, China is continuing to build its gold reserves at a similar rate to the last six months of last year. In January it added just over 16 more tonnes to its gold reserve total bringing the official figure to 1,778 tonnes as is being reported to the IMF. Whether this is a true total or not remains open to doubt given the nation’s history of concealing its full gold reserve position. If the current rate of purchase continues, and we see no reason why it is likely to be cut back given the nation’s view on the importance of gold in the probably inevitable forthcoming global financial reboot, the country will add another 200 tonnes to its gold reserves this year.

Is this the true position? In the past China has hidden gold from it being reported to the IMF in separate accounts and only announced new total gold reserve figures when it has suited it to do so, but whether even these are the true position is obviously still open to doubt. Also, gold consultancy GFMS’s latest Quarterly update suggests that Chinese commercial banks, which are state owned, had built up internal gold holdings of some 1,900 tonnes by the first half of 2015 (and this may well have expanded to around 2,000 tonnes by the year end given the strength of Shanghai Gold Exchange withdrawals which totalled 2,596 tonnes in 2015. This SGE withdrawals figure is hugely higher than the less than 1,000 tonnes GFMS rates as Chinese gold ‘consumption’, yet this gold has to be going somewhere and commercial bank vaults could well account for much of the difference. Could this be being held on behalf of the government.so that would put China’s true gold reserve position at around 3,800 tonnes – much closer to many Western analysts’ estimates of China’s real gold holdings.

Indeed if China is also using other government accounts in which to hold some of its gold, as it has in the past, the total could be far higher. All this is pure speculation on our part – we don’t know, but it would fit in with the big gold inflows which are apparent from Western nation and Hong Kong reported gold export statistics for mainland China, plus China’s own domestic gold output estimated by GFMS at just over 450 tonnes last year. Together these known gold flows into China come to around 2,000 tonnes last year – more than double the GFMS ‘consumption’ estimates – and there are also likely direct gold imports from other sources which we don’t know about.

One other point which has arisen from China’s latest gold and forex reserve stats is that the latter fell by a further $98.46 billion in December – continuing the sharp forex reserve downtrend which has been ongoing since early 2014. Even so this is something of a drop in the ocean compared with the nation’s massive total forex reserve position of $3.23 TRILLION. Much of this drop in reserves has been due to China’s perceived need to defend the yuan parity with the dollar to preserve domestic and area confidence in China’s economic state – albeit it is also combining this with a slow managed depreciation of the yuan too. A side effect of course is that its enormous holdings of US Treasuries are also being depleted too – perhaps rather faster than the overall downturn in forex reserves might suggest.

-END-

 
 
(courtesy Bill Holter/Holter/Sinclair collaboration)
 
 
 
Germans and Japanese play “rollover”!
 
 
After my last article we received two logical questions from readers.  The first one pertaining to “gaps” and the Deutsche Bank derivative exposure, the second pertaining to Japan’s strong currency with negative yields while the debt to GDP levels are astronomical.  Below is the first question;
 
“In the past you have warned about derivative exposure and now gapping.
 
One of my worst fears as a day trader on a derivatives platform is gapping. That is why I will never have an open position when the market is closed. Even then, that is not guaranteed.
 
A lot of trading platforms got hammered when the Swiss franc was revalued.
 
Could you put out a letter for your readers explaining why for example the Deutsche Bank derivatives exposure is so dangerous in terms of gapping.”
 
  In my opinion, this is a very astute observation.  The reader will not carry overnight positions because as he says, “the Swiss franc revaluation killed many” within less than 10 minutes of the markets opening.  That said, even if not in any overnight position and the great leveling moment comes, how does anyone know if their broker even survives the carnage …with YOUR MONEY?  But this is another topic entirely.
  As for Deutsche Bank, we know they have been recently screaming about negative interest rates hurting their operations.  This very well may be so, but it is my opinion it is not so much negative interest rates killing them.  I believe it is off balance sheet derivatives.  Not only has DB denied any problem, the German finance minister has now chimed in with reassurance! http://www.zerohedge.com/news/2016-02-09/german-finance-minister-joins-db-ceo-says-not-worried-about-deutsche-bank  Where have we seen this before?  Does Bear Stearns or Lehman Bros. ring a bell?  Doth the Germans protest too much?  By the way, their credit spreads are stretching out, and stock price has now taken out the 2008 lows! 
  The second question regarding confusion of Japan’s 10 yr. yield hitting 0% and their currency strengthening while being the fiscal basket case of the world is also a good one but very simple to explain. http://www.zerohedge.com/news/2016-02-08/japanese-10y-yield-hits-zero-first-time-ever-yen-strongest-2014-stocks-crash   Japan has a debt to GDP ratio of 260%, if you add in corporate debt it approaches 400%, how could they not have a crashing currency and 20% (or higher) interest rates?  The simple answer is this, the global “carry trade” is unwinding.  The Japanese yen was a major tool used to create and float the carry trade which inflated assets.  Now, as asset prices are falling, this trade is being unwound (think of it as a margin call).  Previous yen that were borrowed are now being bought back to settle the trade.  This was a synthetic short similar to the dollar short being covered.  A quick question and very short answer, why would anyone in their right mind invest money for 10 years at zero percent in a currency who’s issuer publicly states their goal is to grossly debase?  Answer:  BECAUSE THEY HAVE TO!
  The problem is this, as the yen strengthens from short covering it is putting more and more of these carry trades under water and actually forcing more sales of assets and more buying of yen.  This will end in one of two ways …both badly!  Either the trades get unwound with asset prices collapsing and the yen at truly stupid levels, or someone “fails” and the derivatives chain breaks.  I would personally bet the farm on option number two.  
  While writing this, CNBC is parading guest after guest as to whether a recession is “likely” …IDIOTS!  This is not about a “recession”, this is about whether the entire system fails or not!  Can Deutsche Bank “fail” while being counter party to over $70 trillion in derivatives?  Can even a small counter party fail without causing a cascade?  Just look at the volatility in markets, junk bonds are collapsing, credit spreads blowing out, currencies making wild swings, $7 trillion worth of sovereign debt trading at negative interest rates …not to mention stock markets moving from all time highs into bear markets within just a couple of months.  (While editing this, CNBC is actually questioning if DB is a “one off” situation?  Is this even possible?  Do they even understand what they are asking?!!!)
  Do you think “someone” might have lost some money since January 1st?  Enough to bankrupt them?  THIS is the question!  The answer in my opinion is this, there are dead bodies strewn all over the place yet are hidden from view.  They are being hidden from view because if they are seen, the entire system comes into question with answers being delivered within probably a 48 hour period. The answer of course will be the biggest “gaps” in all of history …both in price AND time!  By this I am saying the re opening gaps will be larger in percentage and the time to reopen longer than ever before.
  Whether you want to see it or not, the financial system is in a forced unwinding.  It took some 70 years to build this great credit edifice, when it goes it may take less than 48 hours to take it ALL down.  To finish I leave you with a short clip of what the collapse might look like …and how quickly it can get there! https://www.youtube.com/watch?v=KUsj7EdZigM
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com
 end
 
 

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

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

2 Nikkei closed down 918.86 or 5.40%

3. Europe stocks all in the RED /USA dollar index down to 96.44/Euro up to 1.1223

3b Japan 10 year bond yield: falls badly  TO -.02    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 115.01

3c Nikkei now well below 18,000

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

3e WTI:: 30.24  and Brent: 33.18 

3f Gold down  /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 up for WTI and up for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to 0.200%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate rise to 12.74%/: 

3j Greek 10 year bond yield rise to  : 10.57%  (yield curve deeply  inverted)

3k Gold at $1192.00/silver $15.34 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble down 60/100 in  roubles/dollar) 78.58

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.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9802 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1003 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 8 year German bund now  in negative territory with the 10 year falls to  + .200%/German 8 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 1.76% early this morning. Thirty year rate  at 2.59% /POLICY ERROR)

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

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

Global Markets Stunned By Biggest Japan Crash Since 2013; All Eyes On Deutsche Bank

With China offline for the rest of the week, global markets have found a new Asian bogeyman in the face of Japan which as reported last night saw its markets crash, and the Yen soar, showing that less than 2 weeks after the BOJ unveiled NIRP, yet another central bank has lost control.

