Gold: $1,219.80 down 18.40 (comex closing time)
Silver 14.69 down 48 cents
In the access market 5:15 pm
for the Comex: Wednesday Feb 24 expired
for OTC and LBMA: Monday, Feb 29
At the gold comex today, we had a GOOD delivery day, registering 17 notices for 1700 ounces. Silver saw 1 SURPRISE notice for 5,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 211.05 tonnes for a loss of 92 tonnes over that period.
In silver, the open interest fell by 4,243 contracts down to 169,013. In ounces, the OI is still represented by .845 billion oz or 121% of annual global silver production (ex Russia ex China). Generally as we go into an active delivery month the liquidation is much bigger.
In silver we had 1 notice served upon for 5,000 oz.
In gold, the total comex gold OI fell by a large 10,736 contracts to 442,103 contracts as the price of gold was down $0.50 with yesterday’s trading.(at comex closing)
We had no change in gold inventory at the GLD, / thus the inventory rests tonight at 760.32 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 4243 contracts down to 169,013 as the price of silver was down 13 cents with yesterday’s trading. The total OI for gold fell by 10,736 contracts to 442,839 contracts even though gold was down only 50 cents in price from yesterday’s level. The commercials were not afraid to supply the paper gold comex paper as we witnessed today.
2 a) Gold trading overnight, Goldcore
2b) COT report
3. ASIAN AFFAIRS
i)Late THURSDAY night/ FRIDAY morning: Shanghai closed UP BY 25.97 POINTS OR 0.95% Hang Sang closed UP by 473.40 points or 2.52% . The Nikkei closed UP 48.07 or 0.30%. Australia’s all ordinaires was DOWN 0.02%. Chinese yuan (ONSHORE) closed DOWN at 6.5373. Oil GAINED to 33.30 dollars per barrel for WTI and 35.78 for Brent. Stocks in Europe so far deeply in the GREEN . Offshore yuan trades 6.53753 yuan to the dollar vs 6.5373 for onshore yuan/
( zero hedge)
ii) In Japan: demand for big bills skyrockets along with the purchase of safes to stuff the bills. Why? the answer is NIRP is scaring the living daylights out of Japanese citizens:
( zero hedge)
iii)I have now seen everything. China is now repackaging its non performing loans and securitizing them aka the USA scheme.
iv) An excellent commentary from Craig on the massive capping of silver by JPMorgan and friends. The net short position of silver contracts by commercials is at its highest point of 114,000 ( this is of last week/I will give you the new net short position tonight)/. Craig expected and got another massive raid on silver so the silver shorts can cover.
(Craig Hemke/TFMetals/Turd Ferguson)
v) As I have been reporting to you, the GLD (and other gold ETF’s) have been reported a huge influx of gold. This huge increase of positive gold flows into the GLD has created in technical terms, a “golden cross” pattern and this would signal more investors especially long term European gold investors to jump onto the bandwagon
( zero hedge)
vi) It does not look like we are going to get a coordinated policy move to jump start the global economy:
( Robin Harding/London’s Financial Times/GATA)
vii) Gold has its best two months in over 4 years. However what is exciting is the technical golden cross.
The golden cross is when the 50 day moving average exceeds the 200 day moving average.
As you can see below: the 50 day moving average is 1133.00 per oz and the two hundred day average is 1133.00
If the 50 day exceeds the 200 day it is very bullish especially for Europeans
I never like technical analysis in a totally manipulated market. However even in gold’s manipulation, the bankers cannot contain gold’s enthusiasm
(courtesy zero hedge)
8.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER
i)Fourth quarter GDP was surprisingly raised to 1% when everybody was expecting levels down to .1%. Why the rise? Less inventory liquidation. This means that Q1 2116 will have lower than anticipated GDP growth:
( zero hedge)
ii) Oh No!! Gartman is at it again. Gartman goes long USA stocks and long oil. That means expect the Dow to plummet along with oil
Let us head over to the comex:
The total gold comex open interest fell to 442,103 for a loss of 10,736 contracts even though the price of gold was down by only $0.50 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 or for that matter an inactive month, and 2) a continual drop in the amount of gold standing in an active month. Today, only the first scenario was in order as we actually gained in ounces standing. The Feb contract month is now off the board. The next non active delivery month of March is now upon us and we saw its OI fall by 176 contracts down to 850. After March, the active delivery month of April saw it’s OI fall by 8,480 contracts down to 302,957. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 177,595 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 225,410 contracts. The comex is in backwardation until March.
Feb contract month:
FINAL standings for FEBRUARY
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||500.05 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| 2411.25 oz
|No of oz served (contracts) today||17 contracts
|No of oz to be served (notices)||0 contracts off the board|
|Total monthly oz gold served (contracts) so far this month||2568 contracts (256,800 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||532,739.0 oz|
we had 2 adjustment
Out of Scotia
1997.720 oz leaves the customer account and this enters the dealer side of Scotia
Out of Brinks:
299.99 oz leaves the dealer account and this enters the customer account of Brinks
FEBRUARY FINAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 1,654,490.590 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil
|No of oz served today (contracts)||1 contracts 5,000 oz|
|No of oz to be served (notices)||0 contract (nil oz)|
|Total monthly oz silver served (contracts)||167 contracts (835,000 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||18,153,713.2 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 0 customer deposits:
total customer deposits: nil oz
total withdrawals from customer account 1,654,490.59 oz
we had 3 adjustments
i) Out of HSBC:
4827.190 oz was adjusted out of the customer and this landed into the dealer account of HSBC
ii) Out of JPMorgan
44,829.400 oz was adjusted out of the customer and this landed into the dealer account of JPMorgan
iii) Out of HSBC:
1,052,909.370 oz was adjusted out of the dealer and this landed into the customer account of HSBC
And now the Gold inventory at the GLD:
Feb 26./no change in gold inventory at the GLD/Inventory rests at 760.32 tonnes
Feb 25./we had a huge deposit of 7.33 tonnes of gold into the GLD/Inventory rests at 760.32 tonnes. No doubt that this is a paper gold deposit/not real as the price of gold hardly moved on that huge amount of deposit.
FEB 24/no change in gold inventory at the GLD/Inventory rests at 752.29 tonnes
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 26.2016: inventory rests at 760.32 tonnes
At 3:30 pm we receive the COT report from the CME. You will recall that the bankers (commercials) continued to load their short side last week. Let us see what they did this week;
First our gold COT
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, February 23, 2016|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||162||129|
|Tuesday, February 23, 2016||© SilverSeek.com|
Our large specs:
Those large specs that have been long in silver added 2940 contracts to their long side
Those large specs that have been short in silver covered 270 contracts from their short side
Those commercials that have been long in silver added 402 contracts to their long side
Those commercials that have been short in silver added 4017 contracts to their short side.
Our small specs:
Those small specs that have been long in silver added 1228 contracts to their long side
Those small specs that have been short in silver added 823 contracts to their short side.
Conclusion: the commercials go net short by another 3615 contracts.
the massive shorting is far worse for gold than silver
And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:
“Buy Gold” As “Insurance Is Warranted” – Deutsche Bank
Buy gold as “insurance is warranted” Deutsche Bank have advised in a note issued today.
The embattled German bank has said that rising economic risks and market turmoil mean investors should buy gold for insurance.
Market Performance – 2016 YTD via Finviz.com
“There are rising stresses in the global financial system; in particular the rising risk of a U.S. corporate default cycle and the risk of a sharp one-off renminbi devaluation due to the sharp increase in China’s capital outflows,” Deutsche Bank added.”Buying some gold as ‘insurance’ is warranted,” as reported by CNBC.
LBMA Gold Prices
26 Feb: USD 1,231.00, EUR 1117.58 and GBP 878.87 per ounce
25 Feb: USD 1,235.40, EUR 1,121.41 and GBP 887.10 per ounce
24 Feb: USD 1,232.25, EUR 1,122.33 and GBP 885.52 per ounce
23 Feb: USD 1,218.75, EUR 1,106.62 and GBP 863.43 per ounce
22 Feb: USD 1,203.65, EUR 1,088.17 and GBP 849.21 per ounce
After initial falls again on Sunday night, Monday morning, gold has eked out slight gains this week in dollar and euro terms and has seen more strong gains in sterling terms as sterling continues to weaken on BREXIT and UK economy concerns.
Silver is lower in dollars and euros but has made small gains in sterling terms ($15.12/oz, €13.74, £10.80).
Gold and Silver News and Commentary
Gold moves revive memories of 1990s currency crisis – CNBC
Gold rises as bullish technicals, fund flows counter equity gains – Reuters
Asian Stocks Jump With Metals as Zhou Sees Easing Room – Bloomberg
Gold Tops Silver by Most Since 2008 as Investors Fret on Growth – Bloomberg
Jobless Claims in U.S. Rise in Holiday Week From Three-Month Low – Bloomberg
Gold Bulls Predict $US2,000-Plus Prices – ABC
Gold the ‘Superhero’ May Shoot Up to $1,400: Top Forecaster – Bloomberg
Aggressive Silver Capping Continues – Silver Seek
Deliverable Silver Stocks At The COMEX Reach Historic Low – Silver Seek
Why Some Think Australia’s Housing Market Is Due for a 2008 Moment – Bloomberg
Copper & Crude Are Soaring On China Hype
Amid hype hope that China will suddenly change course and unleash all new fiscal stimulus – because just what the nation needs is more ghost cities, ghost bridges to nowhere, and ghost infrastructure – has sparked panic-buying in crude and copper this morning…
As Bloomberg notes, industrial metals rallied as concerns about growth in top consumer China eased after the nation’s central bank head said that policy makers still have room to act to support markets.
The economy remains strong and its structure and quality are improving, People’s Bank of China Governor Zhou Xiaochuan said in a speech in Shanghai on Friday.
“China overnight has given the market a sense of ease,” RBC Capital Markets Ltd. said in an e-mailed note.
“LME is stronger this morning across the board on the back of China comments regarding further easing of monetary policy.”
So copper is fixed…
“The copper price outlook is no longer a simple bearish story,” Peter Hollands, the managing director of London-based Bloomsbury Minerals Economics Ltd., said by e-mail. “The macro drivers of price have switched from bearish to either neutral or feebly bullish.”
Venezuela is shipping gold to Europe to pay debt
By Patrick Gillespie
CNN, New York
Thursday, February 25, 2016
Venezuela is shipping gold to Europe so that it can pay its debt.
Venezuela sent $1.3 billion worth of gold bars to Switzerland in January, according to data from the Swiss Federal Customs Administration.
That gold was shipped out just weeks before two big debt payments due this month, totaling $2.3 billion. On Friday alone Venezuela has to pay bondholders $1.5 billion.
Venezuela is running out of cash and many experts believe there’s a high chance it will default by this fall when a string of big debt payments are due.
“It’s a question of when Venezuela will default, not if,” says Russ Dallen, managing partner at LatInvest, a firm that invests in Latin America. “They’re running out of options.” …
… For the remainder of the report:
Keynesian economics just does not work. They keep trying to plug holes in the economy with more fiat as they rob savers with zero interest rates
(courtesy Alasdair Macleod/GATA)
Alasdair Macleod: On monetary finance and platinum coins
By Alasdair Macleod
GoldMoney.com, Jersey, Channel Islands
Thursday, February 25, 2016
It has become clear to everyone in the financial world that the monetary policies pursued by central banks have completely failed in their objectives.
Central bankers carry on regardless, continuing to ride the speeding money train to the end of the line, a train from which jumping risks serious injury. Independent economists not working for a central bank would be blind not to see the failure, so some of them are thinking up imaginative solutions.
