Feb 23/Another huge 19.3 tonnes of gold added to the GLD/ Gold advances smartly/silver limps slightly higher/Standard Chartered reports a loss for last half of the year as they state the economy came to a halt/Oil crashes at the end of the day on API huge buildup of inventories/

Gold:  $1,222.30 down 12.80    (comex closing time)

Silver 15.23 up 5  cents

In the access market 5:15 pm

Gold $1226.00

silver: $15.30


We are now entering the last week of the month and you all know that it means options expiry:


for the Comex:  Wednesday Feb 24

for OTC and LBMA: Monday, Feb 29.


At the gold comex today, we had a GOOD delivery day, registering 57 notices for 5700 ounces. Silver saw 0 notices for NIL oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 207.55 tonnes for a loss of 95 tonnes over that period.

In silver, the open interest fell by 4,169 contracts down to 171,407. In ounces, the OI is still represented by .857 billion oz or 122% of annual global silver production (ex Russia ex China).

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

In gold, the total comex gold OI fell by a large 5100 contracts to 437,025 contracts as the price of gold was down $20.90 with yesterday’s trading.(at comex closing)

We had another mammoth addition in gold inventory at the GLD,this time a huge deposit of 19.30 tonnes of gold  / thus the inventory rests tonight at 752.99 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 tune of  and thus the Inventory rests at 311.618 million oz.

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


1. Today, we had the open interest in silver fell by 4169 contracts down to 171,409 as the price of silver was down 19 cents with yesterday’s trading.   The total OI for gold fell by 5100 contracts to 437,025 contracts as gold fell by $20.90 in price from yesterday’s level.

(report Harvey)


2 a) Gold trading overnight, Goldcore

(Mark OByrne)




i)Late  MONDAY night/ TUESDAY morning: Shanghai closed DOWN slightly  BY 23.84 POINTS OR 0.81%  / Hang Sang closed DOWN by 49.31  points or 0.25% . The Nikkei closed DOWN 59.00 or 0.37%. Australia’s all ordinaires was down 0.43%. Chinese yuan (ONSHORE) closed down at 6.5275.   Oil GAINED  to 33.46 dollars per barrel for WTI and 34.98 for Brent. Stocks in Europe so far deeply in the RED . Offshore yuan trades  6.53377 yuan to the dollar vs 6.5275 for onshore yuan/


ii)Last night from Japan:

This is something that Kuroda did not want to hear.   Well known Japanese banker Fujimaki who is now in parliament in the opposition and the man who originally told Japan to do QE states that Japan will have hyperinflation.  He also states that they got the order of things to do all wrong.  They should have brought rates down to zero first and then do QE.  They reversed the order and that is why they are in trouble with no exit.  He states that yields will rise dramatically setting off a catastrophe in Japan and then hyperinflation and/or bankruptcy!

(zero hedge)




i)Yesterday, we had horrible results from HSBC.  Today it is Standard Chartered that posts just awful earnings, a net loss position of 1.5 billion dollars, coupled with impairments of 87%!!

( zero hedge)



i) Oh this is great!! Saudis want surface to give surface to air missiles to Syrian rebels(e.g. Al  Qaeda/El Nusra etc???)

Aleppo is days away from being retaken by Syrian/Iranian and Russian attacks. Saudi Arabia is quite nervous about the Shiite crescent forming:

( zero hedge)


ii)Saudi Oil Minister:  “Saudi Arabia will not cut production”

so ends the story that this country is willing to co operate with other oil producers in cutting production:

( zero hedge)
iii) Oil  drops below 32 dollars as the Saudi oil Minister states they they can coexist with 20 dollar oil:


( zero hedge)



i))Oil starts its downfall after Iran claims that a freeze proposal is ridiculous!

( zero hedge)


ii) JPMorgan just sounded the alarm bell as they increase their loan loss provisions by 500 million dollars and may up it by another 1.5 billion

( JPMorgan/zero hedge)
iii) Oil crashes at the end of the day on huge API crude build:

( zero hedge)

i)James Turk believes we have the potential for a huge silver squeeze

( James Turk/Kingworldnews)
ii) Ronald Reagan’s gold
(New York Sun)
iii) Koos Jansen

Koos explains to us the difference between GOFO rates, Gold lease rates, and forwards.

( Koos Jansen)



 i) Case Shiller home price acceleration stalled in December as it is blamed on the stock market

( Case Shiller/zero hedge)

ii)Consumer confidence collapses and for the first time “hope” as well

( zero hedge)

iii) Richmond Fed tumbles but new orders collapse!!

( Richmond Fed/zero hedge)

 iv)Existing sales on homes still at a blistering pace due to Chinese taking their cash out of China and buying homes:

( zero hedge)
v)Three weeks ago we brought you a story where Geneva Swiss Bank stated that they would be exiting the market as they thought the indicators were pointing to another 2008:

And lo and behold the 3 charts that they find troubling are staring at us:

a) the rising VIX

b) rising corporate spreads over the 10 yr Treasury yield:

c) S and P falling

( Geneva Swiss Bank/zero hedge)


vi)Dave Kranzler discusses a slew of black swans before us:

( Dave Kranzler/IRD)
vii) Subprime delinquencies on autoloans are now up to 12.3% on a total issuance of 1.3 trillion.That would surely hit the banks quite hard.( zero hedge)

Let us head over to the comex:


The total gold comex open interest fell to 437,025  for a loss of 5,000 contracts as the price of gold was down $20.90 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order.   In February  the OI fell by 100 contracts down to 148. We had 75 notices filed on yesterday, so we lost 25 contracts or an additional 2500 oz will not stand for delivery. The next non active delivery month of March saw its OI fall by 418 contracts down to 1528. After March, the active delivery month of April saw it’s OI fell by 4850 contracts down to 302,625. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 194,232 which is fair.  The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 166,424 contracts. The comex is not in backwardation.


Today we had 57 notices filed for 5700 oz.
And now for the wild silver comex results. Silver OI fell by 4,169 contracts from 175,576 down to 171,407 as the price of silver was down by 19 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI fall by 0 contracts remaining at 1. We had 0 notices filed yesterday, so we neither lost nor gained 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 16,836 contracts down to 43,487.  The volume on the comex today (just comex) came in at 88,088 , which is huge. The confirmed volume yesterday (comex + globex) was also huge  at 101,464. Silver is not in backwardation at the comex but is in backwardation in London. First day notice is on Monday,  the 29th of February.
We had 0 notices filed for nil oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 23/2016

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 331.830 oz brinks


Deposits to the Dealer Inventory in oz 3800 oz


not kilobars!!

Deposits to the Customer Inventory, in oz    nil
No of oz served (contracts) today 57 contracts
(5700 oz)
No of oz to be served (notices) 91 contracts  (9,100 oz )
Total monthly oz gold served (contracts) so far this month  2467 contracts (246,700 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 531,981.3 oz
Today, we had 1 dealer transactions
i) Into Brinks dealer: 3800.00 oz
the boys have decided to throw me a curve ball.  This is the 6th entry for the past 12 months into the dealer and all entries have been to Brinks. However this is the first entry that is not 4,000.00 oz.  It is 3800.00 oz and again how on earth can this be possible??
total dealer deposit; 3800 oz
total dealer withdrawals nil.
We had 1  customer withdrawals:
i) Out of Brinks: 331.830 oz
total customer withdrawal: 331.83 oz
we had 0 customer deposits:

we had 0 adjustment



 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account.
***JPMorgan now has 634,356.528 or 19.731 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 57 contracts of which 0 notice was stopped (received) by JPMorgan dealer and 0 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 (2467) x 100 oz  or 246,700 oz , to which we  add the difference between the open interest for the front month of February (148 contracts) minus the number of notices served upon today (57) 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 (2467) x 100 oz  or ounces + {OI for the front month (148) minus the number of  notices served upon today (57) x 100 oz which equals 255,800 oz standing in this active delivery month of February (7.9564 tonnes)
we lost 25 contracts  or an additional 2500 oz will not stand for delivery
We thus have 7.9564 tonnes of gold standing and 9.0480 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 290,898.134 oz or 9.048 tonnes
Total gold inventory (dealer and customer) =6,672,850.053 or 207.55 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 207.55 tonnes for a loss of 95 tonnes over that period. 
JPMorgan has only 21.99 tonnes of gold total (both dealer and customer)
And now for silver


feb 23/2016:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  602,976.980 oz


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 906,726,460 oz



No of oz served today (contracts) 0 contracts nil oz
No of oz to be served (notices) 1  contract (5,000 oz)
Total monthly oz silver served (contracts) 165 contracts (825,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month 16,128,966.0 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil


we had 2 customer deposits:

i) Into CNT: 606,140.995 oz

ii) Into JPM:  300,585.465


total customer deposits: 906,726.460  oz

We had 1 customer withdrawals:
i) Out of CNT: 602,976.98 oz

total withdrawals from customer account 602,976.98   oz


 we had 0 adjustments:



The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (165) x 5,000 oz  = 825,000 oz to which we add the difference between the open interest for the front month of February (1) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing (830,000 oz)
Thus the initial standings for silver for the February. contract month:
165 (notices served so far)x 5000 oz +(1{ OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals  830,000 oz of silver standing for the February. contract month.
we neither lost nor gained any silver contracts that will  stand in this non active delivery month of February.
Total dealer silver:  28.904 million
Total number of dealer and customer silver:   155.499 million oz
Question: in a non active month again why so much activity in the silver comex?
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 23./another huge addition of 19.3 tonnes of gold into its inventory/Inventory rests at 752.29 tonnes.  Again how could they accumulate this quantity of gold with backwardation in London/this vehicle is nothing but a fraud

Feb 22/A huge addition of 19.33 tonnes of gold to its inventory/Inventory rests at 732.96 tonnes/ How could this happen: a huge addition of gold coupled with a huge downfall of 20 dollars in gold.

FEB 19/a huge deposit of 2.68 tonnes of gold into the GLD/Inventory rests at 713.63 tonnes

fEB 18/no change in gold inventory at the GLD/Inventory rests at 710.95 tonnes

fEB 17/no change in gold inventory at the GLD/Inventory rests at 710.95 tonnes

Feb 16.a huge withdrawal of 5.06 tonnes from the GLD/the loss was probably a paper loss/inventory at 710.95 tonnes

fEB 12/ a huge deposit of 11.98 tonnes/inventory rests at 716.01 tonnes.  With gold in severe backwardation in London, I really believe that the gold added was paper gold and not real physical/

Feb 11/no change in inventory/inventory rests at 702.03 tonnes

Feb 10/ a withdrawal of 1.49 tonnes of gold from the GLD/Inventory rests at 702.03 tonnes

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 23.2016:  inventory rests at 752.29 tonnes



Now the SLV:no changes in inventory at the SLV/Inventory rests at 311.618 million oz
Feb 22/ we have a good addition of 666,000 oz into inventory/Inventory rests at 311.618 million oz
FEB 19/no change in inventory/inventory rests at 310.952 million oz
FEB 18/no change in inventory/inventory rests at 310.952 million oz
fEB 17/ a huge withdrawal of 1.237 million oz of silver removed from the SLV/Inventory rests at 310.952 million oz.
Feb 16.2016: a huge deposit of 3.809 million oz of silver added to the SLV/Inventory rests at 312.189
FEB 12 no change in silver inventory/inventory rests this weekend at 308.380 million oz
feb 11/ a withdrawal of 619,000 oz/inventory rests at 308.380 million oz/
Feb 10/no change in inventory at the SLV/rests at 308.999 million oz/
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 23.2016: Inventory 311.618 million oz.
1. Central Fund of Canada: traded at Negative 7.1 percent to NAV usa funds and Negative 6.9% to NAV for Cdn funds!!!!
Percentage of fund in gold 64.0%
Percentage of fund in silver:36.0%
cash .0%( feb 23.2016).
2. Sprott silver fund (PSLV): Premium to NAV rises to  +2.38%!!!! NAV (feb 23.2016) 
3. Sprott gold fund (PHYS): premium to NAV falls to -.61% to NAV feb 23/2016)
Note: Sprott silver trust back  into positive territory at +2.38%/Sprott physical gold trust is back into negative territory at -.61%/Central fund of Canada’s is still in jail.



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

Trading in gold and silver overnight in Asia and Europe

Allocations To Gold Should Be “Increased To 20 Percent”

Slowing economic growth globally has led for some rough days on Wall Street lately.

The Dow Jones industrial average and the Standard & Poor’s 500 index are both down by 6 percent so far this year. It’s sometimes hard to figure out where to park one’s money during an economic downturn.


Still, analysts have a few ideas on how to capitalize on the slump – or at the very least minimize losses or stash away capital until markets begin to recover.

Gold, treasuries and other bonds tend to be so-called haven investments, where investors often park their cash until equities recover. Like clockwork, investors have been dumping money into gold and treasuries since the start of the year.

Gold futures have jumped since the end of last year as money managers flee equities. The rate on 10-year Treasury bonds has declined by almost a fourth as people rush to invest in the low-yield, low-risk investment. Dumping money into both is a trend that’s expected to continue.