The Nikkei crashed 5.4%, the biggest drop since June 2013, dropping over 900 points to August 24 lows driven by crashing banks, while the Yen soared to 114.50 overnight before the BOJ desperately tried to push the Yen lower, with London dealers reported the BoJ checking rates and levels to prompt short covering through 115.

But while the BOJ failed to push up equities, it certain managed to launch a panic buying spree in JGBs, which as also reported finally slid into negative yield territory, thus boosting the global number of bonds with a negative yield to just shy 30% of total or roughly $7 trillion!

Aside from Japan, everyone is looking at the bank which we first asked if it was “the next Lehman” last June, namely Germany’s Deutsche Bank, to see if yesterday’d desperate scramble to publicly confirm it has sufficient liquidity will sufficient will stop the price from dropping and its CDS from blowing out. For now, the stock is indeed up modestly, even if the CDS has refused to tighten suggesting that whatever management did, it is not enough and it is only a matter of time before the selling returns.

As a result of this temporary stabilization in financials, the Europe 600 Index was little changed after closing Monday at its lowest level since 2014, and U.S. equity-index futures were also steady. European indexes of credit-default swaps on corporate debt fell for the first time in more than a week, Germany’s 10-year bund yield climbed the most this year and crude in New York rose above $30 a barrel. Equities in Tokyo slumped earlier by the most since August and the yield on 10-year Japanese government bonds turned negative for the first time.

“Volatility is getting very high,” Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany told BLoomberg. “Investors need to increase their cash and be careful in case they see any buying opportunities. A technical rally may easily get sold again, we won’t come back to calm waters soon.”

While oil took on secondary importance during yesterday’s financial-led rout, expect algos and even human traders to pay more attention to crude today after the latest IEA monthly reported predicted supply will exceed demand by an avg of 1.75m b/d in 1H, compared w/ fcast of 1.5m last month.  “With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short term risk to the downside has increased,” IEA says. It added that the global oil demand fcast for 2016 100k b/d lower than previous mos. report at 95.6m b/d. Elsewhere, Goldman once again warned that oil may drop into the teens as land storage capacity is exhausted.

Looking at today’s calendar, it’s another fairly quiet session for data in Europe this morning with the only releases of note being the December trade numbers out of the UK and Germany along with the latest industrial production data in the latter. Over in the US the early release is the NFIB small business optimism survey for January, followed by the December JOLTS job openings and wholesale trade sales and inventories data. As a reminder, JOLTS data is released with a one-month lag so the data will be reflecting what was a bumper month for hiring (payrolls +262k) in December and not reflective of the recent softer payrolls number. Earnings wise we’ve got 18 S&P 500 companies set to report including Walt Disney and Coca-Cola.

Market Wrap

  • S&P 500 futures down 0.4% to 1844
  • Stoxx 600 down 0.6% to 312
  • DAX down 0.5% to 8926
  • German 10Yr yield up 5bps to 0.27%
  • Italian 10Yr yield up 1bp to 1.69%
  • Spanish 10Yr yield up less than 1bp to 1.76%
  • MSCI Asia Pacific down 2.9% to 118
  • Nikkei 225 down 5.4% to 16085
  • S&P/ASX 200 down 2.9% to 4832
  • US 10-yr yield up 1bps to 1.76%
  • Dollar Index down 0.06% to 96.52
  • WTI Crude futures up 2.0% to $30.29
  • Brent Futures up 2% to $33.54
  • Gold spot down 0.1% to $1,188
  • Silver spot up less than 0.1% to $15.32

Top Global News

  • Michael Bloomberg Tells FT He’s Considering Run for President: tells FT he’s “looking at all the options”
  • IEA Raises Estimate of Surplus Oil Supply on Higher OPEC Output: Excess seen at 1.75m barrels a day in 1H
  • Japan Joins German Bond Wonderland as Yields Below Zero the Norm: Lower borrowing costs come at expense of resurgent yen
  • Renzi Is Betting on Cameron, Sees Anti-‘Brexit’ Deal Soon: Italian premier says proposed changes ‘a good compromise’
  • Google, Apple Face Kremlin Tax Fire for ‘Milking’ Russia: Google’s reach considered national security threat to Russia
  • Deutsche Bank Says It Can Pay Coupons in Sign Jitters Mount: Lender is due to pay about EU350m in April
  • AIG Said to Plan Exit From at Least Half of Hedge Fund Positions: Insurer said to limit to 50 funds or fewer, from more than 100
  • Japan Fund Said to Pitch Sharp on Plan for Smart Appliance Giant: INCJ sets aside 100b yen as acquisition war chest

A quick look at regional markets, we start in Asia where stocks picked up where global equities left off as the newly added woes triggered by Deutsche Bank has seen the financial sector deflate the Asia-Pac region. In turn, the Nikkei 225 (-5.4%) bared the brunt of the risk-off sentiment, with banks in the region feeling the squeeze, whilst a firmer JPY saw the bourse fall over 900 points. Elsewhere, ASX 200 (-2.9%) could not escape the reach of the downbeat tone as the index was also pressured by financials, which accounts for nearly half of the total composition of the bourse. JGBs were bolstered by the dampened sentiment sparking flight-to-quality trade, with yields across the curve yet again falling to record lows, additionally Japanese 10yr yields are now the first among the G7 nations to go negative.

Asian Top News

  • Yen Jumps to 2014 High as Japan 10-Year Yield Drops Below Zero: Yen rose against all 31 major peers as Topix tumbled 5.5%, 10 yr yield fell unprecedented decline below zero
  • Credit Risk Soars From Japan to Australia on Global Bank Anxiety: Credit-default swap costs in Japan, AU soared amid markets across much of Asia Pacific closed for Lunar New Year
  • Beefing Up Down Under: Aussies Find New Boom in China Demand: Aussie beef sales to China surged six-fold in 3 yrs to a record A$917m in 2015; export boom signals AU is successfully transitioning away from mining
  • India State Firms’ Valuation Discount May Trigger Rebound: Chart; Shrs of India’s state-run cos are cheapest in more than two yrs relative to stocks on nation’s benchmark index

Fears over the European banking sector linger in markets this morning and European equity markets have seen choppy price action since the open. Initially led lower by the Nikkei 225 closing lower by over 5%, equities have since trended higher after in vogue Deutsche Bank stated that that their 2016 payment capacity is enough to finance their AT1 payment. As a result, the German heavyweight provided some reprieve for Europe, with the iTraxx Sub Financial index, an index tracking the value of CDS’s, moving in sympathy with Deutsche and tightening by 19bps. The same cannot be said for Credit Suisse (-3.7%) however, the Swiss bank is continuing to suffer from its poor earnings reported last week and questions surrounding the banks’ ability to a large fine.

European Top News

  • Primonial-Led Group Buys Gecina Health Assets for $1.51b: Deal to be completed mid-2016
  • Swedbank CEO Ousted by Board as Permanent Replacement Sought: Michael Wolf, 52, will be replaced by Birgitte Bonnesen as acting CEO
  • TUI Turkish Bookings Plunge as Vacationers Seek Safer Spain: Turkey summer reservations tumble 40% after January attack
  • Vestas Wind Raises Dividend Predicting Record Sales After Boom: sees EU9b of sales in 2016, 11% margin
  • Vestas CEO Says He Has ‘No Intention’ of Bidding for Gamesa
  • Pound Seen Tumbling Whether U.K. Stays in EU or Seeks ‘Brexit’: Biggest bears’ forecasts aren’t contingent on U.K. quitting
  • Sanofi Says Profit Won’t Grow as Bestseller Lantus Fades: Lantus sales drop amid biosimilar competition in Europe
  • Tesco Sales Drop Eases as U.K. Grocery Leader Begins Turnaround: Kantar data suggests customers may be returning
  • Pandora Forecasts Slower Sales Growth on Trimmed Expansion Plans: Sales this year will rise at least 14% to 19b kroner in 2016, vs growth rate of 40% last year
  • Securitas 4Q EPS Misses Ests.; Dividend Raised: 4Q EPS SEK1.83 vs est. SEK1.98
  • Handelsbanken Profit Rose Less Than Estimated in Fourth Quarter: Loan losses greater than expected, increased costs

In FX, Once again it was an early London session left to provide some stability in the markets, and in FX improved liquidity levels naturally help. USD/JPY lows in Asia bottomed out at 114.22, but dealers reported the BoJ checking rates and levels to prompt short covering through 115.00, though 115.50 has proved an obstacle since. EUR/USD continues to trade in the opposite direction, but it is a little too early to suggest the 1.1236 highs are the top of the move. The commodity currencies take a back seat as Oil stabilises and Gold now a safe haven. USD/CAD is still holding off 1.4000, while AUD is propped up ahead of .7000. GBP posted fresh 1 year lows against the EUR ahead of .7800, but has retraced in line with EUR/USD. Cable pivoting on 1.4400 for now. EUR/CHF now just under 1.1000 as CHF naturally benefitting in current climate.