There is a problem with their approach. While recognizing the failure, in their attempts to find alternative solutions they use the same macroeconomic principles that led to the failure in the first place. Let us turn to a classic example of the genre, which is wholly in the public domain. …
… For the remainder of the commentary:
An excellent commentary from Craig on the massive capping of silver by JPMorgan and friends. The net short position of silver contracts by commercials is at its highest point of 114,000 ( this is of last week/I will give you the new net short position tonight)
Craig expects another massive raid on silver so the silver shorts can cover.
(courtesy Craig Hemke/TFMetals Report)
Aggressive Silver Capping Continues
At some point, the question becomes “why”. With gold now up 17% year-to-date, silver is up just half that amount at 9.5%. And yet, the latest CoT report shows the highest silver Commercial net short position since 2008. Again, why? Why now?
That’s truly the $64MM question. Why are The Silver Banks shorting so aggressively here? What’s the difference in holding price below $16 versus $18 or $20? We’ll get a look at the latest CoT data tomorrow but, for now, consider this:
There was a CoT survey taken on Tuesday, December 29, 2015. The closing price of silver that day was $13.93. The data showed that the Silver Commercial NET short position was just under 30,000 contracts as they were long 52,149 contracts and short 82,027.
The most recent CoT data released last Friday was surveyed back on Tuesday, February 16. That day, silver closed at $15.33. Versus December 29, price had risen by $1.40 or almost exactly 10%. And how had the Silver Commercial NET short position changed? They were now long 44,638 contracts and short 114,700 for a NET short position of 70,062 contracts. Again, this is the largest Silver Commercial NET short position since 2008.
Additionally, look at what has transpired in the six days since that last CoT survey. Total Comex silver open interest has risen by another 7,000 contracts, which very likely increases the Silver Commercial NET short position to over 75,000 contracts…all the while, price has actually fallen by 4¢.
Therefore, it isn’t very difficult to predict what’s likely to come next. A price raid. Do you recall this chart from last October?
Or how about this chart from last Friday?
It is abundantly clear that JPM and their fellow Big Shorts on the Comex are intent upon attempting to enforce lower prices. Otherwise, why would they be so adamant about selling into and capping every attempted rally? And this latest capping effort is the most egregious yet! It’s perfectly fine for any entity, Commercial or Spec, to liquidate longs into an ongoing rally and, as noted above, the Silver Commercials have dumped nearly 7,500 contracts so far in 2016. However, what is definitely NOT fine is to allow the unlimited creation of paper silver in order to meet Speculator paper demand.
Again, note that the Silver Commercial gross short position back in late December was 82,027 contracts. That’s a contractual obligation to deliver up to 410MM ounces of silver if called upon to do so. As of last Tuesday February 16, the Silver Commercial gross short position had grown to 114,700 contracts or 573MM ounces of silver. That’s 60% of all the silver the world will mine in 2016!
So the questions must be asked again:
- Where would price be today if the Silver Commercials had not sold and shorted so many contracts into this 2016 rally?
- And if the buyer/seller equilibrium price was $18 instead of $15, what would be the difference?
- And why are the Commercials so intent upon capping silver? Over the same time period, gold has risen 17% but the Gold Commercial NET short position remains below levels seen at price peaks in 2014 and 2015.
Could this chart have anything to do with it?
So, we’ll have to see what happens next. Logic dictates that a price raid is coming that will allow the Commercials to buy back and cover some of their short position while the Specs stream for the exits. But then what? The chart above shows an increasingly untenable position for JPM and their friends. Paper price seems to have been driven as artificially low as possible, thus the effort made to hold it back is increasing. And we haven’t even mentioned the gold:silver ratio!
What’s the best strategy for dealing with all of this? For me, it’s the continued, gradual stacking of physical silver. Predicting the precise date of the failure of the silver manipulation scheme is a fool’s errand. But, fail it will, just as all price manipulations before it have similarly failed. And, WHEN it fails, the events will be spectacular to behold.
It does not look like we are going to get a coordinated policy move to jump start the global economy:
(courtesy Robin Harding/London’s Financial Times/GATA)
Clashes over policy at Shanghai G20 meeting
By Robin Harding in Shanghai and Tom Mitchell in Beijing
Financial Times, London
Friday, February 26, 2016
Finance ministers and central bankers clashed on Friday over issues ranging from the need for global stimulus to negative interest rates, suggesting they were unlikely to agree on “bold” measures urged by the International Monetary Fund earlier this week.
“The debt-financed growth model has reached its limits,” Wolfgang Schäuble, German finance minister, said on the sidelines of a two-day G20 meeting in Shanghai. “We therefore do not agree with a G20 fiscal package as some argue . … There are no short-cuts that aren’t reforms.”
Mr Schäuble also expressed his scepticism about further monetary easing in the eurozone, saying policy was “extremely accommodative to the point that it may even be counterproductive in terms of negative side effects on banks, policies and growth.”
Michel Sapin, French finance minister, said a co-ordinated boost to demand was a long way off.
“We are absolutely not talking about a global fiscal stimulus package,” he said. “We’re not there at all. In France we don’t have the means to do this just yet. Other countries have more capacity and they can use this capacity to continue to support global growth.”
Such countries include Germany and China, whose central bank governor said Beijing had additional scope for monetary and fiscal stimulus.
Others expressed disappointment at the apparent lack of urgency in Shanghai. “I don’t think this is a meeting where there will be some big decision,” said one G20 official who asked not to be identified. …
… For the remainder of the report:
As I have been reporting to you, the GLD (and other gold ETF’s) have been reported a huge influx of gold. This huge increase of positive gold flows into the GLD has created in technical terms, a “golden cross” pattern and this would signal more investors especially long term European gold investors to jump onto the bandwagon
(courtesy zero hedge)
Gold’s Largest Inflows Since June 2009 Unleash Bullish “Golden Cross” Pattern
For the first time since Gold suffered a “death cross” in 2014, the largest 3-week inflows into gold funds since June 2009 have set up a so-called bullish “golden cross” pattern in the precious metal.
On the week, BofA’s Michael Hartnett reports big precious metals inflows of $2.6bn as investors flee from stocks (equity outflows of $2.7bn).
This adds up to the largest 3-week inflows to gold ($5.8bn) since Jun’09 (Chart below) as inflows have coincided with Fed “talking-down” the US$ and rising investor fears of recession/Quantitative Failure.
This has maintained price pressure and pushed the 50-day moving-average above the 200-day moving-average, creating the so-called “Golden Cross” bullish trend pattern.
While obviously not guaranteed (2012 saw an upward-sloping 50DMA cross a upward-sloping 200DMA without trend gains), the last time a “golden cross” occurred coupled with major fund inflows was Feb 2009, which marked the start of a dramatic trend higher in the precious metal.
Charts: BofA, Bloomberg
Gold has its best two months in over 4 years. However what is exciting is the technical golden cross.
The golden cross is when the 50 day moving average exceeds the 200 day moving average.
As you can see below: the 50 day moving average is 1133.00 per oz and the two hundred day average is 1133.00
If the 50 day exceeds the 200 day it is very bullish especially for Europeans
I never like technical analysis in a totally manipulated market. However even in gold’s manipulation, the bankers cannot contain gold’s enthusiasm
(courtesy zero hedge)
This Is The Best Year For Gold Since The Hunt Brothers
As gold prices “Golden Cross,” the precious metal is set for its best month in 4 years, and best 2-month rise since 2011. The entire precious metals complex is active with the largest fund inflows since 2009 and the biggest February COMEX trading volume in history.
All of this adds up to the best start to a year for gold since 1980, when The Hunt Brothers tried to corner the silver market and sent all precious metals soaring.
The best 2 months in gold since 2011…
Pushed prices to a “Golden Cross”…
As Bloomberg reports, gold’s rally is spurring investor interest with volume on the biggest futures exchange rocketing. With prices set for the best month in four years, trading on the Comex is poised for the strongest-ever February.
Aggregated volumes on the New York futures exchange rose 54 percent from the same month a year ago to about 4 million contracts with one trading day left.
Amid the highest inflows since 2009…
And now your overnight THURSDAY NIGHT/ FRIDAY MORNING trades in bourses, currencies and interest rate from Asia and Europe
1 Chinese yuan vs USA dollar/yuan DOWN to 6.5373 / Shanghai bourse IN THE GREEN BUT RESCUE IN THE LAST HR: / HANG SANG CLOSED UP 473.40 POINTS OR 2.52%
2 Nikkei closed UP 48.07 OR 0.30%
3. Europe stocks all in the GREEN /USA dollar index DOWN to 97.38/Euro UP to 1.1029
3b Japan 10 year bond yield: FALLS TO -.069% AND YES YOU READ THAT RIGHT !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.80
3c Nikkei now well below 17,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 33.30 and Brent: 35.74
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 0.145% German bunds in negative yields from 8 years out
Greece sees its 2 year rate RISE to 11.54%/:
3j Greek 10 year bond yield RISE to : 10.57% (yield curve deeply inverted)
3k Gold at $1236.40/silver $15.13 (7:15 am est)
3l USA vs Russian rouble; (Russian rouble UP 4/100 in roubles/dollar) 75.36
3m oil into the 33 dollar handle for WTI and 35 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.
JAPAN ON JAN 29.2016 INITIATES NIRP
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9908 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0927 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p BRITAIN STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.
3r the 8 year German bund now in negative territory with the 10 year FALLS to + .145%
/German 8 year rate negative%!!!
3s The Greece ELA NOW at 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 1.73% early this morning. Thirty year rate at 2.60% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks, Oil Continue Streamrolling Shorts On Last Minute Hopes For G-20 Stimulus Announcement
Whether this week’s market surge was catalyzed by two consecutive “technical problems” in the bond market, first the unexpected failure of the Fed’s MBS POMO on Wednesday and then the 7 Year Treasury auction’s last minute cancellations yesterday, and quite clearly it was…
… is irrelevant as the short squeeze has not only returned with a vengeance…
… but the critical 1,950 resistance and 50 DMA in the S&P500 was taken out…
… with the final push yesterday, opening the way for the market to surge even higher on ever lower volume in the latest market-wide stop-hunt attempt, one which based on collapsing forward earnings may just see the S&P retest a 20x forward GAAP P/E multiple before the selling resumes.
As a result, the global stock rally has continued overnight, pushing US equity futures higher by another 14 points as of this moment, or up 0.7%% to 1965 while oil also gained alongside industrial metals as China’s central bank said it sees room for monetary easing in the build-up to Group of 20 finance chiefs’ discussions on the global economy.
While Jack Lew previously said not to expect any “crisis” response out of the G-20 because there is no crisis, overnight PBoC Governor Zhou Xiaochaun generated a few headlines when he said that ‘China still has some monetary policy space and multiple policy instruments to address possible downside risks’. He added that, ‘at the same time fiscal policy will be more proactive, reducing taxes and increasing fiscal deficits temporarily’. Zhou also reiterated that there was no basis for ‘persistent renminbi depreciation’ and that the ‘exchange rate will reflect the economic fundamentals’ in the long term.
Meanwhile German Finance Minister has followed up with some comments of his own at the G20 meeting, making clear his view of opposing G20 fiscal stimulus after saying that ‘talking about further stimulus just distracts from the real tasks at hand’ and that German policy makers ‘do not agree on a G20 fiscal stimulus package, as some argue in case outlook risks materialize’.