The biggest beneficiary of the slowing growth thus far has been gold, a popular haven investment as futures have jumped 14 percent this year.

“The backdrop of robust global demand and increasing financial and economic uncertainty is supportive of gold,” says Mark O’Byrne, the research director atGoldCore. “Janet Yellen’s comments … regarding not cutting interest rates anytime soon were quite dovish and led to gold’s gains. The fact that she reiterated the Fed expects to raise rates at a gradual pace and yet gold continued to rise … is quite bullish.”

Still, the rapid increase in gold prices has put investments in peril as futures may have risen too far, too fast, O’Byrne says. In fact, analysts say it’s probably not smart to simply dump stocks when prices decline because, as the investment playbook goes, markets tend to turn the moment everybody moves to one side of a trade.

Instead, investors may want to gradually shift to a less equity-centric portfolio.

“In the short term, we would caution against dumping stocks and buying gold as many indices globally have fallen sharply and gold has risen sharply,” O’Byrne says. “However, taking a long view, I think investors who are overweight (in) stocks should use any bounce in the market to lighten up positions and gain an allocation to gold.”

GoldCore research advises clients to have a 5 percent to 10 percent exposure to gold, but in the current economic environment, they’re recommending a 20 percent allocation.

“This diversification will act as a hedging instrument and protect stock and bond investors from further losses,” O’Byrne says. “Indeed, given the inverse correlation of gold to stocks, it should reduce the overall volatility of a portfolio and enhance returns as was seen in the 2001 to 2011 period.”

Slow Economic Growth? Look to Gold, Treasuries as Haven Investments Full article on U.S. News here

Cycle of Market Emotions
Gold – From Depression to Hope

LBMA Gold Prices
23 Feb: USD 1,208.45, EUR 1,078.94 and GBP 834.57 per ounce 
22 Feb: USD 1,203.65, EUR 1,088.17 and GBP 849.21 per ounce
19 Feb: USD 1,221.50, EUR 1,101.14 and GBP 853.35 per ounce
18 Feb: USD 1,204.40, EUR 1,082.41 and GBP 841.19 per ounce
17 Feb: USD 1,202.40, EUR 1,080.57 and GBP 838.84 per ounce
16 Feb: USD 1,212.00, EUR 1,083.75 and GBP 838.04 per ounce

Gold and Silver News and Commentary

Gold climbs as stock rally fizzles, fund inflows support – Reuters
Gold Logs First Loss in Four Sessions; US Mint Bullion Coins Rise – Coin News
Gold futures mark first loss in four sessions – Marketwatch
Gold dips 2 pct on stronger dollar, shares – Reuters
Foreign central banks dump cash at U.S. Federal Reserve – Reuters

Here’s Another Reason Gold Prices Are Poised to Go Higher – Bloomberg
Fed official warns on rush to ‘government-only’ U.S. money funds – Reuters
Monetary Policy – If Crazy Doesn’t Work, Try Crazier – Mauldin Economics
Silver Linings: Keynesian Central Banking Is Heading For A Massive Repudiation – Stockman
Monopoly Is Going Cashless. Could We Be Next? – GoldSeek

Click here

Mark OByrne
James Turk believes we have the potential for a huge silver squeeze
(courtesy James Turk/Kingworldnews)

GoldMoney’s Turk sees potential for short squeeze in silver

Submitted by cpowell on Mon, 2016-02-22 21:08. Section: 

4:06p ET Monday, February 22, 2016

Dear Friend of GATA and Gold:

Longs and shorts alike are nervous about the option expirations in silver this week, GoldMoney founder and GATA consultant James Turk tells King World News today. The elements are present for a short squeeze in the metal, Turk says. An excerpt from the interview is posted at the KWN blog here:


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



(courtesy New York Sun)



New York Sun: Ronald Reagan’s gold

Submitted by cpowell on Mon, 2016-02-22 22:11. Section: 

From the New York Sun
Monday, February 22, 2016

One of the most remarkable campaign videos of the primary season has been on the air in Nevada in support of Senator Cruz. Headlined “Finish the Reagan Revolution,” it shows Ronald Reagan warning, as he was campaigning for president in 1980, of how the betrayal of the gold standard in the 1960s led to the inflation that was then destroying the American economy. He warned that we’d never regain price stability until we restored some form of gold backing to the dollar.

Then the video turns to Mr. Cruz’s now famous reply to Rick Santelli in the GOP debate in Colorado, where the Texan declared that the Federal Reserve should get out of the business of “trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.” It led us to the conclusion that Mr. Cruz was the man most likely to advance the cause of monetary reform in the current campaign.

All the more so as we learn the backstory to the Reagan tape. We’re told by Jeff Bell, who was involved in making Reagan’s tape, that the footage was one of a handful of commercials Reagan had taped at a session in January 1980. After it was recorded, Reagan telephoned Mr. Bell and asked him to put the gold commercial off to one side. “But,” he ordered, “don’t erase it.” And so it has sat off to the side until this season. …

… For the remainder of the commentary:






Koos explains to us the difference between GOFO rates, Gold lease rates, and forwards.

(courtesy Koos Jansen)


Koos Jansen
Koos Jansen
Posted on 22 Feb 2016 by 

GOFO And The Gold Wholesale Market

An essay on the relationship between GOFO, gold forwards, the gold lease rate and the US dollar interest rate.

In order to continue to reveal essential information about the physical and paper gold markets around the world, first I would like to expand on the inner workings of the gold wholesale market. In this post we’ll use the Gold Forward Offered Rates, in short GOFO, as an excuse to illuminate the most vital gears that drive the gold market engine. For, if we truly understand GOFO we also understand gold leasing,forwards and swaps, which are the building blocks of the gold wholesale market.

GOFO officially “represents rates at which the market making members will lend gold on swap against US dollars”, but GOFO also resembles the gold forward rate and the difference between the US dollar interest rate and the gold lease rate. The purpose of this post is to explain all this in a simplified way.

Gold Forward Contracts

In the gold market there are several possibilities to enter into contracts for buying or selling gold at a future date. These contracts can be used by gold market participants to lock in a future gold price or for speculation. The most common contracts are forwards and futures. On exchanges (organized markets) such as the COMEX gold futures contracts are traded, in the over the counter (OTC) market gold forwards are traded.

For this post we’ll mainly work with forwards. Below is a chart in which I’ve plotted an exemplar gold forward curve withbid and ask quotes. The bid quotes represent the prices at which market making members are willing to buy gold at a pre-determined date in the future. These are the same prices at which we the market takers are willing to sell gold at a corresponding date in the future. In addition, the ask, or offer, quotes represent the prices at which market making members are willing to sell gold at a pre-determined date in the future (market takers buy at these prices). Please note, forward prices reflect what the market expects now about the future based on present circumstances. Forward prices do not determine what the actual spot price in the future will be.

Forward curve gold priceChart 1. Gold forward curve. The slippage is $0.15.The bid-ask spread in this example is a constant $0.3 for every gold forward. In reality these spreads are determined by the liquidity of the forward contract. For liquid contracts the spread is thin, for illiquid contracts the spread is wide. The difference between the mid market rate and the bid (or ask) is called the slippage.

A gold forward contract can be used, in example, by a gold mining company that anticipates the gold price will decline in the future. Simplified: if the miner has a steady output of 1,000,000 fine ounces a year and his annual expenses are 1.3 billion dollars, all to be paid at the end of the year, his business is viable starting at a gold price of $1,300 dollars an ounce. To ascertain to stay in business over one year’s time the miner can choose to enter into a 12 months forward contract to sell gold for $1,310.74.

The seller of a forward contract is said to be short, the buyer of the contract is said to be long. The total amount of shorts and the total amount of longs are always equal with respect to forward and futures contracts. The total amount of outstanding contracts is what is referred to as the open interest.

The long, in example, is a jewelry company that in turn seeks to lock in a future price for the well being of his enterprise. Perhaps it makes economic sense for the jeweler to borrow gold for the fabrication of gold ornaments, a loan he’s required to repay in one year’s time. Not to be exposed to future swings in the gold price he can choose to buy 12 months gold forward, assuring him to be able to honor the gold loan when it comes due.

The Gold Lease Market

In a free market any currency can be lent out. Whether it’s the US dollar, euro, Norwegian krone or gold. Interest is paid from the borrower to the lender in order to compensate for the risk of defaulting on the loan and postponement of using the currency. For precious metals it’s the same. Gold safely stored in a vault does not yield, however, when it is lent out, the gold will accrue interest. Gold lending in the gold wholesale market is referred to as gold leasing, and the acronym for the gold lease rate is GLR.

The interest on a gold loan can be settled in gold or dollars, although most often the latter is agreed. From the London Bullion Market Association we can read:

Market convention is for the interest payable on loans of precious metals to be calculated in terms of ounces of metal. These ounces are then generally converted to US dollars, based upon a US dollar price for the metal agreed at the inception of the lease transaction.


In the past decades the most prominent gold lenders have been central banks. During perceived economic stability it was thought to be safe for central banks to lend large portions of their official gold reserves. In recent years these leases have been unwound to a great extent.

A borrower in the gold market can be, in example, the jewelry company mentioned in the previous chapter. In need of funds for production goods the jeweler can borrow dollars at ie 6 % from a bank, or he could directly borrow gold at ie 2 %. Historically, the normal state of the gold market offered a lower GLR than US dollar interest rate.

Below I’ve sketched a chart that reflects an exemplar gold lease curve. The gold lease bid is the interest rate market making members are willing to pay for borrowing gold (and the rate market takers are willing to receive for lending gold), the gold lease ask is the interest rate market making members want for lending gold (and we the market takers are willing to pay for borrowing gold). Normally, interest rates in financial markets are calculated on a 360 days a year basis.

Gold lease rate curveChart 2. Gold lease rate curve. 

Interest Rate Parity

Free markets that cater liquid venues for lending currencies, spot exchange and trading in forward contracts give rise to a concept called interest rate parity. This concept can be tough to get your head around, therefor I will describe it first and then show the math to clarify it.

Let us start at the base: the interest rate of any currency affects the forward value of this currency, because loans based on the interest rate grow into more supply of the currency over time. A $5,000 US dollar loan at a 6 % US dollar interest rate grows into $5,300 in 1 year. The theory of interest rate parity suggests that the interest rates of two currencies determine the forward relationship between the values of these two currencies (/the forward price of either currency denominated in the other). As, both interest rates generate a return in the future, the volumes of which determine the forward price. With respect to gold, interest rate parity suggests the forward gold price is firmly correlated to the gold lease rate and US dollars interest rate.

We should get familiar with the math that clarifies interest rate parity. In our exemplar market the spot gold price is $1,200, the US dollar interest rate is 6 % and the GLR is 2 %. We’ll ignore bid-ask spreads for now.

A trader borrows $1,200 for 6 months (180 days) at the annual US dollar interest rate of 6 %. When the loan comes due the trader is obliged to repay the principal plus interest to the US dollar lender. In the following formula we can see the principal (1,200), the interest rate (0.06) and the tenor (180/360) going in:

$1,200(1+0.06(180/360)) = $1,200(1.03) = $1,236

With the dollars borrowed the trader can buy 1 ounce of gold on spot and lend it for 6 months. When the gold loan matures the trader will get back the principal plus interest. In the next formula we can see the principal (1 oz), the interest rate (0.02) and the tenor (180/360) going in:

1(1+0.02(180/360)) = 1(1.01) = 1.01 oz

As we know the spot gold price and the volumes the loans grow into, we can compute the 6 months forward gold price. The gold lend by the trader will grow into 1.01 ounces over a 6 months time horizon and his dollar loan will grow into $1,236 over the same period, so consequently the 6 months forward gold price is $1,223.76.

$1,200/1       = $1,200         = spot gold price

$1,236/1.01 = $1,223.76   = forward gold price

As mentioned above, “both interest rates generate a return in the future, the volumes of which determine the forward price”.

In one formula it will show:

$1,200(1+0.06(180/360)) / (1+0.02(180/360)) = $1,223.76

We can see the forward gold price is higher than the spot gold price because the GLR is lower than the US dollar interest rate.