Looking at commodities, oil took a back seat in yesterday’s trade, however has quietly ticked higher in Europe, with WTI Mar’16 futures comfortably holding the USD 30.00 handle and as such the energy sector is one of the better performers in Europe. However a note from Goldman Sachs saying that oil could oil prices ‘go into the teens’, may cause oil bulls some anxiety.

As North American participants come to their desks the yellow metal has dipped below the USD 1900/oz level, finding a tight range following yesterday’s stock-market rout inspired gains. Of note, Goldman Sachs have said they are not buying into the recent rally, as they still foresee three fed hikes this year, driving the price of gold down to around USD 1000/oz by year end

Bulletin Headline Summary From RanSquawk and Bloomberg

  • In a choppy session, Deutsche Bank (+1.3%) trades higher in Europe after stating stated that that their 2016 payment capacity is enough to finance their AT1 payment
  • Once again it was an early London session left to provide some stability in the markets, and in FX improved liquidity levels naturally help
  • Today’s highlights include: US JOLTS job openings and Wholesale inventories, as well as comments from ECB’s Linde
  • Treasuries lower in overnight trading before week’s note auctions begin with $24b 3Y notes, WI 0.845% vs 1.174% in Jan., was first 3Y to stop through by more than 1bp since Aug. 2011.
  • Deutsche Bank, under pressure over its ability to pay coupons on the riskiest debt, reassured investors that it has sufficient funds after the shares plunged the most in almost seven years, eroding almost €2 billion ($2.2 billion) in market value
  • European banks have “ample liquidity,” with deposits flowing in and higher capital buffers, reducing the risk of repeating the financial crisis, according to Goldman Sachs
  • Central banks’ ultra-loose monetary policy is putting the world economy at risk, said William White, a senior adviser to the Organization for Economic Cooperation and Development
  • The yield on Japan’s benchmark 10Y bond fell below zero for the first time, an unprecedented level for a G7 economy, as global financial turmoil and the Bank of Japan’s adoption of negative interest rates drive demand for the notes
  • The Federal Reserve may not have the legal authority to set negative interest rates in the U.S., according to a 2010 staff memo that was posted late last month on the central bank’s website
  • Oil could drop below $20 a barrel as the search for a level that brings supply and demand back into balance makes prices even more volatile, Goldman Sachs predicted
  • The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the IEA
  • German industrial production unexpectedly fell for a second month in December, a sign that a slowdown in major export markets is holding back factory activity despite strong domestic demand
  • President Obama will send a fiscal 2017 budget of ~$4 trillion to the Republican-controlled Congress on Tuesday representing his aspirations for the future of the U.S. Little of it, as the Obama administration acknowledges, will become law anytime soon
  • No IG corporates (YTD volume $181.575b) and no HY (YTD volume $9.015b) priced Friday
  • BofAML Corporate Master Index OAS 4bp higher yesterday at +213 (highest since July 2012), +11bp MTD, +40bp YTD; T1Y range 213/129
  • BofAML High Yield Master II OAS 41bp higher yesterday at +851 (highest since Oct. 2011), +74bp MTD, +156bp YTD; T1Y range 851/438
  • Sovereign 10Y bond yields mixed with Greece +27bp, Portugal +13bp. European stocks mixed, Asian stocks lower (China closed for holiday); U.S. equity-index futures drop. Crude oil rises, copper, gold fall

DB’s Jim Reid concludes the overnight wrap

Onto the latest in Asia this morning now where bourses in Japan and Australia are extending much of yesterday’s turmoil. It’s the moves in Japan which have been more eye-catching with the Topix and Nikkei currently -5.71% and – 5.58% and moving lower as we go to print. In Australia the ASX is -2.88%. Credit markets have taken a big hit in the region with iTraxx Japan and Australia indices both +10bps wider. Meanwhile 10y JGB’s have crossed into negative territory this morning and plummeted to fresh record lows. The benchmark maturity is down over 3bps in early trading and currently sitting at -0.022%. That’s despite another strong performance for the Yen, currently up over 1% and in the process reaching a 15-month high and extending the incredible run since the BoJ cut rates to negative. Oil is hovering around the $30/bbl mark while US equity futures are down around 1% as we refresh our screens.

Moving on. The latest DB TheHouseView titled “Still deep in the woods” came out overnight. The team notes that in addition to the initial concerns about China and energy, two new issues are further weighing on risk sentiment: the slowdown in US growth momentum and the tightening of financial conditions especially in European financial credit. Their macro outlook for 2016 is broadly unchanged so far, uninspiring but not a disaster, but they note that downside risks have risen both in the US and in Europe. Until US growth, European financial conditions, China and oil concerns are put aside, markets will remain volatile and a sustained change in risk appetite is difficult.

In truth yesterday was dominated by the moves for European financials with very little newsflow or data elsewhere to drive markets. The latter was largely secondary in nature. In Europe we saw the Sentix investor confidence reading for the Euro area decline 3.6pts this month to 6.0 (vs. 7.4 expected). Meanwhile in the US the labour market conditions index was softer than expected last month at 0.4 (vs. 2.0 expected), a fall of 1.9pts relative to December.

Unsurprisingly safe-havens dominated the few asset classes which actually saw gains yesterday. Of particular note was the move for Gold which finished up +1.35% for its fourth consecutive daily gain of at least 1%, with the metal at one stage trading up through $1200/oz for the first time since June last year. Meanwhile core sovereign bond yields marched lower. 10y Bunds finished just shy of 8bps lower at 0.216% and the lowest since April last year when the yield closed at a record low 7.4bps at one stage. Other core European bond markets saw similar moves while the peripherals sold off with Italy, Spain and Portugal +12.3bps, +10.7bps and +25.3bps wider respectively. 10y Treasury yields (-8.7bps) closed at the lowest in 12-months meanwhile at 1.749% (and have marched lower this morning, testing 1.7% to the downside) while the probability of the one Fed rate hike this year has quickly plummeted back towards 30%.

Before we move onto today’s calendar, one interesting highlight from the ECB’s Coeure yesterday was the reference to potential coordination on emerging market currencies. In an interview with French press, Coeure suggested that a further depreciation for EM currencies is possible and that ‘that’s an issue for global coordination’ which will be discussed at the G20 finance ministers meeting in Shanghai in 10 days time.

Looking at the day ahead now, it’s another fairly quiet session for data in Europe this morning with the only releases of note being the December trade numbers out of the UK and Germany along with the latest industrial production data in the latter. Over in the US the early release is the NFIB small business optimism survey for January, followed by the December JOLTS job openings and wholesale trade sales and inventories data. As a reminder, JOLTS data is released with a one-month lag so the data will be reflecting what was a bumper month for hiring (payrolls +262k) in December and not reflective of the recent softer payrolls number. Earnings wise we’ve got 18 S&P 500 companies set to report including Walt Disney and Coca-Cola.

end

Let us begin:

ASIAN AFFAIRS

Late  MONDAY night/ TUESDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei DOWN A WHOPPING  918.86 OF 5.4% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil GAINED  to 30.15 dollars per barrel for WTI and 33.18 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 STORY OF THE DAY FROM ASIA IS THE COLLAPSE ON THE NIKKEI/AND THE FALL IN THE 10 YR JAPANESE BOND YIELD TO NEGATIVE.02% (SEE BELOW)

Three commentaries:

Real wages fall as abenomics fail.  The entire goal of Abenomics was to inflate wages.

(courtesy zero hedge)

Abenomics Fails Miserably As Japan’s Workers “Get Nothing” In 2015

Late last month, in what amounted to a tacit admission that nothing is working when it comes to pulling Japan out of its decades’ long stint in the deflationary doldrums, the BoJ adopted negative rates.