With the conclusion of this weekend’s G-20 unknown, and many still expecting a major stimulus, the squeeze will likely continue into the close of trading ahead of the weekend when nobody will want to be caught short into what may end up being another global coordinated intervention to prop up markets.
As Bloomberg summarizes, shares in Europe headed for their second weekly advance and futures signaled the Standard & Poor’s 500 Index will extend gains after Thursday reaching levels last seen at the start of the year. Industrial metals rebounded, Brent crude climbed for a third day, credit markets strengthened and Russia’s ruble led gains in emerging-market currencies. Royal Bank of Scotland Group Plc plunged after saying it would take longer than originally planned to resume shareholder payouts.
Whether leading or lagging, oil continues to rise and was up 2% to $33.7 after a desperate, cash flow bleeding Venezuela had its Oil Minister Eulogio Del Pino say (once again) said producers are discussing the location for mid-March meeting, hoping the price of oile rebounds modestly so it can delay its day of default by at least a few days. He also said that Venezuela, Russia, Qatar, and Saudi Arabia are also planning to meet in July for follow-up on production-freeze effects on prices. “There’s no capacity to continue putting oil on the market. If this situation continues we’ll have a collapse in oil prices.”
It is unclear what exactly he hopes to achieve: Saudi’s al-Naimi made it very clear that Saudi Arabia will simply not cut, and since the production freeze at record levels is already priced in, the best he can get is another algo-driven short squeeze.
As noted above, attention this weekend will be on Shanghai where the G-20 meeting is taking place, and where PBOC Governor Zhou Xiaochuan said he still has monetary policy tools at his disposal and there is no reason for yuan depreciation. While stocks gained and oil prices extended a rebound from a 13-year low, the recovery remains weak with more than $6 trillion erased from the value of global equities this year. China’s slowdown has fed into other markets by weakening commodity prices and raising concern producers will struggle to repay debt.
“With a lot of policy events coming there is a fair chance of more stimulus plans so the markets can squeeze higher,” said Benno Galliker, a trader at Luzerner Kantonalbank AG. “The big reversal shows that there is some expectation building up into those events.”
Absent some dramatic reversal, such as Gartman covering his shorts and going unexpectedly long, expect the low-volume, upward momentum to continue into the G-20 weekend.
* * *
Quickly going through the regional markets’ overnight action, we start in Asia where equities traded mostly higher following the positive lead from Wall St. where energy gains continued to dictate risk-sentiment. Nikkei 225 (+0.3%) took the impetus from US markets and extended on yesterday’s outperformance with a weaker JPY bolstering exporter names, although Sharp shares declined sharply after Foxconn delayed signing its bailout deal. ASX 200 (-0.17%) underperformed as several poor earnings results and weakness in materials, after iron ore prices declined below USD 50/ton, capped upside to the index. Shanghai Comp (+0.9%) conformed to the upbeat tone with sentiment lifted after the PBoC injected CNY 300Bn in liquidity and PBoC Governor Zhou signalled confidence in the economy, while China property prices continued to show an improvement in the sector. 10yr JGBs traded higher throughout the session, despite the risk-on sentiment in the region with the BoJ also conducting its large asset purchase program for JPY 570Bn of government debt.
PBOC Governor Zhou said China’s economy remains strong and there is still room for monetary policy and tools. The PBoC also stated that it has prudent monetary policy with a slight easing slant and that there is no basis for persistent CNY weakness.
In Europe, the week’s final European session of the week has seen equities kick off where they left yesterday, trading firmly in positive territory to pare much of the downside seen earlier in the week. Euro Stoxx (+2.2%) has been led by energy and material names once again today, however the FTSE (+1.2%) underperforms after RBS’ (-9.0%) latest downbeat earnings. In terms of fixed income, despite the strength in European equities, Bunds failed to extend on their opening losses, with the German benchmark hovering around the 160.00 level throughout the morning as downside was capped by downbeat data in the form of French CPI and regional German CPIs
In FX, there has been relative calm helped by improving sentiment in the equity and commodity markets. Some decent gains seen in GBP, where Cable has returned through 1.4000 again, though stalling ahead of 1.4050 for. Decent gains seen against then EUR also, with the cross rate dipping below .7850 and pulled EUR/USD back into fresh bids seen ahead of 1.1000. EU sentiment indices were on the softer side of expectations, but this had a temporary/marginal impact on the single unit. Elsewhere, the CAD remains on the front foot, and still looking to build on the strong gains seen from the mid 1.3800’s against the USD, with 1.3500 the next big figure under threat. NZD consolidated the gains seen in Asia, but remains bid along with the AUD. Key data release this afternoon is the 2nd Q4 GDP estimate in the US.
In commodities, base metals rose, supported by Zhou’s comments, with nickel in London rising 1.7 percent and copper advancing 1.6 percent. Oil extended gains as Russia said talks with Iran are continuing before a planned producer meeting next month on a proposed output freeze amid a global glut.
West Texas Intermediate rose 2.1 percent to $33.75 a barrel. Russia’s output cap with Saudi Arabia will need to be in place for a minimum of 12 months to support prices, Energy Minister Alexander Novak said Thursday. A meeting with Iranian Oil Minister Bijan Namdar Zanganeh is possible next month, he said. Iran, seeking to boost exports after sanctions were lifted, said the deal is “ridiculous,” while Iraq said a pact hinges on unified support.
Gold for immediate delivery fell 0.2 percent to $1,230.82 an ounce in London. The metal is still up 10 percent this month, the most since January 2012, boosted by concerns over a global slowdown.
The U.S. natural gas futures for April delivery rose as much as 1.1 percent to $1.805 a million British thermal units on the New York Mercantile Exchange. The contract for March delivery, which expired Thursday, slumped to the lowest in almost 17 years because of a surging production at a time as mild weather curbs demand for fuel.
On today’s US calendar, the big focus will be on the second reading for Q4 GDP where the market is expecting the print to get revised down from +0.7% qoq to +0.4%. That would be the weakest on a quarterly basis since Q1 14. Along with the GDP number, the Core PCE deflator is worth keeping an eye on, along with personal income and spending. The January advance goods trade balance will be released too while the final February revisions to the University of Michigan consumer sentiment print will round off the week. Fedspeak continues with Powell and Williams (3.15pm GMT) both taking part in a panel discussion, while Brainard (at 6.30pm GMT) is speaking later tonight.
Bulletin Headline Summary from RanSquawk and Bloomberg
- A sea of green for European equities in the final session of the week following on from the relatively firm lead from their Asian counterparts.
- The energy complex extends on gains following reports of a March meeting between Saudi Arabia, Russia, Qatar and Venezuela.
- Looking ahead, highlights include US GDP & U. of Mich. Sentiment as well as comments from Fed’s Powell (Neutral, Voter) and Brainard (Voter, Dove).
- Treasuries lower in overnight trading as global equity markets, commodities rally on hopes of further monetary easing from China; U.S. Treasury will close $28b 7Y auction, which was delayed yesterday due to technical issues, at 11:30am ET.
- As the G-20 meet in Shanghai, People’s Bank of China Governor Zhou Xiaochuan saying he still has monetary policy tools at his disposal and there is no reason for yuan depreciation
- The greenback plays the biggest role in a group of currencies against which China’s central bank pegs the yuan, he confirmed
- Global finance chiefs split over how best to revive the world economy as central bankers and finance ministers from the Group of 20 developed and emerging markets gathered for talks in Shanghai
- Euro-area inflation looks to be cooling faster than expected, with national data missing economists’ estimates and strengthening the case for an expansion of the European Central Bank’s monetary stimulus in March
- Euro-area economic confidence fell for the second month in February, as the index of executive and consumer confidence slumped to 103.8 from a revised 105.1; that’s the lowest since June
- Royal Bank of Scotland said it will take longer than originally planned to resume shareholder payouts after reporting its eighth consecutive annual loss, driven by costs for past misconduct. The shares dropped the most since 2012
- The chairman said his firm doesn’t pursue highly paid investment bankers anymore, as it cut the number of million-euro earners and its bonus pool amid the continued shrinking of its securities unit
- $16.2b IG corporates priced yesterday (YTD volume $273.1b) and $1.25b HY priced (YTD volume $12.625b)
- Sovereign 10Y bond yields mixed with Portugal and Greece yields rallying 17bp/11bp; European, Asian markets rise; U.S. equity-index futures higher. Crude oil and copper rally, gold falls
DB’s Jim Reid concludes the overnight wrap
The bear and bull case in the last 24 hours was made up of China in the former camp and better oil price action and US data on the other. The bulls have got the upper hand and its continuing this morning as a combination of the gains on Wall Street last night and some supportive comments out of the PBoC at the G20 meeting have helped push Asian bourses higher. The Shanghai Comp and CSI 300 are +0.43% and +0.65% at the midday break, while the Nikkei is +1.20% after Japan’s headline CPI (0.0% yoy as expected) dipped a couple of tenths lower and closer to deflation last month. The Hang Seng is +1.61% while bourses in Korea and Australia are near unchanged.
With regards to those comments this morning, PBoC Governor Zhou Xiaochaun generated a few headlines when he said that ‘China still has some monetary policy space and multiple policy instruments to address possible downside risks’. He added that, ‘at the same time fiscal policy will be more proactive, reducing taxes and increasing fiscal deficits temporarily’. Zhou also reiterated that there was no basis for ‘persistent renminbi depreciation’ and that the ‘exchange rate will reflect the economic fundamentals’ in the long term. Meanwhile German Finance Minister has followed up with some comments of his own at the G20 meeting, making clear his view of opposing G20 fiscal stimulus after saying that ‘talking about further stimulus just distracts from the real tasks at hand’ and that German policy makers ‘do not agree on a G20 fiscal stimulus package, as some argue in case outlook risks materialize’. A reminder that we firmly believe that helicopter money is coming but that it will take the next recession to focus politician’s minds. We’re not there yet.
So with that gain for Oil (+2.86%) yesterday – which was seemingly sparked by more chatter that Venezuela, Russia, Saudi Arabia and Qatar have agreed to a March meeting – along with the much better than expected US durable goods data (which we’ll touch on shortly), it was a pretty constructive session all round for equity markets. Also helping things was a decent move for financials, particularly in Europe. A near 3% move for the sector led the Stoxx 600 to a +1.97% rebound with most pointing towards the big rally for Lloyds (shares up 14%) in particular as the driving force after the bank raised its dividend payout and announced a special payment. That seemed to be enough to spark a big rally in financials globally with the sector also the top performer for the S&P 500 which eventually closed up +1.13%. European credit was a slight underperformer with the gains for financials not really filtering through for Senior (-2bps) and Sub (-1bp) fins indices. Main and Crossover both finished 2bps tighter at 110bps and 441bps while across the pond CDX IG was nearly 2bps tighter in another bumper day for issuance, with the current weekly volume ($48bn) in US IG now the second biggest this year.
Switching over to that better data, headline durable goods orders rose a better than expected +4.9% mom (vs. 2.9% expected) in January, while the ex-transportation print also beat at +1.8% mom (vs. +0.3% expected) after both had dipped materially lower in December. Encouragingly the data also included a robust +3.9% mom gain in core capex orders (vs. +1.0% expected) which was the biggest monthly increase since June 2014. The data was also strong enough for the Atlanta Fed to lift their Q1 GDP forecast by one-tenth to 2.5% from the last change on February 19th. It’s worth noting that they are ahead of current market expectations for this quarter.