Interest rate parity

Any undervalued or overvalued forward gold price would immediately be arbitraged – hence interest rate parity is said to be “a no-arbitrage condition”. Let’s have a look at an arbitrage trade in case the forward gold price would diverge from the forward price suggested by the theory interest rate parity. Suppose, interest rates and the spot gold price are the same as above, but now the quoted forward gold price is too low at $1,220. To arbitrage this opportunity you want to buy (long) this cheap forward gold. Spot–forward arbitrage requires the opposite trade in the spot market – or one would just enter into a forward contract – in this case sell spot gold. If you don’t have the gold you can borrow it. We can identify twolegs in our arbitrage trade:

sell spot gold = buy spot dollars

buy forward gold = sell forward dollars

The chronological order to arbitrage undervalued forward gold would be:


  • borrow 1 ounce of gold for 6 months at 1 % (an annual GLR of 2% divided by 2. In this example the gold interest will be settled in gold)
  • sell 1 ounce of gold on spot for $1,200
  • lend the $1,200 for 6 months at 3 % (an annual 6% US dollar interest rate divided by 2)
  • buy long a 6 months gold forward contract for 1.01 ounce at the quoted forward gold price of $1,220 per ounce to repay the gold loan plus interest. The 6 months forward contract will have a notional value of:

1.01*$1,220 = $1,232.2

In 6 months time,

  • receive $1,200 plus interest for the dollar loan:

$1,200*1.03 = $1,236

  • settle the gold forward contract by paying $1,232.2 for 1.01 oz
  • repay the gold loan with 1.01 oz

The total revenue of the arbitrage trade is $1,236 dollars. Having to settle the forward with $1,232.2, leaves a profit of $3.8:

$1,236−$1,232.2 = $3.8

The arbitrage opportunity will be taken advantage of until it’s closed, at that point in time the 6 months forward gold price is $1,223.76. For more clarity I should add that the closing of the arbitrage opportunity happens in the now, not in 6 months time. In addition, when the arbitragers step in the forward gold price could be pushed up from $1,220 to $1,223.76, as we’ve seen in the example trade, though in reality the other variables, such as the spot gold price or the GLR, can give way as well until interest rate parity has manifested. Interest rate parity suggests the spot, lending and forward markets are strongly linked. If one market is moving the others will move accordingly.

In reality everything is more complicated than in our exemplar market because of additional costs involved such as collateral/margin requirements and transaction/shipping/insurance costs (and because interest rate parity is just a theory, which does not always hold).

James Orlin Grabbe, the author who inspired me to pen this post, wrote in the late nineties: 

The forward price of gold – the price agreed now for gold to be purchased or sold at some time in the future – is a function of the gold spot price, and the interest rates representing alternative uses of resources over the forward time period.

James orlin grabbe 2James Orlin Grabbe.

Introducing GOFO

So, we can compute the forward gold price from the spot gold price, US dollar interest rate and GLR. The formula can be written as:

F(T) = S(1+r(T/360)) / (1+r*(T/360))

F(T) = the forward gold price over a time horizon T days (up to 360 days)

S = the spot gold price

r = US dollar interest rate

r* = GLR

From this equation there is more to reveal. In our exemplar market the spot gold price is $1,200 and the 6 months forward gold price is $1,223.76. Ergo, the 6 months gold forward premiumin percentages (/the forward rate) is:

($1,223.76/$1,200)−1 = 0.0198 = 1.98 %

The 6 months forward rate is by approximation 2 % and consequently the annualized forward rate is by approximation 4 %. The difference between the US dollar interest rate (6 %) and the GLR (2 %) is also 4 %. Meaning, the forward rate equals to the difference between the US dollar interest rate and GLR. Why? Math. If we play with the formula above we get a nominal forward premium of:

F(T)−S = $1,223.76−$1,200 = $23.76

And by using (r−r*) as difference between the US dollar interest rate and GLR, we get:

S(r−r*)−S = $1,200(0.03−0.01) −$1,200 = $24

The forward rate equals the difference between the US dollar interest rate and the GLR. At this point I would like to bring up GOFO. Grabbe wrote:

Gold forward rates are sometimes referred to as “GOFO” rates, because GOFO was the Reuters page that showed gold forward rates.

Although this is not the official definition of GOFO, it is true that GOFO resembles the forward rate. I say ‘resembles’ and not ‘equals’, because there is a tiny difference we will discuss in the final chapter about GOFO. Finally, we have explained two descriptions of GOFO mentioned in the introduction of this post. Namely, GOFO resembles the gold forward rate and the difference between the US dollar interest rate and the gold lease rate. The official and exact definition of GOFO we’ll save for last.

GOFO ≈ US dollar interest rate − GLR

GLR ≈ US dollar interest rate − GOFO

US dollar interest rate ≈ GOFO + GLR

GOFO, GLR and US$ interest rateChart 3. A positive gold forward rate is called contango.When the forward rate is negative this is called backwardation. A negative forward rate implies gold for immediate delivery is trading at a premium to gold for future delivery. This can be caused by tightness in supply now or by market expectations the price will fall in he future. Backwardation is the opposite of contango, a positive forward rate. Historically contango has been the normal state of the gold market whereby the GLR is lower than the US dollar interest rate.

Because GOFO resembles the gold forward rate, negative GOFO implies backwardation in the gold forward price. Unfortunately, GOFO is not being published anymore after it was negative for long periods in 2013 and 2014. The LBMAwrites on its website:

GOFO … was discontinued with effect from 30 January, 2015, following discussions between the LBMA and the contributors to the dataset, the LBMA Forward Market Makers.

So much for transparency.

In the chart below we can see GOFO went negative repeatedly in 2013 and 2014. The cause was presumably tightness in spot gold supply, as every time GOFO went sub-zero the spot gold price was pushed up.

GOFO 2013 and 2014Chart 4. The 1, 2, 3, 6 and 12 months GOFO rates from July 2013 until April 2014.In the interest rate parity chapter we examined an arbitrage trade that surfaced when the forward gold price was too low in relation to the prevailing US dollar interest rate and GLR in our exemplar market. Naturally, a comparable arbitrage opportunity arises when the forward gold price is too high in relation to the prevailing US dollar interest rate and GLR. Say, the 6 months forward gold price in our exemplar market is not $1,223.76, but higher at $1,300. This time we want to sell overvalued forward gold and buy spot gold to strike a profit:

buy spot gold = sell spot dollars

sell forward gold = buy forward dollars


  • borrow 1,200 dollars for 6 months at 3 % (an annual US dollar interest rate of 6% divided by 2)
  • buy 1 ounce spot gold for 1,200 dollars
  • store the gold for a storage fee of $5 for 6 months
  • sell short a 6 months gold forward contract at $1,300 for 1 ounce. The forward contract will have a notional value of:

1*$1,300 = $1,300

In 6 months time,

  • settle the forward: deliver 1 ounce of gold and receive $1,300
  • pay storage costs $5
  • repay the initial dollar loan:

$1,200*1.03 = $1,236

The proceeds of the gold forward are $1,300. Total expenses of the dollar loan ($1,236) and storage costs ($5) are $1,241, which leaves a profit of $59.

$1,300−$1,236−$5 = $59

The trade can also be executed by buying spot gold end lend the metal for 6 months instead of storing it. In that case the profit would be higher as the storage costs would be replaced by interest accrued on the gold loan. A 6 months gold loan of 1 ounce would grow into 1.01 ounce. When this gold loan is settled in dollars, the return would be the interest in ounces converted to dollars based on the spot gold price:

0.01*$1200 = $12 (dollar return on 6 months gold loan)

Using a dollar return on the gold loan would lead to a profit in our previous arbitrage trade of:

$1,300−$1,236+$12 = $76

The difference in profit ($76 – $59 = $17) is of course equal to the storage costs plus the dollar return on the gold loan ($5 + $12 = $17).

More on the pricing of commodity forward/futures contracts and the interaction between the theory of interest rate parity and the theory of storage will be discussed in a forthcoming post.

Gold Forward Swaps & GOFO

We’ve arrived at the official definition of GOFO, the swap. From the website of the London Bullion Market Association we can read the following official definition of GOFO:

GOFO represents rates at which the market making members will lend gold on swap against US dollars.

In parlance of the precious metals markets the word swap usually refers to a forward swap, whereby gold is sold spot and bought forward, or bought spot and sold forward. Essentially this is what GOFO is all about, a forward swap. The swap always has two legs, namely a spot and a forward leg. Consequently, the swap rate equals the forward rate.

gold swap rate = gold forward rate = US dollar interest rate − GLR

When market makers are willing to “lend gold on swap against US dollars” in the official definition of GOFO, they’re willing to execute a forward swap by selling gold spot and buying gold forward. The word “lend” can be slightly deceiving, as strictly speaking there is no lending. However, the swap simulates lending: a gold loan to the market taker collateralized with dollars.

When a swap is executed and the market maker (dealer) sells spot gold to the market taker (client) and simultaneously signs a forward contract to buy it back in due time, the client buys that spot gold with dollars (collateral) and is obligated to return the metal through the forward contract at a fixed price. From the client’s perspective the process can be viewed as borrowing gold (collateralized with dollars), from the dealer’s perspective the process can be viewed as lending gold (on swap against dollars).

In the official definition of GOFO the dealer is the lender of gold but naturally he offers the reverse swap as well, whereby the dealer is the borrower. Let’s have a look at an example trade in which the dealer borrows gold: a central bank owns gold that it wants to put up as collateral for a 1 year dollar loan. The central bank and its dealer agree on a swap transaction. Based on the data from our exemplar environment the central bank will sell gold on spot to the dealer at $1,200 an ounce and then buy back the metal in 1 year’s time at $1,248 an ounce.

$1,200*(1+(0.04(360/360))) = $1,248

Essentially, the central bank has borrowed dollars for 1 year at 4 % instead of 6 % because it has collateralized the loan with gold (/lend its gold simultaneously at 2 %). Again, the swap rate is the difference between the US dollar interest rate and the GLR.

Let’s take it one step further and add bid-ask spreads to learn what GOFO is exactly. In more academic literature (The Non-Investment Products Code, NIPS code) we can read:

GOFO is the Gold Forward Offered Rate and is the rate at which dealers will lend gold on the swap against US dollars. As such it provides an international benchmark and is the basis for the pricing of gold swaps, forwards and leases. …

From GOFO rates, indicative mid-market gold lease rates can be determined as:

Mid-market lease rate = (US dollar LIBOR less 0.0625%) minus (GOFO plus 0.125%)

To explain the equation mentioned in the NIPS code, we should compare it to the one I penned in the previous chapter:

GLR ≈ US dollar interest rate – GOFO

The formulas are to a great extent similar. Though, the NIPS code uses LIBOR as the US dollar interest rate, which it corrects downwards by 0.0625 % because LIBOR is an offer rate – LIBID is its related bid. To compute the mid market US dollar interest rate the slippage, in this case 0.0625 %, is subtracted from LIBOR. In turn, GOFO is increased by 0.125 % because a “lend gold on swap against dollars” deal from a market maker’s perspective is based on the mid market spot leg, while the forward leg is the bid (in the official definition of GOFO the market maker buys forward, so the forward leg is the bid). To calculate the mid market forward leg GOFO must be increased by the slippage, which according to the NIPS code is 0.125 %. In the Nips code formula LIBOR is adjusted to come to the mid-market US dollar interest rate and GOFO is adjusted to come to the mid-market swap rate, in order to compute the mid-market GLR.

In the end, all formulas are:

Mid-market gold lease rate = mid market US dollar interest rate – mid market gold swap rate

Koos Jansen
E-mail Koos Jansen on: koos.jansen@bullionstar.com



And now your overnight MONDAY NIGHT/ TUESDAY MORNING trades in bourses, currencies and interest rate from Asia and Europe


1 Chinese yuan vs USA dollar/yuan DOWN to 6.5275 / Shanghai bourse IN THE RED:  / HANG SANG CLOSED DOWN 49.31 POINTS OR 0.25%

2 Nikkei closed DOWN 59.00 OR 0.37%

3. Europe stocks all in the RED /USA dollar index UP to 97.47/Euro DOWN to 1.0992

3b Japan 10 year bond yield: FALLS  TO -.007%    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.06

3c Nikkei now well below 17,000

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

3e WTI::  33.46  and Brent: 34.98

3f Gold UP  /Yen UP

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

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

3h Oil 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 0.181%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate FALL to 11.87%/: 

3j Greek 10 year bond yield RISE to  : 10.62%  (yield curve deeply  inverted)

3k Gold at $1217.40/silver $15.17 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble UP  14/100 in  roubles/dollar) 75.02

3m oil into the 33 dollar handle for WTI and 34 handle for Brent/

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


30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9935 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0924 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.


3r the 8 year German bund now  in negative territory with the 10 year FALLS to  + .181%

/German 8 year rate negative%!!!

3s The Greece ELA NOW a 71.4 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 1.79% early this morning. Thirty year rate  at 2.64% /POLICY ERROR)

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

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

Is The Short Squeeze Over? Global Rally Fizzles, Futures Lower

Unlike Monday’s global PMI deterioration (which sent markets around the globe soaring), there was little in terms of macroeconomic data overnight (German IFO earlier missed on expectations and business climate but beat on current assessment) so the “market made the news.” These came most from the USDJPY which has continued to fall, sliding to 111.85 overnight, and dragging the Nikkei to a -0.4% drop.

Japan’s currency strengthened against all of its 16 major peers and gold rose for the first time in three days after the People’s Bank of China reduced the reference rate by more than some analysts forecast.

Many are now wondering what if anything the BOJ – a critical member of the “global central bank put” team – can do any more at this point to push the next leg higher in the USDJPY.

“It’s beginning to feel like the BOJ is completely stuck,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “The yen had been trading at historically low levels that implied an endless amount of easing, but now doubts are emerging. It’s difficult to imagine any scenarios where the BOJ can take action.”

Elsehwere in Asia, China’s Shanghai Composite (-0.8%) retreated from a monthly high, as financials were pressured on outflow fears after the PBoC weakened the reference rate by the most since early January. Furthermore, now that the PBOC has limited tracking data on offshore or CNH intervention, it will be virtually impossible to quantify just how much intervention the PBOC has engaged in even after the fact, something which will certainly confuse traders and raise suspicions that China’s capital outflow problem is greater than even the worst case scenario.