Haruhiko Kuroda’s move to plunge Japan into the NIRP twilight zone (where it joins Denmark, Sweden, Switzerland, and the whole of Europe) comes just as the BoJ effectively runs out of room when it comes to implementing further QE. The central bank is already monetizing the entirety of gross JGB issuance and is on pace to own nearly the entire Japanese ETF market.

In short, there’s nothing left to buy. Everything that can be monetized without completely breaking/distorting markets has been monetized and yet inflation remains stubbornly low.

So, in a last ditch effort to provide the spark Japan needs to hit the elusive 2% inflation target, Kuroda went NIRP. Subsequently, he promised to take rates even further into negative territory if necessary, a declaration which a year ago would have been good for a sharp equity and USDJPY rally but which now, much like other central banker jawboning, has a market half-life of about an hour.

Of course it’s not just the deflationary impulse that Japan is struggling to combat. There’s also a persistent lack of wage growth. “Wages need to rise at a 3 percent annual pace to achieve stable 2 percent inflation,” Bloomberg reminds us.

In short, Japan is nowhere near 3% when it comes to rising worker pay. In fact, data out on Monday shows that wage growth for 2015 was just 0.1%, down from an already abysmal 0.4% in 2014.

In other words: wages have flatlined.

For December, real wages fell 0.1% Y/Y. That’s the second straight month of decline. “Total wages in Japan haven’t risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for,” Bloomberg adds, in an extremely amusing indictment of the country’s complete failure to put the “lost decade” behind it.

Here’s the complete breakdown from Goldman:

Preliminary data show winter special wages down 0.4% yoy: Nominal cash wages in December came in at +0.1% yoy, a slight increase from 0.0% in November. Basic wages continued the uptrend, coming in at +0.7% yoy (November: +0.3%), but overtime wages slowed to +0.8% (+1.2%). Special wages, which include winter bonuses and can account for around 50% of nominal cash wages, were down in December, coming in at -0.4% (preliminary data basis).

Over 2015, nominal cash wages rose 0.1% yoy, a slowdown from growth of 0.4% in 2014. Basic wages improved a sharp 0.3% (2014: -0.4%), but special wages were down 0.8%, and overtime wages also slowed.

Real wages negative for second straight month: December real wages fell 0.1% yoy, for the second straight month of decline, reflecting the small increase in total nominal cash wages of only 0.1%, and a rise of 0.2% yoy in the CPI excluding imputed rent (which is used in the calculation of real wages) in December. While basic wages remain on a growth path, albeit modestly, wage conditions in general, including bonuses and overtime wages, have deteriorated.

Obviously, none of that bodes particularly well for the Japanese consumer. Domestic consumption is expected to have shrunk in Q4, marking the second quarter of contraction for the year.

“The pace of wage gains has been very slow when you think about how much labor shortage there is,” Hisashi Yamada, chief economist at the Japan Research Institute in Tokyo lamented on Monday.

Perhaps Japan’s beleaguered workerkers should take a page out of Abenomics architect Akira Amari’s book and just resort to taking bribes when they need a few extrra yen.

Unfortunately for Japan, Kuroda has very nearly reached the Keynesian endgame. That is, the BoJ’s counter-cyclical capacity is exhausted. Expanding QE any further risks seriously impairing liquidity and market function and taking rates further into negative territory risks more cancelled JGB auctions which in turn inhibit QE. There’s simply nothing else the central bank can do.

With Abenomics having thus failed miserably, we’ll sit back and wait for the day when Abe and Kuroda finally take a long bow and fall (figuratively speaking we hope) on their swords.

end

Japanese 10 yr bond yields hit zero for the first time ever and then falls further into negative territory:  The Yen continues to rise causing massive headaches for Abe and his policy of Abenomics: During the night the 10 yr Japanese 10 yr bond yield broke into negative territory at -.02:

(courtesy zero hedge)

Japanese 10Y Yield Hits Zero For First Time Ever, Yen Strongest Since 2014, Stocks Crash

Following earlier comments from yet another Japanese talking head that deflation will be fixed any day now, the Japanese bond curve continues to collapse with yields hitting record lows across the entire spectrum. Most notably, 10Y JGBs – which were trading 24bps before BoJ NIRP – just traded with a 0bp handle for the first time ever, ready to join Switzerland as the only nations with negative  rates at 10Y. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs).

Bond yields are plunging…

  • *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS TO ZERO FOR 1ST TIME
  • *JAPAN’S 5-YEAR YIELD FALLS TO RECORD -0.205%

And stocks are crashing as USDJPY tumbles…

  • *YEN CLIMBS PAST 115 PER DOLLAR TO STRONGEST SINCE 2014

Jose Canseco will not be happy.

end

Japanese stocks fall badly as the bond yields collapse!

(courtesy zero hedge)

Japan In Turmoil: Stocks, USDJPY, Bond Yields Collapse

The total and utter failure of The BoJ continues to accelerate…

  • *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS BELOW ZERO FIRST TIME

Stocks have crashed the most since Black Monday erasing all QQE2 gains..

With Japanese Bank stocks  leading the way, now down 25% since NIRP was unleashed (and 32% since the start of the year)…

  • *NOMURA EXTENDS DECLINE, FALLS AS MUCH AS 12%

And USDJPY is in freefall…

*  *  *

As we detailed earlier..

Following earlier comments from yet another Japanese talking head that deflation will be fixed any day now, the Japanese bond curve continues to collapse with yields hitting record lows across the entire spectrum. Most notably, 10Y JGBs – which were trading 24bps before BoJ NIRP – just traded with a 0bp handle for the first time ever, ready to join Switzerland as the only nations with negative  rates at 10Y. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs).

Bond yields are plunging…

  • *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS TO ZERO FOR 1ST TIME
  • *JAPAN’S 5-YEAR YIELD FALLS TO RECORD -0.205%

And stocks are crashing as USDJPY tumbles…

  • *YEN CLIMBS PAST 115 PER DOLLAR TO STRONGEST SINCE 2014

Jose Canseco will not be happy.

end

 

EUROPEAN AFFAIRS

 

This morning, the entire globe started focusing on Deutsche bank.  Selling resumes even after the CEO stated that the bank has lots of liquidity and is rock solid.  The problem is he did not address their off balance sheet derivative mess:

(courtesy zero hedge)

Deutsche Bank Selling Resumes After CEO Assures Employees Bank Is “Absolutely Rock Solid”

Yesterday’s desperate scramble by Deutsche Bank to comfort markets about its liquidity position worked, for about three hours. And then, the bank which really should just keep its mouth shut, did the opposite and reminded an already panicked market just how “serious” things are, in the parlance of Jean-Claude Junkcer, when in an internal memo, the CEO assured his workers that:

  • DEUTSCHE BANK CEO: CAP STRENGTH, RISK POSITIONS ’ROCK SOLID’

That was the good news. The bad news:

  • DEUTSCHE BANK TO INFORM STAFF IN COMING WEEKS ABOUT COST CUTS

More details from Bloomberg:

Deutsche Bank AG is “absolutely rock-solid,” Co-Chief Executive Officer John Cryan wrote in a letter to employees, seeking to reassure markets after a plunge in the shares.

Cryan said he isn’t concerned about the Frankfurt-based lender’s ability to meet legal costs, he wrote in the memo published on Tuesday. While Deutsche Bank will “almost certainly” have to add to its provisions for legal costs this year, the firm has already accounted for it in its financial planning, according to Cryan.

“I am personally investing time to resolve successfully and speedily open regulatory and legal cases,” he wrote. “I want to remove the uncertainty among staff and in the market that these cases cause. A small group of senior people, led by me, will focus on this. For everyone else, we ask you to continue to focus on our clients and on the implementation of our strategy.”

Or, said otherwise, “Deutsche Bank is fine.”

However, with numerous analogies being made between the German bank with the soaring default risk and Lehman or at least Bear, that may have been the absolutely worst thing for the bank to note at a time when the market is perfectly happy to interpret any assurance of ongoing solvency and viability as a desperate attempt to boost confidence, and resume selling the stock and buying even more default protection, which is what it has done, and as of last check DB stock just turned negative in German trading.