The rest of the data yesterday was a bit more of a mixed bag. Initial jobless claims rose 10k last week to 272k although the four-week average declined to a new low for the year at the same level. The FHFA house price index rose +0.4% mom in December (vs. +0.5% expected) while the Kansas City Fed’s manufacturing activity index fell another 3pts to a lowly -12pts (vs. -6 expected) with an improvement in new orders offset by a steep fall in the number of employees.
Elsewhere, it’s worth highlighting the latest on the migrant crisis which, given other themes dominating markets this year, has flown slightly under the radar from a market perspective. The latest update is the news that Austria and nine Balkan states have confirmed an effective partial closure of the border along the Balkan migrant route, going against the commitment made at the EU summit last month. As a result of this, the FT has reported a significant drop-off in the number of asylum-seekers attempting to cross into Germany (including pictures of empty reception centers). Interestingly while the actions of Austria and co may have posed serious issues for German Chancellor Merkel’s push for an EU-wide solution to the crisis, the decline in the number of asylum seekers entering Germany may also prove positive ahead of the German state elections on March 13th which are looking more and more important by the day. On the other hand a huge backlog of refugee and migrant applications has now built up in Greece. DB’s George Saravelos highlighted yesterday that Greek PM Tsipras is now saying that the Greek government will veto any EU agreement at the EU-Turkey summit on March 7th unless there is pan-European agreement to relocate the refugees, especially as they are know accumulating in Greece with less places to go. This looks like one worth keeping a close eye on.
Before we look at the day ahead and just wrapping up the dataflow, there weren’t too many surprises to be had in the data we saw in Europe. The final reading for Euro area headline inflation in January was revised down a modest one-tenth to +0.3% yoy, while the core was kept unchanged at +1.0% yoy. In the UK we saw the second reading of Q4 GDP unchanged from the initial estimate at +0.5% qoq. Meanwhile there was some support to be had in the ECB’s money and credit aggregate numbers for January. M3 money supply growth was up a better than expected three-tenths to +5.0% yoy (vs. +4.7% expected) while loans to non-financial corporates nudged up to +0.4% yoy (from 0.0%) and household loans held steady. The data should be comforting to the ECB ahead of next month’s meeting.
Looking at today’s calendar, the early data out of Europe this morning will be in France where we’ll get both the February CPI data as well as a second reading on Q4 GDP. This will be followed up later this morning by the latest confidence indicators for the Euro area before we move to Germany with the preliminary February CPI report. The big focus over in the US this afternoon will of course be on the second reading for Q4 GDP where the market is expecting the print to get revised down from +0.7% qoq to +0.4%. That would be the weakest on a quarterly basis since Q1 14, while our US economists are even more bearish and are forecasting for a sharp downward revision to +0.1% on much lower inventory levels. Along with the GDP number, the Core PCE deflator is worth keeping an eye on, along with personal income and spending. The January advance goods trade balance will be released too while the final February revisions to the University of Michigan consumer sentiment print will round off the week. Fedspeak continues with Powell and Williams (3.15pm GMT) both taking part in a panel discussion, while Brainard (at 6.30pm GMT) is speaking later tonight. Over at the ECB we’ve got Praet due to speak tonight (6.30pm GMT). It’ll also be worth keeping an eye on further developments at the G20 Finance Minister’s meeting in Shanghai with the conference due to conclude tomorrow.
Let us begin;
Late THURSDAY night/ FRIDAY morning: Shanghai closed UP BY 25.97 POINTS OR 0.95% Hang Sang closed UP by 473.40 points or 2.52% . The Nikkei closed UP 48.07 or 0.30%. Australia’s all ordinaires was DOWN 0.02%. Chinese yuan (ONSHORE) closed DOWN at 6.5373. Oil GAINED to 33.30 dollars per barrel for WTI and 35.78 for Brent. Stocks in Europe so far deeply in the GREEN . Offshore yuan trades 6.53753 yuan to the dollar vs 6.5373 for onshore yuan/
In Japan: demand for big bills skyrockets along with the purchase of safes to stuff the bills. Why? the answer is NIRP is scaring the living daylights out of Japanese citizens:
(courtesy zero hedge)
Demand For Big Bills Soars As Japan Stuffs Safes With 10,000-Yen Notes
Earlier this week, we were amused but not at all surprised to learn that Japanese citizens are buying safes like they’re going out of style.
The reason: negative rates and the incipient fear of a cash ban. “Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash–the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates,” WSJ wrote. “Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does.”
Put simply, the public has suddenly become aware of what it means when central banks adopt negative rates. The NIRP discussion escaped polite circles of Keynesian PhD economists long ago, and now it’s migrated from financial news networks to Main Street.
Although banks have thus far been able to largely avoid passing on negative rates to savers, there’s only so long their resilience can last. At some point, NIM will simply flatline and if that happens just as a global recession and the attendant writedowns a downturn would entail occurs, then banks are going to need to offset some of the pain. That could mean taxing deposits.
As we noted on Monday, circulation of the 1,000 franc note soared 17% last year in Switzerland in the wake of the SNB’s plunge into the NIRP Twilight Zone. As it turns out, demand for big bills is soaring in Japan as well.
“Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases,” Bloomberg writes. “While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts — where it can make its way back into the financial system and be put to productive use.”
One safe maker who spoke to Bloomberg said safe shipments have doubled over the last six months. While part of the demand for safes is likely attributable to the country’s new “My Number” initiative, “the negative-rate policy is likely to intensify the preference of Japanese households to keep cash at home,” Hideo Kumano, an economist at Dai-ichi Life Research Institute said. “Overall, the trend of more cash at home reflects concern about the outlook for economy among households. This isn’t a good thing.”
No, it’s not. And just wait until the Japanese (and European) public makes the connection between NIRP and the cash ban calls. That is, once average people grasp the concept of the effective lower bound and then figure out that a cashless society will allow policymakers to dictate economic outcomes by robbing the public of its economic autonomy, it will be time to break out the torches and the pitchforks.
We suppose it’s time for Kuroda to propose banning the 10,000-yen note. You know, to deter the Yakuza…
China May Have Found A “Solution” To Its Massive Bad Debt Problem
Last April, China had an idea about how to boost the country’s dying credit impulse.
As we’ve been at pains to explain for more than a year, China is attempting to do the impossible. They need to deleverage and re-leverage all at the same time. Efforts to rein in the mammoth shadow banking system after years of expansion put pressure on an economy that was already decelerating and by the end of 2014, Beijing was struggling to figure out how to keep credit flowing without embedding more risk into the system.
One idea was to supercharge the country’s nascent ABS market which was barely producing $50 billion in supply per year (for context, consider that the US auto loan-backed ABS market alone saw $125 billion in issuance last year).
As Reuters noted at the time, the idea was simple: “By making it easier for banks to repackage and resell receivables – such as loan repayments on mortgages, car loans and credit cards – the government hopes to free up banks’ balance sheets so they can lend more to the real economy.”
In other words, offload the credit risk to investors who are searching for yield and once your book is unencumbered, make more loans, then package and sell them to investors, and around you go. It’s the “virtuous” originate-to-sell model and it works great – until it doesn’t.
In any event, despite comments from the likes of ANZ’s Zhao Hao who said “there is a huge demand from banks alone to securitise assets,” the plan didn’t work.
Why? Because China’s NPLs were rising at a rapid clip as the economy continued to deteriorate. Banks didn’t want to lend more and risk further imperiling their balance sheet and even if they did, demand for credit was hardly robust in an economy struggling with an acute overcapacity problem. “With the evidence mounting that the country is experiencing an economic slowdown, Chinese banks don’t want to lend, so they don’t need to sell ABS to free up more room for lending,” Ji Weijie, senior associate at Beijing-based China Securities Co. said in June. “Plus with rising bad loans, banks are reluctant to move good assets off their balance sheets.”
Right. Fortunately, China now has a solution for that rather vexing problem. Beijing will simply allow banks to securitize their NPLs.
“China will allow domestic banks to issue up to 50 billion yuan ($7.7 billion) of asset-backed securities based on their non-performing loans, the first quota for such sales since 2008,” Bloomberg reports, citing the ubiquitous people familiar with the matter. “The quota, which will initially be allocated mainly to China’s largest banks, will allow lenders to remove non-performing loans from their balance sheets at a time when asset quality is deteriorating and the economy is slowing, the people said, asking not to be named as the plan isn’t public.”
If this goes as planned it could allow banks to remove as much as CNY150 billion in bad loans from their books. While that may sound “relatively significant” to quote Sanford C. Bernstein’s Zhou Min, it’s probably not significant at all if you look at it in the context of the size of China’s banking system and the likely real NPL ratio which is probably much closer to 10% than it is to the headline prints.
Of course China will also need to find buyers for this paper and with the likes of Kyle Bass shouting from the rooftops about credit risk, it’s difficult to see how Chinese banks are going to get anyone excited about buying their non-performing assets especially in an evironment where the situation is expected to deteriorate continually going forward.
Also, it’s not at all clear that even if China’s banks do find buyers, they will use the balance sheet slack to lend to the real economy. Yes, China created an unbelievable $500 billion in debt last month, but TSF data is notoriously difficult to interpret (i.e. it would probably be a mistake to take that figure and attribute it solely to either banks’ willingness to lend or the real economy’s enthusiam to borrow). More importantly, this may be just another effort to manage the numbers. That is, if you engineer an epic TSF boom and then allow banks to dispose of their NPLs via ABS issuance, that’s just another way to fudge the NPL data. The souring debt hasn’t gone away. It’s just someone else’s responsibility.
Meanwhile, China’s shadow banking system continues to find new ways to obscure risk. As we wrote earlier this month, mid-tier Chinese banks are using DAMPs to make new loans that they can carry on their books as “investments” and “receivables” against which they do not hold much in the way of reserves. For instance, at Industrial Bank, the size of the “investment receivables” book doubled during 2015 and now sits at a massive $267 billion or, as Reuters noted at the time, more than its entire loan book and equivalent to “the total assets in the Philippine banking system.”
Of course these are all just channel loans. It’s the same basic story: banks are finding innovative ways to lend outside of their official loan books and by carrying a non-trivial percentage of their credit risk as something that doesn’t count towards NPLs, they are obscuring risk. And on a massive scale.
“Banks are increasingly turning to so-called directional asset-management plans issued by brokerages and the subsidiaries of mutual-fund providers to channel lending,” Bloomberg wrote on Wednesday, adding that “the amount of money placed in such products jumped 70 percent last year to 18.8 trillion yuan ($2.9 trillion), outpacing the 17 percent growth for trust assets.”
“These new shadow channels work like trusts. The structure typically involves a bank investing proceeds from its wealth-management products in a directional plan that will then lend to a borrower chosen by the bank,” Bloomberg continues. “This allows banks to extend credit while circumventing restrictions on certain borrowers — such as local government financing vehicles — as well as capital requirements on regular loans.”
As we said three weeks ago, this isn’t exactly the same as ABS issuance. That is, the bank retains the credit risk here. The brokers are just the middlemen. “If you talk to a bank, they’ll say it’s somebody else’s credit risk,” Macquarie ‘s Matthew Smith told Bloomberg. “But the ultimate credit risk doesn’t disappear. The brokers for sure are not taking this on in exchange for a few basis points, so ultimately the banks are still holding onto this credit risk. If it all goes bad, the brokers don’t have the balance sheet to support it, and somebody else has to come in and take it over.”
Or, as we put it: “…but that’s just semantics. You can call them “assets” or “investments” or “receivables” or whatever the hell else, but at the end of the day, these are loans. And the bank shoulders the entirety of the credit risk.”