Emerging-market stocks retreated from a six-week high. BHP Billiton Ltd. led commodity producers lower after making a larger-than-expected cut to its dividend. Crude fell and industrial metals declined, with zinc slipping back after entering a bull market on Monday.

European strocks were weighted down by the previously reported first cut in BHP Billiton’s dividend in 15 years and a surprise loss posted by Standard Chartered Plc confirming that the global slowdown and tumbling prices for metals and oil are weighing on earnings. Britain’s referendum on its membership in the European Union is also raising currency-market risks across the continent, with the cost of options protecting against losses on the euro jumping.

Crude has generally drifted lower today although expect more headline-driven squeezes on headlines out of Houston where Saudi oil minister Ali al-Naimi will deliver the welcome and ministerial address to open day 2 of the IHS CERAWeek conference. In other oil data we also have API weekly inventory data today, with builds expected both nationally and at Cushing delivery hub in EIA data tomorrow.

But the biggest question on all traders’ minds will be whether the bear market short squeeze that sent the S&P higher by 130 points in 6 days, is finally over – with most global market rolling over and with US equity futures unable to find their  solid early morning footing, it may finally be time to cash out of the bear market rally which so many predicted, and which GSBank yesterday may have top-ticked with perfection.

Where markets stand now:

  • S&P 500 futures down 0.1% to 1933
  • Stoxx 600 down 0.3% to 330.9
  • FTSE 100 down 0.5% to 6008
  • DAX down 0.7% to 9506
  • German 10Yr yield up less than 1bp to 0.18%
  • Italian 10Yr yield up 2bps to 1.54%
  • Spanish 10Yr yieldunchanged at 1.65%
  • S&P GSCI Index down 1% to 297.7
  • MSCI Asia Pacific down less than 0.1% to 121
  • Nikkei 225 down 0.4% to 16052
  • Hang Seng down 0.3% to 19415
  • Shanghai Composite down 0.8% to 2903
  • S&P/ASX 200 down 0.4% to 4980
  • US 10-yr yield up 2bps to 1.78%
  • Dollar Index down 0.01% to 97.37
  • WTI Crude futures down 0.6% to $33.22
  • Brent Futures down 1.8% to $34.05
  • Gold spot up 0.9% to $1,219
  • Silver spot up 0.3% to $15.23

Global Top news

  • United Technologies Says Obstacles Scuttled Honeywell Talks: Walked away from preliminary talks about a merger due in part to concerns that a deal wouldn’t win approval from antitrust authorities; Honeywell said to have offered $108 a share last wk
  • Valeant Says It Will Restate Earnings After Board Review: Philidor accounting review showed $58m in rev. recognized in 2014 should have been booked in subsequent periods; sees change reducing 2014 GAAP EPS by ~10c, increasing 2015 GAAP EPS by ~9c
  • German Business Sentiment Falls as Turmoil and China Sow Concern: The IFO institute’s business climate index dropped to 105.7 in Feb. from 107.3 in Jan., median est. decline to 106.8
  • Boeing CEO Muilenburg Named Chairman as McNerney Exits Board: CEO Dennis Muilenburg was named chairman, succeeding former CEO Jim McNerney, who is stepping down as a director
  • Bill Gates Sides With Government in Apple Clash, FT Says: Gates has sided with the U.S. govt. in a dispute over Apple’s refusal to break into a terrorist’s iPhone, breaking ranks with the industry in a face-off with law enforcement, FT reported
  • Fitbit Forecasts Miss Estimates on Global Rollout of New Devices: Sees 1Q adj. EPS breakeven to 2c vs est. 23c; sees 1Q rev. $420.0m-$440.0m, est. $484.6m
  • Brookfield, Qube Consider Joining Forces in Bid for Asciano: Groups led by Brookfield Asset and Qube Holdings are considering joining forces to buy Asciano, 2 groups discussing joint offer of A$9.28 per share in cash
  • J&J Must Pay $72 Million Over Talc Tied to Woman’s Cancer: Company faces about 1,200 more suits over talc products
  • Goldman Sachs, HSBC Back Cameron Push to Keep Britain in the EU: 36 FTSE companies sign letter that backs remaining in bloc
  • OPEC Doesn’t Know How It Can ‘Live Together’ With Shale Oil: Production freeze will be re-evaluated after 3-4 months
  • Drug Spending Slowed in 2015 After Discounts, CVS Health Says: Drug costs for its plans grew 5% in 2015 vs 11.8% in 2014
  • Syrian Cease-Fire to Begin Feb. 27, U.S. and Russia Announce

Looking at regional markets, we start in Asia equities failed to take the impetus from Wall Street gains, with sentiment in the region dampened on a reversal in energy and caution regarding China. ASX 200 (-0.4%) and Nikkei 225 (-0.4%) pared early gains as appetite for risk deteriorated amid a pull-back in energy, with the latter also pressured by JPY appreciation. Chinese markets underperformed with the Shanghai Comp (-0.8%) retreating from a monthly high, as financials were pressured on outflow fears after the PBoC weakened the reference rate by the most since early January, where continued similar action by the PBoC triggered widespread uncertainty and a global stock slump. 10yr JGBs initially tracked the gains in UST’s, with the dampened risk-off sentiment supporting safe-havens, while today’s 40yr auction saw increased demand as participants search for positive yields. However, heading into the European open gains were pared amid a sell-off in USTs. PBoC set the CNY mid-point at 6.5273 vs. last close. 6.5230 (Prey. mid-point 6.5165); this represents the biggest weakening of the reference rate by the PBoC in 6 weeks. (RTRS)

Asian top news

  • Honda Shakes Up Ranks as Recalls Persist After CEO Switch: Chairman and eight other top Honda executives are retiring
  • Top Macro Hedge Fund Sees Monetary Easing as Boon for Stocks: PruLev Global says more central bank easings may boost developed market indexes
  • Noble Group Warns of Loss After Additional $1.2 Billion Charges: About half of $1.2 billion charge taken on long- term contracts
  • Earliest Chinese Data Signal Slowdown Hasn’t Bottomed Out Yet: Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated, the readings show.
  • China Reform Said to Near Joining $43 Billion Syngenta Purchase: State-run fund in discussions to join ChemChina’s record deal
  • Singapore Lawyers Warn of 1998-Like Pain as Debt Defaults Spread: ‘A while before any significant recovery’ Rajah & Tann Singapore says
  • Kuroda Hints at Shift in Thinking on Monetary Policy’s Power: Unprecedented stimulus program failed to achieve Bank of Japan’s inflation target
  • China’s New Securities Chief Said to Urge Strict Supervision: Liu Shiyu said to request checks on market manipulation after replacing Xiao Gang as CSRC chairman

European equities kicked off the session in a similar manner to Asian equities, opening with losses and being weighed on by the energy and material sectors although with much of the losses being pared throughout the morning (Euro Stoxx: -0.2%). The day has so far seen some retracement from much of yesterday’s moves, with risk off sentiment dictating play today. In terms of stock specific news, two of the most notable earnings of the day were particularly downbeat, with BHP Billiton (-3.0%) and Standard Chartered (-4.0%) both among the worst performers in Europe.

Elsewhere, fixed income has seen a choppy session so far, with Bunds largely shrugging off the miss on expectation in German IFO German IFO Business Climate (105.7 vs. Exp. 106.8). Of note, as European participants arrived at their desks this morning, softness was seen in US 10yr T-notes due to two large sellers, one of 30k contracts and one of 5k contracts.

European top news

  • BHP Cuts Dividend for First Time in 15 Years on Profit Drop: Cuts interim div. to 16c/shr from 62c y/y, payout had been forecast to drop to 31c; 1H underlying profit fell to $412m at its continuing operations from $4.9b yr earlier
  • Standard Chartered Plunges on Surprise Annual Loss, Revenue Miss: 2015 pretax loss $1.5b, down from profit of $4.2b y/y; FY adj. pretax $834m, missed ests. of $1.37b; loan impairments almost double to $4b, highest ever
  • Swiss Re Quarterly Profit Beats Estimates; Names New CEO: Christian Mumenthaler will take over as CEO as of July 1; 4Q net income $938m; est. $916m
  • InterContinental to Pay Out $1.5b After Hotel Sales: Special div. will be paid in 2Q, takes funds returns since 2003 to $12b
  • U.K. Bank Rules Won’t Revert to Pre-Crisis Days on ‘Brexit:’ Prudential Regulation Authority’s Andrew Bailey says there won’t be a “bonfire of regulations”
  • Danone Forecasts Profitability to Improve on Yogurt Turnaround: 2015 LFL sales to rise 3% to 5% with “solid” margin advancement
  • JPMorgan’s ‘London Whale’ Surfaces to Say ’12 Loss Not His Fault: Bruno Iksil comments on losses in former unit in letter

In FX, the USD/JPY has stolen the limelight with another move through 112.00 although in more orderly trade this time around, with some reluctance seen to push too aggressively towards the recent 110.99 lows. A busy morning for EUR/USD though, with some early calls that parity is still a view firmly held. Alongside a soft business climate index in the German IFO survey, we saw a push on 1.1000, with some large buy orders filled through the figure, though more seen through to 1.0950. Tight trade seen elsewhere, with AUD digging despite some fresh, but modest weakness in stocks. EUR/CHF now pushing lower also, dipping below 1.0950 to reflect the heavy risk and EUR tones. Oil prices steady, but coming off better levels — as with the related currencies.

In commodities, WTI and Brent futures fell throughout the European session with the commodities seeing continued volatility as participants wait to see what, if any, deal can be agreed regarding a freeze in global production. Additionally, participants will be keeping a keen eye out for the latest API crude inventory report.

The Bloomberg Commodities Index fell as much as 0.6 percent, weighed down by weaker oil and base metals prices. Oil traded near $33 a barrel after the International Energy Agency said a global surplus will persist into next year and limit any chance of a short-term price rebound. While supply and demand will be aligned next year, large accumulated stockpiles will slow the pace of recovery in prices, the IEA said in its medium-term report. April futures in New York slid 2.3 percent to $32.63.

Zinc retreated 1.2 percent to $1,759 a metric ton on the London Metal Exchange, falling from its highest close in four months. Copper, lead and nickel fell at least 0.5 percent. Gold led precious metals higher, gaining 0.9 percent to $1,219.03 an ounce as investor holdings in exchange-traded funds jump to the highest in almost a year.

On the US calendar attention will be focused on the February consumer confidence print where the consensus is for a near 1pt decline to 97.2. We’ll also get more housing market data with January existing home sales and the December S&P/Case-Shiller house price index, while the February Richmond Fed manufacturing activity index print is also expected. There’s nothing in the way of Fedspeak today however it’ll be worth keeping an eye on the BoE where Governor Carney is due to speak to lawmakers this morning (10am GMT) on the outlook for the UK economy and monetary policy. The ECB’s Nouy is also due to speak this afternoon at a DB conference I’ll be attending.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities take the impetus from the weak lead in Asian bourses amid weakness in energy and material names, while BHP Billiton and Standard Chartered are among the worst performers on the back of poor earnings.
  • EUR takes a hit following soft German IFO readings alongside bearish calls from the likes of BNP Paribas and Deutsche Bank citing ECB action next month.
  • Looking ahead, highlights include US S&P/Case Shiller index, Existing Home Sales as well as comments from Fed’s Kashkari, Fischer and BoE’s Haldane
  • Treasuries lower with global equity markets and oil; week’s U.S. auctions begin today with $26b 2Y notes, WI yield 0.775%, compares with 0.86% awarded in Jan., lowest 2Y auction stop since November.
  • The yen gained and gold climbed after China cut the yuan’s fixing by the most in six weeks, spurring demand for havens. European stocks and emerging markets fell while oil declined with copper
  • Britain’s referendum on its membership in the European Union isn’t just a threat to the pound. It’s raising currency- market risks across the continent
  • Mark Carney said the Bank of England isn’t making a judgment on the consequences of Britain’s referendum on its European Union membership
  • Chief executive officers from HSBC Holdings Plc to Goldman Sachs International were among the business leaders to endorse Prime Minister David Cameron’s campaign to keep Britain in the European Union
  • German business confidence fell for a third month in a sign that companies in Europe’s largest economy are growing more concerned as slowing global growth roils financial markets
  • BlackRock Inc., the world’s biggest money manager, is warning bond investors they’re not prepared for the Federal Reserve to raise interest rates
  • Microsoft co-founder Bill Gates has sided with the U.S. government in a dispute over Apple’s refusal to break into a terrorist’s iPhone, breaking ranks with the industry in a face-off with law enforcement, the Financial Times reported
  • The U.S. and Russia announced that a partial cease-fire in Syria will start Feb. 27, reviving hopes for a solution to a five-year war that’s killed 260,000 people and created a refugee crisis straining Europe’s borders
  • $18.75b IG corporates priced yesterday (YTD volume $244.25b) and no HY priced (YTD volume $11.125b)
  • Sovereign 10Y bond yields mostly steady; European, Asian markets drop; U.S. equity- index futures lower. Crude oil and copper fall, gold rises

DB’s Jim Reid completes the overnight wrap

While Sterling had a day to forget yesterday, it was EM and commodity sensitive currencies which ranked among the day’s best performers after Oil and industrial metals climbed sharply higher. Indeed it was the Russian Ruble (+2.27%), Brazilian Real (+1.98%), Colombian Peso (+1.40%), South African Rand (+1.37%), Chilean Peso (+1.28%) and Australian Dollar (+1.11%) which benefited, as Oil surged higher with the new WTI April contract finishing up +5.17% on the day at $33.39/bbl (we should highlight that this contract had closed at $31.75/bbl on Friday, while the old March contract which expired yesterday rallied 6.2% to $31.48/bbl). The focus appeared to be on some supportive commentary out of the IEA, with the agency forecasting for US shale-oil production to fall by 600k barrels a day in 2016 and 200k barrels a day in 2017 and also suggesting that oil prices should come under upward pressure from next year. It’s worth reminding that we’ve seen a number of temporary bounces like this so far this year and in reality Oil has been in a late $20s to mid $30s range since early January. That said, overall sentiment feels improved and that’s helping risk assets.