END

A very confused Deutsche bank seeks answers to the DAX crash and yet fail to address its credit default swap rise:  (a bet on its demise)

(courtesy zero hedge)

A Confused Deutsche Bank Takes To Twitter Seeking Answers For Market Crash

Just when we said DB should probably keep its mouth shut, the bank that everyone is suddenly very focused on decided to take to Twitter with the following rhetorical question:

Well, judging by this…

… the markets are probably underreacting.

 

end
Deutsche bank stock crashes to a record low:
(courtesy zero hedge)

Deutsche Bank Stock Crashes To Record Low

Moments ago, in response to DB’s open querry on Twitter whether the Dax is “overreacting”, we highlighted DB’s soaring CDS and asked if perhaps the market was not underreacting.

Minutes later the market opined, by sending DB stock to new all time lows.

“Worse than Lehman…”

And that has crushed the entire Geman stock market…

end

Dave Kranzler on the possible demise of Deutsche bank:

(courtesy Dave Kranzler/IRD)

Will Deutsche Bank Be Saved From Collapse?

Deutsche Bank  stock is down over 8% today.  It’s trading at $15.53.  This is 20% lower than the previous low it hit at the apex of the great financial crisis (de facto collapse) in 2008/2009.

 

With rumors flying because of DB’s stock performance this year, management issued a statement defending the bank’s liquidity position:  LINK   “Additional Tier 1 coupons” references the debt that was issued as part of a transaction to raise Tier 1 regulatory capital by Deustche Banks.  The accounting behind the scheme – yes, it’s a scheme – is complicated but the regulators permitted DB is issue a security that behaves like debt but is treated as Tier 1 capital for the purposes of measuring the bank’s ability to withstand hits to its asset base.

Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind.  We saw this with Bear Stearns and Lehman.  Denial of a catastrophic problem is affirmation that the problem is very real.

Typically the credit markets sniff out a very real problem before the equity market “catches up.”   Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks.  Under Anshu Jain’s “leadership,”  DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management.  It’s a literal cesspool of financial fraud and Ponzi scheme banking activity.  The graph of the spread on DB 5-yr credit default swaps shows how quickly the market has determined that DB’s financial risk of insolvency is quickly accelerating:

Untitled

Currently DB has roughly $2 trillion assets supported by $68 billion of book value.  The problem is that many of its assets are highly overstated in value and have yet to be written down.  The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015.  The problem is that over 85% of the charges taken by DB were attributed to legal costs.  We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level.  DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses.   It would only take a 3.5% write-down of its asset base to wipe out its book value.  

THEN there’s the derivatives.  DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet.  The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount.  But ask AIG and Goldman Sachs how hedging / netting works out in the long run.   “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting.  Once the defaults start, “net” becomes “notional” in a hurry.

I did an analysis of several of the big banks in early 2008, including JP Morgan, Wash Mutual, and Lehman.  I took their identifiable assets and wrote down the identifiable home equity loan exposure and some other risky asset classes to levels I thought were conservative.  I had concluded that those banks were technically insolvent.    Eight months later it turned out I my analysis was quite accurate.  Wash Mutual and Lehman collapsed and JP Morgan would have collapsed if it had not been bailed out by the Taxpayers.

The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would.  To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion.   Then there’s the derivatives…

end

As European credit markets seize as the total of non performing loans surprass 1 trillion euros, it is only a matter of time that we will witness an

economic collapse

(courtesy UKTelegraph and special thanks to Robert H for sending this to us)

Europe’s ‘doom-loop’ returns as credit markets seize up

Credit stress in the European banking system has suddenly turned virulent and begun spreading to Italian, Spanish and Portuguese government debt, reviving fears of the sovereign “doom-loop” that ravaged the region four years ago.

“People are scared. This is very close to a potentially self-fulfilling credit crisis,” said Antonio Guglielmi, head of European banking research at Italy’s Mediobanca.

“We have a major dislocation in the credit markets. Liquidity is totally drained and it is very difficult to exit trades. You can’t find a buyer,” he said.

The perverse result is that investors are “shorting” the equity of bank stocks in order to hedge their positions, making matters worse.

Marc Ostwald, a credit expert at ADM, said the ominous new development is that bank stress has suddenly begun to drive up yields in the former crisis states of southern Europe.

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“The doom-loop is rearing its ugly head again,” he said, referring to the vicious cycle in 2011 and 2012 when eurozone banks and states engulfed in each other in a destructive vortex.

It comes just as sovereign wealth funds from the commodity bloc and emerging markets are forced to liquidate foreign assets on a grand scale, either to defend their currencies or to cover spending crises at home.

Mr Ostwald said the Bank of Japan’s failure to gain any traction by cutting interest rates below zero last month was the trigger for the latest crisis, undermining faith in the magic of global central banks. “That was unquestionably the straw that broke the camel’s back. It has created havoc,” he said.
source: tradingeconomics.com

Yield spreads on Italian and Spanish 10-year bonds have jumped to almost 150 basis points over German Bunds, up from 90 last year. Portuguese spreads have surged to 235 as the country’s Left-wing government clashes with Brussels on austerity policies.

While these levels are low by crisis standards, they are rising even though the European Central Bank is buying the debt of these countries in large volumes under quantitative easing. The yield spike is a foretaste of what could happen if and when the ECB ever steps back.

Mr Guglielmi said a key cause of the latest credit seizure is the imposition of a tough new “bail-in” regime for eurozone bank bonds without the crucial elements of an EMU banking union needed make it viable.

“The markets are taking their revenge. They have been over-regulated and now are demanding a sacrificial lamb from the politicians,” he said.
source: tradingeconomics.com

Mr Guglielmi said there is a gnawing fear among global investors that these draconian “bail-ins” may be crystallised as European banks grapple with €1 trillion of non-performing loans. Declared bad debts make up 6.4pc of total loans, compared with 3pc in the US and 2.8pc in the UK.

The bail-in rules were first imposed in Cyprus after the island’s debt crisis, stripping European bank debt of its hallowed status as a pillar of financial stability, and of its implicit guarantee by states. The regime came into force for the whole currency bloc in January. Both senior and junior debt must now face wipeout before taxpayers have to contribute money.

While this makes sense on one level, the eurozone banking structure is now dangerously deformed. Individual eurozone states cannot easily recapitalize their own banking systems because that breaches EU state-aid rules, but there is no functioning European body to replace them.

“The root cause of this debacle is the way the eurozone is designed. We don’t have a mutualisation of the risks. That is why this is escalating,” said Mr Guglielmi.

Europe’s leaders agreed in June 2012 to break the “vicious circle between banks and sovereigns” but Germany, Holland, Austria and Finland later walked away from this crucial pledge. The chief cost of rescuing banks still falls on the shoulders of each sovereign state. The Sword of Damocles still hangs over the weakest countries.

Peter Schaffrik, from RBC Capital Markets, said there is a nagging concern among investors that the ECB is running low on ammunition.

“How much further can the ECB go before it becomes outright harmful?”

Peter Schaffrik, from RBC Capital Markets

It cannot usefully cut interest rates any deeper into negative territory since the current level of -0.3pc is already burning up the “net interest margin’ of lenders and eroding bank profits. “How much further can the ECB go before it becomes outright harmful?” he asked.

A string of dire results from banks have set off a firesale on “Cocos“, bonds that allow lenders to miss a coupon payment and switch the debt to equity. A Unicredit issue of €1bn of Coco bonds has crashed to 72 cents on the euro.

The iTraxx Senior Financial index measuring default risk for bank debt in Europe soared to 137 on Tuesday, from 68 as recently as early December.

Mr Guglielmi said the mood is starting to feel like the panic in the summer of 2012, just before Mario Draghi vowed to do “whatever it takes” to save the euro – a shift made possible when Berlin lifted its veto on emergency action to backstop Italian and Spanish bonds.

Mario Draghi

Mr Draghi is running out of tricks for an encore but there is still scope for “QE2” at the next ECB meeting in March, if he can secure German acquiescence.

He could legally purchase parastatal bonds such as those of Italy’s power group ENEL or Infraestucturas de Portugal, or purchase Italian bad debt packaged as asset-backed securities. “He can buy Italian subprime. That is the low-hanging fruit,” said Mr Guglielmi.