But again, because of these are carried on banks’ books, you won’t see them show up in the NPL column – even if they go bad.
The takeaway from all of this is that trying to pin down credit risk at Chinese banks is an endless game of “Whack-a-Mole”. Beijing is constantly working to allow banks to shift and reclassify “assets” and/or transfer credit risk either to some entity where it can’t be tracked or at least to areas of the balance sheet where it effectively disappears. As Moody’s Stephen Schwartz puts it “every time they clamp down on one area, the financing pops up in another.”
Here Comes The Red Swan And Other Reasons To Be Very Afraid
by David Stockman • February 25, 2016
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The Red Chip casino took another one of its patented 6.5% belly flops last night. In fact, more than 1,300 stocks in Shanghai and Shenzhen fell by 10%—the maximum drop permitted by regulators in one day—–implying that the real decline was far deeper.
This renewed carnage was the worst since, well, the last 6% drop way back on January 29, and It means that the cumulative meltdown from last June’s high is pushing 45%. And all this red chip mayhem did not come at an especially propitious moment for the regime, as the Wall Street Journalexplained:
It comes at an awkward moment for the Chinese government, which is hosting the world’s leading central bankers and finance ministers starting Friday. China has been expected to use the G-20 meeting to address global anxiety about its economy and financial markets. Worries about China’s economic slowdown and the volatility of its markets have weighed on investment decisions around the world.
But if we are remarking on “awkward”, here’s awkward. The G-20 central bankers, finance ministers and IMF apparatchiks descending on Shanghai should take an unfiltered, eyes-wide-open view of the Red Ponzi fracturing all about them, and then make a petrified mad dash back to their own respective capitals. There is nothing more for G-20 to talk about with respect to China except how to get out of harms’ way, fast.
China is a monumental doomsday machine that bears no more resemblance to anything that could be called stable, sustainable capitalism than did Lenin’s New Economic Policy of the early 1920s. The latter was followed by Stalin’s Gulag and it would be wise to learn the Chinese word for the same, and soon.
The regime is in a horrendous bind because it has played out the greatest credit spree in world history. This cycle of undisciplined, debt-fueled digging, building, spending and speculating took its collective balance sheet from $500 billion of debt in the mid-1990s to the $30 trillion tower of the same that now gyrates heavily over the land.
That’s a 60X gain in debt over just two decades in an “economy” that has no honest financial markets; no legal system and tradition of bankruptcy and financial discipline; and a banking system that functions as an arm of the state, cascading credit down from the top in order to “print” an exact amount of GDP each month on the theory that anything that can be built, should be built in order to hit Beijing’s targets.
If an economy and its ruling regime were an animate being you could call it a “fatal addiction” and be done with it. These folks are on the deadliest strain of financial heroin known to mankind and have no chance of surviving; its a dead economy walking.
Look no further than the hideous debt gains reported for the month of January. Total social financing rose by 3.42 trillion yuan or a round one half trillion USD.
That’s right. On top of it tottering $30 trillion debt tower China has just piled on new debt at a $6 trillion annual rate or 55% of GDP per year!
By now China’s businesses—–especially the giant SOEs (state owned enterprises)—— are drowning in excess capacity and unpayable debt that amounts to upwards of 180% of GDP (compared to 70% in the US). But never mind. New loans to the business sector in January were up by 73 percent over prior year.
Worse still, it is evident that a high share of January’s lunatic rate of credit expansion was devoted to paying interest on the existing monumental debts of China’s businesses and so-called local government financing vehicles (LGFVs). Even the authorities concede that more than 60% of new debt issuance in recent years has been used to pay interest. They are chasing their tail ever more furiously; they are strapped on to a debt whirligig they can’t and won’t get off…….until it finally explodes.
In truth, China’s economy is no more efficient, productive, stable or prosperous than was Stalin’s five-year plan GDP. The latter, by the way, grew at fulsome double digit rates the West envied for more than a decade during the 1930s.
The only difference is that the Red Suzerains of Beijing seem to have learned about the advantages of using a printing press and “bankers” to carry out their central planning schemes rather than tonnage quotas and commissars; and also that swapping quasi-slave labor in their export factories for IOU’s from its customers in the US and Europe could temporarily relieve the misery and poverty that Mao had consigned to the hundreds of millions trapped in China’s collectivist rice paddies.
Needless to say, having built a massive potemkin economy, China’s rulers have no clue about how to contain the incendiary pressures which are now building to the ignition point. Indeed, since there are no possible economic mechanisms or even viable half-assed statist schemes to stabilize the $30 trillion mountain of debt that sits precariously on its fracturing hothouse economy, or to relieve it of its fatal debt addiction, Beijing will soon have no alterative but to rule by the brute force of paddy wagons, and even firing squads.
The days during which a giant daisy chain of ever inflating lending and spending was raising all boats is over and done. There is nothing ahead except a collapsing credit bubble which will be sinking the great Red Ponzi boat and its 1.3 billion passengers. And along with it, a worldwide economy and financial system afflicted with the plenary misrule being brought to Shanghai by the G-20.
As to the former, China’s looming crash landing could not have been made more clear than by the telltale missive recently sent to the Beijing inner circle by a high official of their own central bank. According to the Wall Street Journal, China’s money printers now realize continued reliance on easy credit could blow the system sky-high and turn the current trillion dollar capital flight into a uncontrollable torrent. So the central bankers are demanding that the fiscal arm of the state dramatically increase its own spending and borrowing:
In a recommendation to China’s top policy makers reviewed by The Wall Street Journal, a senior official at the People’s Bank of China wrote that the government should let the shortfall reach 4% or so, which could allow authorities to slash taxes on businesses to free up more of their funds for investments.
“Fiscal policy hasn’t been proactive enough,” said Sheng Songcheng, head of the survey and statics department at the central bank and the lead author of the recommendation, in an interview Thursday. “The concern over increasing the fiscal deficit is that it could lead to a fiscal crisis. But our research shows otherwise…..”
.A combination of factors would work in Beijing’s favor if it were to sharply expand the fiscal scope. The debt held by the central government as a percentage of GDP has been declining in the past few years, from 19.4% in 2007 to 15.1% in 2014, according to Mr. Sheng’s report…..”China has room to expand its fiscal deficit to 4% or even 4.5% even if the GDP growth rate drops to 5%,” Mr. Sheng said in the interview.
Now isn’t that pettifoggery perfectly ridiculous. As a purely statistical matter, China’s true central government fiscal debt is not even close to 15% of GDP or just under $2 trillion. It’s actually nearly $11 trillion or 100% of GDP, and that’s on the phony, bloated GDP total published by Beijing on the last say of each quarter—-never to be revised again, world without end.
Here’s why. There is no difference whatsoever between the state and the economy in the Red Ponzi. China’s hideously bloated $30 trillion banking system—including trillions of off-balance sheet loans through wealth management products, entrusted loans, receivables financing and many more crooked devices—-would not last a week without state backing. That means that even if the embedded loan loss rate in the system is just 15%, there is already another $4.5 trillion claim on China’s central government balance sheet. Sooner or later Beijing will be forced to bailout the banks.
Likewise, the entirety of the $3.5 trillion of acknowledged LGFV debt—-and probably the number is far higher in actuality—–would blow up in an instant were it not for Beijing’s implicit backing. On top of that there is the need for trillions more to be reserved for the cost of massively downsizing and restructuring China’s vastly overbuilt industrial plant, beginning with the steel industry and all its upstream and downstream supply chain partners.
The Red Suzerains have built themselves 1.2 billion tons of steel capacity, or more than that of the rest of the planet combined. Yet they have supportable demand for only 500 million tons per year, and that’s only if they can manage to prevent total economic anarchy and entropy. By their own recent announcement they plan to take out 150 million tons—or well more than the steel industry of Europe— and to make massive adjustment payments to the millions or workers, families and communities which will be dislocated.
But even that won’t cut it. Once the world goes Full Donald against the current 100 million ton flood of dumped Chinese steel exports, the central government will have to spend tens of billions more to support payrolls in several hundred million tons of additional steel plants which will have no customers.
At the end of the day, however, it does not matter under which pea China shuffles its gargantuan debt. The Red Ponzi is a unitary house of economic cards, meaning that the discussion which will occur between the Jack Lew’s and Christine Legarde’s of the G-20 and their Chinese interlocutors this weekend is utterly pointless.
Even the Chinese rulers know the truth about the state’s immense shadow debt as summarized above. They will therefore be exceedingly reluctant to expand the official deficit much beyond 3% of GDP, but prodded by today’s timely leak from the People Printing Press (e.g. central bank) you can be sure that the G-20 visiting squad of clueless Keynesian apparatchiks will demand 4% to help the world avoid the China slowdown bullet. Much time will be spent dickering on the decimal points in between.
Talk about playing tiddlywinks on the deck of the Titanic! The G-20 will come and go without even engaging on the enormity of the ticking financial time bombs which will surround them.
And they will also, thankfully, probably never even get around to an even stupider grand scheme now resident in Legarde’s purse, which was also conveniently leaked to the WSJ, as follows:
The problem is figuring out how to revive demand in a world where central banks are running out of gas and most of the world’s biggest growth engines are downshifting, idling or struggling to get out of first gear. The solution, many G-20 officials have indicated in recent days, is a stronger effort to restructure stagnating economies and increase investment in infrastructure.
As central banks vie to gain traction, some investors are calling for the G-20 to orchestrate a coordinated exchange-rate adjustment. Under one idea, world powers would agree to allow China to devalue the yuan to spur growth in the world’s No. 2 economy, Europe would encourage public spending and the U.S. would help stabilize emerging markets by providing short-term emergency credit lines.
Well, no, not at all. The Chinese would not touch this with the world’s longest bamboo pole because they know it would be a signal for massive capital flight. Likewise, can socialist, sclerotic Europe—–already buried in public debt at well more than 100% of eurozone GDP if you take Germany out of the equation, which would never agree anyway—-borrow the global economy back to prosperity?
And good luck with lame duck Obama getting a GOP congress to make bridge loans to the likes of Brazil and Indonesian.
Yes, take cover. There is a Red Swan rising and its soon going to be circling the entire economic globe.
Bailed Out RBS Faces Shareholder Revolt As Capital Return Plans Delayed Indefinitely
“I haven’t found any nuggets of good news.”
That’s from Investec’s Ian Gordon, who isn’t particularly enamored with RBS, which on Friday reported its eighth consecutive annual loss.
The bank – which was bailed out to the tune of $64 billion by British taxpayers during the depths of the crisis – lost $2.77 billion last year, which was actually a marked improvement from 2014. Pre-tax profit which strips away all of the bad things like litigation plunged by nearly a third to £4.4 billion, just shy of consensus.
Nearly three quarters of the bank is still owned British taxpayers and it exists in a sort of limbo as CEO Ross McEwan dumps assets and retreats from foreign markets. As FT reminds us, RBS is “shrinking the investment bank and exiting 25 of the 38 countries it operates in, to focus on UK retail and commercial banking.”
Net interest income (so, income from how banks used to make money in a bygone era) was down 5% Y/Y but the real story here is charge-offs. Last year’s abysmal results were attributable to nearly £3 billion in restructuring charges and £3.5 billion in charges for bad “conduct” which includes FX rigging and the sale of shoddy mortgage bonds. As The Guardian reports, “the legal warnings attached to the bank’s accounts also include warnings about an ongoing court case in the UK from investors who backed a cash call before its 2008 taxpayer bailout, court cases in the US involving Libor rigging and cases accusing the bank of funding terrorism.”
So, all sorts of malfeasance.