That was evidenced yesterday where we saw equity markets globally kick the week off on the front foot. In Europe a rally for commodity sensitive names helped the Stoxx 600 close up +1.67% while the peripherals were more impressive with the IBEX and FTSE MIB +2.35% and +3.52% respectively. That helped the S&P 500 get off to a strong start with the index holding onto gains impressively as the session wore on, eventually finishing +1.45%. Along with that move for Oil, Aluminium (+1.61%), Copper (+1.58%) and Zinc (+2.09%) were all up sharply too while Iron Ore rallied over 6% to close above $50/tn for the first time since October. The VIX finished over 5% lower and closed below 20 for the first time in three weeks, while credit markets had a strong day too with CDX IG and Main both finishing 5bps tighter. A sign of the better sentiment was also reflected in another strong day for primary issuance with nearly $19bn said to have priced in US IG alone which according to Bloomberg is the biggest start to a week since May last year.

Glancing at our screens this morning, after bourses in Asia had initially moved higher reflecting those gains on Wall Street last night, the rally has faded as markets head into the midday break. Not helping is a retreat for Oil with WTI down 1.5% while the news that the PBoC has weakened the CNY fix by the most (0.17%) since January 7th seems also to be weighing on sentiment. Bourses in China are leading the weakness with the Shanghai Comp and CSI 300 -1.26% and -1.27% respectively. Elsewhere the Nikkei (-0.31%), Hang Seng (-0.54%), Kospi (-0.28%) and ASX (-0.47%) are also down after initially opening up stronger. US equity market index futures are also pointing to a softer start, while Gold (+0.95%) and the Yen (+0.53%) are the ones benefiting from the weaker tone.

Moving on. Along with the better day for risk yesterday, European rates markets were a tad stronger too reflecting what was a fairly softish set of European PMI’s. The flash February Euro area composite was down 0.9pts and more than expected this month to 52.7 (vs. 53.3 expected), the second consecutive monthly decline and lowest in 13 months. This was primarily driven by the manufacturing print which fell 1.3pts to 51.0 (vs. 52.0 expected), although services was also slightly lower (-0.6pts to 53.0; 53.4 expected). Regionally it was the weakness in Germany which stood out with the manufacturing print down 2.1pts to 50.2 (vs. 51.9 expected), marking a 15-month low. The French composite also dipped below 50 following a drag from the services reading. Our European Economists highlighted in a note yesterday that the flash PMI’s suggest a sharp monthly fall (1.4pts) on average in the composite PMI of Italy, Spain and Ireland. They also note that the composite PMI for the Euro area is now consistent with +0.3% qoq growth and in line with their slightly lower outlook for H1 2016, but also raises the risk of a more material slowdown. Clearly the data also adds more fuel to the fire for the ECB to deliver next month.

Meanwhile, over in the US yesterday there was similar softness in the flash manufacturing PMI there, which declined 1.4pts to 51.0 (vs. 52.4 expected) and the lowest since October 2012. That said there was better news to come out of the Chicago Fed manufacturing activity index which was up over half a point to 0.28 (vs. -0.05 expected) in January.

Looking at the day ahead now, the focus shortly after we go to print this morning will be on Germany where the final revision to Q4 GDP is due (no change expected at +0.3% qoq). Shortly after this we’ll get a number of confidence indicator readings out of France before we return to Germany again with the IFO survey data for February. Interest in the US this afternoon is likely to be centered on the February consumer confidence print where the consensus is for a near 1pt decline to 97.2. We’ll also get more housing market data with January existing home sales and the December S&P/Case-Shiller house price index, while the February Richmond Fed manufacturing activity index print is also expected. There’s nothing in the way of Fedspeak today however it’ll be worth keeping an eye on the BoE where Governor Carney is due to speak to lawmakers this morning (10am GMT) on the outlook for the UK economy and monetary policy. The ECB’s Nouy is also due to speak this afternoon at a DB conference I’ll be attending.

Let us begin:




Late  MONDAY night/ TUESDAY morning: Shanghai closed DOWN slightly  BY 23.84 POINTS OR 0.81%  / Hang Sang closed DOWN by 49.31  points or 0.25% . The Nikkei closed DOWN 59.00 or 0.37%. Australia’s all ordinaires was down 0.43%. Chinese yuan (ONSHORE) closed down at 6.5275.   Oil GAINED  to 33.46 dollars per barrel for WTI and 34.98 for Brent. Stocks in Europe so far deeply in the RED . Offshore yuan trades  6.53377 yuan to the dollar vs 6.5275 for onshore yuan/




Last night from Japan:


This is something that Kuroda did not want to hear.   Well known Japanese banker Fujimaki who is now in parliament in the opposition and the man who originally told Japan to do QE states that Japan will have hyperinflation.  He also states that they got the order of things to do all wrong.  They should have brought rates down to zero first and then do QE.  They reversed the order and that is why they are in trouble with no exit.  He states that yields will rise dramatically setting off a catastrophe in Japan and then hyperinflation and/or bankruptcy!


(courtesy zero hedge)




“There Will Be Hyperinflation” Japanese Lawmaker Warns “Kuroda Got It Wrong” With NIRP

Following The Bank of Japan’s voyage into NIRP never-never-land, the market has sent a clear signal of its displeasure and now a growing number of Japanese officials (and former officials) are questioning Kuroda and Abe’s Peter-Pan-ic dream that ‘they’ can fly. Having called for sub-zero rates more than two decades ago, Takeshi Fujimaki, the Japanese banker turned opposition lawmaker, warns“The BOJ is trapped,” now that QQE efforts have flattened the yield curve, since “if the curve is steep, banks can make profits even at negative rates. It was a mistake to adopt negative rates after QQE.” But it is Fujimaki’s parting comment that should have most concerned, “Japan has ballooning debt and the BOJ is financing debt, that’s the problem… it will bust and there will be hyperinflation.”

First – once again the lying ensues:


Doesn’t look like it…

Governor Haruhiko Kuroda’s decision to charge for some deposits parked at the central bank is punishing those who hold the cash he just spent 2 1/2 years pumping into the economy.And, as Bloomberg reports, the BOJ is boxing itself into a corner because it won’t be able to stop its asset purchases once inflation takes hold, raising the specter of fiscal collapse as yields soar, 65-year-old Takeshi Fujimaki, the Japanese banker turned opposition lawmaker, said.

“The BOJ is trapped,” Fujimaki, who has been predicting an eventual default in Japan over the past 20 years, said in a Feb. 16 interview at his office in Tokyo. “Minus rates weaken the yen and push up inflation, but the BOJ doesn’t have the courage to expand negative rates because that will expedite a fiscal collapse.”

While the European Central Bank has the same policies, Japan’s problem is that it adopted them in the reverse order, flooding the system with cash under qualitative and quantitative easing and then penalizing holders of cash with negative rates, Fujimaki said. That includes the central bank that now owns more than a third of the country’s government bonds.

“As a result of QQE, the yield curve has flattened and because bank deposits aren’t negative, banks are suffering from reserve curve that’s hurting their profitability,” said Fujimaki, who was briefly at Soros Fund Management in 2000, joined the Tokyo office of Morgan Guarantee Trust Co. in 1985 and won his upper house seat in July 2013. “If the curve is steep, banks can make profits even at negative rates. It was a mistake to adopt negative rates after QQE.”

It certainly seems like a problem…

As Bloomberg concludes, Japan has the world’s heaviest debt burden, with the ratio of borrowing to gross domestic product more than twice the average for Group of Seven nations. It will rise to 250 percent by 2018 from 246 percent in 2015, according to the International Monetary Fund.

“Japan has ballooning debt and the BOJ is financing debt, that’s the problem,” Fujimaki said. “The yen will weaken further and the risk heightens of a hard landing. There is no debate on an exit policy, so once the economy improves, it will bust and there will be hyperinflation. ”

And finally, as if that was not enought, just tonight we get more Peter-Pan(ic) ravings – this time from Aso:


Well with JGB yields at record lows after all the idiocy they have done, “confidence” may be misplaced. But as far as “robust” economic fundamentals – that is a fairy tale that noone believes:

There’s this…


Or this…

Oh, and this…

But apart from that – yeah, it’s robust. Are Japanese leaders simply relying on a media that is now under their direct control and a population aging into senility that will soon be unable to comprehend anything?





Yesterday, we had horrible results from HSBC.  Today it is Standard Chartered that posts just awful earnings, a net loss position of 1.5 billion dollars, coupled with impairments of 87%!!

(courtesy zero hedge)

Standard Chartered Posts Horrendous Results As Impairments Soar 87%

Back in August, we warned that things were about to get much worse for Standard Chartered, whose EM focus makes the bank especially vulnerable to the ongoing downturn in commodities and the generally poor outlook for the emerging world in an environment characterized by slowing global growth and a persistently strong USD.

At the time, the Standard had just reported a 44% decline in H1 profits but investors were pacified by a 50% “rebasing” of the dividend. “The underlying business looks to be headed downhill in a hurry,” we warned, noting that trouble among corporate and institutional clients contributed to a 158% increase in impairments.

Needless to say, the outlook for EM hasn’t brightened since then. On Tuesday, we got a look at the bank’s full year results and boy, oh boy were they bad. Standard posted an annual net loss for the first time in more than 25 years with pre-tax red ink totaling $1.5 billion.

Impairments skyrocketed by 87% to more than $4 billion primarily due (again) to the Corporate & Institutional Clients and Commercial Clients business. “We have reviewed the portfolio extensively through 2015 and have increased provisioning, largely to reflect lower commodity prices as well as further deterioration in India,” the bank said.

NPLs jumped 70% to $12.8 billion and net interest income fell $4.1 billion from $4.65 billion the previous year.

But perhaps the biggest surprise was operating profit which, at just $800 million, was wildly below consensus which stood at around $1.4 billion going into the report. The bank missed on the top line as well, as revenues plunged 15%. Even the Tier 1 ratio – which banks can sometimes manage to improve even amid poor results, slipped to 12.6% from 13.1% at the end of September. Compliance spend jumped 40% to $1 billion.

CEO Bill Winters won’t get a bonus for 2015. The aggregate bonus pool was cut by nearly a quarter to $855 million. But don’t worry, Winters will be fine. He still “earned” $2.4 million last year.

Shares fell as much as 12% in early trading before recovering some ground.

“Our 2015 financial results were poor,” Winters, who took over in May and has embarked on a difficult journey to right the ship amid a troubling outlook for EM, said. “We expect the financial performance of the group to remain subdued during 2016.”

So do we. And so does the Street. “Net interest income weakness is particular cause for concern and may reflect balance sheet reduction from revamp,” Barclays said. “Softness in revenue and the surge in NPLs won’t ease concerns,” Keefe, Bruyette, & Woods added while RBC noted that revenue stabilization “seems elusive.” Here’s a bit from Deutsche Bank (which knows a thing or two about reporting abysmal results):

The revenue performance is particularly worrying, given that we think this should drive long-term valuation of the franchise once impairments reduce. The results leave Standard Chartered with significant revenue improvement to achieve in order to hit 2018/2020 targets, and given the current environment it is unlikely to be an easy 2016. We had previously estimated implied revenues of US$17.4bn and US$18.6bn for 2018 and 2020 respectively. 2H15 annualised revenues were US$13.9bn – leaving significant revenue improvement required, whilst still cutting RWAs and costs. We expect negative consensus revisions today.

And here’s Citi:

C&I has reported a 2H15 pre-tax loss of -$2.0bn, an extremely poor result.Furthermore every line looks weak, with sizeable revenue attrition, little evidence of cost savings and huge impairments. 2H15 revenues of $3.5bn are -31% yoy, with 4Q15 revenues -44% yoy (-32% qoq), hit by de-risking, unfavourable FX translation and mark-to-market loan losses. 2H15 costs of $2.8bn (including $0.2bn relating to restructuring) are +5% yoy. 2H15 loan losses are 2.5x heavier yoy at $2.6bn (including $1.0bn relating to restructuring).