“We all know that QE2 is not really going to work but the feeling in the market is ‘I’m a smoker, I know it kills me, but so long as I can get cigarettes, I’m happy,’” he said. \

 

end

 

Now that the Bank of Japan has cut its rate to -.1%, JPMorgan predicts that the ECB will cut its deposit rate to -.5% next month and then in June to -.7% which should unleash an huge deflationary tsunami around the globe:

(courtesy JPMorgan/zero hedge)

Race To Bottom Enters Final Lap: ECB Will Cut To -0.7% In June, JPM Predicts

Here is how global currency warfare and the global “race to debase” works: ECB cuts rates to -0.3%, the BOJ cuts to -0.1%, then the ECB cuts to -0.7% next. At least that’s JPMorgan’s most recent forecast, which now see Mario Draghi going full NIRPtard, and cutting the ECB’s -0.3% deposit rate to -0.5% next month, and then to -0.7% in June, unleashing an epic deflationary tsunami around the globe, one which will send the USD soaring, will force more retaliation by the BOJ, will force more devaluation by the PBOC, will lead to more angry complaing by Deutsche Bank how easing is killing the bank, and so on.

When does it end? When fiat and modern neo-Keynesian economics are thoroughly discredited and when the world’s central bankers end up with fast food worker jobs.

From JPMorgan:

ECB to ease even more and cut the deposit rate to -0.7%

  • We now expect the March package to include a larger deposit rate cut of 20bp, taking it to -0.5%
  • We now expect another package after that, possibly as early as June
  • We expect this second package to take the deposit rate to -0.7% and to extent QE until end-2017
  • Our forecast change is motivated by risk management amidst low inflation, rather than a macro forecast change

Until now, our expectation has been that the ECB would announce another policy package in March, comprising a 10bp cut of the deposit rate to -0.4%, an increase in the monthly pace of QE purchases by €10bn to €70bn/month, a three-month extension of the QE programme to mid-2017 and two additional TLTROs during 2H16. Beyond that, we have not been expecting any further easing, but we have been expecting the ECB to maintain a very accommodative stance for a long time, with the first hike only towards the end of 2019.

Today, we are changing this call. First, we now expect the March package to include a larger deposit rate cut of 20bp, taking it to -0.5%. Our expectations for QE and the TLTROs are unchanged. Second, we now expect further easing, possibly as early as June, with another 20bp deposit rate cut to -0.7% and another six month extension of QE at €70bn/month, taking QE through to the end of 2017. It is possible that the ECB will adopt a tiered deposit rate system as soon as March. But, even if it does not, we would expect a clear signal already in March that it will be considered later on; for example, the Governing Council could task the ECB’s technical committees to look into it. And in any case, we would expect the ECB to adopt a tiered system by the time it cuts the deposit rate to -0.7%. As we have argued before, the ECB would be sending a strong signal by adopting a tiered system, which can be designed in a way that minimises some potential side-effects.

This forecast change is motivated by two factors. First, we continue to think that inflation will rise towards the ECB’s target more slowly than its staff expects. Second, the ECB will be more sensitive to this in an environment of persistent downside risk. Hence, our new call is mainly about risk management, as we are not making any changes to our macro forecasts. Admittedly, GDP has grown at a sluggish pace in 2H15, but the underlying pace was likely firmer. And, while the January business surveys raise some concern about the underlying pace, we are not currently convinced that there has been a real change in underlying economic conditions. But, from an ECB perspective, uncertainty about the global economy has increased even further, while recent financial market developments are surely uncomfortable (e.g., in terms of the trade-weighted currency, inflation expectations, potential pressures on banks, etc).

Hence, even if the ECB staff publishes the new inflation forecast for 2018 in early March, which we think could be at 1.8%, we believe the Governing Council will remain nervous about the outlook and respond quickly to gradual disappointments on inflation.

end

RUSSIAN AND MIDDLE EASTERN AFFAIRS
Hezbollah and Iran are decimating the Syrian rebels as Turkey and Saudi Arabia decide what to do next:
(courtesy zero hedge)

Turkey, Saudi Arabia Mull Syria Ground Invasion As Russia, Hezbollah Decimate Rebels

“What’s going on in Syria can only go on for so long. At some point it has to change,” Turkish President Recep Tayyip Erdogan told reporters on a plane back to Turkey from Latin America over the weekend.

As we’ve documented extensively over the past several days, Ankara, Riyadh, and Doha have their backs against the wall when it comes to the effort to oust Bashar al-Assad and perpetuate Sunni hegemony in the Arabian Peninsula.

Hezbollah has surrounded Aleppo and their advance is backed by what’s been described as an unrelenting Russian air campaign. The rebels’ supply lines to Turkey have been cut and without a direct intervention by either the US or the Gulf states, the battle for Syria will have been lost for the opposition which pulled out of peace talks in Geneva citing the ongoing aerial bombardment by Moscow.

Now, with time running out, both Saudi Arabia and Turkey are weighing ground invasions.

“You don’t talk about these things. When necessary, you do what’s needed,” Erdogan said, when asked if Ankara was considering sending troops into Syria. “Right now our security forces are prepared for all possibilities,” he added.

For Erdogan, there’s only one acceptable outcome: Sunni militants oust Assad and take control of Damascus. Assad’s ouster is the desired outcome for the Saudis as well, but Erdogan has a secondary agenda in Syria: preventing the conflict from strengthening the Kurds. That means he’s against any support for the YPG – even if such support would help facilitate regime change.

Over the weekend Erdogan blasted both Russia and the US.

What are you doing in Syria? You’re essentially an occupier,” he said, in a message to Vladimir Putin. “How can we trust you? Is your partner me, or is it those terrorists in Kobani?” he asked Obama’s envoy for the international coalition against Islamic State. By the “terrorists in Kobani”, Erdogan is referring to the YPG.

Erdogan’s frustration reflects the fact that the various groups fighting to take control of Syria are now virtually guaranteed to lose. As we said from the time Russia first flew combat missions from Latakia on September 30, the opposition has virtually no chance of winning a war with Hezbollah and the IRGC as long as Moscow is providing air cover. The rebels have no air presence whatsoever and no anti-aircraft capability and on top of that, there’s no advantage to be had in fighting an asymmetric battle with Hezbollah. Hassan Nasrallah’s army practically invented urban warfare.

The only option now is a coordinated ground invasion by the rebels’ Sunni benefactors.

“With rebels losing ground, Gulf states said they would be prepared to send in ground troops as part of an international coalition battling Islamic State,” Bloomberg reportedon Sunday.

Please note: that quote makes no sense. The rebels aren’t losing ground to ISIS, so why should their battlefield losses trigger international calls for ground troops to “battle Islamic State”?

This is a ridiculously transparent attempt to fabricate an excuse to shore up Sunni militants who are about to be relegated to the annals of sectarian history by the combined military prowess of Hezbollah and Russia.

Sure, there’s an ISIS presence in Aleppo, but if anyone was actually interested in eradicating the group, they’d be talking about Raqqa and Deir ez-Zor, not Latakia nand Aleppo.

Underscoring just how close the world is to careening into World War III, various reports out over the weekend indicated that the Saudis may be preparing to stage 150,000 troops in Turkey. That comes on the heels of reports out of Russia which indicate that Moscow believes Erdogan is on the verge of sending in troops to prop up the rebels. And then there was this, out earlier today from Reuters:

  • U.S KIRBY SAYS WELCOME SAUDI, UAE OFFER FOR TROOPS IN SYRIA 

Saudi foreign minister Adel al-Jubeir confirmed that Washington would support Riyadh if the Saudis did indeed decide to invade Syria just as they have Yemen.

For what it’s worth, AA denied the Saudi troop reports.

Anadolu Agency: Twitter

‘150,000 [Saudi] soldiers will enter Syria from Turkey’ are not true, say Turkish prime ministry sources: report

While that particular “rumor” may be unfounded, Turkey and the rest of the Sunni world will need to make a decision in the next few days as to just how they plan to proceed, because as is abundantly clear from the following first-hand account from a rebel fighter, this war is just about over.

Our whole existence is now threatened, not just losing more ground. They are advancing and we are pulling back because in the face of such heavy aerial bombing [by Russia] we must minimize our losses.”