Shares plunged after the results were announced primarily because it now appears that plans to return capital to shareholders have been postponed – indefinitely.
“Management previously guided that dividend payments or share buybacks could begin as early as next year, once it has cleared the UK’s stress tests, carried out the bulk of its restructuring plan, settled with US regulators over mis-selling mortgage-backed securities, and separated the challenger bank Williams & Glyn,” FT notes. Now, however, “outstanding issues” mean it’s “more likely that capital distributions will resume later.” And by “later” the bank means after Q1 2017.
“You’ve got to be taking a greater than one year view on capital return and a three-to-four year view on normalization of earnings, and that’s a timeframe which exceeds most investors’ appetite,” the abovementioned Ian Gordon says.
Part of the problem is that RBS has no idea when it will be able to settle with FHFA over $32 billion in RMBS the bank sold prior to the crisis. On the call, CFO Ewen Stevenson said RBS wasn’t currently in “substantive” talks to settle the issue. Additionally, RBS is having trouble selling Williams & Glyn. “[There are] time delays,” McEwan said. “It’s the most complex thing going on [right now].”
“Clearly there are big conduct charges we still face, not least in relation to U.S. mortgage-backed securities,” McEwan added.
Yes, “clearly” there are conduct charges and all sorts of other problems. As you can see from the above, there’s really no telling when all of this will be sorted out. This is an attempt to right the ship and pay for the sins of an absurdly complex institution and that process could well take more than a decade, a fact shareholders should have realized from the start. As for UK taxpayers, well, they’re deeply underwater:
“We cannot be a market leader in pay.” said chairman Sir Howard Davies, explaining why the bank pays such “meager” salaries. “[But working at RBS] is extremely worthwhile from a national point of view.”
Right. But it’s certainly not “extremely worthwhile” from a financial point of view. Except for the fact that at least 121 people are making €1 million or more per year, including McEwan who The Guardian notes has “who has received the highest pay for a chief executive of the bank since the bailout.”
And what have Brits gotten in return, you ask? This:
“People are disappointed,” George Godber, at Miton Group Plc in London told Bloomberg. “It’s later return of capital and the market is focused on income. You have to be certain on what the value of the business is and it keeps getting shunted back.”
Indeed. The bank has logged £50 billion in losses since it was bailed out by taxpayers in 2008. Perhaps it’s time to just close the doors.
Cable Gets Pounded
Amid the biggest weekly drop in GBPUSD (cable) in 7 years, a surge in UK credit risk, and a spike in cable volatility, Brexit risk has never been higher, but, as Citi notes, is only 30% priced in at current levels (while polls are more 50-50) even as The British Pound is plumbing 30-year lows versus the U.S. Dollar.
And, as Dana Lyons details, cable is experiencing a potentially massive breakdown at this juncture, making it the current MVP of the global currency wars.
The central banks’ global game of debase your currency remains alive and well. In fact, in some ways, it is the only game in town. That bodes very poorly for the global economy and equity markets as good old-fashioned organic economic growth is hard to come by these days (non-partisan economists and historians will look back at this epic experiment with bewilderment…but I digress). The latest player to take center stage in this game? The United Kingdom. Owing ostensibly to “Brexit” talk the price of the British Pound versus the U.S. Dollar – aka, “cable” – has dropped to near 30-year lows.
Trading at 1.39 currently, should the GBP/USD close here in 2 days, it will be the lowest monthly close since September 1985 –notably breaking the lows near 1.40 from 1986, 1993, 2000-2002 and 2009. A solid break below 1.40 opens up the all-time lows around 1.05, eventually.
Who saw this one coming? Well, since you asked, we did. At least we suggested it in a post last April titled “Is the British Pound the Next Currency to Collapse?”. Yes, that was 10 months ago, but the cable was in the midst of a 9-month selloff and due for a breather. It was also hitting the colossal 30-year support area near 1.40. Thus, we concluded that:
As you can see, the 140′s area is a colossally important level in the British Pound. Given its inability to break that area for 30 years, it will not fail there easily. However, given factors involved related to its price momentum, futures positioning and policy flexibility, an eventual break of the 140′s level would not be a surprise.
Regarding the futures positioning, our point was that, despite the extreme lows in Pound futures at the time, Commercial Dealers’ net long positioning was still well below that at prior lows in the contract. This group is typically correctly positioned at major turns in futures contracts. Our thought was that the Dealers’ net long position had room to expand still, and could accommodate a further drop in the Pound. That did not transpire. However, the Dealers’ positioning right now is in a similar spot as it was last spring (at least as of last week). Thus, their net long position would appear to have room to expand should the Pound look as if it might suffer this momentous breakdown.
In terms of policy (and we do not want to stray too far down this tangent), it would appear that the Bank Of England has much more ammo, arrows, tools, etc. at its disposal than most central banks should it want to “persuade” the Pound lower still. At least, it has not fired off its version of currency “shock and awe” yet. Thus, perhaps the central bank has some credibility on its side (which by the way is perhaps the weakest “currency” of all among global central banks).
Whatever happens (e.g., Brexit, debasement, etc.) cable is experiencing a potentially massive breakdown at this juncture, making it the current MVP of the global currency wars.
* * *
More from Dana Lyons, JLFMI and My401kPro.
Get Back To Work Mr.Draghi – Deflation “Monster” Spreads Across Europe
Today’s current inflation data dump from across the European nations appears to confirm forward inflation expectations trend (plumbing new record lows). With a considerably bigger than expected decline in prices , pushing Germany, Spain, and France back into deflation, pressure is mounting on Mr.Draghi. As one EU economist exclaimed, “the data send a clear message to the ECB and the only question that remains now is how bold action would be.”
Germany tumbles back into deflation…
And, as Bloomberg reports, Euro-area inflation looks to be cooling more than expected, with prices in three of the region’s four largest economies missing estimates and strengthening the case for an expansion of the European Central Bank’s monetary stimulus in March.
Consumer prices slid in Germany, France and Spain in the year to February, figures showed on Friday.
In Germany, the European Union-harmonized rate of inflation slowed to minus 0.2 percent compared with a prediction for no change in a Bloomberg survey. The rate dropped an annual 0.1 percent in France, compared with a forecast of a 0.1 percent rise. Spanish prices slid 0.9 percent, compared with an estimated decline of 0.6 percent.
“The decline in inflation across the region may come even steeper than expected,” said Johannes Gareis, an economist at Natixis SA in Frankfurt. “The data send a clear message to the ECB and the only question that remains now is how bold action would be.”
In other words, Save us Mario from spending less on the things we need…
BofA Is Still Not Buying It: “Everyone (Including Ourselves) Is A Seller Into Strength”
With the S&P retesting its stubborn support level of 1,812 as recently as a week ago, many have continued to predict that failures to breach said level would result in violent bear market rallies, most recently JPMwhich however “should be faded”, as it noted three weeks ago, looked at earnings and said that “16x and $120 create a firm ceiling at ~1950 and thus moves toward that level should be faded.”
Others such as BofA’s Michael Harnett, and overnight Citi, went so far as saying that unless the G-20 comes out with a big stimulative surprise, it would open the path for the market’s next leg lower, below this critical support.
Since then the market has indeed been gripped in the latest furious short squeeze, which as of right now has the S&P trading some 150 higher in under two weeks, at about 1962.
So has that change the big picture? Not for Bank of America.
In a note released overnight by BofA’s Chief Investment Strategist, Michael Hartnett, he looks at the surge into gold, which as previously noted was the biggest 3 week inflow since January 2009.”
He also points out the short-cover not only in stocks but in credit: “largest inflows to HY in 16 weeks & first EM debt inflows in 7 weeks; risk-on shift in fixed income corroborated by first outflows from treasuries in 8 weeks & largest IG outflows in 9 weeks.”
More importantly, he notes that in equities it remains a very different picture with $3.6 billion in outflows in the past week, and outflows in 11 of past 12 weeks…
… and summarizes not only what BofA is seeing but what the fund managers he interacts with on a daily basis say.
Here is the punchline:
Everyone (including ourselves) a “seller into strength” which means risk can squeeze higher short-term into policy events…G20 (2/26-27), ECB (3/10), BoJ (3/15) & FOMC (3/16); flows nonetheless not close to “full-capitulation” levels.
Sure enough, as we wrapped first thing this morning, risk – and oil – are most certainly squeezing into this weekend’s policy event, the Shanghai G-20 meeting, and ignoring the Q4 GDP report which was actually negative for Q1 2016, as the lower inventory liquidation means more inventory disappointments are set to unfold in 2016.
Which brings us to BofA’s punchline: “policy meetings increasingly seen as selling (not buying) catalyst, so selling pressure resumes if policy disappoints.”
In other words, all eyes, and ears, will be tuned to Shanghai on Sunday when the G-20 communique is expected to hit. If it indeed disappoints and focuses on broad generalities and hollow promises of Chinese reform, it will be interesting to observe if BofA (and “everyone”) will resume selling into strenth.
World Trade Collapses Most Since Crisis
One question now dominates the global macro discussion: has subdued global growth and trade become the norm in the post-crisis world?
That is, have lackluster growth and trade become structural and endemic rather than transient and cyclical?
Those are the burning questions that keep central bankers (not to mention sellside economists) up at night and they are front and center at the G-20 in Shanghai.
Warning signs abound. The Baltic Dry is in a veritable free fall. Germany’s manufacturing juggernaut isshowing signs of faltering. The BRICS have ceased to be a reliable driver of global growth. US freight volumes are falling for the first time in years. And the list goes on.
“We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” WTO chief economist Robert Koopman said last autumn. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”
As we noted earlier this month, to the extent Maersk is a bellwether, things are looking pretty grim. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year.
On Thursday we got the latest evidence that the wheels are falling off. According to new data from the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor, global trade (defined as the value of goods that crossed international borders) plunged nearly 14% in 2015.
That’s the first contraction since 2009.
“The new data released on Thursday represent the first snapshot of global trade for 2015,” FT notes. “But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected.”
While the numbers weren’t as dire in volume terms, they certainly look rather “recessionary” and “deflationary” in dollar terms. Have a look:
Similarly, have a look at the following alternate measure:
So again we say the following: up to and until such a time as central bankers figure out how to print trade, the global economy is in very deep trouble and it’s just a matter of time before the worldwide deflationary supply glut gets “liquidated” – literally…
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am
Euro/USA 1.1029 up .0005
USA/JAPAN YEN 112.80 DOWN .327 (Abe’s new negative interest rate (NIRP)a total bust
GBP/USA 1.3969 UP .0005 (threat of Brexit)
USA/CAN 1.3533 DOWN.0008
Early THIS THURSDAY morning in Europe, the Euro ROSE by 5 basis points, trading now well above the important 1.08 level falling to 1.1029; 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: 6.5373 / (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 33 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 UP this morning by 5 basis points as it now trades just below the 1.40 level at 1.3969 on fears of a BREXIT.
The Canadian dollar is now trading UP 8 in basis points to 1.3533 to the dollar.
Last night, Chinese bourses were mainly MIXED/Japan NIKKEI CLOSED UP 48.07 POINTS OR 0.30%, HANG SANG UP 473.40 OR 2.52% SHANGHAI UP 25.97 OR 0.95%/ AUSTRALIA IS LOWER / ALL EUROPEAN BOURSES ARE IN THE GREEN 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 FRIDAY morning: closed UP 224.55 OR 1.41%
Trading from Europe and Asia:
1. Europe stocks all in the GREEN
2/ CHINESE BOURSES IN THE GREEN/ : Hang Sang closed UP 473.40 POINTS OR 2.52% ,Shanghai IN THE GREEN BY LESS THAN 1% Australia BOURSE IN THE RED: /Nikkei (Japan)GREEN/India’s Sensex in the GREEN /
Gold very early morning trading: $1237.50
Early FRIDAY morning USA 10 year bond yield: 1.73% !!! UP 3 in basis points from last night in basis points from THURSDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.61 UP 3 in basis points from THURSDAY night.
USA dollar index early FRIDAY morning: 97.38 DOWN 6 cents from WEDNESDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers FRIDAY MORNING
US Oil Rig Count Plunges To Lowest Since Dec 2009
For the 10th week in a row (14th in last 15), the US oil rig count declined (down 13 to 400) to its lowest since Dec 2009. For now oil prices are undecided as while efficiency trumps the actual decline, the fact that the rig count is dropping so fast suggests production may come under pressure sooner rather than later.
- *U.S. OIL RIG COUNT DOWN 13 TO 400, BAKER HUGHES SAYS
As the rig count tracks lagged oil prices perfectly…
Oil is unsure how to react for now…
Chesapeake’s AIG Moment: Energy Giant Faces $1 Billion In Collateral Calls
Back on February 10, when looking at Carl Icahn’s darling Chesapeake, whose stock had plunged to effectively record lows on imminent bankruptcy concerns, we said that for anyone brave enough to take the plunge, the “Trade of the Year” would be to go long a specific bond, the $500 million in 3.25s of March 2016 which were maturing in just over a month, and which on February 10 were yielding 300% at a price of 80.5 cents on the dollar.
And then, just two days later, in an unexpected turn, Chesapeake announced that contrary to public opinion, the troubled energy giant “is planning to pay $500 million of debt maturing in March, using a combination of cash on hand and other liquidity that may include its credit line, according to a person with knowledge of the matter.” The issue referenced was precisely the bond that was our “trade of the year.”
To be sure, the bond promptly surged, even as the stock priced tumbled, on what was seen as a very bondholder-friendly action (and thus to the detriment of shareholders) and hit a price of 95 cents while the stock tumbled by 15%, generating a 30% return for anyone who had decided to go along. At that moment we urged anyone in the trade to take their profits and go home, taking a few weeks, or the rest of 2016, off.
A quick update since then shows that those same bonds are currently trading effectively at par (99.25 cents)…
… suggesting that the risk of a near-term Chesapeake bankruptcy may be gone for now.
But is it truly off the table?
Sadly, we think that despite the brief hiccup in optimism, CHK’s troubles are about to get worse, even if this particular bond is ultimately repaid, for one simple reason: in its 10-K filed yesterday, Chesapeake announced that it has just reached its own “AIG moment.”
Recall that one of the reasons for AIG’s unprecedented, and rapid collapse, was a series of collateral calls resulting from a series of downgrades of the insurer, which forced it to post increasing amounts of collateral to which it had no access, and which in turn activated a liquidity death spiral which ultimately culminated with its bailout by the US Treasury.
The same is now taking place at Chesapeake, as the company’s 10-K has just confirmed:
Since December 2015, Moody’s Investor Services, Inc. has lowered the Company’s senior unsecured credit rating from “Ba3” to “Caa3”, and Standard & Poor’s Rating Services has lowered the Company’s senior unsecured credit rating from “BB-” to “CC”. The downgrades were primarily a result of the effect of low oil and natural gas prices on our ability to generate cash flow from operations. We cannot provide assurance that our credit ratings will not be further reduced if commodity prices continue to remain low. Any further downgrade to our credit ratings could negatively impact our availability and cost of capital.
Some of our counterparties have requested or required us to post collateral as financial assurance of our performance under certain contractual arrangements, such as transportation, gathering, processing and hedging agreements. As of February 24, 2016, we have received requests to post approximately $220 million in collateral, of which we have posted approximately $92 million. We have posted the required collateral, primarily in the form of letters of credit and cash, or are otherwise complying with these contractual requests for collateral. We may be requested or required by other counterparties to post additional collateral in an aggregate amount of approximately $698 million(excluding the supersedeas bond with respect to the 2019 Notes litigation discussed in Note 3 of the notes to our consolidated financial statements included in Item 8 of this report), which may be in the form of additional letters of credit, cash or other acceptable collateral. Any posting of collateral consisting of cash or letters of credit, which would reduce availability under our credit facility, will negatively impact our liquidity.
With this warning, energy giant Chesapeake has effectively warned that it may be the the energy-collapse’s AIG: a company which was teetering on the edge, until the rating agencies came along and with their downgrades, sprung an ever escalating series of collateral calls.
Furthermore, we now know roughly what the company’s liquidity state is: it has so far been able to post collateral on less than half, or $92 million, of its total inbound collateral calls amounting to $220 million. Worse, the company may at any moment face up to an additional $698 million or just under $1 billion in collateral calls.
Putting this in context, it took an unprecedented scramble by CHK in the last few weeks to free up precious liquidity and sell assets to just make the upcoming $500 million bond payment. In the meantime, CHK is already facing a collateral defficiency of $128 million, one which can grow by $698 million, or more in the coming weeks, if further credit downgrades materialize.
And, adding insult to injury, is that the price of nat gas, Chesapeake’s bread and butter, just hit a 16 year low which suggests even greater cash burn for the company.
All of which explains our eagerness to get out of the “trade of the year” when we had the chance. Because considering these latest developments and this surge in collateral calls, if we had to speculate what the next direction for the company’s asset prices would be, the answer – absent a dramatic surge in the price of nat gas – is sharply lower.
Portuguese 10 year bond yield: 3.08% down 24 in basis points from THURSDAY (and the European stock market rises???)
Stocks Stumble After Best Gains Since 2014’s Bullard Bounce
The week explained…
Stocks extend gains this week – now the best 2-weeks since Bullard’s Oct 2014 lows…BULLARD 2 – 0 REALITY
But ended on a weak note…
Futures give us a glimpse of the sudden buying panic into Europe’s Open/China’s close, selling at US Open on the “good” news… Weak close…
Even though Trannies and Small Caps gained on the day (more squeezes)…
Materials and Homebuilders outperformed on the week but note that financials and energy lagged today…
One thing of note is “noise” in VIX – this was not seen during the rise in VIX but now that the trend is lower, we see these paniccy spikes lower…
The S&P is still having the worst start to a year since 2009.
This has been the biggest 2-week short-squeeze since October 2011…
And the weakest momentum stocks soared…
Treasury yields swung around like a penny stock this week. The three red lines show a delayed POMO, a delayed auction, and the actual auction… all of which triggered selling…
This was the best week for The USD Index in almost 4 months…
Led by serious weakness in cable (and EUR)… and general strength today after positive econ data… (note quite a significant decoupling between AUD and CAD today)
Commodities were a very mixed bag with crude (best week since Aug 2015) and copper gaining on China stimulus hopes and PMs sold (Silver’s worst 2 week drop in over 3 months)
Oil and Silver seemed somewhat coupled with their crazy moves…
And finally, despite an ugly week for Silver, this is the best start to a year in Gold since 1980…
Fourth quarter GDP was surprisingly raised to 1% when everybody was expecting levels down to .1%. Why the rise? Less inventory liquidation. This means that Q1 2116 will have lower than anticipated GDP growth:
(courtesy zero hedge)
Q4 GDP Revised Higher To 1.0% Thanks To Less Inventory Liquidation Even As Consumption Disappoints
With Wall Street consensus expecting the poor first Q4 GDP estimate of 0.7% to be revised even lower to 0.4%, and with Wall Street’s biggest former permabull Joe LaVorgna expecting a number as low as 0.1%, instead it received a surprising jolt to the upside when the BEA reported that instead of a decline, Q4 GDP was actually revised higher to 1.0%.
But, as usual, the devil is in the details, because while the same consensus was expecting Personal Consumption to remain unchanged at 2.2%, instead it declined to 2.0% Q/Q, providing 1.38% of the 1.00% GDP bottom line, down from 1.46%.
So what provided the upside kicker? The full breakdown is shown below.
In case it is not clear fromthe chart above what happened, the answer is simple: instead of the substantial, and much needed, inventory liquidation that supposedly took place in Q4 as of the last GDP estimate, when the change in private inventories declined from $95.3 billion to $75.8 billion, subtracting 0.45% from the GDP print, this number was revised much higher, to a $90.6 billion change, which subtracted just 0.14% from the print and in effect contributed +0.31% to last month’s GDP estimate, or in other words, all of the upside revision.
What this means is that while Q4 GDP was “saved” due to the lower than expected inventory decline, instead the inventory liquidation will now seep into Q1 2016 GDP and subtract from first quarter growth. Add in collapsing CapEx from the energy sector, and suddenly the weakness which was supposed to have been “kitchen sinked” in the last quarter of 2015 will be carried over to 2016.
Rally In Jeopardy: Gartman Covers His Shorts, Goes Long Oil
In our overnight wrap moments ago, when previewing today’s action, we said that “absent some dramatic reversal, such as Gartman covering his shorts and going unexpectedly long, expect the low-volume, upward momentum to continue into the G-20 weekend.” Well, as the bible says, ask and ye shall receive.
In Gartman’s just released note, we learn that the recurring Fast Money guest has indeed finally thrown in the towel, and after putting on S&P shorts at 1926 some time ago, has finally capitulated with the market once again going sharply against him. To wit:
We have been short one unit of equities in rather global terms, by being short one third of a unit of US equities; one third of a unit of the EUR STOXX 50 and one third of a unit of the Nikkei. The trade started off properly and almost immediately we were profitable; however we are now almost at a small loss on the trade… and actually we are marginally profitable. This is a concern and we fear that perhaps we are about to see a period of time when the monetary authorities throw caution to the inflationary wind, expand the supply of reserves to the banking systems around the world in a fashion that really can only be considered egregious with caution tossed to the winds. That is, we may be in for a period of time when gold and equities move in tandem together to the upside
At any rate, although we were willing to risk this position rather materially from its outset, we are not willing to do so now. Hence, rather than waiting to be stopped out of our position some 3+% higher we wish to cover the position immediately upon receipt of this commentary, taking a very small profit and refraining from taking a loss and living to fight another day and in the end succeed.
This from the same pundit who just yesterday said:
There are many still arguing that this is not a fully-fledged bear market, but they are wrong.This is not only fully fledged, this is a fledged carnivore rather than a herbivore, for this bear market is consuming everything in its path with no intention of slowing down its “eating” habits.
Truly so much changes in 24 hours.
As noted above, it is unclear just how the S&P short position generated a profit as it was put on at lower levels, but as usual, bless Gartman’s math. As he adds “given that we are up 8.3% year-to-date and despite the fact that we did not keep up with the change in either the S&P and/or our International Indexwe have outperformed the S&P thus far this year by 12.8% and we have outperformed our International Index by 16.5%.”
But more importantly to those whose only alpha generating signal is fading Gartman, here is an even more important update:
Look then at the chart at the bottom left of p.1 this morning and note that the very well defined downward sloping trend line extending back for months is in the process of being broken through from below.
Note further that the low made in mid-January, couple with the low earlier this month and further coupled with the low made earlier this week have combined to create a “reverse head and shoulders” pattern on the chart… a pattern that is almost always powerfully bullish. We shall act upon this changing pattern by stepping up to buy crude oi this morning upon receipt of this commentary
And sure enough:
NEW RECOMMENDATION: Long of One Unit of Crude oil: We wish to buy one Unit of crude oil as noted above and we’ll focus our attention upon both Brent and WTI, buying half a unit of both this morning. We’ll buy May futures and as we write May Brent is trading at or near to $35.55 and May WTI is trading at or near $34.85. We’ll have stops in Monday’s TGL, but for now we’ll not want to see prices move and close more than 2.5% against us. So for now our stop shall be $34.65 for Brent and $33.95 for WTI.
You know what to do.
Rate Hike Odds Rise As January Income, Spending Surge Most Since May
Amid the collapse of PMIs, regional Fed surveys, and surging inventories, personal income and spending both surged 0.5% MoM in January – both better than expected. This is the best monthly gain since May 2015 as a drastically-revised data series notches the savings rate lower historically, but rose MoM.
And the savings rate rose modestly…
It seems Mester’s comments this morning that a March hike is still on the table just got further support… time for another market crash to nsure that doesn’t happen.
Hedge Funds Suffer $25Bn In Redemptions As Total Assets Drop To Lowest Since May 2014
Is the “2 and 20” model finally dying?
After not only underperforming the market by 7 years in a row, but generally disappointing even relative to benchmarks, the hedge fund industry started off 2016 with such a deplorable P&L whimper that has even eclipsed the first months of the financial crisis.
Worse, after years of investors stoically refusing to redeem their money from underperforming hedge funds, their patience appears to have run out and according to eVestment data cited by Bloomberg, investors pulled a net $21.5 billion, the most in the opening month of a year since 2009, while losses led to a $43.2 billion drop in assets under management. Notably, hedge funds that suffered losses last year were hit by redemptions worth $24.8 billion in January.
As a result, assets managed by hedge funds globally last month fell to $2.96 trillion at the end of January; this is the first time the hedge fund industry has managed less than $3 trillion in AUM since May 2014.
As Bloomberg adds, equity, fixed-income and multistrategy hedge funds suffered net outflows, though interest in those betting on commodities rose for the fifth straight month in January as investors pledged $1.2 billion, the most since mid-2014.
“This is a major reversal of a trend which dates back to mid-2012,” eVestment said in a statement on Friday. “Hedge fund investors appear to firmly believe there are significant opportunities in the commodity space.”
The surge of outside capital into commodities may explain why despite ongoing weakness in fundamentals across the commodity space, driven by both China and concerns about oil storage overflowing, there has been a strong base for crude in the upper-$20 range, and also explain the torrid jump in various metal commodities over the past two months.
But while it remains to be seen if hedge funds are right to rush into commodities, or just early, one thing is certain: one of the most prominent hedge fund activist investors, Bill Ackman, is certainly not having a good day and will surely be facing even more redemptions after not suffering a -17.3% return YTD, but also after today’s massive surge in his infamous short Herbalife, which as of this moment is up nearly 25% after the company reported its long-running feud with the FTC may be close to conclusion.
Economic Recovery? 13 Of The Biggest Retailers In America Are Closing Down Stores
Barack Obama recently stated that anyone that is claiming that America’s economy is in decline is “peddling fiction“. Well, if the economy is in such great shape, why are major retailers shutting down hundreds of stores all over the country?
Last month, I wrote about the “retail apocalypse” that is sweeping the nation, but since then it has gotten even worse. Closing stores has become the “hot new trend” in the retail world, and “space available” signs are going up in mall windows all over the United States. Barack Obama can continue huffing and puffing about how well the middle class is doing all he wants, but the truth is that the cold, hard numbers that retailers are reporting tell an entirely different story.
Earlier today, Sears Chairman Eddie Lampert released a letter to shareholders that was filled with all kinds of bad news. In this letter, he blamed the horrible results that Sears has been experiencing lately on “tectonic shifts” in consumer spending…
In a letter to shareholders on Thursday, Lampert said the impact of “tectonic shifts” in consumer spending has spread more broadly in the last year to retailers “that had previously proven to be relatively immune to such shifts.”
“Walmart, Nordstrom, Macy’s, Staples, Whole Foods and many others have felt the impact of disruptive changes from online competition and new business models,” Lampert wrote.
And it is very true – Sears is doing horribly, but they are far from alone. The following are 13 major retailers that are closing down stores…
#2 It is being reported that Sports Authority will file for bankruptcy in March. Some news reports have indicated that around 200 stores may close, but at this point it is not known how many of their 450 stores will be able to stay open.
#3 For decades, Kohl’s has been growing aggressively, but now it plans to shutter 18 stores in 2016.
#4 Target has just finished closing 13 stores in the United States.
#5 Best Buy closed 30 stores last year, and it says that more store closings are likely in the months to come.
#6 Office Depot plans to close a total of 400 stores by the end of 2016.
The next seven examples come from one of my previous articles…
#8 K-Mart is closing down more than two dozen stores over the next several months.
#11 The Gap is in the process of closing 175 stores in North America.
#12 Aeropostale is in the process of closing 84 stores all across America.
#13 Finish Line has announced that 150 stores will be shutting down over the next few years.
These store closings can be particularly cruel for small towns. Just consider the impact that Wal-Mart has had on the little town of Oriental, North Carolina…
The Town’n Country grocery in Oriental, North Carolina, a local fixture for 44 years, closed its doors in October after a Wal-Mart store opened for business. Now, three months later — and less than two years after Wal-Mart arrived — the retail giant is pulling up stakes, leaving the community with no grocery store and no pharmacy.
Though mom-and-pop stores have steadily disappeared across the American landscape over the past three decades as the mega chain methodically expanded, there was at least always a Wal-Mart left behind to replace them. Now the Wal-Marts are disappearing, too.
Of course there are many factors involved in this ongoing retail apocalypse. Competition from online retailers is becoming more intense, and consumer spending patterns are rapidly changing.
But in the end, the truth is that you can’t get blood out of a rock. The middle class in America is shrinking, and there just isn’t as much discretionary spending going on as there used to be.
Though the shift to online shopping is no doubt playing a role in lighter foot traffic at malls, there’s more to their changing economics than the rise of Amazon. Changing demographics in a town are another reason a shopping center could struggle or fail — for example, if massive layoffs in a particular industry cause people to move away to find employment.
“A lot of people want to try and tie it to the Internet or ‘that’s not cool,’ or teens don’t like it,” Jesse Tron, a spokesman for industry trade group International Council of Shopping Centers,told CNBC last year. “It’s hard to support large-format retail in those suburban areas when people are trying to just pay their mortgage.”
In order to have a thriving middle class, we need good paying middle class jobs. Unfortunately, our economy has been bleeding those kinds of jobs quite rapidly. For example, Halliburton just announced that it is eliminating 5,000 more jobs after getting rid of 4,000 workers at the end of last year.
During the Obama years, good paying middle class jobs have been getting replaced by low paying service jobs. At this point, 51 percent of all American workers make less than $30,000 a year.
And there is no way that you can support a middle class family with children on $30,000 a year.
We have an economy that is in the process of failing. We can see it in the explosion of subprime auto loans that are going bad, we can see it in the hundreds of retail stores that are shutting down, and we can see it in the tens of thousands of good paying energy jobs that are being lost.
During the Obama years, interest rates have been pushed to the floor, the Federal Reserve has created trillions of dollars out of thin air, and the size of our national debt is getting close to doubling. Despite all of those desperate measures, our economy continues to crumble.
We stole from the future to try to paper over our failures and it didn’t work. Now an economic downturn that will ultimately turn out to be even worse than the “Great Recession” of 2008 and 2009 has begun, and our leaders have absolutely no idea how to fix things.
I wish I had better news to report, but I don’t. Get prepared now, because very rough times are ahead.
US Government Releases 2015 Financial Statements: “Keeps Getting Worse”
Hot off the presses, the US government just published its audited financial statements this morning, signed and sealed by Treasury Secretary Jack Lew.
These reports are intended provide an accurate accounting of government finances, just like any big corporation would do.
And once again, the US government’s financial condition has declined significantly from the previous year.
For 2015, the government reports $3.2 trillion in total assets.
This includes everything from financial assets like bank balances to physical assets like tanks, bullets, aircraft carriers, and the federal highway system.
Curiously, the single biggest line item amongst these listed assets is the $1.2 trillion in student loans that are owed to the government by the young people of America.
This is pretty extraordinary when you think about it.
37% of the government’s total reported assets are student loans, which is now considered one of the most precarious bubbles in finance.
$1.2 trillion is similar to the size of the subprime mortgage market back in 2008. And delinquency rates are rising, now at 11.5% according to Federal Reserve data.
Plus, it’s simply astonishing that so much of the federal government’s asset base is tantamount to indentured servitude as young people pay off expensive university degrees that barely land them jobs making coffee at Starbucks.
On the other side of the equation are a reported $21.5 trillion in liabilities, giving the government an official net worth of negative $18.2 trillion.
This is down from last year’s negative $17.7 trillion and $16.9 trillion the year prior. It just keeps getting worse.
But there’s one thing that’s even more incredible about all of this.
You see, each year these financial statements are audited by the government’s in-house agency known as the Government Accountability Office (GAO).
All big companies do this. They publish financial statements, which are then reviewed by an independent audit firm.
Auditors are a critical component of the financial reporting process.
It’s their responsibility to make sure that shareholders and the public can have confidence in a company’s financial statements.
When Apple publishes an annual report, auditors go through all the books of the company and make sure that management is accurately representing the company’s true condition.
Thus when an auditor issues a failing grade, or what’s known as a qualified opinion, there’s usually hell to pay.
At the very hint of impropriety a company’s stock price will tank immediately. People get fired. SEC investigations are launched.
And now based on US securities law and section 404 of the Sarbanes-Oxley Act from 2002, senior executives can face criminal charges if their companies receive a failing grade from their auditors.
This is serious stuff.
Yet year after year the GAO gives the federal government a failing grade in its audit report of America’s financial statements.
In this latest report, not only did the GAO chastise the federal government for its “unsustainable fiscal path”, but they state that the federal government consistently fails to prepare “reliable and complete financial information– both for individual federal entities and for the federal government as a whole.”
The Department of Defense, Department of Housing and Urban Development, and the Department of Agriculture are all singled out for their failure to prepare complete and accurate financial statements.
This is corroborated by a report published last year stating that the Defense Department has somehow “misplaced” $8.5 trillion of taxpayer money over the last 20 years.
The GAO cites other material weaknesses in the government’s reporting of supposed cost reductions in Medicare and Social Security.
In all, the GAO calculates that these financial uncertainties total $27.9 trillion, suggesting that the government’s true financial condition is far worse than reported.
Bottom line– if this were a private company, Barack Obama and Jack Lew would be wearing dayglo orange jumpsuits in court while facing felony fraud charges.
It’s not just the $18.2 trillion in negative net worth. Or the $41+ trillion (by their own calculations) in the Social Security shortfall.
It’s the fact that they can’t even stand in front of the American people with an honest accounting of how pitiful the financial situation really is.
The government of the United States is totally, desperately, hopelessly bankrupt. And they become even more insolvent with each passing year.
Nearly every single dominant superpower throughout history was eventually consumed by its unsustainable finances.
And in their decline from power, bankrupt governments rely on a simple playbook to desperately try to maintain the status quo by every means available.
They destroy freedom. They impose a police and surveillance state. They seize assets. They wage campaigns of violence and intimidation.
They impose capital controls. Cash controls. People controls. Whatever it takes.
This time is not different. The finances of the US government are obvious, as is the trend.
We’re not talking about what ‘might happen’ or ‘could happen’. We’re talking about what IS happening.
And this is not a consequence free environment.