Perhaps CFO Andy Halford put it best: “As we look forward, stresses remain apparent in our markets, and the external headwinds are not improving.”





Oh this is great!! Saudis want surface to give surface to air missiles to Syrian rebels(e.g. Al  Qaeda/El Nusra etc???)

Aleppo is days away from being retaken by Syrian/Iranian and Russian attacks. Saudi Arabia is quite nervous about the Shiite crescent forming:

(courtesy zero hedge)


What Could Go Wrong? Saudis Want To Give Surface-To-Air Missiles To Syrian Rebels

When the Russians started flying from Latakia on September 30 it put the Syrian opposition in a decisively precarious situation.

Whereas the Syrian air force was largely out of date and relied on replacement parts and continual maintenance to remain viable, Moscow brought one of the most formidable sky attacks on the planet to a fight against rebels with zero air capability and exceptionally limited capacity to defend themselves against an aerial assault.

Starting in October, the Russian Defense Ministry began posting video clips (hundreds of them) depicting strikes on a variety of rebel and militant targets and The Kremlin also went out of its way to capture full color, HD footage of Su-34s and long-range bombers in action over Syria where the opposition was quite simply powerless to defend itself.

For about a month (sometime between mid-November and mid-December) it appeared that President Obama was right. The fanfare around the initial wave of Russian airstrikes had subsided and the push north to Aleppo appeared to have stalled. The “quagmire” it seemed, was real. Then, suddenly, Hezbollah surrounded Aleppo and reports indicated the Russian air force had implemented what amounts to a scorched earth policy when it comes to the militants battling Iranian forces.

Once it became apparent that the country’s largest city would soon be recaptured by forces loyal to Assad, both Turkey and Saudi Arabia began to weigh their options. A ground assault by Ankara and Riyadh would be a veritable nightmare for the US and the West. It would invariably devolve into a direct conflict with Iranian forces and the first time a Russian jet hit Saudi or Turkish troops the world would be plunged into a global conflict with the potential to drag every nation in the developed world to war.

So far, the Turks and the Saudis haven’t invaded, although Ankara is now shelling the YPG in the Azaz corridor in an effort to roll back Kurdish efforts to consolidate border gains.According to Saudi Foreign Minister Adel al-Jubeir, Riyadh’s next move may be to introduce surface-to-air missiles so that the rebels will be able to defend themselves against the Russian air attack.

“Is Saudi Arabia in favor of supplying anti-aircraft missiles to the rebels?,” Der Spiegel asked al-Jubeir on Friday. Here was the minister’s response:

Yes. We believe that introducing surface-to-air missiles in Syria is going to change the balance of power on the ground. It will allow the moderate opposition to be able to neutralize the helicopters and aircraft that are dropping chemicals and have been carpet-bombing them, just like surface-to-air missiles in Afghanistan were able to change the balance of power there. This has to be studied very carefully, however, because you don’t want such weapons to fall into the wrong hands.

Now obviously, the whole “dropping chemicals” line is a ruse. The only thing introducing advanced surface-to-air missiles would do is allow the opposition to shoot at Russian air power and that’s completely at odds with the following response al-Jubeir gave when asked about the kingdom’s relationship with the Russians:

Other than our disagreement over Syria, I would say our relationship with Russia is very good and we are seeking to broaden and deepen it. Twenty million Russians are Muslims. Like Russia, we have an interest in fighting radicalism and extremism. We both have an interest in stable energy markets. Even the disagreement over Syria is more of a tactical one than a strategic one. We both want a unified Syria that is stable in which all Syrians enjoy equal rights.

No, no you both do not want that. Syria was already a state where citizens enjoyed equal rights, loosely speaking. That’s not to say that Assad tolerated much in the way of dissent when it came to his grip on power, but when it came to Mid-East states where different sects and religions could live alongside one another, things were going ok in Syria before Riyadh, Washington, Doha, and Ankara decided to play on fears of Iranian influence to whip impoverished Sunnis into a sectarian frenzy.

The hypocrisy and outright absurdity only gets worse from there (in fact, this is one of the most egregious interviews in recent memory with a Saudi official) and we’ve included some of the “highlights” (or “lowlights” as it were) below, but the point here is that the Saudis appear set to supply surface-to-air missiles to the rebels. We’re not sure how today’s announced “ceasefire” will ultimately affect those plans, but it’s worth noting that when the US, Turkey and the Saudis supplied TOWs to the opposition in an effort to combat the advance of pro-government armored vehicles, the FSA ended up using one of the weapons to destroy a Russian search and rescue helicopter. Footage of that effort was posted by the FSA on YouTube.

Inline image 1

Does Saudi Arabia really believe the best idea is to supply the rebels with the capability to shoot at the Russian air force? At what point do Washington’s Sunni allies admit that this has been a giant mistake that’s cost the lives of hundreds of thousands of people? Perhaps most importantly, when will the US and NATO finally admit that they are on the wrong side of the sectarian divide and thus on the wrong side of history? Does The Pentagon really want to get behind arming Sunni extremists (who espouse the same ideology as ISIS and al-Nusra) with weapons to shoot down Russian warplanes?

We’ve said it before and we’ll say it again: the traditional distinction between the “good” guys and the “bad” guys no longer holds. Long live the “good” guys – whoever they are.

*  *  *

Excerpts from Adel al-Jubeir’s interview with Der Spiegel (try not to laugh):

SPIEGEL: Russian Prime Minister Dmitry Medvedev spoke of the danger of “World War III” at the Munich Security Conference.

Al-Jubeir: I think this is an over-dramatization. Let’s not forget: This all began when you had eight- and nine-year-old children writing graffiti on walls. Their parents were told: “You will never see them again. If you want to have children, go to your wife and make new ones.” Assad’s people rebelled. He crushed them brutally. But his military could not protect him. So he asked the Iranians to come in and help. Iran sent its Revolutionary Guards into Syria, they brought in Shia militias, Hezbollah from Lebanon, militias from Iraq, Pakistan, Afghanistan, all Shia, and they couldn’t help. Then he brought in Russia, and Russia will not save him. At the same time, we have a war against Daesh (the Islamic State, or IS) in Syria. A coalition that was led by the United States, with Saudi Arabia being one of the first members of that coalition.

SPIEGEL: That sounds well and good, but you are also providing support to the opposing camp in a war. Even more than your relationship with Russia, the world is worried about the deep schism between Saudi Arabia and Iran.

Al-Jubeir : Iran has been a neighbor for millenia, and will continue to be a neighbor for millenia. We have no issue with seeking to develop the best terms we can with Iran. But after the revolution of 1979, Iran embarked on a policy of sectarianism. Iran began a policy of expanding its revolution, of interfering with the affairs of its neighbors, a policy of assassinating diplomats and of attacking embassies. Iran is responsible for a number of terrorist attacks in the Kingdom, it is responsible for smuggling explosives and drugs into Saudi Arabia. And Iran is responsible for setting up sectarian militias in Iraq, Pakistan, Afghanistan and Yemen, whose objective is to destabilize those countries.

SPIEGEL: Your Iranian counterpart, Foreign Minister Mohammad Javad Zarif, accused Saudi Arabia of provoking Iran by actively sponsoring violent extremist groups.

Al-Jubeir: What’s the provocation that he’s talking about?

SPIEGEL: Is Saudi Arabia not financing extremist groups? Zarif speaks of attacks by al-Qaida, the Syrian al-Nusra and other groups — of attacks on Shiite mosques from Iraq to Yemen.

Al-Jubeir: Yes, but that’s not us. We don’t tolerate terrorism. We go after the terrorists and those who support them and those who justify their actions. Our record has been very clear, contrary to their record. They harbor al-Qaida leaders. They facilitate al-Qaida operations. They complain about Daesh, but Iran is the only country around the negotiating table that has not been attacked by either al-Qaida or Daesh.

SPIEGEL: How do you explain the ideological closeness between the Wahhabi faith in Saudi Arabia and Islamic State’s ideology? How do you explain that Daesh applies, with slight differences, the same draconian punishments that the Saudi judiciary does?

Al-Jubeir: This is an oversimplification which doesn’t make sense. Daesh is attacking us. Their leader, Abu Bakr al-Baghdadi, wants to destroy the Saudi state. These people are criminals. They’re psychopaths. Daesh members wear shoes. Does this mean everybody who wears shoes is Daesh?

SPIEGEL: Are you contesting the similarities between the extremely conservative interpretation of Islam in Saudi Arabia and Islamic State’s religious ideology?

Al-Jubeir: ISIS is as much an Islamic organization as the KKK in America is a Christian organization. They burned people of African descent on the cross, and they said they’re doing it in the name of Jesus Christ. Unfortunately, in every religion there are people who pervert the faith. We should not take the actions of psychopaths and paint them as being representative of the whole religion.

SPIEGEL: Doesn’t Saudi Arabia have to do a lot more to distance itself from ISIS and its ideology?

Al-Jubeir: It seems people don’t read or listen. Our scholars and our media have been very outspoken. We were the first country in the world to hold a national public awareness campaign against extremism and terrorism. Why would we not want to fight an ideology whose objective is to kill us?

SPIEGEL: At the same time, your judges mete out sentences that shock the world. The blogger Raif Badawi has been sentenced to prison and 1,000 lashes. On Jan. 2, 47 men were beheaded, among them Sheikh Nimr al-Nimr. His nephew Ali has been sentenced to death as well and his body is to be crucified after the execution.

Al-Jubeir: We have a legal system, and we have a penal code. We have the death penalty in Saudi Arabia, and people should respect this. You don’t have the death penalty, and we respect that.

SPIEGEL: Should we respect the flogging of people?

Al-Jubeir: Just like we respect your legal system, you should respect our legal system. You cannot impose your values on us, otherwise the world will become the law of the jungle. Every society decides what its laws are, and it’s the people who make decisions with regards to these laws. You cannot lecture another people about what you think is right or wrong based on your value system unless you’re willing to accept others imposing their value system on you.

SPIEGEL: Is it even compatible with human rights to display the body of an executed person?

Al-Jubeir: This is a judgment call. We have a legal system, and this is not something that happens all the time. We have capital punishment. America has capital punishment. Iran has capital punishment. Iran hangs people and leaves their bodies hanging on cranes. Iran put to death more than a thousand people last year. I don’t see you reporting on it.

Saudi Oil Minister:  “Saudi Arabia will not cut production”
so ends the story that this country is willing to co operate with other oil producers in cutting production:
(courtesy zero hedge)

Oil Erases Yesterday’s Gains As Al-Naimi Says “Saudi Arabia Will Not Cut Production” – Live Feed

It appears oil traders are disappointed with Al-Naimi’s comments. Suggesting hopefully (for some) that the ‘freeze’ is the start of a process, al-Naimi then dropped the tape-bomb:


He then added that “not all the countries will freeze; The ones that count will freeze.” WTI Crude (April) front-month futures have erasd yesterday’s gains.




Oil  drops below 32 dollars as the Saudi oil Minister states they they can coexist with 20 dollar oil:

(courtesy zero hedge)

Oil Slumps Below $32 After Saudi Oil Minister Warns “Can Coexist With $20 Oil”

It appears oil traders are disappointed with Al-Naimi’s comments. Suggesting hopefully (for some) that the ‘freeze’ is the start of a process, al-Naimi then dropped the tape-bomb:


He then added that “not all the countries will freeze; The ones that count will freeze.” WTI Crude (April) front-month futures have erasd yesterday’s gains.


Live Fed here (click image for link)


Additional headlines:


And then added this…


And the most expliti threat:


Sure sounds like war?


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

Euro/USA 1.0992 down .0033

USA/JAPAN YEN 112.06  DOWN .888 (Abe’s new negative interest rate (NIRP)a total bust

GBP/USA 1.4096 down .0050 (threat of Brexit)

USA/CAN 1.3720 UP .0018

Early THIS TUESDAY morning in Europe, the Euro fell by 33 basis points, trading now well above the important 1.08 level falling to 1.1034; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was down in value (onshore)  The USA/CNY up in rate at closing last night: 6.5275 / (yuan down 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 by 88 basis points and trading now well BELOW  that all important 120 level to 112.06 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE  AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP

The pound was down this morning by 50 basis points as it now trades just below the 1.41 level at 1.4096 on fears of a BREXIT.

The Canadian dollar is now trading DOWN 18 in basis points to 1.3755 to the dollar.

Last night, Chinese bourses were mainly in the RED/Japan NIKKEI  CLOSED DOWN 59 POINTS OR 0.37%, ALL ASIAN BOURSES LOWER/ AUSTRALIA IS LOWER / ALL EUROPEAN BOURSES ARE  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 HAS BLOWN 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 59.00 OR  0.37%

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

2/ Asian bourses IN THE RED/ Chinese bourses: Hang Sang closed DOWN 49.31 POINTS OR  0.25% ,Shanghai in the RED  Australia BOURSE IN THE RED: /Nikkei (Japan)RED/India’s Sensex in the RED /

Gold very early morning trading: $1217.00


Early TUESDAY morning USA 10 year bond yield: 1.79% !!! UP 3 in basis points from last night  in basis points from MONDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.64 UP 3  in basis points from MONDAY night.  