*  *  *

Or, for those who need a visual summary of the above:

end

 

World tension increases as Saudi Arabia is set to send in special forces into Syria.No doubt this will cause Iran and Russia to enter the fray and potentially set off World War iii:

(courtesy zero hedge)_

Saudi Arabia Prepares To Send Special Forces To Syria; Will Fight As Part Of “US-Led Coalition”

As we reported yesterday, in one of the most surprising developments involving the Syrian proxy war, Saudi Arabia and U.S. presence on the ground, the latest twist is that both Turkey and Saudi Arabia are now mulling a full-scale invasion while Russia and the Syrian government continue their progress in wiping out the US and Saudi-funded rebellion. To be sure, there was confusion when CNN Arabia reported first that the Saudis may send as much as 150,000 troops into Saudi Arabia, by way of Turkey, something which Anadolu news promptly denied.

However, the denial itself was softly denied by the Saudi Press Agency, which further stirred the water earlier today when it reported that not only is Saudi Arabia ready to send a special force to fight in Syria, but that this deployment was proposed by the US, which would oversee the Saudi troops as part of the US-led coalition in Syria. To wit:

  • AL JUBEIR SAYS U.S. PROPOSED GROUND FORCE DEPLOYMENT: SPA
  • SAUDI FORCE WOULD FIGHT AS PART OF U.S.-LED COALITION: SPA
  • SAUDI MINISTER SAYS SENDING GROUND FORCE UNDER DISCUSSION: SPA
  • SAUDI ARABIA READY TO SEND SPECIAL FORCE TO FIGHT IS IN SYRIA

And so, what was until recently purely an air campaign involving all the major global powers (except China, for for the time being), is about to become a full-blown land war, involving not only Suunis and Shi’ites (especially once Iran joins the fray), but also Russian troops on one side and US and Saudis on the other.

Most notably, oil has refused to budge even an inch on what is rapidly shaping up as a precursor to World War III.

end
Russia is not on high alert with respect to Syria invasion by Saudi Arabia:
(courtesy Isachenkov/Associated Press)

RUSSIAN TROOPS PUT ON HIGH ALERT AS PART OF MASSIVE DRILLS

BY VLADIMIR ISACHENKOV
ASSOCIATED PRESS

MOSCOW (AP) — President Vladimir Putin has scrambled thousands of troops and hundreds of warplanes across southwestern Russia for large-scale military drills intended to test the troops’ readiness amid continuing tensions with the West.

Defense Minister Sergei Shoigu said that military units were put on combat alert early Monday, marking the launch of the exercise that involves troops of the Southern Military District.

The district includes troops stationed in Crimea, the Black Sea peninsula that Russia annexed from Ukraine in 2014, as well as forces in the North Caucasus and southwestern regions near the border with Ukraine.

Shoigu said the maneuvers will also engage airborne troops and military transport aviation, as well as the navy. He noted that the drills are intended to check the troops’ ability to respond to extremist threats and other challenges.

According to Shoigu, who spoke at a meeting with the top military brass, the war games would include redeployment of air force units to advance air bases and bombing runs at shooting ranges. The maneuvers will test the troops’ mobility, with some being deployed to areas up to 3,000 kilometers (1,860 miles) away, the military said.

Deputy Defense Minister Anatoly Antonov said in a statement that up to 8,500 troops, 900 ground weapons, 200 warplanes and about 50 warships will be involved in the drills.

The exercises are the latest in a series of major drills intended to strengthen the military’s readiness. They have continued despite the nation’s economic downturn.

Even though a drop in global oil prices has drained the government’s coffers and helped drive the economy into recessions, the Kremlin has continued to spend big on the military, funding the purchase of hundreds of new aircraft, tanks and missiles.

Russia has demonstrated its resurgent military might with its air campaign in Syria, which helped President Bashar Assad’s military win a series of victories in recent weeks. The military used the Syrian operation to test new types of weapons in actual combat for the first time, including long-range air- and sea-launched cruise missiles.

The air blitz in Syria has badly strained Russia’s relations with Turkey, which shot down a Russian warplane at the border with Syria in November. The latest drills could be part of muscle flexing amid the tensions with Ankara.

They also come at a time when a peace deal intended to end fighting between Ukrainian government troops and Russia-backed rebels in eastern Ukraine appears to be in jeopardy amid increasingly frequent clashes in recent weeks.

© 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policyand Terms of Use.

 

end

GLOBAL ISSUES
Seven trillion out of a global 21 trillion of bond issuance is now negative.
(courtesy zero hedge)

$7 Trillion In Bonds Now Have Negative Yields

Just ten days ago, in the aftermath of the BOJ’s -0.1% NIRP announcement, we reported that after more than one year after the ECB unleashed NIRP, the total number of government bonds with negative yields to a staggering $3 trillion, a number which nearly doubled overnight to $5.5 trillion.

Overnight in a historic event, the latest consequence of the BOJ losing control, the yield on Japan’s 10Y JGB dropped below zero for the first time, in the process joining Switzerland as the only other country (for now) with a NIRPing benchmark 10Y treasury.

And, as Bloomberg calculates, this means that as of this moment, $7 trillion or about 30% of all sovereign bonds, are yielding negative rates, implying “investors” have to pay governments for the privilege of holding their money. It also means that in the past 10 days a record $1.5 trillion in global treasurys have gone from having a plus to a minus sign in front of their yield.

END

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

Euro/USA 1.1223 up .0035

USA/JAPAN YEN 115.01 down 0.649 (Abe’s new negative interest rate (NIRP) not working

GBP/USA 1.4432 down .0001

USA/CAN 1.3880 down .0048

Early this TUESDAY morning in Europe, the Euro rose by 35 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) due to lunar holiday. 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 65 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 1 basis point as it now trades just above the 1.44 level at 1.4432.

The Canadian dollar is now trading up 48 in basis points to 1.3880 to the dollar.

Last night, Chinese bourses were closed/Japan down badly as was Australia.  All European bourses were deeply in the red  as they start their morning.

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

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

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

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

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

The NIKKEI: this TUESDAY morning: closed down 918.86 or 5.40%

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)red/India’s Sensex in the red /

Gold very early morning trading: $1191.30

silver:$15.33

Early TUESDAY morning USA 10 year bond yield: 1.76% !!! up 2 in basis points from last night  in basis points from MONDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.59 up 3 in basis points from MONDAY night.  ( still policy error)

USA dollar index early TUESDAY morning: 96.44 down 24 cents from MONDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers TUESDAY MORNING

 

OIL MARKETS

 

This morning WTI plunges back below 30 dollars per barrel after Goldman warns that oil may drop into the teens:

 

(courtesy zero hedge)

WTI Plunges Back Below $30 After Goldman “Teens” & IEA Excess-Supply Warning

WTI keeps dead-cat-bouncing thanks to the algos and crashing thanks to reality. This morning’s reality check on the overnight ramp comes courtesy of a double-whammy from Goldman (“wouldn’t be surprised to see WTI in the teens”) and The IEA which increased its estimate of excess-supply drastically. This has dragged WTI back below $30 once again and where oil goes, stocks go…

Goldman Sachs Says No Surprise If Oil Price Drops Below $20/Bbl

“I wouldn’t be surprised if this market goes into the teens,” Head of Commodities Research Jeff Currie says in interview on Bloomberg TV.

“Once you breach storage capacity, prices have to spike below cash costs”

And IEA piled on…

The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the International Energy Agency.

Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month, and the excess could swell if OPEC adds more output, the IEA said. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand.

Oil volatility remains extremely elevated.

end
WTI crashes into the 27 dollar handle/credit risk spikes higher/
(courtesy zero hedge)

WTI Crashes To $27 Handle As US Energy Credit Risk Spikes Above 1500bps To Record Highs

Because nothing says stability like record high credit risk…

And the effective yield on US HY Energy credits has broken above 20% – 400bps above 2008 crisis highs…

end
More trouble in the energy patch:  Anadarko slashes its dividend by 80%
(courtesy zero hedge)

Anadarko Slashes Dividend By Over 80%

Just days after ConocoPhilips became the first major to slash its dividend, moments ago Anadarco followed suit and announced, just one week after it reported earnings that, it too would virtually halt distribution to shareholders, when it said that it would cut its dividend – the first such action in decades – from 27 cents to just 5 cents per share, an 81% cut, and far above the more modest expected reduction of 14 cents.

The Board of Directors of Anadarko Petroleum Corporation (APC) today declared a quarterly cash dividend on the company’s common stock of 5 cents per share, payable March 23, 2016, to stockholders of record at the close of business on March 9, 2016. The quarterly dividend represents a 22-cent reduction from the prior level of 27 cents per share.

 

“We believe this adjustment to our dividend is the appropriate action to take in the current environment,” said Al Walker, Anadarko Chairman, President and CEO. “On an annualized basis, this action provides approximately $450 million of additional cash available to enhance our operations and financial flexibility. Our Board will continue to evaluate the appropriate dividend on a quarterly basis.”

Expect most other energy companies to follow suit, citing the “current environment” as the reason for halting distributions to shareholders.

end

Inventory builds for both crude and gas

(courtesy zero hedge)

Crude Confused After API Reports Across-The-Board Inventory Builds

WTI crude had tanked into the NYMEX close (by the most in 5 months) but managed to get back above $28 before fading into inventory data. Against expectations of a 3.6mm build, API reported a 2.4mm barrel crude build (the 5th weekly build in a row). Even more critically, API reported a 3.1mm Gasoline build (notably above the expected +400k build) and Cushing saw a 2nd weekly build of 715k. WTI ignored it initially but then decided to rally modestly before fading to unch.

 

Builds across the complex..

 

The reaction… lower…

 

Charts: Bloomberg

end

And now for your closing TUESDAY numbers:
 
 

Portuguese 10 year bond yield:  3.67% up 50 in basis points from MONDAY

Japanese 10 year bond yield: -.025% !! down 4  full  basis points from MONDAY which was lowest on record!!
Your closing Spanish 10 year government bond, TUESDAY par in basis points
Spanish 10 year bond yield: 1.75%  !!!!!!
Your TUESDAY closing Italian 10 year bond yield: 1.68% par in basis points on the day:
Italian 10 year bond trading 7 points lower than Spain.
IMPORTANT CURRENCY CLOSES FOR TUESDAY
 
Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 
Euro/USA: 1.1286 up .0045 (Euro up 97 basis points)
USA/Japan: 114.99 down 0.673(Yen up 67 basis points) and a major disappointment to our yen carry traders and Kuroda’s NIRP
Great Britain/USA: 1.4452 up .0019 (Pound yo 19 basis points)
USA/Canada: 1.3892 down .0035 (Canadian dollar up 35 basis points with oil being lower in price )
This afternoon, the Euro rose by 97 basis points to trade at 1.1286.(with Draghi’s jawboning not doing much)
The Yen fell to 114.99 for a gain of 67 basis points as NIRP is a big failure for the Japanese central bank
The pound was up 19 basis points, trading at 1.4452.
The Canadian dollar rose by 35 basis points to 1.3892 despite the price of oil price being clobbered today as WTI fell to around $28.06 per barrel/WTI,)
The USA/Yuan closed at 6.5710
the 10 yr Japanese bond yield closed at a record low of negative .025%
Your closing 10 yr USA bond yield: down 1 in basis points from MONDAY at 1.73%//(trading well below the resistance level of 2.27-2.32%) policy error
USA 30 yr bond yield: 2.55 down 1 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
 
 
 Your closing USA dollar index: 96.07 down 60 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 TUESDAY
 
London: down 57.17 points or 1.00%
German Dax: down 99.96 points or 1.11%
Paris Cac down 68.77 points or 1.69%
Spain IBEX down 194.50 or 2.39%
Italian MIB: down 528.08 points or 3.21%
The Dow down 12.67  or 0.08%
Nasdaq: down 14.99  or 0.36%
WTI Oil price; 28.06  at 2:30 pm;
Brent OIl:  30.60
USA dollar vs Russian rouble dollar index:  79.58   (rouble is down 1 and  60/100 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:
 
 
 

Deutsche Desperation & Twist Talk Save Stock Sheep From Slaughter

 

hat a day… this seemed appropriate…

Dow futures show the utter craziness of the intraday swings today as Japanese collapse led to panic-buying on “Rock Solid” Deutsche comments which led to dumping on oil’s collapse after IEA supply glut issues which led to panic buying at the open (amid chatter of Operation Twist 2 by The Fed) followed by panic-selling as oil careened lower only to see stocks ripped higher again as DB unveiled a desperate bond buyback plan… which ran stops and then utterly gailed…

Small Caps were worst on the day… and Trannies ended green…

Much of the day’s late-day exuberance was after Deutsche announced a half-hearted desperation play – buying back its “cheap” debt with its scarce liquidity… It failed to even get the stock green on the day…

As we detail here...Deutsche Bank may very well be in trouble.

Late last month, Europe’s most systemically important bank reported a truly epic loss of $7 billion, the first annual loss since the crisis and since then, its CDS spreads have been blowing out as the market begins to contemplate the unthinkable.

 

Meanwhile, the stock is trading near all-time lows and as we said when John Cryan announced the official results for Q4 and 2015, don’t be surprised to see the equity trading in the single digits by year end.

 

Even as the likes of Wolfgang Schauble proclaim there’s nothing to worry about, the bank’s own actions tell a different story. As FT reports, the bank is now set to buy back billions in senior bonds to shore up confidence. “After European banks suffered a second consecutive day of sharp falls, Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about €50bn in issue,” FT reported in Tuesday afternoon. “

 

“The bank’s shares still fell 4 per cent, taking the decline since the start of the year to 40 per cent.”

 

The plan doesn’t involve Deutsche’s CoCos, which have come under heavy pressure over the last several days with yields soaring as the market increasingly doubts the bank’s ability to make good on its subordinate debt. Deutsche will need to make coupon payments in April.

 

“Deutsche Bank has plenty of scope for a bond buyback, with €220bn of liquidity reserves,” FT notes. Of course the bank’s  liquidity  position will be diminished thanks to the buyback and the buyback is only necessary because the market is concerned about the bank’s liquidity. So there’s a bit of a chicken-egg scenario going on with this truly absurd attempt to calm markets by reducing debt

 

In any event, we seriously doubt this will do anything to restore some semblance of confidence in the bank which, you’re reminded, is sitting on a derivatives book equivalent to 20 times Germany’s GDP.

Bargain?…

The collapse of credit risk continues to signal more pain to come for US equities – especially the more credit-sensitive small caps..

Oil’s collapse weighed energy stocks down… with financials managing to get back to unch on DB’s news…

Financial credit risk spiked to its highest since 2012…

And Energy credit risk hit record highs…

Bonds weren’t buying the equity craziness…

Treasury yields were mixed with a weak 2Y auction (after Twist 2 rumors) pushing front-end yields higher and long-end lower…

The Dollar limped lower once again, with early JPY weakness fading and Swissy strength leading the way…

Despite USD weakness, commodities were lower across the board but it was crude and copper that were clubbed…

Charts: Bloomberg

end

They spiked the USA/Yen higher causing the Dow to rise over 200 points from this morning:
(courtesy zero hedge)

Panic-Buyers Spike Dow Over 200 Points At Open

Manic.. or Panic?

We suspect this won’t end well.

end

A good visual as to what the USA’s number one problem:  huge build up of inventory and not enough sales:
(courtesy zero hedge)

The US Economy’s Problem Summed Up In 1 Simple Chart

Too much mal-invested, Fed-fueled, hope-driven “if we build it, they will buy it” inventory… and not enough actual demand. This has never, ever, ended well in the past – so why is this time different?

At 1.32x, the December inventories/sales ratio is drasticallyhigher than at year-end 2014 and is back at levels that have always coincided with recessions…

And just in case you needed more convincing that all is not well – the current spread between sales and inventories is now at a record absolute high…

As Sales tumble and inventories soar…

because The Fed and Government are breathing life into Zombies when they should be dead and gone.

end
USA investment grade credit risk spikes to a 5 yr high:
(courtesy zero hedge)
 

US Investment Grade Credit Risk Spikes To 5-Year Highs

When it rains it pours…

The market has taken over The Fed’s role – forget above 25bps here or there, the cost of funding for even the highest quality US Corporates is exploding…

Simply put, the credit cycle has turned and is accelerating rapidly – crushing any hopes for debt-funded shareholder-friendliness.

end
seee you tomorrow night.
h
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