USA dollar index early TUESDAY morning: 97.47 UP 7 cents from MONDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers TUESDAY MORNING




Oil starts its downfall after Iran claims that a freeze proposal is ridiculous!

(courtesy zero hedge)



Oil Drops After Iran Slams OPEC Production ‘Freeze’ Proposal As “Ridiculous”

Despite OPEC’s El-Badri proclaiming that Iran and iraq “didn’t refuse to join the production freeze,” oil prices are tumbling this morning on comments from Iran’s oil minister that OPEC’s call for a production freeze is “ridiculous.”

Proposal by Saudi Arabia, Russia, Venezuela, Qatar for oil producers to freeze output puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh says, according to ministry’s news agency Shana.



And the result…


So Iran’s out?


JPMorgan just sounded the alarm bell as they increase their loan loss provisions by 500 million dollars and may up it by another 1.5 billion
(courtesy JPMorgan/zero hedge)

JPMorgan Just Sounded a $500 Million Alarm Bell On America’s Dying Oil Patch

Back on January 14, we noted that JPMorgan did something they haven’t done in 22 quarters: the bank increased its loan loss provisions.

The “reserve build of ~$100mm [is] driven by $60mm in Oil & Gas and $26mm in Metals & Mining within the commercial banking group,” the bank said.

That led us to ask of JPMorgan the same thing we’ve asked of Wells Fargo, BofA, and every other TBTF that’s gotten itself overextended in America’s soon-to-be bankrupt O&G space: “if a regional bank like BOK Financial was slammed by just one loan (to what we can only assume was a smaller energy firm), where does the buck stop, and how many other regional, or even big, banks, are woefully underreserved in their exposure to energy loans?”

Most importantly, we said, are these follow up questions:

“How long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones? And how underreserved is JPM for that eventuality?

Today, just over a month later, we got the answer ahead of JPM’s investor day, when JPMorgan said it will increase its reserves for oil and gas loans by 60% in Q1.

As you can see from the following slide, provisions will rise by $500 million from $815 million the bank had set aside as of the end of last year. Metals and mining reserves will also rise, by $100 million.

Note also that the bank says it may be forced to provision another $1.5 billion should crude prices stay at or near $25 for an extended period of time.

As is apparent from the chart, Dimon’s “fortress” balance sheet includes some $19 billion in HY O&G exposure. We’re anxious to see if the vaunted billionaire will dismiss the enormous writedowns that are invariably coming in the next few quarters as a “tempest in a teapot.”

We also wonder which bulge bracket bank will be the next to admit that it’s woefully under reserved for 2016’s inevitable crude carnage.


Oil crashes at the end of the day on huge API crude build:
(courtesy zero hedge)

Oil Crashes After API Reports Massive Crude Build

After last week’s roller-coaster ride (API “draw” vs DOE “build”), tonight’s API data (following Al-Naimi’s reality check this morning) was much heralded. After DOE reported builds across the entire complex last week, and expectations of a 3mm barrel build, API reported a massive 7.1mm build and a bigger than expected 307k build at Cushing.

  • Crude +7.1mm (3mm exp)
  • Cushing +307k (300k exp)
  • Gasoline
  • Distillates

While this may have been catch up from last week’s data, this is still a major build from API…


WTI plunged at the NYMEX close and was limping lower into the API print and then collapsed at the massive build hit



Charts: Bloomberg

And now your closing TUESDAY numbers

Portuguese 10 year bond yield:  3.41% down 4 in basis points from MONDAY

Japanese 10 year bond yield: +.004% !! up 1 full  basis points from MONDAY which was lowest on record!!
Your closing Spanish 10 year government bond, TUESDAY down 1 in basis points
Spanish 10 year bond yield: 1.64%  !!!!!! (and the stock markets in Europe rose???)
Your TUESDAY closing Italian 10 year bond yield: 1.53% up 1 in basis points on the day:
Italian 10 year bond trading 11 points lower than Spain (and the stock markets in Europe rose???)
Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
Euro/USA: 1.1010 down .0014 (Euro down 14 basis points)
USA/Japan: 112.03 down 0.916 (Yen up 92 basis points) and still a major disappointment to our yen carry traders and Kuroda’s NIRP
Great Britain/USA: 1.4018 down .0128 (Pound down 128 basis points on Brexit concerns)
USA/Canada: 1.3758 up.0057 (Canadian dollar down 57 basis points with oil being lower in price/wti = $31.85)
This afternoon, the Euro fell by 14 basis points to trade at 1.1010/(with Draghi’s jawboning having no effect)
The Yen rose to 112.03 for a gain of 92 basis points as NIRP is still a big failure for the Japanese central bank/also all our yen carry traders are being fried
The pound was down 128 basis points, trading at 1.4018.(BREXIT concerns)
The Canadian dollar fell by 57 basis points to 1.3758 as the price of oil was down today as WTI finished at $31.86 per barrel,)
The USA/Yuan closed at 6.5265
the 10 yr Japanese bond yield closed at +.004% up 1  full basis points.
Your closing 10 yr USA bond yield: down 2   basis points from MONDAY at 1.74%//(trading well below the resistance level of 2.27-2.32%) policy error
and the Dow falls as well as bond yields???
USA 30 yr bond yield: 2.59 down 2 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
and the Dow falls as well as bond yields???
 Your closing USA dollar index: 97.47 up 8 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 75.42 points or 1.14%
German Dax: down 150.82 points or 1.64%
Paris Cac down 60.28 points or 1.40%
Spain IBEX down 119.40 or 1.42%
Italian MIB: down 341.12 points or 1.95%
The Dow down 188.88  or 1.40%
Nasdaq:down 67.02  or 1.47%
WTI Oil price; 31.83  at 3:30 pm;
Brent OIl:  33.25
USA dollar vs Russian rouble dollar index:  76.11   (rouble is down 94 /100 roubles per dollar from yesterday) as the price of oil fell
This ends the stock indices, oil price, currency crosses and interest rate closes for today.
New York equity performances plus other indicators for today and the week;

Stocks Slump As Bank Battering & Crude Crash Stall Short-Squeeze

We asked this morning “Is The Short Squeeze Over?” – it appears the answer is… YES


And it was Jamie Dimon who let the cat out of the bag and his “bottom” looks in jeopardy…


And that weighed further on the entire financial sector…


So – a banker told the truth about bad things… an oil minister told the truth about bad things… and a major industrial CEO told the truth about bad things… and Consumer confidence tumbled – Which, given the awesomeness spewewd on CNBC in the last week, can be summed up as…


Despite all the hopes and short squeezes, it’s not like credit risk went much lower during the squeeze (and rose today)…


So Nasdaq suffered the most today (though notice that Trannies staged a pretty good bounce off the EU Close lows)…NOT “Off the lows”


Futures show the various “jerks” in stock “markets”..


With Nasdaq now lower on the week…


Time for SPY to catch down to XIV once again…


Treasury yields closed lower on the day (and unch of the week) after plunging as oil weakened following Al-Naimi’s comments…


Cable kept on tumbling today but FX markets were almost unprecedentedly quiet otherwise…



Despite the quietness in FX, commodities were very exciting… Crude crashed back to reality, crude slid and PMs rallied…


The week in crude oil… “speculators”



Charts: Bloomberg




Case Shiller home price acceleration stalled in December as it is blamed on the stock market
(courtesy Case Shiller/zero hedge)

Case-Shiller Shows Home Price Acceleration Stalled In December, Stock Market Turmoil Blamed

After four months of hope-strewn expectation beats, Case-Shiller’s home price index missed expectations with MoM growth slowing from 0.96% to 0.8% (and YoY from 5.83% to 5.74%). This is the first inflection in the resurrection of home-price acceleration since June, and we are sure will be blamed on the weather and the stock market. Perhaps most notably Miami and new York saw prices drop MoM as the smoking gun canaries in the coalmine of real estate speculation remain well worth watching.

Did the cycle just turn again?


“While home prices continue to rise, the pace is slowing a bit,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

Seasonally adjusted, Miami had lower prices this month than last and 10 other cities saw smaller increases than last month. Year-over-year, seven cities saw the rate of price increases wane. Even with some moderation, home prices in all but one city are rising faster than the 2.2% year-over-year increase in the CPI core rate of inflation.


“Sparked by the stock market’s turmoil since the beginning of the year, some are concerned that the current economic expansion is aging quite rapidly. The recovery is six years old, but recoveries do not typically die of old age. Housing construction, like much of the economy, got off to a slow start in 2009-2010 and is only now beginning to show some serious strength. Continued increases in prices of existing homes, as shown in the S&P/Case-Shiiller Home Price Indices, should encourage further activity in new construction. Total housing starts have stayed above an annual rate of one million starts per year since last March and single family home have been higher than 700,000 units at annual rates since June. Housing investment continues its positive contribution to GDP growth.”

The breakdown shows New York and Miami with the biggest drop MoM…

Portland, San Francisco and Denver continue to report the highest year over year gains among the 20 cities with another month of double digit annual price increases. Portland led the way with an 11.4% year-over-year price increase, followed by San Francisco with 10.3% and Denver with a 10.2% increase. Thirteen cities reported greater price increases in the year ending December 2015 versus the year ending November 2015. Phoenix had the longest streak of year-over-year increases, reporting a gain of 6.3% in December 2015, and the twelfth consecutive increase in annual price gains. Detroit posted a 7.1% year-over-year price, up from 6.3%, the largest annual increase this month.


Consumer confidence collapses and for the first time “hope” as well
(courtesy zero hedge)

Collapse In ‘Hope’ Sends Americans’ Consumer Confidence Tumbling Near 1-Year Lows

Driven by a collapse in ‘hope’ – future expectations dropped to 78.9, the lowest since Feb 2014 – The Conference Board’s Consumer Confidence headline dropped from 97.8 to 92.2, the weakest since July 2015. Amid the so-called best jobs market in decades, near-record low gas prices, and a resurging stock market, it appears the ‘everyday American’ is not amused as all the ‘increases in animal spirits’ since QE3 have evaporated.

Consumer Confidence is hovering near 3 year lows… erasing all the gains since QE3 was initiated


As hope collapses…


Unde rthe surface things are beaking down as “labor differentials” tumble to the most negative in 7 months, and home-buying appetite drops to 8 month lows.

Richmond Fed tumbles but new orders collapse!!
(courtsey Richmond Fed/zero hedg)

Richmond Fed Tumbles Back Into Contraction As New Orders Collapse

With the biggest drop in New Orders since September, Richmond Fed Manufacturing survey dropped to -4 (missing expectations of +2), hovering at its weakest in over 3 years. Across the board the components were weaker with order backlogs and shipments plunging, average workweek and wages dropping, and capacity utilization worst since October. Prices (paid and received) dropped notably asfuture expectations for wages, workweek, and employees all fell.

Richmond Fed hovers near 3-year lows


An ugly picture across the board…


and futures expectations were just as bad – especially for employment.

Existing sales on homes still at a blistering pace due to Chinese taking their cash out of China and buying homes:
(courtesy zero hedge)

NAR Warns Of Overheating Home Prices As Existing Home Sales See Biggest Annual Jump Since 2013

While it may not be quite the Vancouver-type feeding frenzy for Chinese money launderers, the US existing home sales market (at least until its inevitable downward revision courtesy of the permabullish NAR) continued to chug higher in January, when the number of existing homes sold rose to a 5.47MM annual rate, up 0.4% from the 5.45MM in December, and the strongest pace since the 5.48MM sold last July, beating expectations of a -2.5% drop; in fact the print was higher than the top estimate in the range. This follows the torrid December surge when existing homes sales soared 12.1%.

On a year over year basis, sales rose 11.0% – the largest year-over-year gain since July 2013 (16.3 percent).

Suggesting that the majority of buyers are anyone but ordinary middle class Americans was the the jump in the median existing-home price which in January was $213,800, up 8.2% from January 2015 when it was $197,600. Last month’s price increase was the largest since April 2015 (8.5%) and marks the 47th consecutive month of year-over-year gains. With the pace of appreciation rising at more than 4 times the average US wage growth, one wonders at what point will ordinary Americans be able to afford housing in their native country.

NAR’s Larry Yun was as always on hand to provide his cheerful spin:

“Lawrence Yun, NAR chief economist, says existing sales kicked off 2016 on solid footing, rising slightly to the strongest pace since July 2015 (5.48 million). “The housing market has shown promising resilience in recent months, but home prices are still rising too fast because of ongoing supply constraints,” he said. “Despite the global economic slowdown, the housing sector continues to recover and will likely help the U.S. economy avoid a recession.”

That remains to be seen, however, especially since it is a function of how porous Chinese capital controls remain considering that a large number of existing home sales, especially on the high end is driven by Chinese buyers seeking to park hot money in US real estate.

Total housing inventory at the end of January increased 3.4% to 1.82 million existing homes available for sale, but is still 2.2% lower than a year ago (1.86 million). Unsold inventory is at a 4.0-month supply at the current sales pace, up slightly from 3.9 months in December 2015.

Curiously, even Yun is starting to get worried about the bubbly nature of the existing housing market:

“The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand,” says Yun. “Home prices ascending near or above double-digit appreciation aren’t healthy – especially considering the fact that household income and wages are barely rising.”

Some more statistics:

  • The share of first-time buyers remained at 32 percent in January for the second consecutive month and is up from 28 percent a year ago.
  • First-time buyers in all of 2015 represented an average of 30 percent, up from 29 percent in both 2014 and 2013.
  • All-cash sales were 26 percent of transactions in January (24 percent in December 2015) and are down from 27 percent a year ago.
  • Individual investors, who account for many cash sales, purchased 17 percent of homes in January (15 percent in December 2015), matching the highest share since last January. Sixty-seven percent of investors paid cash in January.
  • Properties typically stayed on the market for 64 days in January, an increase from 58 days in December but below the 69 days in January 2015.
  • Short sales were on the market the longest at a median of 77 days in January, while foreclosures sold in 57 days and non-distressed homes took 61 days.
  • Thirty-two percent of homes sold in January were on the market for less than a month.
  • Distressed sales – foreclosures and short sales – rose slightly to 9 percent in January, up from 8 percent in December but down from 11 percent a year ago.
  • Seven percent of January sales were foreclosures and 2 percent were short sales. Foreclosures sold for an average discount of 13 percent below market value in January (16 percent in December), while short sales were discounted 12 percent (15 percent in December).
  • Single-family home sales increased 1.0 percent to a seasonally adjusted annual rate of 4.86 million in January from 4.81 million in December, and are now 11.2 percent higher than the 4.37 million pace a year ago. The median existing single-family home price was $215,000 in January, up 8.3 percent from January 2015.

The regional breakdown:

  • January existing-home sales in the Northeast increased 2.7 percent to an annual rate of 760,000, and are now 20.6 percent above a year ago. The median price in the Northeast was $247,500, which is 0.9 percent above January 2015.
  • In the Midwest, existing-home sales rose 4.0 percent to an annual rate of 1.30 million in January, and are now 18.2 percent above January 2015. The median price in the Midwest was $164,300, up 8.7 percent from a year ago.
  • Existing-home sales in the South were at an annual rate of 2.24 million in January (unchanged from December) and are 5.7 percent above January 2015. The median price in the South was $184,800, up 8.5 percent from a year ago.
  • Existing-home sales in the West decreased 4.1 percent to an annual rate of 1.17 million in January, but are still 8.3 percent higher than a year ago. The median price in the West was $309,400, which is 7.4 percent above January 2015.



Three weeks ago we brought you a story where Geneva Swiss Bank stated that they would be exiting the market as they thought the indicators were pointing to another 2008:

And lo and behold the 3 charts that they find troubling are staring at us:

i) the rising VIX

ii) rising corporate spreads over the 10 yr Treasury yield:

iii) S and P falling

(courtesy Geneva Swiss Bank/zero hedge)

GS Bank’s Troubling Thought Of The Week: “Are We Back In February 2008?”

As we reported yesterday, less than two weeks after calling for a short-term market bounceon February 11, Geneva Swiss Bank said it was taking profits and going neutral.

This is how it justified its decision:

After this nice rebound in equities, we are moving tactically cautious. Actions taken today: we moved to market neutral (long equities / short index futures) on our new Swiss Tactical Equity Certificate and have bought downside protection on the S&P500 in our portfolios.


We believe that :

  • This was just a bear market rally driven essentially by hedge funds covering their shorts…
  • Many risks including China/CNY, Oil supply, US economy, German economy/social situation, BREXIT, earnings growth, high valuations,  still remain in mind.
  • Investors are losing confidence in Central Banks hazardous monetary policies and buying gold as the ultimate hedge

And by the way…

  • Negative: Major equity indices have technical opening-gaps to be closed (15.02.2016) >>> 1860 for the S&P500 and 2756 for the Eurostoxx50
  • Positive: something interesting might come out of next G20 meeting in Shanghai. Finance ministers and central bank governors are due to meet on Feb. 26 and 27 to discuss issues including China’s excess capacity, oil prices and global growth….

It timed its move well.

We bring it up, because after what appears to have been a smart call on the end of the short-covering rally, GS Bank has followed up with a more disturbing thought: are we now back in February 2008?

Its observations:

  • Like in 2007, volatility is rising and spreads are widening
  • Do you remember that there was NO way that Lehman would fail. Well… it did.
  • Oh but wait. Today is different. No housing subprime, but just $276.5 billion in loans to oil companies and a few trillion $ of derivatives...

Are we there yet?

And now it is JPMorgan to warn of a huge drop in capital market revnues to the tune of 25%:
(courtesy zero hedge)

Dimon’s Bottom In Danger Of Penetration After JPM Warns Of 25% Plunge In Capital Markets Revenue

Just a few hours after JPM admitted that our concerns that the bank was covering up its oil and gas exposure by dramatically underreserving for future loans when it took another 60% reserve for future losses to a total of $1.3 billion, one which as the chart below shows won’t be nearly enough on the bank’s $44BN in exposure…

… JPM delivered another big surprise to shareholders when it reported that revenue in the bank’s critical investment banking group are set to plunge by 25% in Q1 from a year ago.

As Bloomberg reports, JPMorgan’s Daniel Pinto spoke moments ago at JPM’s investor day saying there’s “no doubt” 1Q so far has been very tough.  He added that the Markets group is down 20% so far this year; that competition is ’’really really tough’’ for those areas of trading like equities that require less capital; lending very competitive and that some topline revenue may erode from new trading platform.

But the biggest disappointment is that JPM’s revenue in debt and equity capital markets is set to plunge by 25%.

And if JPM is getting crushed by the current increasingly more NIRP and flat curve environment, one can be positive that all other major banks are too.

Finally, for all those who were positive that Dimon’s bottom – set when Jamie bought some $26 million in JPM stock two weeks ago – can not possibly be penetrated, keep a close eye on this chart.

Dave Kranzler discusses a slew of black swans before us:
(courtesy Dave Kranzler/IRD)

A Flock Of Black Swans Hovers Over This Bear Market Bounce

The Dow has spiked up nearly 1,000 points in six trading sessions.  Similarly, the S&P 500 has shot up 6.4% in the last six trading sessions. Notwithstanding the continued flow of increasingly bearish economic data, stock market moves like this do not occur in a bull market.  The economic indicators continue to get worse – much worse.  Maybe the markets are giddy because they are anticipating more money printing – I don’t know.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.  – Ludwig Von Mises,  “Human Action”

I don’t care what so-called Wall Street scam artists, financial media imbeciles and the  charts are saying.  The basic underlying economic, financial and geopolitical fundamentals continue to show two developments brewing:   the onset of a Greater Depression and war.

The black swans are right in front of our eyes in the form of debt at every level of our system:  Energy industry, student loans, auto debt, personal and credit card debt, corporate debt and real estate/commercial property/housing debt.

The energy debt crack-up boom is here and now. The Government can somewhat hide the SLMA debt problem but I’ve seen estimates that as much as 40% of the $1.3 trillion is in technical default. The Government lets people go into deferment or enables as little as no monthly payments with a new income based test that Obama initiated. But the Government still has to make payments on the debt as a the pass-thru guarantor to entities that hold the student debt.

The auto debt will become a problem this year:  More Subprime Borrowers Are Falling Behind On Their Auto Loans.   Repo rates are already at historically high levels.  The enormous glut of new cars will begin to push down the resale value of repo’d vehicles, forcing big losses on banks and auto loan-backed asset-trust investors.

The rate of delinquency on all of the new 3/3.5% down payment  mortgages issued over the last 5 years will begin to move up quickly this year as well.  In fact, the banks are still sitting on defaulted mortgages from the last housing market collapse.  But the liquidity pushed on to the banks by the Fed has enabled them to endure non-performing loans on their balance sheet.

And then there’s the tragically underfunded pensions…the State of Illinois has openly admitted to a $111 billion underfunding problem.  Several other States have disclosed 40-50% underfunding of their State-employee pension plans.  The problem with these estimates is that they rely on projected future rates of return that are too high.  Most funds assume a 7.5-8.5% ROR in perpetuity.   Last year most funds were flat to negative. YTD pension funds are quite negative.

How is it even remotely possible that any pension fund is underfunded given that, since the 2009 low, the stock market has tripled in value and the bond yields have fallen to record lows, which means bond portfolios should have soared in value?   Pension funds should be, if anything, over-funded right now.

Furthermore, those underfunding estimates assume bona fide, realistic mark to market marks on illiquid investments such as CLO’s, CDO’s, Bespoke Tranche Opportunites (think “The Big Short”), private equity fund investments, real estate, etc. – you get the idea.  I would bet most pension funds, public and private, are fraudulently over-marked on at least 20% of their holdings.   I know many pensions have allocated  in the neighborhood of 20% of their investments to private equity funds.  Most of these funds are in the early stages of becoming little more than toxic waste.

Pension underfunding is no different from a brokerage account that is using margin.   “Underfunded” is a politically acceptable term for “we are using debt to make current payments.”   The “debt” incurred will be owed to future beneficiaries.   But here’s the rub: with assumed rates of return too high and investments already overvalued for political purposes, it is highly likely that future pension fund beneficiaries – private and public – will be left holding little more than an “IOU.”

In other words, the pension underfunding problem is, in reality, another massive chunk of debt has been cleverly disguised and layered into our system.  It has been yet another mechanism by which the Wall Street racketeers have sucked wealth from the middle class.

By all appearances, this recent dead-cat bounce in the stock market is quickly losing steam.  Macy’s stock is up 1% because it “beat” estimates using “adjusted” EPS. “Adjusted” is a euphemism for “recurring non-recurring expenses that we strip out of our reported net income calculation to make the headline earnings report look better.”  Of course, hidden in between the lines is the fact that Macy’s revenues and net income (any way you want to calculate it) has dropped precipitously year over year.


It’s impossible to know for sure how much longer this parabolic spike up can last. It might even run up to the 200 dma (red line). But inevitably the market take another parachute-less base jump off a tall building and remove another chunk of money from daytraders, retail investors and their moronic advisors and, of course, pension funds.

If you want ideas on how to take advantage of a market that is inevitably headed much lower, please visit the  Short Seller’s Journal.




Subprime delinquencies on autoloans are now up to 12.3% on a total issuance of 1.3 trillion.That would surely hit the banks quite hard.

(courtesy zero hedge)

Don’t Show This Chart To Experian: Subprime Auto Delinquencies Hit Highest Level Since 2010

Do not show this chart to Melinda Zabritski:

For those unfamiliar, Melinda is Experian’s senior director of automotive finance and she’s never, ever worried. Or at least not that she lets on.

We’re not seeing anything that would be a red flag,” she said earlier this month in response to data that showed the percentage of auto loans made to buyers with the poorest credit ratings is growing faster than the rest of the auto finance market. As a reminder, here’s the chart that shows the trend:

What the first chart shown above (from Wells Fargo) shows is that delinquencies on the subprime car loans that have found their way into the $125 billion annual market for auto loan-backed ABS have risen to their highest level since 2010.

As we’ve gone out of our way to document, underwriting standards for car loans are getting looser as lenders scramble to feed Wall Street’s securitization machine and keep America’s auto sales “miracle” alive. Of course the pool of creditworthy borrowers is finite and so it must be continually expanded by lending to those whose FICO scores and income might not otherwise warrant the extension of a loan.

Indeed Experian itself will tell you that the market is getting more extended all the time, with average payments rising right alongside loan terms. Some of the loans now being pooled, chopped, packaged and sold to investors were made to borrowers with no credit score at all (thank you Skopos Financial).

And while Citi isn’t ready to ring the alarm bells just yet (see here), Wells Fargo apparently is.

“Rising delinquencies are a warning sign that more loans may end up in default down the road,” Bloomberg reports, citing Wells analyst John McElravey. What may be most troubling, however, is that the default rate is already climbing, up to 12.3 percent in January from 11.3 the month prior. That is also the highest since 2010, the data show.”

McElravey goes on to suggest that because delinquencies seem to be rising in areas that are hard hit by the slump in crude, we could be on the precipice of a rather precipitous increase in defaults. After all, the consequences for Main Street of the prolonged downturn in crude and other commodities are just beginning to show (see here). As are the effects of the slowdown in global growth and trade (see the recent layoffs at Daimler in North Carolina). As McElravey puts it, “the data on subprime auto is worth watching closely, especially against the backdrop of subpar economic growth.”

But before you go thinking you’re Michael Burry and suprime auto is your overheated 2007 housing market, remember, Citi’s Mary Kane says you shouldn’t watch too many movies:  “It seems like too many people have seen the movie ‘The Big Short’ and are starting to think the movie heroes’ short strategy would translate to the ABS market. By the way, the ABS conference did NOT take place at Caesar’s Palace that year as per the film, it was at The Venetian. So, it’s not wise to believe everything you see in a movie and hit films are not the best source for trade ideas,” she wrote late last month.

Who you gonna believe, Mary and Melinda or your lyin’ ..er.. Wells?


See you tomorrow night

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: