March 21/Another huge addition of 2.68 tonnes of gold into the GLD/Gold open interest remains extremely high and thus the reason for the raid, causing gold to fall 10 dollars/Silver bucks the trend by rising/China has 1/2 trillion USA of unpaid bills/Chinese auto sector crashes/Moody’s puts Deutsche bank on negative watch for a downgrade/In USA Valeant seems heading for the dumpster with possible fraudulent overtones/

Gold:  $1,243.80 down $10.00    (comex closing time)

Silver 15.84  up 3 cents

In the access market 5:15 pm

Gold $1243.50

silver:  15.82

The open interest on gold lowered by a tiny 4950 contracts despite the big hit on Friday.
No wonder another raid today.
The open interest on silver lowered by a sliver 961 contracts and remains elevated at 176,529.  With Chinese banks orchestrating the silver fix right now with other bankers
(gold fix begins on April 17), it seems that they are losing control over the silver market.

Let us have a look at the data for today.

At the gold comex today, we had a  good delivery day, registering 37 notices for 3700 ounces and for silver we had 78 notices for 390,000 oz for the active March delivery month.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 212.48 tonnes for a loss of 90 tonnes over that period.

In silver, the open interest fell by a tiny 961 contracts down to 176,529 as the silver down by 22 cents on Friday . In ounces, the OI is still represented by .882 billion oz or 127% of annual global silver production (ex Russia ex China).

In silver we had 78 notices served upon for 390,000 oz.

In gold, the total comex gold OI fell also by a smallish 4950 contracts to 503,312 contracts as the price of gold was DOWN $10.70 with Friday’s trading.(at comex closing). .

WHAT ON EARTH IS GOING ON INSIDE THE GLD.We had another big change in gold inventory at the GLD, another  deposit of 2.68 tonnes; and this addition took place with gold falling by $10.00 today!!/ thus the inventory rests tonight at 821.66 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had no changes in inventory,  and thus the Inventory rests at 328.533 million oz


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


1. Today, we had the open interest in silver fell by 961 contracts down to 176,529 as the price of silver was DOWN 22 cents with Friday’s trading. The total OI for gold fell by 4950 contracts to 503,312 contracts as gold was down $10.70 in price from Friday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)



i)Late  SUNDAY night/ MONDAY morning: Shanghai closed UP BY 63.65 POINTS OR 2.11% , /  Hang Sang closed UP by 12.52 points or  0.06% . The Nikkei closed FOR HOLIDAY . Australia’s all ordinaires was DOWN 0.32%. Chinese yuan (ONSHORE) closed UP at 6.4775.  Oil ROSE  to 40.82 dollars per barrel for WTI and 42.09 for Brent. Stocks in Europe so far ALL IN THE GREEN . Offshore yuan trades  6.4776 yuan to the dollar vs 6.4775 for onshore yuan/LAST WEDNESDAY, China’s industrial production collapsed along with retail sales. JAPAN RE SIGNALS that they may continue with nirp a little longer which sends the USA/Yen spiraling northbound/markets in Japan tumble . Japan’s exports plummet.LAST  WEDNESDAY, China signals that they are going to tax financial transactions. Chinese data reported over the weekend..just awful  (see below)


report on Japan




ii) report on China

A very important commentary where the government is hiding millions of layoffs.  No doubt we will see protesting by citizens as they demand their unpaid wages
( zero hedge)

iii)Passenger car sales collapsed by 44% last month and 50% larger than any other plunge in history.

( zero hedge)

iv)The situation inside China is going from bad to worse:  they now have the equivalent of 1/2 trillion USA in unpaid bills.  Total debt probably is in the area of 300% debt/GDP with corporate debt at 150%.As we pointed out last week, they are borrowing money just to pay the interest..

this is an accident waiting to happen!!
( zero hedge)

v)Interesting:  With Shanghai’s stock market collapsing who does China go to for help in the rigging of markets:  the Fed( zero hedge)


i)The so call ed deal between Turkey and the EU is not working as thousands of migrant cross to the island of Lesbos in Greece:

( zero hedge)


ii)It sure looks like the world is heading to go cashless: Greece orders banks to record personal data on anyone who was hoarding cash:

( zero hedge)

iii)This is is biggy!! Late in the day, Moody’s puts Deutsche bank on review for a downgrade:

( zero hedge/Moody’s)



i) Saturday:

Another attack on a very popular shopping street in Istanbul (Istiklal Caddessi).  Luckily not many were killed this time.  Last week 34 people died with a bomb blast in Ankara’s huge transit hub in Kizilay district.

( zero hedge)

ii Sunday

Isis is now blamed for the attack as they identify the suicide bomber.  Three Israelis were among the victims.  Were they targeted?
( zero hedge)

Over the weekend, more turmoil in Brazil as Supreme Court Justice Mendes blocks the appointment of Lula.  He also has the power to arrest Lula but so far he has not/  The Brazilian real rose as investors perceive that the country will get a grip on the corruption and remove Rousseff  (and Lula) from office

( zero hedge)


Some USA producers willing to go to back into production as WTI hits the low 40’s:

( zero hedge)


i)A good summary for trading volumes on Shanghai Gold Exchange vs the Comex for the year 2015:

(courtesy Koos Jansen/BullionStar)

ii)Rob Kirby believes that we are coming to the end of gold manipulation. This will cause a huge influx into physical gold.

important read..

( RobKirby/USAWatchdog/GATA)

iii)Indian jewellers call off their strike.  Gold imports into India rise

( Reuters/GATA)

iv)Chris Powell on market rigging:

( Chris Powell/GATA)

v)Central banks manipulation of markets

( Khan/UKTelegraph)

vi)A very important read; we are witnessing strange patterns in dollar trading.

( zero hedge/GATA))

vii)The following is such an important story:  Munich Re is giving the ECB the middle finger as it purchases almost 300,000 oz of gold (almost 10 tonnes).  The move was in total defiance of negative interest rates as insurance companies find it very difficult to earn money in this environment:

( Munich Re/GATA/Secular Investor)


Valeant 4 stories:

i) Valeant plunged 4.5% pre market with new pending.  They need a waiver for non reporting on its  10 K breach.  The stock is heading for the 25 handle:

(courtesy zero hedge)

ii)Then the news hit:  Valeant’s CEO is out.  And they warn of a potential bond default after more financial misstatements.  Down goes the stock…

( zero hedge)

iii)And now it gets worse:  Valeant accuses its former CFO Schiller, of cooking the books. Schiller previously ran Goldman’s Sachs Healthcare group. It sure looks like charges will be filed shortly against the firm for fraud:

( zero hedge)

iv)The former CFO responds to those accusations:

( zero hedge)

v)The all important Chicago’s National Mfg Activity index tumbles back into contraction and it is near two year lows:  at -.29

( zero hedge)

vi) The slowing economy causes existing home sales to crash the most in almost 6 years:

( zero hedge)

Let us head over to the comex:

The total gold comex open interest fell to 503,312 for a loss of 4950 contracts as the price of gold was down $10.70 in price.  Expect our bankers to undergo relentless attacks on our two precious metals. 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 quite a few ounces of gold standing. The front March contract month saw its OI rise by 499 contract up to 649.We had 0 notices filed upon yesterday, and as such we gained 500 contracts or an additional 50,000 oz will stand for delivery. Somebody was in urgent need of physical gold today. After March, the active delivery month of April saw it’s OI fall by 14,737 contracts down to 237,867. This high level is scaring our crooked bankers. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 219,491 which is very good..  The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 188,938 contracts. The comex is not in backwardation .


Today we had 37 notices filed for 3700 oz in gold.
And now for the wild silver comex results. Silver OI fell by 961 contracts from 177,490 down to 176,529 as the price of silver was down by 22 cents with Friday’s trading. The next big active contract month is March and here the OI fell by 246 contracts down to 429 contracts. We had 242 notices served upon yesterday, so we lost 4 contracts or an additional 20,000 ounces will not stand for delivery. The next contract month after March is April and here the OI fell by 6 contracts down to 362.  The next active contract month is May and here the OI fell by 1044 contracts down to 122,456. This level is exceedingly high. The volume on the comex today (just comex) came in at 34,603 , which is fair. The confirmed volume yesterday (comex + globex) was excellent at 49,546. Silver is now  in backwardation until April at the comex.   In London it is in backwardation for several months.
We had 78 notices filed for 390,000 oz.

March contract month:

INITIAL standings for MARCH

March 21/2016

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 27,456.100 iz manfra,Scotia

854 kilobars

Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz   803.75 oz



No of oz served (contracts) today 37 contract
(3700 oz)
No of oz to be served (notices) 612 contracts(61,200  oz)
Total monthly oz gold served (contracts) so far this month  622 contracts (622,00 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 156,126.5 oz

Today we had 0 dealer deposits

Total dealer deposits; nil oz

Today we had 0 dealer withdrawals:

total dealer withdrawals:  nil oz

Today we had 1 customer deposits:

i) Into  Manfra:  803.75 oz (25 kilobars)


total customer deposits:   803.75 oz (25 kilobars)

Today we had 2 customer withdrawals:

i) Out of Manfra:  128.60 oz

ii) Out of Scotia:  27,327.500 oz

total customer withdrawals;  27,456.100  oz

Today we had 0 adjustment:


Today, 0 notices was issued from JPMorgan dealer account and 0 notice were issued from their client or customer account. The total of all issuance by all participants equates to 37 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 37 notices were stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the Mar contract month, we take the total number of notices filed so far for the month (622) x 100 oz  or 62,200 oz , to which we  add the difference between the open interest for the front month of March (xxx contracts) minus the number of notices served upon today (37) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the INITIAL standings for gold for the March. contract month:
No of notices served so far (622) x 100 oz  or ounces + {OI for the front month (649) minus the number of  notices served upon today (37) x 100 oz which equals 123,400 oz standing in this non  active delivery month of March (3.838 tonnes).  This is a huge showing for gold deliveries in this non active month of March.
we gained 500 contracts or 50,000 additional gold ounces will stand for March delivery.
Somebody was in urgent need of gold today.
We thus have 3.838 tonnes of gold standing and 10.449 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing.
We now have partial evidence of gold settling for last months deliveries We now have 3.838 tonnes (March) + 7.99 (total Feb)- .940 (probable delivery on March 1) tonnes -.0434 tonnes (March 11,12,17,18) = 10.454 tonnes standing against 10.493 tonnes available.  .
Total dealer inventor 335,558.349 oz or 10.439 tonnes
Total gold inventory (dealer and customer) =6,830,303.969 or 212.45 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 213.28 tonnes for a loss of 90 tonnes over that period. 
JPMorgan has only 21.16 tonnes of gold total (both dealer and customer)
And now for silver


/March 21/2016:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory nil oz
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 299,281.940 oz


No of oz served today (contracts) 78 contracts

390,000 oz

No of oz to be served (notices) 351  contract (1,755,000 oz)
Total monthly oz silver served (contracts) 1049 contracts (5,245,000 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 10,150,743.6 oz

today we had 0 deposits into the dealer account


total dealer deposit: nil oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil


we had 1 customer deposits

i) Into HSBC:  299,281.940 oz

total customer deposits: 299,281.940 oz


We had 0 customer withdrawals:



total customer withdrawals:  nil oz



 we had 1 adjustment

i) Out of CNT:  15,403.530 oz was adjusted out of the customer account and this landed into the dealer account of CNT


The total number of notices filed today for the March contract month is represented by 78 contracts for 390,000 oz. To calculate the number of silver ounces that will stand for delivery in March., we take the total number of notices filed for the month so far at (1049) x 5,000 oz  = 5,245,000 oz to which we add the difference between the open interest for the front month of March (429) and the number of notices served upon today (78) x 5000 oz equals the number of ounces standing 
Thus the initial standings for silver for the March. contract month:  1049 (notices served so far)x 5000 oz +(429{ OI for front month of March ) -number of notices served upon today (78)x 5000 oz  equals  7,000,000 oz of silver standing for the March contract month.
we lost 4 contracts or an additional 200,000 oz  that will not stand.
No doubt this was cash settled as they are running out of real silver.
Total dealer silver:  31.706 million
Total number of dealer and customer silver:   155.373 million oz
It sure looks like we are going to have a commercial failure in silver.

And now the Gold inventory at the GLD

MARCH 21/another big deposit of 2.68 tonnes/inventory rests tonight at 821.66 tonnes

(and this was done with gold down $10.00 today!!)



March 17/we had a whopper of a deposit tonight: 11.89 tonnes/with London in backwardation this is nothing but a paper addition/inventory rests tonight at 807.09 tonnes

March 16.2016:/we had a deposit of 2.09 + 2.97(last in the evening)  tonnes of gold into the GLD/Inventory rests at 795.20 tonnes

March 15/ no changes in gold inventory at the GLD/Inventory rests at 790.14 tonnes

March 14/a huge change in gold inventory at the GLD, a withdrawal of 8.63 tonnes/Inventory rests at 790.14 tonnes

March 11 /despite the high volatility of gold last night and today, somehow the GLD added 5.95 tonnes of gold without disturbing anyone./inventory rests this weekend at 798.77 tonnes

March 10/a deposit of 2.08 tonnes of gold into the GLD/Inventory rests at 702.82 tonnes

March 9/a withdrawal of 2.38 tonnes of gold from the GLD/Inventory rests at 790.74


March 21.2016:  inventory rests at 821.66 tonnes



Now the SLV Inventory
MARCH 21/no change in silver inventory/inventory rests tonight at 328.533 million oz
March 17/no changes in silver inventory at the SLV/Inventory rests at 325.868 million oz
March 16./no changes in silver inventory at the SLV/Inventory rests at 325.868 million oz
March 15/ no changes in silver inventory at the SLV/Inventory rests at 325.868 million oz/
March 14/we had another huge deposit of 1.903 million oz into the SLV/Inventory rests at 325.868 million oz.
March 11/another huge addition of 1.333 million oz of inventory entered the SLV/Inventory rests at 323.965 million oz
March 10/no change in inventory at the SLV/Inventory rests at 322.632 million oz
March 9/no change in inventory at the SLV/Inventory rests at 322.632 million oz/
March 21.2016: Inventory 328.533 million oz
1. Central Fund of Canada: traded at Negative 6.2 percent to NAV usa funds and Negative 6.4% to NAV for Cdn funds!!!!
Percentage of fund in gold 63.4%
Percentage of fund in silver:36.6%
cash .0%( Mar 21.2016).
2. Sprott silver fund (PSLV): Premium to NAV rises to  4.04%!!!! NAV (Mar 21.2016) 
3. Sprott gold fund (PHYS): premium to NAV rises  to +0.17% to NAV Mar 21.2016)
Note: Sprott silver trust back  into positive territory at +4.04%/Sprott physical gold trust is back into positive territory at +0.17%/Central fund of Canada’s is still in jail.

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

Trading in gold and silver overnight in Asia and Europe

By Mark O’Byrne

Gold Silver Ratio Says It’s Time to Buy Silver, Sell Gold

Silver remains undervalued versus gold and the gold silver ratio suggests “selling the former” and “buying the latter” according to a Bloomberg article published today.


“When the head of one of the world’s biggest silver streaming companies says he’s more bullish on his metal than gold, don’t dismiss him just for talking his own book. This chart suggests Silver Wheaton Corp. Chief Executive Officer Randy Smallwood may be right. The gold-to-silver ratio just fell below 80, and the last three times that happened silver outperformed gold by 60 to 302 percentage points in the next two or three years.”

We continue to see silver as very undervalued vis a vis gold but more especially vis a vis stocks, bonds and many property markets. Rather than selling the financial insurance that is gold, we would advise reducing allocations to stocks, bonds and property and allocating to silver. If one is very overweight gold in a portfolio and has no allocation to silver than there is of course a case for selling some gold and reweighting a portfolio in order to diversify into silver.

See Bloomberg article here

Gold Prices (LBMA)

21 Mar: USD 1,244.25, EUR 1,104.47 and GBP 863.60 per ounce
18 Mar: USD 1,254.50, EUR 1,112.93 and GBP 868.78 per ounce
17 Mar: USD 1,269.60, EUR 1,119.40 and GBP 883.17 per ounce
16 Mar: USD 1,233.10, EUR 1,111.79 and GBP 874.09 per ounce
15 Mar: USD 1,233.60, EUR 1,112.56 and GBP 870.71 per ounce

Silver Prices (LBMA)

21 Mar: USD 15.81, EUR 14.02 and GBP 10.99 per ounce
18 Mar: USD 15.94, EUR 14.13 and GBP 11.02 per ounce
17 Mar: USD 15.78, EUR 13.86 and GBP 10.93 per ounce
16 Mar: USD 15.29, EUR 13.78 and GBP 10.84 per ounce
15 Mar: USD 15.32, EUR 13.81 and GBP 10.82 per ounce

Gold News and Commentary

JPMorgan Chase’s forecaster says buy gold, not stocks (CNBC)
Gold eases but support seen at $1250/oz (Bullion Desk)
Gold dips below $1,250 an ounce (Marketwatch)
Gold falls as stronger dollar weighs on prices (Reuters)
Indian jewellers calls off strike; gold imports to rise (Reuters)

Silver Getting Accidental Boost From Base Metal Industry’s Gloom (BBG)
Disclosures of Gold Market Manipulation Are Coming Soon – Kirby (USA Watchdog)

Is Janet Yellen blind to the rebound in inflation? (Marketwatch)
Central Banks Already Doing Unthinkable — You Just Don’t Know It (Telegraph)
Wall Street’s pile of unwanted Treasuries exposes market cracks (Bloomberg)

Read More Here

We are now delivering legal tender silver coins, VAT free, throughout the EU.

Meaning US clients can take delivery of silver bullion coins anywhere in the EU and not pay VAT or sales tax. Silver coins and bars can also be owned tax free with GoldCore in vaults in Zurich, Singapore and Hong Kong.

2016 Silver Nuggets or Kangaroos (1 oz)

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

We have very competitive prices – some of the most competitive internationally. Secure your allocation of silver bullion coins by contacting us today.

Mark O’Byrne



A good summary for trading volumes on Shanghai Gold Exchange vs the Comex for the year 2015:

(courtesy Koos Jansen/BullionStar)

Posted on 20 Mar 2016 by 

SGE Gold Trading Volume 2015 Up 84 % Y/Y Due To International Board

In two parts I will present an overview of the Chinese gold market for calendar year 2015. In this part we’ll focus on Shanghai Gold Exchange trading volumes. In the next post we’ll focus on physical supply and demand flows in Chinese gold market in 2015.

First, let us quickly assess the core volume data of the largest precious metals exchanges in China and the US. Physical and derivative gold trading at the Shanghai Gold Exchange (SGE) in 2015 reached 17,033 tonnes, up by 84 % from 9,243 tonnes in 2014. Gold futures trading at the Shanghai Futures Exchange (SHFE) in 2015 accounted for 25,421 tonnes, up 7 % from 23,750 tonnes in 2014. Consequently, total wholesale trading volume in China (SGE + SHFE) was 42,454 in 2015, up 29 % year on year. In New York at the COMEX total gold futures volume reached 128,844 tonnes for the year 2015, up 3 % from a year earlier. COMEX trading volume was three times as large as the total volume in China.

COMEX vs SGE & SHFE gold volume 2015 pie chart

It’s unknown how much gold is traded in the Over-The-Counter London Bullion Market. However, a survey conducted by the LBMA in 2011 pointed out approximately 680,783 tonnes of gold per year change hands through the London based market.

All tonnages mentioned in this post are counted single-sided.

The Shanghai Gold Exchange

There are a few more interesting data points to be found in SGE trading for 2015 when examining the developments of the specific contracts.

At the SGE two types of gold products (/contracts) can be traded: physical products and deferred products. The physical contracts traded on the Main Board (SGE / domestic market) are:

  • Au50g (50 gram gold bar, 9999 fine)
  • Au100g (100 gram gold bar, 9999 fine)
  • Au99.99 (1 Kg gold ingot, 9999 fine)
  • Au99.95 (3 Kg gold ingot, 9995 fine)
  • Au99.5 (12.5 Kg gold ingot, 995 fine)

The physical contracts traded on the International Board (SGEI / international market) are:

  • iAu100g (100 gram gold bar, 9999 fine)
  • iAu99.99 (1 Kg gold ingot, 9999 fine)
  • iAu99.5 (12.5 Kg gold ingot, 995 fine)

The contracts above cannot be traded on margin and are settled (/delivered inside SGE(I) designated vaults) immediately (T+0), therefor they embody pure physical trading.

The deferred contracts (only traded on the Main Board) are:

  • Au(T+D) (1 Kg per lot, delivery in 3 Kg or 1 Kg ingots)
  • Au(T+N1) (100 gram per lot, delivery in 1 Kg ingots)
  • Au(T+N2) (100 gram per lot, delivery in 1 Kg ingots)
  • mAu(T+D) (100 gram per lot, delivery in 1 Kg ingots)

Because the deferred contracts are traded on margin and there is no fixed delivery date, these derivative products embody paper trading.

All SGE contracts can be traded competitively over the Exchange, but the physical contracts can also be negotiated bilaterally in the Over-The-Counter (OTC) market and then settled through the SGE system. The SGE publishes the volume of these OTC trades.

The most traded contract on the Exchange in 2015 was the deferred product Au(T+D). In total Au(T+D) volume accounted for 5,648 tonnes, up 30 % from the previous year. The second most traded contract was the physical product Au99.99, of which 3,465 tonnes changed hands, up 65 % from 2014 – although, if we include OTC trading total Au99.99 volume for 2015 reached 6,998 tonnes, which would make it the number one contract.

Shanghai Gold Exchange Trading Volume 2015
The contracts Au99.5 and iA99.5 are not included in the chart, as the products have not been traded. This underlines the PBOC, that would prefer to buy 12.5 Kg bars, is not buying gold through the SGE.Shanghai Gold Exchange Yearly Trading Volume 2002 - 2015

Physical trading (including OTC activity) at the SGE in 2015 accounted for 9,745 tonnes (57%), versus 7,288 tonnes in paper trading (43 %).

The growth in total gold trading at the SGE in 2015 was the strongest since the financial crisis erupted in 2008. According to my analysis one reason for this has been the opening of the Shanghai International Gold Exchange (SGEI) in September 2014.

The SGE system services gold trading for the domestic Chinese gold market. This gold traded over the SGE system is prohibited from being exported. The SGEI is a subsidiary of the SGE located in the Shanghai Free Trade Zone, where international members of the Exchange can import, trade and export gold. In terms of physical gold flows the SGE and SGEI are separated venues. For more information please read my previous post, “Workings Of The Shanghai International Gold Exchange”.

On the surface it looks as if the SGEI has been a failure. The most traded contract at the International Board is iAu99.99. At the start of 2015 iAu99.99 trading was weak and after a short peak in April, volume came down to practically nil throughout the middle and the end of the year. Hence, most analysts stated the SGEI was dead. There are two important points that undermine this statement.

The first point is that iAu99.99 can be traded in the OTC market. When it appeared that trading of iAu99.99 was dying out at the Exchange, in the OTC market activity continued. There is no constant trading in iAu99.99 in the OTC market, but the volumes are significantly higher than iAu99.99 trading over the Exchange (see the chart below).

iAu99.99 SGEI volume

Tellingly, the iAu99.99 trades in the OTC market are all performed in giant batches of 100 or 1000 Kg. Have a look at the data labels in the chart below. We can see that all weekly OTC iAu99.99 volumes are in sizes one hundred (blue bars) or one thousand (red bars) 1 Kg bars. For example, look at the week that ended 3 July 2015, when exactly 73,000 Kg’s were traded. In theory 20,855 Kg’s were traded on Monday and 52,145 Kg’s on Thursday, aggregating to 73,000 Kg’s in total for the week. Though, this coincidence cannot have occurred each and every week. More likely the iAu99.99 traders in the OTC market always buy and sell per 100 or 1000 Kg’s. No other SGE or SGEI contract shows this bulky trading pattern.

Weekly iAu9999 OTC Trading Volume

The second point is that international members of the Exchange are not only allowed to trade the contracts on the International Board, they’re also allowed to trade the domestic contracts, they’re just not allowed to withdraw the metal from domestic vaults. The international members that focus on arbitraging any price differentials between the US and China will prefer the most liquid contracts on the Exchange. So, for this purpose the international members would trade Au99.99 and Au(T+D). Sources at the SGE confirmed to me that indeed international members are trading Main Board contracts.

If we look at the next chart, we can see that since the inception of the SGEI in September 2014 total SGE volume (including domestic, international, physical and deferred contracts) increased significantly. My conclusion is that the gateway of the SGEI has increased liquidity at the Exchange in Shanghai and enhanced the connection between the Chinese and Western gold markets.

Total Weekly SGE Trading Volume

I realize the system of the SGE and SGEI, how trading and physical gold flows are divided, is not easy to understand. The best I can do to clarify this is to present the diagram furnished by the SGE showing how trading in all contracts by all customers is organized (see below). In the next post we’ll examine the physical gold flows going through China and the Shanghai Free Trade Zone.

Screen Shot 2016-03-18 at 5.31.17 pm
Courtesy SGE.Note, domestic members/customers are allowed to use onshore renminbi to trade all products on the Main Board, but are also allowed to use onshore renminbi to trade all products on the International Board (although load-in and load-out metal from the vaults is prohibited). In turn, international members are allowed to use offshore renminbi to trade all contracts on the International Board, but are also allowed to use offshore renminbi to trade most contracts on the Main Board (although load-in and load-out metal from the vaults is prohibited).

Koos Jansen
E-mail Koos Jansen on:




Rob Kirby believes that we are coming to the end of gold manipulation. This will cause a huge influx into physical gold.

important read..

(courtesy RobKirby/USAWatchdog/GATA)

Disclosures of gold market manipulation are coming soon, Rob Kirby tells USAWatchdog

Submitted by cpowell on Mon, 2016-03-21 04:20. Section: 

12:19a ET Monday, March 21, 2016

Dear Friend of GATA and Gold:

Interviewed by USAWatchdog’s Greg Hunter, market analyst Rob Kirby of Kirby Analytics in Toronto says demand for physical gold shortly will bust the suppression of prices in the futures market, that disclosures involving gold market manipulation are coming soon, that these disclosures will boost demand for real metal even more, and that GATA will be vindicated. The interview is a half hour long and can be seen at USAWatchdog here:…

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



Indian jewellers call off their strike.  Gold imports into India rise

(courtesy Reuters/GATA)


Indian jewellers calls off strike; gold imports to rise

Submitted by cpowell on Sun, 2016-03-20 01:07. Section: 

By Rajendra Jadhav
Saturday, March 19, 2016

Indian jewellers called off a 19-day strike late today after the government assured them they will not be “harassed” by the excise department in collecting a new tax, the head of a trade body told Reuters.

Jewellers from the world’s second-biggest gold consumer went on an indefinite strike from the start of March after government reintroduced a 1-percent excise duty on gold jewellery after four years.

“We have called off the strike. From tomorrow jewellers will open shops,” said Mohit Kamboj, president of India Bullion and Jewellers Association.

“The excise duty will remain there, but the government has assured us that officials from excise department will not harass jewellers,” he said. …

… For the remainder of the report:





Chris Powell on market rigging:

(courtesy Chris Powell/GATA)

MarketWatch can report market-rigging rumor, so why not market-rigging fact?

Submitted by cpowell on Sun, 2016-03-20 02:21. Section: 

10:20p ET Saturday, March 19, 2016

Dear Friend of GATA and Gold:

MarketWatch tonight produces a true wonder of financial journalism. It’s a story acknowledging a rumor about “conspiracy theory” involving central banks, a rumor that MarketWatch blithely declines to investigate by questioning any central banker.

The rumor — speculation, really — is that, far from being a failure, the G-20 conference in Shanghai in February reached a secret agreement to reduce the U.S. dollar’s value in the currency markets.

It’s plausible, but note how the MarketWatch report takes for granted that central banks are willing and able to rig markets in secret, how the report assumes that this is the natural order of things and not even worth questioning.

So why do MarketWatch and all other mainstream financial news organizations refuse to report that central banks long have been surreptitiously rigging the gold market as the prerequisite for all their market rigging, even though documentation and admissions of gold market rigging abound?:

That is, if rumor and speculation are reportable, why not fact as well?

The MarketWatch report is excerpted below.

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

* * *

Did Central Bankers Make a Secret Deal to Drive Markets? This Rumor Says Yes

By Sarah Sjolin, New York
Saturday, March 19, 2016

The dollar has taken a surprisingly big stumble in recent weeks, prompting traders to ask: What’s really driving the selloff? The answer some are coming up with smacks of conspiracy theory.

Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.

No foreign-exchange pact was announced at the February meeting of central bankers and policy makers from the 20 largest economies. That hasn’t stopped speculation that a plan of action was whipped up behind closed doors, as its supposed effects are beginning to emerge now: The greenback has shaved off more than 3 percent since the gathering, sparking a rally in stocks, emerging market assets, and commodities.

The dollar has taken a surprisingly big stumble in recent weeks, prompting traders to ask: What’s really driving the selloff? The answer some are coming up with smacks of conspiracy theory.

Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.

No foreign-exchange pact was announced at the February meeting of central bankers and policy makers from the 20 largest economies. That hasn’t stopped speculation that a plan of action was whipped up behind closed doors, as its supposed effects are beginning to emerge now: The greenback has shaved off more than 3 percent since the gathering, sparking a rally in stocks, emerging market assets, and commodities.

“To any conspiracy theorists, it’s all become quite clear,” said Chris Weston, chief market strategist at IG, in a note Friday. “There is a global coordinated central bank effort to weaken the [dollar] in play, which in turn has led to a massive de-risking in equity and credit markets.” …

Plus, there is something of a precedent: The Plaza Accord. In 1985 the finance ministers from the U.S., France, West Germany, Japan, and the U.K. made a deal to jointly guide the dollar lower against the yen and the German mark.

The action was meant to help jump-start the U.S. economy by reversing an extended run-up by the greenback. …

Joachim Fels, global economic adviser at bond-trading firm PIMCO, told Bloomberg he also suspects central bankers have coordinated their actions to prevent the dollar from growing stronger.

“There seems to be some kind of tacit Shanghai Accord in place,” he told the news outlet. “The agreement is to roughly stabilize the dollar versus the major currencies through appropriate monetary policy action, not through intervention.” …

… For the remainder of the report:…




Central banks manipulation of markets

(courtesy Khan/UKTelegraph)

Central banks are already doing the unthinkable — you just don’t know it

Submitted by cpowell on Sun, 2016-03-20 02:58. Section: 

Unless, of course, you follow GATA.

* * *

Central Banks Are Already Doing the Unthinkable — You Just Don’t Know It

By Mehreen Khan
The Telegraph, London
Saturday, March 19, 2016

The lords of finance are losing their touch.

Institutions which dragged the world from its worst depression since the early 20th century are finally seeing their magic desert them, if conventional wisdom is to be believed.

Eight years on the from the Great Recession, voices as authoritative as the International Monetary Fund and the Bank of International Settlements — dubbed the “central bank of central banks” — have called time on the era of extraordinary monetary policy. …

Faced with political intransigence, central bankers are openly talking about the previously unthinkable: “helicopter money.”

A catch-all term, helicopter drops describe the process by which central banks can create money to transfer to the public or private sector to stimulate economic activity and spending.

Long considered one of the last policymaking taboos, debate around the merits of helicopter money has gained traction in recent weeks.

ECB chief Mario Draghi has refused to rule out the prospect saying only that the bank had not yet “discussed” such matters due to their legal and accounting complexity. This week, his chief economist Peter Praet, went further in hinting that helicopter drops were part of the ECB’s toolbox.

“All central banks can do it,” said Praet. “You can issue currency and you distribute it to people. The question is: If and when is it opportune to make recourse to that sort of instrument.” …

For some observers the next phase in extraordinary central bank action has already arrived, and it is Japan which is leading the way.

The Bank of Japan’s move to impose a three tiered deposit rate on banks this year can be seen as a covert attempt to transfer funds to the private sector, argues Eric Lonergan, economist and hedge fund manager.

He notes that the BoJ’s decision to exempt some reserves from the negative rate represents a transfer of cash to commercial lenders at rate of 0.1 percent. …

But central bank ingenuity — however welcome — raises separate concerns about the accountability of institutions whose independence is sacrosanct but where decision-making is often insulated from public view.

Lord Adair Turner, a former chairman of the Financial Services Authority and one of the earliest advocates of helicopter money, calls for more transparency in a bid to finally smash the taboos around injecting money straight into the hands of consumers or governments.

“I think it is more dangerous for central banks to be forever denying what they are doing,” says Lord Turner. …

… For the remainder of the report:…

* * *




A very important read; we are witnessing strange patterns in dollar trading.

(courtesy zero hedge/GATA))

Zero Hedge: Strange pattern develops in dollar trading

Submitted by cpowell on Sun, 2016-03-20 04:35. Section: 

12:34a ET Sunday, March 20, 2016

Dear Friend of GATA and Gold:

Zero Hedge takes note of what seems like a “strange pattern” in recent trading in the U.S. dollar, a pattern that has gotten stronger ever since the G-20 meeting in Shanghai — the dollar’s falling during U.S. trading hours. Zero Hedge says Bank of America’s chief foreign exchange strategist, Athanasios Vamvakidis, believes that this pattern “would be consistent with emerging-market central bank interventions,” presumably China selling dollars.

Zero Hedge’s commentary is headlined “A Strange Pattern Emerges When Trading the U.S. Dollar in 2016” and it’s posted here:…

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





This is interesting:  Our 21 dealers are getting saddled with increasing numbers of treasuries that they cannot seem to get rid of easily:

(courtesy Bloomberg/GATA)

Wall Street’s pile of unwanted Treasuries exposes market cracks

Submitted by cpowell on Sun, 2016-03-20 23:11. Section: 

By Alexandra Scaggs and Liz McCormick
Bloomberg News
Sunday, March 20, 2016

The world’s biggest bond dealers are getting saddled with Treasuries they can’t seem to get rid of easily, adding to evidence of cracks in the $13.3 trillion market for U.S. government debt.

The 22 primary dealers held more Treasuries last month than at any time in the last two years, Federal Reserve Bank of New York data shows. While at first glance that may suggest a bullish stance, the surge in holdings is more likely the result of investors including central banks dumping the debt on the firms, said JPMorgan Chase & Co. strategist Jay Barry.

Foreign official accounts sold a net $105 billion of the securities in December and January, an unprecedented liquidation, Treasury Department data shows.

Strategists say there are signs that the buildup of Treasuries held by dealers is having a ripple effect, mucking up the plumbing of the financial system. While the holdings show they did their job by soaking up the supply from central banks raising cash to support their currencies, it’s adding to questions about the resilience of the world’s most important market. The Treasury Department is already looking into whether the market isn’t operating as smoothly as it should. …

… For the remainder of the report:…




The following is such an important story:  Munich Re is giving the ECB the middle finger as it purchases almost 300,000 oz of gold (almost 10 tonnes).  The move was in total defiance of negative interest rates as insurance companies find it very difficult to earn money in this environment:

(courtesy Munich Re/GATA/Secular Investor)


Munich Re Gives The ECB The Middle Finger, Owns Almost 300,000 Ounces Of Gold

Secular Investor's picture

Submitted by Secular Investor on 03/20/2016 10:33 -0400

Last week, we reported on the ECB’s decision to cut the interest rates and how Mario Draghi said ‘helicopter money’ is ‘an interesting concept that is being studied’. In the accompanying Q&A session, Draghi also said he did not expect the ECB would have to reduce the (already negative) interest rates even further which disappointed the markets. In fact, the disappointment was so big, the ECB already sent one of its members into the trenches to walk back on that statement.

In an interview with the Italian newspaper La Repubblica, the ECB’s chief economist said that the ECB would not mind reducing the interest rates once again. Not only did he leave the door open for further rate cuts, he also explicitly mentioned helicopter money as an extreme but theoretical solution for the lack of liquidity on the European markets.

He also said that so-called “helicopter drops” were feasible in principle, though they remain an extreme measure. “All central banks can do [helicopter drops]. You can issue currency and you distribute it to people,” he said. “The question is, if and when is it opportune to make recourse that sort of instrument which is really an extreme sort of instrument,” he added.’ 

This means the ECB is still willing to increase the liquidity in the Euro-system by all means, and this very likely is the first time a central bank is openly discussing helicopter money (the remark by Ben Bernanke during the Global Financial Crisis was more a tongue-in-cheek comment). On top of that, the message of negative interest rates seems to be well understood by some companies in the financial system.

Munich Re, one of the largest reinsurance companies in the world, has said it will increase its cash hoard as it doesn’t want to pay a fee to the European Central Bank to store the cash there overnight. This is a first step of a problem we already warned for about two weeks ago. We said that any further reduction in the negative interest rate would have to go hand in hand with banning cash from ‘the streets’. That made a lot of sense, considering people would just start to hoard cash under their mattresses to avoid paying an annual fee to store cash on the bank, and even if people would withdraw just 10 or 15% of their savings from the banks, the entire financial system might implode.

Munich Re 3


The simple fact Munich Re is planning to store tens of millions of euros in bank notes in its vaults might be the start signal for a very slow bank run. What’s stopping the other insurance companies, or even the bank themselves to just increase the cash position rather than keeping the deposits overnight at the European Central Bank?

We also wanted to find out if the media rumors about Munich Re buying gold were true, but that doesn’t seem to be the case. The total amount of gold on the balance sheet seemed to be rather flattish compared to the previous financial year. According to our calculations, the insurer has approximately 285,000 ounces of physical gold on its balance sheet, and that’s definitely nothing to sneeze at! It’s probably one of the very few financial institutions that is somewhat transparent with regards to its gold position, but we still had to scroll all the way down to page 234 of its annual report to find the disclosed amount of gold.

Munich Re 2


Should Munich Re decide to convert just 1/4th of its cash position on the banks to physical cash and physical gold (in a 50/50 ratio), it would have to purchase in excess of 750,000 ounces of gold. And keep in mind Munich Re is just the first mover, and other insurance companies and financial institutions might follow suit, as it’s the only practical way to avoid parking excess cash at the ECB.


Your early MONDAY morning currency, Asian stock market results,  important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight



1 Chinese yuan vs USA dollar/yuan DOWN to 6.4775 / Shanghai bourse  IN THE GREEN, UP 63.65 OR 2,15% :  / HANG SANG CLOSED UP 12.52 POINTS OR 0.06%

2 Nikkei closed FOR HOLIDAY

3. Europe stocks MIXED /USA dollar index UP to 95.11/Euro UP to 1.1276

3b Japan 10 year bond yield: RISES   TO -..093%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 111.48

3c Nikkei now JUST BELOW 17,000

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

3e WTI::  38.91  and Brent: 41.15

3f Gold DOWN  /Yen UP

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

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

3h Oil DOWN for WTI and DOWN for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS  to 0.212%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate RISE to 9.68%/: 

3j Greek 10 year bond yield FALL to  : 8.61%   (YIELD CURVE NOW INVERTED)

3k Gold at $1247.50/silver $15.88 (7:15 am est) 

3l USA vs Russian rouble; (Russian rouble DOWN 1/100 in  roubles/dollar) 68.25

3m oil into the 38 dollar handle for WTI and 41 handle for Brent/

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


30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9687 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0923 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.


3r the 8 Year German bund now  in negative territory with the 10 year FALLS to  + .212%

/German 8 year rate negative%!!!

3s The Greece ELA NOW a 71.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.88% early this morning. Thirty year rate  at 2.67% /POLICY ERROR)

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

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

Global Stocks Levitate Despite Ongoing Oil Weakness; China Stocks Jump After Easing Margin Debt

The sarcastic highlight of the overnight session was the Chinese stock market, where just one month after injecting a record amount of new loans into the financial system, the PBOC lamented the danger posed by China’s tremendous debt load: “Lending as a share of GDP, especially corporate lending as a share of GDP, is too high” People’s Bank of China Governor Zhou Xiaochuan told China Development Forum yesterday.

At the same time he warned about dangers from a stock market bubble, and perhaps just to assure the bubble gets even bigger, at the same time China eased on margin debt limits, in the process sending Chinese stocks soaring higher by 2.2%, and pushing the Shanghai Composite over 3000 for the first time in months as China now appears set to attempt another housing bubble “soft landing” while at the same time restarting its housing bubble.

Aside from China, another key market followed by traders was crude which in early trading fell for a second day after the first increase in U.S. drilling rigs this year, sparking losses in currencies of commodity-producing nations and shares of miners and energy companies. West Texas Intermediate oil fell further below the three-month high reached last week, pulling down the Bloomberg Commodity Index. The South African rand and Norwegian krone were among the biggest casualties in currencies as the dollar extended its rebound into a second day after slumping to a five-month low last week. The Stoxx Europe 600 Index erased earlier losses.

“A lot of the movement in oil recently has been dollar-driven,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney. “The oil market needs a stronger economic performance in order to spur demand and absorb all that oil supply.” WTI futures fell 0.8% to $39.14 as of this moment, after sliding 1.9 percent on Friday to trim their fifth straight weekly advance to 2.4 percent. The Stoxx Europe 600 Index rose 0.3 percent after earlier falling as much as 0.9 percent.

Elsewhere, on the back of China’s margin debt-driven euphoria, European stocks and US equity futures have continued to levitate. “Investors are catching their breath after such big gains,” Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, told Bloomberg. “Stocks will probably move sideways in the next few days as the market gets more news from economic figures — from job markets, from companies — because the data we have been getting so far hasn’t been that great.”

As reported before, the S&P 500 has staged one of the biggest turnarounds in history, rebounding 12 percent from a Feb. 11 low amid rising crude prices and a weaker dollar. Energy and commodity producers have led recent gains, rising to three-month highs last week after the dollar tumbled.

Policy makers’ tempered outlook for rate increases has knocked down traders’ expectations as reflected in futures prices. Odds for a June boost are at 39 percent, compared with about 54 percent before the Fed’s statement on Wednesday. A report today on existing home sales, and releases later this week on jobless claims and durable-goods orders, may provide further indications about the health of the U.S. economy.

Among stocks active in premarket trading, Valspar Corp. surged 31 percent after Sherwin-Williams Co. agreed to buy the company for about $9.3 billion to become the world’s biggest coatings maker. Sherwin-Williams climbed 2.2 percent.

Market Wrap

  • S&P 500 futures up 0.1% to 2039
  • Stoxx 600 up less than 0.1% to 342
  • FTSE 100 up less than 0.1% to 6194
  • DAX up 0.6% to 10014
  • German 10Yr yield down 2bps to 0.19%
  • Italian 10Yr yield down less than 1bp to 1.25%
  • Spanish 10Yr yield down less than 1bp to 1.42%
  • MSCI Asia Pacific up less than 0.1% to 129
  • Hang Seng up less than 0.1% to 20684
  • Shanghai Composite up 2.2% to 3019
  • US 10-yr yield down less than 1bp to 1.87%
  • Dollar Index up 0.13% to 95.21
  • WTI Crude futures down 0.8% to $39.14
  • Brent Futures down 0.9% to $40.82
  • Gold spot down 0.8% to $1,246
  • Silver spot down 0.3% to $15.76

Top Global News

  • Monsanto Said to Seek Crop Chemicals Deals With BASF, Bayer: Monsanto approached its preferred partner BASF about buying its crop-science business, according to people familiar.
  • Sherwin-Williams to Buy Valspar in $9.3b Paint Deal: Sherwin-Williams to pay $113/shr; price is ~35% higher than Valspar’s closing price on Fri.
  • Fed’s Lacker Confident Inflation Poised to Rebound to 2% Target: Inflation will rise back to U.S. central bank’s 2% target once energy prices stabilize, dollar stops advancing: Federal Reserve Bank of Richmond President Jeffrey Lacker.
  • Affymetrix Rejects $1.5 Billion Origin Bid, Favors Thermo: Co. said its board rejected a $1.5b acquisition bid from Origin Technologies Corp.; instead continues to recommend planned Thermo Fisher Scientific deal.
  • Treasuries Probe Narrowing, Still Includes Goldman: NYPost: Investigation into whether financial firms colluded to rig Treasury markets has narrowed to focus on handful of companies, including Goldman.
  • FlyDubai Plane Crashes at Russian Airport, Killing 62 People: Jet operated by FlyDubai crashed in Russian city of Rostov-on-Don on Saturday morning, killing all 62 people on board.
  • ‘Zootopia’ Topples ‘Kung Fu Panda’ Record at China’s Box Office: Walt Disney’s “Zootopia” overtook “Kung Fu Panda 3” as the highest-grossing cartoon in China after taking in >1.1 billion yuan since it debuted March 4.
  • Donald Trump’s Campaign to Add Rally Security Amid Violence: Campaign to add security to larger events so campaign staffers don’t assist in removing protesters.

Looking at regional markets, we start in Asia where equities
kick-started the week mixed, despite last Friday’s positive US close as
holiday-thin trade and weakness in energy dampened Asia trade. ASX 200
(-0.3%) was led lower by the oil names after WTI crude futures extended
its pull-back from YTD highs to break below the USD 39/bbl level.
Elsewhere, Chinese markets outperformed with the Shanghai Comp (+2.2%)
reclaiming the 3000 level and on course for its 7th consecutive gain as
brokerages were underpinned by reports China is relaxed restrictions on
margin lending, while the PBoC also upped their open-market operations
with a CNY 130bIn liquidity injection into the interbank market. As a
reminder, Japanese markets remained closed today due to Vernal Equinox
Day. China is easing curbs on brokerages’ margin trading, with the China
Securities Finance Corp to resume offering loans to securities firms
and will also reduce interest rates on debt to as low as 3%.

Top Asian News

  • China Has a $590 Billion Receivables Problem as Bills Go Unpaid: It takes 83 days for typical Chinese firm to collect cash
  • China Revives Support for Margin Trading That Fueled Boom- Bust: State finance agency to resume offering shorter-dated loans
  • BlackRock Not Buying Aussie Rally: It’s Falling to 65 This Year: Call contrasts with bullish bets by hedge funds, speculators
  • Philippines to Hold Banks ‘Accountable’ for Role in Cyber Heist: Theft of $81 Million of Bangladeshi reserves is under inquiry
  • The High Stakes of India’s Dispute With the U.S. Over Visa Fees: U.S. doubled the cost of H-1B visas for high-skilled workers

European bourses head into the North American crossover in positive territory, with the DAX near session highs by mid-morning having tripped stops at the 10,000 level. Despite equities trading higher, energy names underperform once again, in tandem with the pullback from YTD highs in WTI and Brent. Additionally, outperformance has been observed in the FTSE MIB (+1.1%) amid gains in tech giant Telecom Italia (+2.1%) who announced that their CEO is to step down. Bunds have been extending on gains to move ever so closely to the 163.00 level following relatively dovish commentary from ECB’s Liikanen and Villeroy, alongside this the yield curve has seen some notable Barclays estimate pan-Euro aggregate month-end extensions of 0.07yrs and sterling aggregate extensions of 0.02yrs. Analysts at Citi suggest that month end extensions will be broadly supportive for EGB’s and most supportive for Spain. (BBG)

European Top News

  • Casino’s Debt Cut to Junk at S&P Amid Muddy Waters Attack: Long-term debt rating was lowered by one step to BB+, highest non-investment grade: Standard & Poor’s.
  • Telecom Italia CEO Discussing Exit Terms After Vivendi Clash: Marco Patuano hasn’t yet submitted his resignation and talks are under way for a consensual exit.
  • U.K. House Prices Rise in March as Regions Outpace London: Average asking prices increased 7.6% compared vs year earlier: Rightmove.
  • U.K. Tory Turmoil Worsens as Ex-Minister Questions Deficit Focus: Duncan Smith said Sunday he was no longer able to support cuts to welfare benefits while taxes for higher earners, companies are being lowered.

In FX, Early Monday trade has seen some mixed flow on the USD pairs, where the negative post FOMC theme seems to have faded slightly. GBP has been a notable sell after the resignation of the Welfare and Pensions Secretary (IDS), with suggestions that Brexit disagreement belie his actions. Cable has been sold through the Friday lows at 1.4400, but has found some support at these levels to reclaim the 1.4400 handle. AUD/USD has also come back from a sub .7600 dip, in line with a modest lift in the risk mood, which has also underpinned USD/JPY a little. Friday’s NY move to 111.75 seems to have set the upside target near term, but overall trade tight this morning. USD/CAD threatened 1.3300 early on, with WTI through $39.0, but has slipped again since. EUR/USD caught in the crossfire this morning, but also looks on the back foot.

In commodities, WTI and Brent May’16 futures are paring some of its losses made during the Asian session, both trading above the crucial USD 40/bbl handle. While gold is trading lower on the day by 0.8%, silver is not falling to the same extent, meaning it is managing to hold some of last week’s gains. Base metals are still performing well after the Chinese housing market continues to accelerate with Iron ore May’16 up 9.75%.

On the US calendar today \we have the Chicago Fed’s National Activity index (CFNAI) numbers for February (0.25 expected; 0.28 prior) due as well as the latest existing home sales data (5.31mn expected).

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities and Bunds both kicked off the week on the front foot following relatively dovish commentary from ECB’s Liikanen and Villeroy
  • Highlights today include US existing home sales alongside speeches from Fed’s Lacker, Bullard and Lockhart
  • Treasuries steady in overnight trading, global equity markets mostly higher with Japan closed for holiday, oil drops; U.S. fixed income markets closed Friday, early close Thursday.
  • Crude oil fell for a second day after the first increase in U.S. drilling rigs this year, sparking losses in currencies of commodity-producing nations and shares of miners and energy companies
  • The European Central Bank began charging banks interest on deposits in June 2014 to encourage them to lend more to companies and consumers. It hasn’t worked
  • Five EU states — the U.K., France, Spain, Greece, and Croatia – will exceed the union’s deficit limit of 3% of GDP while Finland, Poland, and Romania are seen posting deficits at the threshold
  • The world’s biggest bond dealers are getting saddled with Treasuries they can’t seem to easily get rid of, likely the result of investors dumping the debt on the firms, adding to evidence of cracks in the $13.3 trillion market
  • The yuan traded offshore fell for a second day after China’s central bank weakened the daily reference rate by the most since January as a gain in the dollar drove declines in Asian currencies
  • Not since 1999 have China’s companies had so much trouble getting customers to actually pay for what they’ve bought. Accounts receivable at the nation’s public firms have swelled by 23% over the past two years to about $590 billion
  • Turkey blamed Islamic State for the fourth deadly bombing in its big cities this year, as militants expand their strikes on the country’s political and commercial core
  • $13b IG corporates priced Friday; weekly volume $43.385b, March $129.805b, YTD $424.055b; $900m HY priced Friday, MTD 14 deals for $8.215b, YTD 40 deals for $23.07b
  • Sovereign 10Y bond yields mostly steady; European, Asian equity markets mixed; U.S. equity- index futures rise. WTI crude oil, gold fall, copper rallies

DB’s Jim Reid concludes the overnight wrap

The combination of dovish central banks and rising oil prices provided a further spark to risk assets over the past week. US equities finally edged into positive territory for the year as the Fed trimmed its rate hike plans, with both the Dow (+0.69%; YTD +1.02%) and the S&P500 (+0.44%; YTD +0.28%) ending the week in the green for first time in 2016. EM stocks also posted further gains as the MSCI EM Index rose +1.21% on Friday (+3.23% over the course of the week). This was actually the third consecutive weekly gain for an index that has now risen more than 20% since its low for the year back in January.

Looking over at our screens this morning, most Asian equities seem to be continuing their winning streak over the weekend. Chinese equities are leading the way so far in Asia with the CSI300 and the Shanghai Comp up +2.20% and +1.79% respectively, extending their gains from Friday (CSI +1.53%; Shanghai Comp +1.73%) while also posting positive returns every day of last week. Much of today morning’s market rally, while building on momentum from last week, is also driven by the fact that policy makers have loosened controls on margin trading. China Securities Finance Corp (CSF) said late on Friday that it would resume loans on certain durations of margin lending while also cutting borrowing costs. One might remember rising margin debt as powering the surge in the Chinese stock market last year, while later exacerbating the rout as investors deleveraged. It will certainly be interesting how market microstructure evolves in light of these changes; nevertheless, we can already see Chinese brokerages rallying today morning so the market reaction certainly seems positive. In other news out of China, we also had PBoC governor Zhou Xiaochuan pointing out risks posed by excessive corporate leverage, stating that corporate lending as a ratio to GDP had become too high (China’s current debt to GDP ratio is close to 160%).

Taking a look over at other equity markets this morning having both ended last week on a positive tone we see that the Hang Seng (+0.25%) is just about in positive territory as we go to print but the Kospi is marginally down on the day.

Not all equity markets were positive last week however: the Nikkei (-1.25%) and closed for a public holiday today was down for a second consecutive week while European equities were also softer. Despite closing up on Friday the Stoxx 600 was down (-0.15%) marginally on the week while Italian stocks (-1.98%) saw a more meaningful drop on the week. Some of the weakness in these equity markets can be attributed to the strengthening of the Yen and the Euro respectively over the course of the week. On the flipside, while the dollar index gained marginally on Friday (+0.34%), it still hangs around its lowest levels in 2016 after ending the week down -1.13%.

On the subject of Europe, in their latest Focus Europe our European economists point out that the ECB seems to have managed to reverse the deterioration in market-based financial conditions back to mid-January levels (though its impact on bank based financial conditions remains to be seen, and the bank lending survey on 19 April should be closely watched). Economic data also appears to be improving as DB’s proprietary SIREN-momentum indicator has risen to a 59-month high. So fundamentals do demonstrate improvement but other factors such as continued volatility of financial conditions, a strengthening Euro and higher oil prices may prove to be obstacles for European equity markets.

Switching our lens over to credit markets, we saw CDX IG and HY spreads end the week with a softer tone widening by 1bps and 3bps respectively on Friday as oil prices finally ran out of steam. While IG and HY spreads ended the week around 2bps wider and 5bps tighter respectively, these moves mask the risk-on impact of a dovish Fed as spreads tightened by nearly 4bps and 28bps respectively post the FOMC statement. In Europe iTraxx Main and Crossover were both marginally tighter on Friday but were actually wider on the week as a whole. However, tracking the roller coaster ride of US credit, current levels follow spread tightening of 7bps and 19bps respectively from intra-week wides.

Staying on the topic of European credit, last week certainly saw a further improvement in issuance volumes in the EUR non-financial IG market. Based on our data (includes fixed rate deals only) there were just short of €20bn of new bonds priced over the past week, which is a record weekly total. It’s worth pointing out though that more than half of the total was contributed by last Wednesday’s debt sale from AB InBev (€13.25bn total, €12bn fixed rate).

Heading to the other end of the risk spectrum, Gold is down again this morning having dipped further on Friday (-0.85%) to cap off its second week of negative performance (-0.40%). Elsewhere in sovereign bond markets yields dropped across the board with German, US and Japanese 10Y yields falling by -1.8bps (-5.9bps), -2.3bps (-11.1bps) and -4.9bps (-8.8bps) respectively on Friday (the past week).

There was limited data to conclude last week. February PPI numbers out of Germany disappointed at -0.5% mom (vs. -0.1% expected; -0.7% prior) while wage growth data out of France (+0.1% QoQ) came in line with expectations. In the US, the University of Michigan Consumer Sentiment Index for March came in well below expectations (90.0 vs. 92.2 expected; 91.7 prior) while also falling to a five month low. The current economic conditions index fell to 105.6 (vs. 106.8 expected; 106.8 prior) while the expectations index fell to 80.0 (vs. 82.5 expected; 81.9 prior). The softening was largely due to concerns about economic growth prospects as well as expectations that gas prices would steadily increase in the year ahead. On the back of the latter, inflation expectations over the short and long term rose to 2.7% (vs. 2.5% previous).

Turning over to this week’s calendar. It’s a quiet start to the week in Europe with no real data of note due today. In the US we have the Chicago Fed’s National Activity index (CFNAI) numbers for February (0.25 expected; 0.28 prior) due as well as the latest existing home sales data (5.31mn expected). Europe kicks into gear on tomorrow as we see the preliminary March PMI numbers for the Eurozone (manufacturing: 51.4 expected; services: 53.3 expected) as well as the regional prints for France and Germany, with most readings expected to hold roughly steady at their prior values. We also see the IFO survey indicator readings for March in Germany and the CPI and PPI readings for February in the UK, with expectations that the monthly numbers will climb out of deflationary territory. We also get a closer look at the state of US manufacturing with the preliminary March manufacturing PMI reading (51.9 expected) as well as the Richmond Fed Manufacturing index print (0.0 expected), with expectations of an improvement in both indicators. Wednesday is largely quiet across the board with the only data of note being the March consumer confidence reading for the Eurozone (-8.3 expected) and the February new home sales data for the US. Thursday will see the retail sales data for Italy (January) and the UK (February) as the primary data out of Europe. The ECB is also expected to publish its Economic Bulletin. It’s a bit busier over in the US with the preliminary services and composite PMI numbers for March due. We also get durable goods orders data for February as well as the usual weekly jobless claims numbers. We close out the week on Friday with consumer confidence and Q4 GDP numbers for France as the only major data out of Europe. Over in the US, we get the final revisions to real GDP growth for Q4.

In terms of central bank speak, we should hear from ECB Board members Coeure and Constancio as well as Fed Presidents Lacker and Lockhart on Monday. On Tuesday, we should hear from the ECB’s Nouy, who will also speak on Wednesday along with the Lautenschlager.


Let us begin;



Late  SUNDAY night/ MONDAY morning: Shanghai closed UP BY 63.65 POINTS OR 2.11% , /  Hang Sang closed UP by 12.52 points or  0.06% . The Nikkei closed FOR HOLIDAY . Australia’s all ordinaires was DOWN 0.32%. Chinese yuan (ONSHORE) closed UP at 6.4775.  Oil ROSE  to 40.82 dollars per barrel for WTI and 42.09 for Brent. Stocks in Europe so far ALL IN THE GREEN . Offshore yuan trades  6.4776 yuan to the dollar vs 6.4775 for onshore yuan/LAST WEDNESDAY, China’s industrial production collapsed along with retail sales. JAPAN RE SIGNALS that they may continue with nirp a little longer which sends the USA/Yen spiraling northbound/markets in Japan tumble . Japan’s exports plummet.LAST  WEDNESDAY, China signals that they are going to tax financial transactions. Chinese data reported over the weekend..just awful  (see below)


report on Japan



report on China:

A very important commentary where the government is hiding millions of layoffs.  No doubt we will see protesting by citizens as they demand their unpaid wages
(courtesy zero hedge)

“Don’t Take The Public For Fools!”: China Hides Millions Of Layoffs, Jails Miners Protesting Unpaid Wages

When you look out across markets and across the increasingly fraught geopolitical landscape, there are plenty of black swans waiting in the wings (no pun intended). And quite a few of them are Chinese.

China has, among other problems: a massive debt overhang that, all told, amounts to more than 250% of GDP; a decelerating economy that Beijing swears will be able to pull off a miracle and move away from the smokestack and away from export-led growth without slipping into recession; a currency crisis; a new property bubble in Tier-1 cities; and a burgeoning NPL problem in the banking sector.

All of those issues are of course inextricably bound up with one another. They are set like dominoes and once the first one tips, the rest will too as sure as night follows day.

And while twin crises (financial and economic) in China would wreak havoc on markets in both EM and DM – between which China exists in a sort of limbo – the real question is this: what would the consequences be for societal stability in China? That is, if it all falls down, will social upheaval ensue leading to a revolt against the Politburo?

That’s not some attempt to use hyperbole on the way to positing some anarchic future for the world’s engine of global growth and trade. In fact, the possibility for widespread unrest is so real that Chinese officials have begun to address it frequently in discussions of how they plan to deal with the mass layoffs that are bound to result from Beijing’s efforts to restructure the country’s collection of elephantine SOEs and stamp out excess capacity.

After Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute told Xinhua that eliminating excess capacity in the steel industry will cost 400,000 jobs and could fuel “social instability”, the government went into spin mode. National Development and Reform Commission Chairman Xu Shaoshi said in February that Beijing’s attempts to curb overcapacity will increase unemployment in provinces with high output of steel and coal but will not cause social unrest. Similarly, Xiao Yaqing, who oversees the government commission that looks after state assets, said last week that the country won’t experience a wave of layoffs as a result of SOE restructuring.


But the cracks are already starting to show.

As we reported on Mondaythousands of miners in China’s coal-rich (or poor depending on one’s perspective) north have gone on strike over months of unpaid wages and fears that government calls to restructure their state-owned employer will lead to mass layoffs. As AFP noted, protesters were marching through the streets of Shuangyashan city in Heilongjiang province, venting their frustration at Longmay Mining Holding Group, the biggest coal firm in northeast China.

Speaking of Longmay, the company is laying off 100,000 workers and in a sign of things to come, around a quarter of them have been reassigned to the agriculture, timber and public service industries.

While that’s good news for the unemployment rate, it’s bad news for workers. Why? Because those jobs pay around a third (or less) of what mining jobs pay.

“(Changing professions) is not easy,” a miner who left Longmay last year told Reuters. “All those who are changing professions went to work in sanitation or logging,” for less money, he added. Here’s more:

The government has earmarked 100 billion yuan ($15 billion) for relocating and retraining state workers over two years, but with up to 6 million coal and steel jobs to be axed those funds could be spread very thin. 

Workers laid off from inefficient state-owned coal and steel firms will join those made redundant at private firms in struggling sectors like textiles and apparel, which are shedding an estimated 400,000 employees a year.

That risks creating a cohort of middle-aged blue-collar workers with bleak prospects in an economy growing at its slowest rate in decades.

Slower economic growth means it will be harder to absorb redundant workers.Local governments in distressed regions like the northeast lack the capacity to do much more than hand them a mop or a shovel. Where workers do manage to secure new jobs, many are likely to find themselves demoted, earning less and with bleak career prospects.

“The most likely result from future industrial layoffs is not a sharp increase in unemployment, but a further deceleration in household income growth,” Cui Ernan, labor analyst at Gavekal Dragonomics in Beijing, wrote in a research note.

And that means you can kiss the dream of a successful transition to a consumption and services-led economy goodbye. Or, as we put it exactly a week ago: It would be a small (actually scratch that, a “very large”) miracle if Beijing is able to restructure the economy’s collection of elephantine SOEs without creating an employment crisis. And if, as Zhou says,China intends to depend on domestic consumption rather than exports to fuel growth, then the PBoC had better get to explaining how exactly it is that hundreds of thousands of recently jobless factory workers are going to be able to be power the hoped-for but still nascent transformation.

“The average annual wage in mining in 2014 was 61,677 yuan ($9,542), compared with 28,356 yuan in farming and forestry, according to official data. Textile workers moving to restaurant and retail jobs can expect to earn around 37,264 yuan, a drop from the 51,369 yuan average pay in manufacturing,” Reuters continues. “In Shuangyashan and nearby Hegang, the consumption-driven economy looks a distant goal.”

Clearly, handing someone a mop and a 66% pay cut isn’t going to be a viable solution for the millions upon millions who are about to be jobless in China. And we don’t just mean “viable” in terms of the read through for China’s hoped-for transition away from investment-led growth. We mean “viable” in terms of fending off a popular revolt.

But if the masses do rise up, don’t expect the Politburo to go down without a fight. In fact, Beijing is already taking steps to discourage public displays of disaffection. On Wednesday, in the country’s southwest, eight construction workers tied to a protest held in Langzhong last August were subjected to a 1950’s-style public sentencing. Their crime: protesting unpaid wages. Their charge: obstructing official business. The verdict: guilty.

“Many Chinese recoiled from the humiliation of pitiable migrant workers in a much-reviled and largely disused judicial practice,” WSJ wrote, earlier this week. “Legal experts, journalists and laymen alike launched into caustic criticism of the Langzhong court, calling its rally barbaric and an egregious violation of due process.”

Right. And that’s the whole point. Because if you give angry workers the idea that they can protest without suffering severe consequences, well then you might just have yourself a whole lot of protests once the layoffs begin in earnest. The workers shown flanked by police below will be spending the next six to eight months in jail.

Of course when people can’t feed their families they stop worrying about public shaming and even forget about the threat of prison. Which is why China will ultimately be unable to contain the public’s collective anger when the proverbial rubber hits the road.

The local government said the public sentencing was an effort to “to educate the public on how to lawfully protect their rights.”

The response from one Weibo user: “Don’t take the public for fools. You think the people don’t understand your purpose in using public sentencing?”

The Party had better figure something out quick. Because while you can make an example out of a handful of construction workers, and while you can “disappear” dissident journalists, the only thing you can do when millions of furious Chinese descend on Zhongnanhai is start shooting.

Passenger car sales collapsed by 44% last month and 50% larger than any other plunge in history.
(courtesy zero hedge)

China Car Sales Suffer Biggest Crash On Record To Start 2016

The dream of transition to a ‘consuming’ economy just crashed into the wall of excess debt and leverage. 2016 has started with a 44% collapse in China passenger car sales. This is thebiggest sequential crash and is 50% larger than any other plunge in history.

While there is a seasonal effect here obviously, the sheer scale of this 2-month drop – which removes the new year holiday affect – indicates something is terribly wrong in China.

Coming at a time when vehicle inventories are near record highs relative to sales with a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years…

And worse still, used car prices starting to fade rapidly (biggest Feb drop since 2008)

Falling used car prices means pressure on new car prices as well, which would be a shock to America’s booming auto market.

Obviously, the scariest part about all of the above is that consumers still have the pedal to the metal (pun fully intended) when it comes to leases, which means there’s no end in sight to the off-leases and thus no way to determine, at this juncture, how big the residual writedown wave and deflationary auto industry calamity will ultimately end up being.

So, you know… “buckle up.”

*  *  *

Simply put, the world’s automakers – all toeing the narrative line that growth will be from China – now face a harsh reality of massive mal-investment deja vu. And furthermore, any pricing power is lost (no matter how long the credit terms are extended) as they are forced to halt production and dump inventories in a vicious deflationary cycle…

The situation inside China is going from bad to worse:  they now have the equivalent of 1/2 trillion USA in unpaid bills.  Total debt probably is in the area of 300% debt/GDP with corporate debt at 150%.As we pointed out last week, they are borrowing money just to pay the interest..
this is an accident waiting to happen!!
(courtesy zero hedge)

China’s Latest Problem: Half A Trillion Dollars In Unpaid Bills

It’s no secret by now that China has a rather serious debt problem.

Although getting a precise read on it is next to impossible, all told the debt pile probably sums to something like $30 trillion. Various reports put the figure at between 250% and 300% of GDP all-in and as we reported back in January, that may have swelled to more than 340% by the end of 2015.

Corporate debt-to-GDP was around 125% in 2014 and probably sits above 150% now. Depending on what business you’re in, servicing that debt has become all but impossible. AsMacquarie discovered last autumn, more than half of all debt for commodities firms was EBIT-uncovered in 2014 and heaven only knows what that figure looks like now.

Things have gotten so bad that in 2015, Chinese firms issued $1.2 trillion in new debtjust so they could service their existing loans. In other words, China’s entire corporate sector is quickly becoming one giant ponzi scheme.

“Chinese companies are struggling to generate the cash flow needed to service their obligations,” Bloomberg said last November, summing up the situation in the absolute simplest terms possible.

And it’s only going to get worse. On Sunday we learn that median days sales outstanding for mainland domiciled companies now sits at 83 days – the highest in nearly 17 years and double the average for EM as a whole.

As you can see from the above, it now takes 50% longer for Chinese firms to get paid than it did just five years ago. As you might imagine, the problem is particularly acute for industrial firms who are waiting 131 days to convert sales into cash. “A reading of more than 100 days is typically a red flag,” Amy Sunderland, a money manager at Grandeur Peak Global Advisors in Salt Lake City told Bloomberg.

Yes, Amy it certainly is. Especially considering the median for companies in the MSCI Emerging Markets Index is just 44 days.

“Accounts receivable at the nation’s public firms have swelled by 23 percent over the past two years to about $590 billion, exceeding the annual economic output of Taiwan,” Bloomberg goes to write before summing up the situation as follows: “With corporate bankruptcies projected to climb 20 percent this year, more Chinese businesses may be forced to choose between two unpleasant options: keep extending credit to potentially insolvent customers, or cut off the taps and watch sales sink.”

Needless to say, this is just another way of looking at the same problem. That is, if I’m an industrial company and you’re my customer, and you can’t pay me for four months, then I can’t service my debt, and thus my loans end up in the special mention bucket at the bank. If you never pay me and there are enough customers like you included in my accounts receivable, then eventually I’m screwed and assuming the Politburo allows it, my loan moves from special mention at the bank to the NPL line.

Unless of course I borrow more money to service my existing debt while simultaneously extending you more credit to “buy” what I’m selling, in which case the entire charade continues for another few months while the amount of leverage embedded in the system grows even larger.

Of course this can only go on for so long. “There is a knock-on effect through the economy,” Fraser Howie, author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise,” tells Bloomberg. “Part of the end game is default and closure.

Right. Because what the chart above suggests is that even healthy companies will start to have working capital problems sooner or later and before long, the proverbial can simply will have been kicked as far into the future as possible and when the breaking point finally comes, every weak hand across the entire supply chain will be shaken out, triggering a cascade of defaults, a resultant banking crisis, and finally, a sharp reduction in excess capacity until the market finally clears. Millions of Chinese will lose their jobs in the process and the PBoC will likely be forced to keep the banks from collapsing, but that’s another story.

Meanwhile, on Sunday, PBoC Governor Zhou Xiaochuan warned that China’s corporate sector is weighed down by far too much debt. “Lending as a share of GDP, especially corporate lending as a share of GDP, is too high,” he said at the China Development Forum in Beijing. Highly leveraged economies are more susceptible to macroeconomic risks, he added, in a fantastic example of stating the obvious. One does wonder however, if the PBoC was so concerned about excessive debt, how Beijing managed to let the country add a half trillion in TSF during the month of January alone:

One thing that would help, Zhou innocently suggested, is if more savings were channeled into equity markets so that companies could reduce their dependency on debt. “[We need] more robust capital markets,” he said. He might have put it another way: “It would be nice if everyone would just pour their savings into equity, that way, companies wouldn’t have to take on more debt.”

As FT notes, “about one-third of listed Chinese companies owe at least three times as much in debt as they own in assets, according to figures from Wind.”

You’d be forgiven if, upon reading all of the above, you come away feeling a bit uneasy about China’s ability to manage this “transition.” But really, you shouldn’t worry because when it’s all said and done, you’ll be thanking China for providing the world with a template for how to do something that’s absolutely impossible: deleverage and re-leverage at the same time. Here’s IMF chief Christine Lagarde: “The world will be watching closely to learn from China as it deftly manages the delicate balance between economic transformation and deeper global integration.”

We’re not sure about the whole “deftly manages” part, but the world will certainly be “watching closely”, that’s for sure.

We’ll give the final word to Vice Premier Zhang Gaoli: “There will be no systemic risks — that’s our bottom line.”

If you say so.





Interesting:  With Shanghai’s stock market collapsing who does China go to for help in the rigging of markets:  the Fed

(courtesy zero hedge)

A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed

Last June, China’s stock market miracle ended in tears.

The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.

A dramatic unwind in the half dozen backdoor margin lending channels that had funneled an additional CNY1.5 trillion into equities brought the party to a thunderous end and by late July,the market was off by more than 30% from its peak.

Chinese officials had already begun to panic by mid-month and then, on the 27th, the bottom fell out.

A harrowing bout of late day selling led the SHCOMP to post its worst one-day drop since February of 2007 and its second worst single session decline in history as the market collapsed by 8.5%.

More than two-thirds of stocks in the index traded limit down that day.

At that point, China was out of ideas. It had been nearly three weeks since Beijing announced it would inject capital into China Securities Finance Corp., effectively giving the PBoC a mandate to not only underwrite brokers’ margin lending businesses but in fact to buy A-shares directly, and nothing seemed to be working to arrest the slide.

Indeed, starting on June 27 (by which time the Shenzhen had fallen by more than 20% from its peak) the PBoC unleashed an eye watering array of measures that encompassed everything from an RRR cut to the easing of regulations to state mandated investments by pension funds to verbal interventions in the form of threats against “malicious” shorts. Nothing was working.

At a loss, the PBoC’s New York-based chief representative for the Americas, Song Xiangyan fired off an e-mail on the morning on July 27 to the institution China figured knew the most about propping up markets: the Fed.

Just after 11 a.m. ET, the e-mail appeared in the inbox of senior Fed staffer Steven Kamin. The subject line read as follows: “Your urgent assistance is greatly appreciated!”

My Governor would like to draw from your good experience,” Song told Kamin, the director of the Fed’s International Finance Division. “Could you please inform us ASAP about the major measures you took at the time?,” Song asked.

Song was referring to what the Fed did to try and allay market fears in the wake of Black Monday when the S&P collapsed 20% on October 19, 1987. Reuters obtained the messagesbetween Song and Kamin via an FOIA request.

“We’ll try to get something to you soon,” Kamin told Song.

“What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession,” Reuters writes, adding that “Kamin also sent notes to guide PBOC officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.”

Those documents, Reuters goes on to note, had all been publicly available on the Fed’s website for years and “detail how the Fed began issuing statements the day after the market crash, pledging to supply markets with plenty of cash so they could function.”

Apparently, Song was especially interested in the Fed’s use of repos to inject cash. “In 1987, the Fed contacted banks directly and encouraged them to meet legitimate funding needs’ of their customers,” Reuters continues, recounting more details from Kamin’s email to Song. “In addition to its pledges and cajoling, the U.S. central bank in 1987 eased collateral restrictions on Wall Street and tried to calm markets by intervening in trading earlier than normal.”

But US officials did more than that. They also created the PWG or, “the President’s Working Group on Financial Markets,” or, as we know it, the “Plunge Protection Team.” The group was created by an executive order from the Reagan White House in the wake of Black Monday and officially serves as a kind of consortium of top officials who advise the White House on markets when something goes horribly awry. Unofficially, the group directs, facilitates, and otherwise engineers futures buying to support the market. Or so “conspiracy theorists” believe.

As Reuters concludes, “it is unclear if [the Fed’s help] played a role in shaping Beijing’s actions.” Right. But what is clear is that when it comes to central bank intervention, the PBoC thinks the Fed has plenty of experience from which to draw dating back specifically to the 1987 crash that precipitated the creation of the body which nowadays operates from 33 Liberty and directs its barely-arm’s-length trading division at Citadel when someone needs to step in and “provide” a bit of ES liquidity.

If these were the messages exchanged between lowly “senior staffers” at the Fed and PBoC, one can only imagine what higher level talks might have come later because as you might recall, things got much, much worse for China after July 27. If China’s subsequent plunge protection efforts in any way reflect something they learned from the Fed, then there may be a book full of equities sitting around on a secure server in the basement of the Eccles Building that no one’s ever seen. But as noted above, Yellen and Dudley have plenty of leveraged proxies when they think the market might be a bit short on “liquidity.”

Finally, we would note that if China intends to adopt the post-Black Monday Fed playbook, we’re in for two decades of lunatic monetary policy characterized by unnecessarily low rates and the deliberate perpetuation of the myth that fantastic wealth is simply a matter of multiple expansion. Perhaps we’ll even see the institution of the “Zhou put.”




The so call ed deal between Turkey and the EU is not working as thousands of migrant cross to the island of Lesbos in Greece:

(courtesy zero hedge)

Thousands Of “Elated, Wet” Migrants Land On Lesbos, As Refugee “Deal” Fails To Stem Flow

On Friday, the EU and Turkey came to an agreement on a set of proposals to stem the flow of Mid-East asylum seekers into Western Europe.

The focus of the discussions in Brussels was cutting off the sea route to Greece. On the front lines is the Greek island Lesbos where at least half of the 144,000 refugees who have entered Greece in 2016 have landed. More than a million people crossed the Aegean to Greece last year.

The new deal between the EU and Turkey calls for Ankara to take back all refugees arriving in Greece by sea after their asylum claims are processed. For every refugee that is sent back, Europe will take refugees directly from Turkey in a kind of one-for-one swap. The point is to discourage people smugglers by effectively making the sea trip pointless. “If returns begin migrants won’t want to pay $1,000-2,000 to a smuggler,” Antonis Sofiadelis, head of the coastguard operations on Lesbos explains.

As part of the deal, Turkey will also get as much as €6 billion in aid and will have its EU membership application fast-tracked. Here are the specifics (on which the deal is notably short) for those who might have missed it:

  • Sending Migrants Back to Turkey From Greece
    • All migrants who travel to Greece from Turkey using irregular means after an agreement is reached will be returned to Turkey, in what the agreement calls “a temporary and extraordinary measure, which is necessary to end the human suffering and restore public order.”
  • A One-for-One Swap of Syrians
    • For each Syrian migrant returned to Turkey, the European Union will directly resettle another Syrian from Turkey, with priority given to Syrians who have not previously entered, or tried to enter, the European Union, up to a total of 72,000.
    • If that number is reached — as it almost certainly will be — a new round of negotiations will be held.
  • Stricter Controls of Turkey’s Borders
    • Turkey will take “all necessary measures” to prevent migrants from opening new sea or land routes to the European Union from Turkey in a measure aimed at assuaging concerns in Bulgaria that migrants will stream into the country.
  • Concessions for Turkey
    • The European Union will speed up the disbursement of the €3 billion it pledged in November, and provide another €3 billion by the end of 2018, once Turkey meets its commitments.
    • The European Union will waive most visa requirements for Turkish citizens by the end of June, provided that Turkey meets certain requirements.

But while the deal is effectively in place now, sending refugees back to Turkey from Greece won’t be possible until April, the deadline for setting up the administrative infrastructure that will allow for the swift processing of asylum applications.

In the meantime, the flow continues. “They waved, cheered and smiled, elated to have made it to Europe at dawn on Sunday in a packed blue rubber motor boat,” Reuters writes, recounting the scene on Lesbos as dawn broke on Sunday. Here’s more:

The 50 or so refugees and migrants were among the first to arrive on the Greek island of Lesbos on day one of an EU deal with Turkey designed to close the route by which a million people crossed the Aegean Sea to Greece in 2015.

Exhausted but relieved, the new arrivals wrapped their wet feet in thermal blankets as volunteers handed out dry clothes and supplies.

Reuters witnesses saw three boats arrive within an hour in darkness in the early hours of Sunday. Two men were pulled out unconscious from one of the boats amid the screams of fellow passengers and were later pronounced dead.

Twelve boats had arrived on the shoreline near the airport by 6 a.m, a police official said. A government account put the number of arrivals across Greece in the past 24 hours at 875 people.

Among the early morning arrivals on the seaweed strewn beach on the south of Lesbos was Syrian Hussein Ali Muhammad, whose studies were interrupted after the war began. He said he wanted to go to Denmark to continue university. Asked if he was aware of the European decision, he said:

“I know that. I hope to cross these borders. I hope I complete my studies here (in Europe), just this. I don’t want money, I just want to complete my studies. This is my message.”

Doubts remain about whether the deal is legal or workable. It was not clear what would happen to the tens of thousands of migrants and refugees already in Greece.

No, it’s not clear. And as we’ve seen over the past several weeks, there’s now a crisis in Idomeni where more than 15,000 refugees are stranded in makeshift camps now that Macedonia has closed its borders.

On Friday, Greek Interior Minister Panagiotis Kouroumplis compared the camps to Dachau. “I wouldn’t hesitate to say that this is a modern Dachau,” he said, lamenting what he called “the awakening of a kind of nationalism against persecuted people.” This should give you an idea of what life is like in Idomeni:

Those arriving on Lesbos Sunday said they were aware of the deal between Brussels and Ankara, and you can bet they’re also acutely aware that the Macedonian border is closed. But they don’t care. “I know the decision,” a 30-year old computer engineer from Syria told Reuters. “I hope to (meet with) my wife and children [who are in Germany].”

As we’ve said repeatedly, the scope of the “problem” simply defies any attempt on Europe’s part to cope – especially when Brussels is dependent upon Erdogan to be the first line of defense. Refugees didn’t leave Syria to be blown up or persecuted in Turkey. They left to get to Europe. Threatening them with expulsion if they decide to use the sea route to reach Greece isn’t going to deter anyone. They already know they can be expelled. They likely also know that the new plan will be virtually impossible to implement.

And so, as we look on while the Schengen dream dies amid a nationalistic furor not seen in Europe for more than seven decades, we bring you the following images from Reuters which depict the scene just this morning on the Greek island of Lesbos.

 It sure looks like the world is heading to go cashless:
Greece orders banks to record personal data on anyone who was hoarding cash:
(courtesy zero hedge)

Greece Orders Banks To Record “Personal Data” On Anyone Who Was Hoarding Cash

Over the course of documenting the ECB’s push to phase out the €500 note, we stumbled upon something rather interesting that’s taking place at Greek banks.

Courtesy of a reader, we learned that Piraeus Bank (among others) has begun charging a fee to exchange large denomination bills for small. The charge is listed as 0.15% by the bank and Kathimerini would later report that across the Greek banking sector “exchanging one 500-euro note for smaller bills, [will cost you] 3-5 euros (depending on the bank), while the maximum charge comes to 200-250 euros regardless of the amount a customer wishes to exchange.”

This is amusing for two reasons: 1) the ECB effectively gets to charge for the privilege for banning large bills and 2) it means that if you are Greek and you were effectively forced to take your money out of the bank because after last summer you feared a depositor bail-in might be right around the corner, you now have the distinct pleasure of having to pay a fee to exchange your large bills for smaller ones at the very same banks where you withdrew the money in the first place.

The entire effort to eliminate the €500 note is set against the backdrop of a larger push to phase out physical cash. Without physical cash, there is no effective lower bound as citizens cannot resort to banknotes and coins when interest rates fall. Rates then, can go as low as the central bank needs them to in order to facilitate consumer spending and thus centrally plan the economy.

Of course central banks aren’t going to come out and say that. The official reason given for eliminating large bills (and sooner or later small bills too) is that it reduces crime. If there’s no cash there will always be an electronic record of transactions which presumably would deter criminal activity unless criminals resort to payment in-kind or otherwise devise an underworld barter system.

Implicit in all of this is the notion that if you are in possession of large bills you are probably a criminal. Sometimes, that’s true. Take the two men who were arrested this month at the Madrid airport with €200,000 in €500 notes rolled up in cigarette packs, for example:

But other times, you might be in possession of large bills for other reasons. Like say the central bank has cut rates to zero and you’re afraid that soon enough, the bank won’t be able to sustain its margins so it will pass along NIRP to you. Or say the troika threatened a depositor bail-in and you’re afraid they’ll do it again, so you took all of your money out of the bank and put it in the mattress.

Unfortunately, even if you do have a good reason (not to mention a right) to be in possession of large amounts of cash in high denomination notes you’re going to be treated like a criminal, and it starts in Greece. As Kathimerini reports, Greeks who attempt to exchange €500 notes for smaller bills will now have their transaction and personal data recorded by the bank. Here’s more:

Commercial banks are being ordered to note the personal data and transaction history of clients who exchange 500-euro notes, along with cross-checking the details recorded with other transactions by those customers, according to a circular issued by the Bank of Greece.

The aim of the measure – on top of a commission charged by banks on the exchange of 500-euro banknotes with smaller ones – is to prevent money laundering, which experts believe to be behind demands by certain bank clients to exchange bills of high denomination.

Kathimerini goes on to note that “Greece ranks among the European Union countries with the highest circulation of paper money, amounting to 25 percent of the gross domestic product, while the average in the EU is below 10 percent.”

And we’re sure that’s part of the excuse for the “record keeping.” There’s 2.5X the amount of physical currency in circulation in Greece as the rest of the EU, therefore there must be more criminals.

It’s as though The Bank of Greece (or, more appropriately, Brussels) just can’t seem to figure out why there would be more cash in circulation in Greece as a percentage of GDP than in other countries. Allow us to help solve that mystery for you Brussels: it’s because you tried to rob Greek depositors last year.


This is is biggy!! Late in the day, Moody’s puts Deutsche bank on review for a downgrade:

(courtesy zero hedge/Moody’s)

It’s Not Over Yet – Moody’s Put Deutsche Bank On Review For Downgrades

In a worryingly coincidentally timed move, Moody’s has put Desutche Bank on review for downgrade, citing “execution challenges” in its new strategic plan. The worrying aspect comes from the fact the timing is entirely fitting with the ratings downgrade that started the last and most painful down-leg in Lehman’s collapse…

Full Moody’s statement:

Moody’s reviews for downgrade Deutsche Bank’s ratings (senior debt at Baa1)


New York, March 21, 2016 — Moody’s Investors Service has placed on review for possible downgrade the ratings of Deutsche Bank AG (“Deutsche Bank”) and affiliates, including the bank’s long-term deposit rating of A2, its senior unsecured debt rating of Baa1, its standalone baseline credit assessment (“BCA”) of baa3, its counterparty risk assessment of A2(cr), as well as its short term ratings and short term counterparty risk assessment of Prime-1 and Prime-1(cr), respectively.


Also placed on review for downgrade were the long-term ratings of US-based Deutsche Bank Trust Corporation and its trust company affiliates, considering the close linkages of the franchise value of these operations to those of the parent Deutsche Bank. Principal ratings affected include the long-term deposit ratings of A1, issuer ratings of Baa1, the standalone baseline credit assessments of a3, and the counterparty risk assessments of A2(cr) and Prime-1(cr). The Prime-1 short-term deposit ratings of the trust companies were affirmed.


For Deutsche Bank’s subsidiary Deutsche Postbank AG, Moody’s placed the entity’s main ratings on review for downgrade, with the exception of the bank’s ba1 BCA which was unaffected by today’s rating action. The Postbank ratings placed on review for downgrade include the bank’s A2 long-term deposits ratings, its (P)Baa1 senior unsecured programme rating, the bank’s Prime-1 short-term debt and deposits ratings and the A2(cr)/P-1(cr) counterparty risk assessment. Each of these ratings benefit from one notch of affiliate support, based on the BCA of Deutsche Bank.




The review for downgrade is prompted by the rising execution hurdles facing Deutsche Bank in its efforts to strengthen and stabilize profitability over the next three years. The firm recently indicated weak performance within its capital markets operations in the first two months of 2016 (typically the strongest quarter in the year for this business), and this follows on a weak fourth quarter 2015 performance. “Deutsche Bank’s diminished performance in the most recent two periods is a function of both environmental and firm-specific factors” said Peter Nerby, a Moody’s Senior Vice-President.


Since changing leadership last June and recalibrating its strategic plan last November, the operating environment has worsened for Deutsche Bank. This is increasing the already high level of execution challenges the group faces in addressing its structural cost issues and achieving its new strategic plan. Moody’s forecasts that revenue and expense headwinds may delay an improvement in profitability and achievement of Deutsche Bank’s interim cost-to-income targets (principally a cost-to-income ratio of approximately 70%) for 2018. The scale of the firm’s reengineering task, the potential for further weak revenue, and the risk of incremental litigation charges also create uncertainty, further increasing the execution challenge.


Despite the near-term earnings challenges, the firm’s overall solvency and liquidity profiles support its creditworthiness and provide the firm time and flexibility to adjust the plan as conditions warrant. Deutsche Bank’s solvency is supported by a solid overall capital and litigation reserve position, as well as its asset risk profile. Deutsche Bank also maintains a strong liquidity profile. As such, Moody’s expects that should there be a downgrade of Deutsche Bank’s Baa1 senior debt and A2 deposit ratings, it would be limited to one notch.


Furthermore, the ultimate objectives of the new strategic plan are credit positive. The business mix of the bank will be tilted away from more volatile and capital-intensive capital markets activities, with a greater emphasis on more stable, annuity franchises, including transaction banking and asset and wealth management. As a result, Deutsche Bank is committed to having a simpler and more stable business mix, operating with lower leverage and targeting a more conservative return-on-equity. However it is not clear whether the revenue attrition from shrinking the balance sheet and streamlining the client base can be quickly offset by growth in new areas.


The review will focus on the details of the execution plan for 2016 and 2017, in particular, and the extent to which it will have to be adapted given challenges in the operating environment. The review also will focus on details and timing of the plan to renew the technological platform of the bank, a key enabler of future revenues and cost efficiencies.


Moody’s will also review Deutsche Bank’s Additional Tier 1 securities (Ba3) to evaluate whether its execution challenges increase the risk of a coupon deferral on them. This could warrant additional, wider notching for these securities and result in up to a two notch downgrade for these securities.

But it’s different this time…

May/June 2008 – S&P downgrades major US banks including Merrill, Lehman, and Morgan Stanley (all after the banks raised additional equity capital, sparking the bounce).

It’s not over yet.




Another attack on a very popular shopping street in Istanbul (Istiklal Caddessi).  Luckily not many were killed this time.  Last week 34 people died with a bomb blast in Ankara’s huge transit hub in Kizilay district.

(courtesy zero hedge)

Deadly Blast Rips Through Turkey’s Most Popular Tourist Street, CCTV Footage Captures Blast

For the fourth time this year and the second time in seven days, one of Turkey’s major cities has been hit with a deadly suicide bombing.

Just six days after an explosion ripped through a transit hub in Ankara’s Kizilay neighborhood killing 34 people and wounding more than 100, a bustling shopping street in Istanbul was shaken by a powerful blast on Saturday.

The death toll now stands at 5 and frankly, it probably would have been much, much worse had the blast come later in the day. “The attack took place on Istiklal Caddesi, a pedestrian street that was relatively quiet Saturday morning but is usually thronged with shoppers, strollers and buskers later in the day,” AFP reports. “The street, which adjoins Taksim Square in the European part of the city, was evacuated after the attack.”

The area is extremely popular with tourists. The TAK – the Kurdistan Freedom Falcons – have warned foreigners about supporting the country’s tourism industry which the group says feeds the Erdogan regime.

“Tourism is one of the important sources feeding the dirty and special war, so it is a major target we aim to destroy,” the group said flatly, after last weekend’s bombing which was carried out by a 24-year-old female student and apparent TAK sympathizer named by the group as Seher Cagla Demir. “We warn the foreign and native tourists not to go to the tourist … areas in Turkey.

It wasn’t just the TAK warning tourists. The US embassy in Ankara cautioned American citizens that more attacks could be forthcoming ahead of Kurdish Nevruz.

CCTV caught the moment of Saturday’s blast:

Authorities say at least three dozen people were injured, seven of which are in critical condition.

The Kurdish New Year (March 21) is expected to be a dangerous time in Turkey. Erdogan has stepped up the military siege on Kurdish enclaves in the southeast and the PKK and TAK have responded in kind. Cities like Cizre have been reduced nearly to rubble and look more like Aleppo than they do like Turkish urban centers. Erdogan is also irate about Syrian Kurds’ move to declare federalism on Turkey’s southern border. Here are images from the aftermath of today’s attack:

And here’s a Google street view, which should give you an idea of what kind of targets are being hit in Turkey.

Expect either the PKK or the TAK to be blamed/claim the attack in fairly short order. This is a self-fulfilling prophecy and it was set in motion intentionally by Erdogan in the wake of last June’s elections. The more Kurdish-linked attacks there are, the more excuses Ankara has to crack down on the Kurds.

The President will use this as still more evidence of why the definition of “terrorist” needs tobe expanded, why Kurdish strongholds in the southeast must be kept under curfew, why HDP lawmakers should be stripped of their immunity, and, ultimately, why the powers of the presidency need to be expanded.

It’s all very simple, you see. Don’t you get it now?…

Isis is now blamed for the attack as they identify the suicide bomber.  Three Israelis were among the victims.  Were they targeted?
(courtesy zero hedge)

Turkish Turmoil As ISIS Blamed For Weekend Attack; Video Shows Police Using Water Cannons On Peaceful Kurds

On Saturday, a suicide bomber detonated on Istiklal Street in Istanbul’s most popular shopping district killing 4 and wounding dozens in the fourth attack on Turkey’s largest urban centers since the beginning of the year.

The blast came less than a week after a female TAK supporter carried out an attack on a transit hub in Ankara’s Kizilay neighborhood where 37 people lost their lives and more than 100 sustained injuries.

It was only natural to assume that Saturday’s blast in Istanbul would be tied to either the PKK or to offshoot TAK. Erdogan’s crackdown on Kurdish enclaves in the country’s southeast and the onset of the Kurdish New Year have Turkey on high alert.

But on Sunday, reports suggest that ISIS was behind yesterday’s attack. Or at least a man with ISIS “ties.”

The perpetrator was allegedly one Mehmet Ozturk Turkey said, after getting a DNA match between samples found at the scene and the man’s family. “Mr. Ozturk had left his home in the southeastern province of Gaziantep for Istanbul in 2013, and was on a list of Islamic State suspects,” WSJ reports. “He detonated explosives strapped to his body minutes before 11:00 a.m.”

Three of those killed were Israelis, and authorities are now trying to determine whether Ozturk deliberately targeted them or whether they were just in the wrong place at the wrong time. AsReuters notes, “the attack on Istiklal Street, Istanbul’s most popular shopping district, appeared similar to a January suicide bombing in another tourist area of Istanbul. In that attack, blamed by the government on Islamic State, a pedestrian suicide bomber blew himself up among a group of German tourists near the city’s historic center.”

The ISIS bombings are convenient for Erdogan. Each time the PKK or TAK launches an attack, ISIS seems to follow suit in relatively short order. This allows Ankara to tie one to the other. Not directly mind you. That is, Ankara isn’t saying they’re working in concert. And it doesn’t need to. The simple fact that ISIS carries out attacks right after Kurdish militants allows Erdogan to blur the distinction between violent political dissidents and jihadists in the hearts and minds of the Western world. And that’s important. Why? Because it makes the world less sympathetic to what the Turkish army is doing to the restive Kurdish population in Turkey’s southeast, where cities are under siege and the government has been variously accused of committing genocide (more here).

Kurds in Turkey aren’t even allowed by the government to celebrate the Persian new year (Newroz). In fact, just this week, a British citizen who taught computer science at Istanbul’s Bilgi University and had been in Turkey for a quarter century was deported for “making terrorist propaganda.” His offense: he was in possession of an invitation to a Newroz party.

As you might imagine, not all Kurds have complied with Erdogan’s Newroz ban and that’s just fine with the President. Because he’d rather blast Kurds with water cannons and fire tear gas at them anyway. Below find out what happens when you are a Kurd and you celebrate the new year in Silopi.



non today


Over the weekend, more turmoil in Brazil as Supreme Court Justice Mendes blocks the appointment of Lula.  He also has the power to arrest Lula but so far he has not/  The Brazilian real rose as investors perceive that the country will get a grip on the corruption and remove Rousseff  (and Lula) from office

(courtesy zero hedge)

Brazil Needs A Stronger Currency Like It Needs A Hole In The Head, Goldman Warns

To say that the last seven days have been tumultuous in Brazil would be a laughable understatement.

The country – which is on the fast track to “banana republic” status – plunged into chaos this week after a Sao Paulo state judge said a decision on the arrest of former President Luiz Inácio Lula da Silva should fall to federal judge Sergio Moro, the firebrand “rockstar” leading the prolonged car wash probe into corruption tied to Petrobras.

Sensing that Lula’s detention was imminent, embattled President Dilma Rousseff sought to save her mentor by offering him a ministerial position which would effectively make him immune from prosecution – at least in the near term. Lula still has legions of supporters in the country, but the millions upon millions who want to see the Rousseff government ousted saw through the President’s gambit immediately. And so did Moro, who tapped the President’s phone and subsequently released several dozen recordings, at least one of which appears to prove that she did indeed offer Lula the cabinet position to shield him from legal trouble. Cue the street protests.

Lula was sworn in during a farce of a ceremony which not even the PMDB bothered to attend and meanwhile, a committee was assembled to push forward with impeachment proceedings for Rousseff. A series of legal maneuvers from both sides set off a kind of “will he be minister or will he not” seesaw until finally, on Friday evening, Supreme Court judge Gilmar Mendes blocked Lula’s Lula’s appointment.

“Tensions also grew between the government and the federal police after Eugênio Aragão, justice minister, threatened to remove federal police teams from investigations, including the task force investigating corruption at Petrobras,” FT wrote on Sunday. “If there is even a hint that information has been leaked from one of our agents, the whole team will be changed and I don’t need proof — the federal police is under our supervision,” Mr Aragão told Folha over the weekend.

“Justice Gilmar Mendes’s ruling bars Mr. da Silva, who was sworn in Thursday as Ms. Rousseff’s chief of staff, from serving in the cabinet until a panel of Supreme Court justices makes a final ruling following an appeal by the government,” WSJ wrote, adding that “As a private citizen, Mr. da Silva, who is under investigation in the corruption case, can be tried in any court.”

In other words, Moro is now free to arrest him.

Formally, Judge Moro could issue the arrest warrant,” Ivar Hartmann, a law professor at Getúlio Vargas Foundation in Rio de Janeiro told The Journal. “I don’t know if he will, but he could.”

Yes “he could” and if he does, you’ll likely see more BRL strength. As we’ve documented extensively this month, the BRL is now trading pretty much exclusively on Lula, as his fate is seen as a proxy for whether Rousseff will ultimately be forced from office. The market apparently believes that anything would be better than the current political arrangement when it comes to shoring up the country’s flagging economy which last year plunged into what might as well be a depression. Here’s a look at how the currency is trading Lula news flow:

Of course Brazil’s problems aren’t going to be fixed if Lula and Rousseff are kicked to the curb. On the political front, 26% of Congress faces active criminal investigations. On the economic front, we could rattle off any number of data points but really, this is all you need to know:

So while the market may be forward looking, the BRL rallies that invariably accompany any and all bad news for Lula are not just premature, they’re ludicrous. In fact, in order for the country’s structural problems to dissipate, the currency needs to shoulder some of the burden. Goldman has more on why “the last thing Brazil needs now is to go back to BRL over-valuation.”

*  *  *

From Goldman

Brazilian asset prices repriced significantly since late February on the back of a number of developments in the political and judicial spheres that were perceived as having significantly increased the probability of a near-term political transition.

Due to a combination of external factors and a number of domestic events the BRL was the best-performing currency across the EM universe in the year through March 17. In the process,the BRL moved back into over-valuation territory, something that in our assessment is at odds with the current extremely debilitated macroeconomic picture and highly uncertain political backdrop.

Part of the asset price rally observed during the first two weeks of March reversed on March 14-16, with Brazilian asset prices selling off with the appointment of former president Lula da Silva as Chief of Staff of the Rousseff administration (Exhibit 1). This was perceived by the market as having reduced the probability of a near-term political transition, and as having increased the probability of a shift back to heterodox policies. However, new “car-wash” investigation developments, spontaneous mid-week street protests, and a dovish FOMC surprise, were met by rallying markets towards the end of the week (March 17-18).

Due to a combination of external factors and a number of domestic events related to the car-wash judicial probe into corruption, sentiment towards the BRL improved significantly despite still-high implied and realized volatility.

We have long argued that given the very weak domestic macro fundamentals, namely, high domestic inflation, very deep and prolonged recession (Exhibits 7 and 8), and lingering political risk and uncertainty, the economy would benefit from a currency that is noticeably cheap to fair-value for a while.

Hence, we are of the view that the central bank could and should be more assertive in reducing the still very large US$108bn stock of Dollar-swaps, in order to prevent further currency appreciation. That is, leaning against the wind of currency appreciation would be fully justified by the current weak macro fundamentals (2-year-long, deep economic contraction).

In summary, to increase the efficiency of the macro adjustment and lessen the output/employment loss of the required rebalancing, the authorities should restrain BRL/USD appreciation below 3.70, in order not to short-circuit the ongoing expenditure switch, and to cement the current account adjustment.


Some USA producers willing to go to back into production as WTI hits the low 40’s:

(courtesy zero hedge)

“A Dreaded Scenario For Oil Bulls Is Becoming A Reality” Reuters Warns: U.S. Production Is Coming Back On Line

One month ago, as we pounded the table on the biggest threat to the fundamental case for oil, namely that even a modest rebound in oil prices could unleash another round of production by the “marginal”, US shale oil producers, we warned that a rebound in the price of oil as modest as $40 per barrel, could be sufficient to get drillers to resume production.

As noted in late February, among the companies prepared to flip the on switch at a moment’s notice are Continental Resources led by billionaire wildcatter Harold Hamm, which said it is prepared to increase capital spending if U.S. crude reaches the low- to mid-$40s range, allowing it to boost 2017 production by more than 10 percent, chief financial official John Hart said last week. Then there is rival Whiting Petroleum which may have stopped fracking new wells, but added it would “consider completing some of these wells” if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts. Then there was EOG Chairman Bill Thomas who did not say what price would spur EOG to boost output this year, but said it had a “premium inventory” of 3,200 well locations that can yield returns of 30 percent or more with oil at $40, and so on, and so on.

The reason for the plunging breakeven price? The same one we suggested on February 3: surging, rapid efficiency improvement which “have turned U.S. shale, initially seen by rivals as a marginal, high cost sector, into a major player – and a thorn in the side of big OPEC producers.”

To be sure, while many had expected low oil prices to curb output, virtually nobody had predicted that even a modest jump in oil (when we wrote our article on February 29 oil was at $33, just $7 from the $40 threshold) would lead to a major portion of US shale going back on line. The threat of a shale rebound is “putting a cap on oil prices,” said John Kilduff, partner at Again Capital LLC. “If there’s some bullish outlook for demand or the economy, they will try to get ahead of the curve and increase production even sooner.”

However, the cap was not big enough, because late last week driven by the relentless short squeeze and the sliding dollar, WTI soared well over $40 hitting a fresh 2016 high.

And, as warned, with oil surging above the critical $40 new “floor” price, as Reuters put it moments ago, “a dreaded scenario for U.S. oil bulls might just be becoming a reality.”

What exactly is this scenario?

According to Reuters, some U.S. shale oil producers, including Oasis Petroleum and Pioneer Natural Resources Co, are activating drilled but uncompleted wells (DUCs) in a reversal in strategy that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices. 

When oil prices started their long slide in mid-2014, many producers kept drilling wells, but halted expensive fracking work that brings them online, waiting for prices to bounce back.

But now, with crude futures hovering near multi-year lows and many doubting recent modest gains that brought oil prices near $40 a barrel can hold, the backlog of DUCs is already shrinking in some areas. In key shale areas such as Eagle Ford or Wolfcamp and Bone Spring in Texas such backlog has fallen by as much as a third over the past six months, according to data compiled by Alex Beeker, a researcher at Wood Mackenzie.

“If the number of DUCs brought online is surprising to the upside, that means U.S. production won’t decline as quickly as people expect,” said Michael Wittner, global head of oil research at Societe Generale. “More output is bearish.”

In the Wolfcamp, Bone Spring and Eagle Ford, the combined backlog of excessive wells remains around 600, Beeker estimates. About 660 wells could be the equivalent of between 100,000 and 300,000 barrels per day of potential new supply, according to Ed Longanecker, president of Texas Independent Producers and Royalty Owners Association (TIPRO)

This goes to what we warned about in the start of February when we said that  “Another Leg Lower In Oil Coming After Many Producers Found To Have Far Lower Breakevens.”

And with its usual 2-4 month delay, the market is finally starting to realize just this.

As expected, Reuters writes that for now, most of the wells are activated in Texas, where proximity to refiners allows producers to sell their crude closer to benchmark prices, and by well-hedged companies that have locked in higher prices.

Still, the pace of fracking of the uncompleted wells may quicken if cash-strapped producers facing debt repayments can no longer afford to store their oil in the ground.

While the potential additional supply is a fraction of total U.S. production of around 9 million bpd, the fresh flow would reinforce concerns about a growing global glut just as Iran ramps up output and inventories in domestic storage tanks from the Gulf to Cushing, Oklahoma, test new highs on a weekly basis.

But back to the DUCs, which are a new development for many of the algos which have been trading oil on nothing but momentum:

Wood Mackenzie reckons that the backlog of excess DUCs will decline over the next two years, and return to normal levels by the end of 2017. It is expected to fall 35 percent from current levels in the Bakken and 85 percent in the Eagle Ford by the end of 2016. With service costs down, now is a good time to bring a well online if a company has hedged its production and covered its costs, said Jonathan Garrett, an analyst with Wood Mackenzie. The U.S. crude breakeven for such wells is one-third lower than for new ones, according to Wood Mackenzie.

Typically, average DUC inventory is around 550 in the Wolfcamp/Bone Spring formations and around 300 in the Eagle Ford, Beeker estimates. Rival Oasis is also focusing on drawing down its backlog this year, executives said during the company’s last earnings call.

In each of those formations, the excess has fallen by about 150-175 over the past six months, bringing the surplus to around 300 wells in each. “We’re just going to be continuously completing the wells there (in the Permian) with our fleets and so you will not see any DUCs in Midland basin,” Pioneer Chief Operating Officer, Tim Dove, told a recent earnings conference.

And then the story verges off to something else we have warned about, namely soaring hedging as oil has rebounded, allowing producers to lock in profits even in case oil should once again resume sliding from this price.  Both Pioneer and rival Oasis have locked in future sales at prices well above current levels. Oasis has 70 percent of its oil production for 2016 hedged above $50 a barrel and roughly 20 percent of its 2017 production hedged at about $47 a barrel. Similarly, Pioneer has locked in a minimum price for 85 percent of this year’s production.

To be sure, not everyone will be able to ramp up production: in North Dakota, the second-largest oil-producing state where producers like Whiting Petroleum Corp sell their oil at steep discounts, it might not be economic Reuters calculates.  There, the number of DUCs climbed above 1,000 in September before falling to 945 in December, according to the latest data from the state’s energy regulator.

Bakken producer Continental Resources Inc which made waves when it unwound its hedges in late 2014, has said it would continue to defer completions until prices rise. Bakken discounts were just too steep, said Garrison Allen, a research associate at Raymond James. “It doesn’t make sense to do anything up there.”

But not everyone is needed to ramp up production: even if shale output rises by just a few hundred thousand barrels in the short term, that will be enough to push the US storage situation, already at critical point, into beyond operation capacity levels, and lead to dumping of oil in the open market, resulting in the next major leg lower in oil prices, which in turn will spillover into energy stocks and the broader market, and force central banks to consider what until recently was merely a joke, namely monetizing cr


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


USA/JAPAN YEN 111.48 DOWN 0.043 (Abe’s new negative interest rate (NIRP)a total bust/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP)


USA/CAN 1.3049 UP.0054

Early THIS MONDAY morning in Europe, the Euro ROSE by 89 basis points, trading now WELL above the important 1.08 level RISING to 1.1102; 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 NOW THE USA’S NON tightening by  FAILING TO RAISE THEIR INTEREST RATE / Last night the Chinese yuan was DOWN in value (onshore) The USA/CNY UP in rate at closing last night: 6.4775 / (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 RAMP as IT settled UP in Japan by 4 basis points and trading now well BELOW that all important 120 level to 111.44 yen to the dollar. NIRP POLICY IS A COMPLETE FAILURE AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP/SIGNALS TO THE MARKET THAT THEY MAY DO A U TURN ON  NIRP AND INCREASE NEGATIVITY

The pound was DOWN this morning by 57 basis points as it now trades WELL ABOVE the 1.44 level at 1.4446.

The Canadian dollar is now trading DOWN 54 in basis points to 1.3049 to the dollar.

Last night, Chinese bourses AND jAPAN were MIXED/Japan NIKKEI CLOSED FOR HOLIDAY , HANG SANG UP 12.52 OR 0.06% SHANGHAI UP 63.65 OR 2.15%    / AUSTRALIA IS HIGHER / ALL EUROPEAN BOURSES ARE MIXED, as they start their morning/.

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

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

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade 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 MONDAY morning: closed DOWN 211.57 OR 1.25%

Trading from Europe and Asia:
1. Europe stocks MIXED

2/ CHINESE BOURSES GREEN/ : Hang Sang CLOSED IN THE GREEN. ,Shanghai IN THE GREEN/ Australia BOURSE IN THE RED: /Nikkei (Japan)CLOSED/HOLIDAY/India’s Sensex in the GREEN /

Gold very early morning trading: $1247.80


Early MONDAY morning USA 10 year bond yield: 1.88% !!! PAR in basis points from FRIDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.67 PAR in basis points from FRIDAY night.

USA dollar index early MONDAY morning: 95.11 UP 4 cents from FRIDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers MONDAY MORNING



And now your closing MONDAY NUMBERS


Portuguese 10 year bond yield:  2.75% down 20 in basis points from FRIDAY

JAPANESE BOND YIELD: -.093% par in   basis points from FRIDAY

SPANISH 10 YR BOND YIELD:1.44% par basis points from FRIDAY

ITALIAN 10 YR BOND YIELD: 1.26  DOWN 1 basis points from FRIDAY

the Italian 10 yr bond yield is trading 18 points lower than Spain.




Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond: 2:30 pm

Euro/USA 1.1247 DOWN .0020 (Euro DOWN 20 basis points and for DRAGHI A COMPLETE POLICY FAILURE/

USA/Japn: 111.91 UP .403 (Yen DOWN 40 basis points) and still a major disappointment to our yen carry traders and Kuroda’s NIRP. They stated that  NIRP would continue.

Great Britain/USA 1.4383 DOWN .0071 (Pound DOWN 71 basis points.

USA/Canada: 1.3075  UP  .0.0077 (Canadian dollar DOWN 77 basis points EVEN THOUGH oil was HIGHER IN PRICE (WTI = $39.91)



This afternoon, the Euro was DOWN by 20 basis points to trade at 1.1247 AS THE MARKETS CONTINUE TO REACT TO THE FAILED USA INTEREST RATE POLICY.

The Yen FELL to 111.91 for a LOSS of 40 basis pints as NIRP is still a big failure for the Japanese central bank/also all our yen carry traders are being fried.

The pound was UP 12 basis points, trading at 1.4483 (LESS BREXIT CONCERNS)

The Canadian dollar FELL by 77 basis points to 1.3075 DESPITE THE FACT  the price of oil was UP  today (as WTI finished at $39.91 per barrel)

The USA/Yuan closed at 6.4812

the 10 yr Japanese bond yield closed at -.093% PAR IN basis points in yield

Your closing 10 yr USA bond yield: UP 4 basis point from FRIDAY at 1.91% //trading well below the resistance level of 2.27-2.32%) policy error

USA 30 yr bond yield: 2.72 UP 5 in basis points on the day and will be worrisome as China/Emerging countries continues to liquidate USA treasuries (policy error)


Your closing USA dollar index, 95.33 UP 27 cents on the day at 2:30 pm

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for MONDAY

London: DOWN 5.06 points or 0.08%
German Dax :DOWN 2.16 points or 0.02%
Paris Cac DOWN 34.71 points or 0,78%
Spain IBEX DOWN 30.10 or 0.33%
Italian MIB: UP 85.59 points or 0.46%

The Dow was up 21.57 points or 0.12%

Nasdaq :up 13.22 points or 0.26%
WTI Oil price; 39.91 at 2:30 pm;

Brent Oil: 41.58
USA dollar vs Russian Rouble dollar index: 67.78 (Rouble is UP 46 /100 roubles per dollar from yesterday)AS the price of Brent and WTI OIL ROSE


This ends the stock indices, oil price, currency crosses and interest rate closes for today


Closing Price for OIl, 5 pm/and 10 year USA interest rate:



BRENT: 41.41


USA DOLLAR INDEX:95.41 up 34 cents


And now your more important USA stories which will influence the price of gold/silver

Stocks Edge Higher Despite Dismal Data & Hawkish Fed As Bonds & Bullion Slide

To sum up: China car sales crash by most on record (boom goes the overseas growth meme), US existing home sales plunge most in 6 years (boom goes the domestic housing strength supporting consumption meme), Williams and Lockhart go full hawk-tard(positing April as “live” and suggesting everything is hawkishly awesome), and one of our most succeesful ‘innovative’ tech firms unveils the worst product launch ever… and investors buy stocks with both hands and feet…


Futures show the flip-floppiness of the day best…A ramp in the afternoon session of China (thanks to eased margin requirements) which gave way as Europe traded weak then was slammed by Fed’s Williams “April live” comments… a ramp back into the US open was then slammed by crappy housing data… which the machines ramped into Europe’s close… Then Fed’s Lockhart reiterated “April live” warnings but early weakness just spurred USDJPY to ignite momentum in stocks to overnight high stops…


Leaving Nasdaq the winner as cash equities rallied into the European close and sold off after NYMEX close despite extended gains from oil…


Post-Fed, things are back to normal as they should be… stocks #winning over gold and bonds… (buty silver is still in the lead)


AAPL disappointed…


It appears last week’s apparent “QE Trade” – buy stocks, buy bonds, buy gold, sell USDs – is fading…


Treasury yields rose 4-5bps on the day with some modest steepening…(japanese markets on holiday) Notice that the buying was between US open and EU close..


The USD gained ground for the 2nd day ion a row – best gain in March…


Commodities dropped as China closed, rallied into US open, then flatlined…


But once again Crude was up and down faster than a whore’s drawers…


Charts: Bloomberg



Valeant plunged 4.5% pre market with new pending.  They need a waiver for non reporting on its  10 K breach.  The stock is heading for the 25 handle:

(courtesy zero hedge)

Valeant Plunges To New 6-Year Lows, Halted News Pending

In the pre-open, Valeant shares were trading down 4.5% before being halted – news pending. We assume this will not be great news… maybe related to the waiver expected to come from lenders or is Anbang bottom-fishing in Biotechs?

A $25 handle… from August 2015’s $263 highs…

As Bloomberg expains, the market expects Valeant is likely to get a waiver from lenders for missing the deadline for filing its 2015 10-K, breaching the reporting covenant in its bond indentures, but it may come at a steep cost.

The company is focused on paying down debt and intends to use $1.7 billion of its $2.2 billion in free cash for financing to move toward a 5x leverage ratio in 2016. An expensive waiver would cut into the $100 million in extra cash available after debt repayment.

Then the news hit:  Valeant’s CEO is out.  And they warn of a potential bond default after more financial misstatements.  Down goes the stock…
(courtesy zero hedge)

Valeant “Kitchen Sink”? CEO Out, Ackman In, Warns Of Potential Default After More Financial Misstatements

The news is out.. and it’s disappointing..

  • Initiates Search for New CEO; J. Michael Pearson to Remain as CEO Until Successor is Named
  • William A. Ackman Joins Board of Directors; Katharine B. Stevenson Steps Down from Boar
  • Ad Hoc Committee Review of Accounting and Financial Reporting Matters Nearing Completion
  • Valeant Plans Restatement Based on Previously Announced Misstatements
  • Valeant Explains Circumstances that Resulted in Delay in the Filing of 10-K

As we detailed earlier:

In the pre-open, Valeant shares were trading down 4.5% before being halted – news pending. We assume this will not be great news… maybe related to the waiver expected to come from lendersor is Anbang bottom-fishing in Biotechs?

A $25 handle… from August 2015’s $263 highs…

As Bloomberg expains,

the market expects Valeant is likely to get a waiver from lenders for missing the deadline for filing its 2015 10-K, breaching the reporting covenant in its bond indentures, but it may come at a steep cost.

The company is focused on paying down debt and intends to use $1.7 billion of its $2.2 billion in free cash for financing to move toward a 5x leverage ratio in 2016. An expensive waiver would cut into the $100 million in extra cash available after debt repayment.

And then the news hit:

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that it has initiated a search for a new chief executive officer, appointed William A. Ackman to its board of directors, and provided an update on certain accounting and financial reporting matters.

And now it gets worse:  Valeant accuses its former CFO Schiller, of cooking the books. Schiller previously ran Goldman’s Sachs Healthcare group. It sure looks like charges will be filed shortly against the firm for fraud:
(courtesy zero hedge)

Valeant Accuses Its Former CFO, Who Previously Ran Goldman’s Healthcare Group, Of Cooking The Books

Back in October, we tried to “tie the Valeant roll-up together: Presenting The Goldman “Missing Link” in which we showed that Howard Schiller, Valeant’s CFO from December 2011 to June 2015, previously ran Goldman Sachs’ health-care practice until 2009, when he became the chief operating officer of Goldman’s investment bank. The next year, the bank advised Valeant on its breakout purchase of Biovail Corp.

As noted in October, after Schiller arrived at Valeant, in late 2011, the drug company orchestrated some of its most controversial deals. In the process, Valeant enriched its shareholders (on what now appears to have been outright fraud), as its market value soared from $14 billion to $70 billion during Schiller’s tenure as CFO, as one Wall Street analyst after another placed “buy” on its stock.

And, as Bloomberg wrote then, “Goldman Sachs and other banks brought in investors, making many millions in fees in the process.”

In short (and not so short – see below) it was an epic conflict of interest, one which enriched Goldman with hundreds of milliions in advisory fees.

As such we find it hardly surprising that as part of its stunning announcement earlier today, in which Valeant announced that CEO Pearson is out and Bill Ackman is joining the Board (in the process accepting liability if further fraud is discovered), the company – in looking for easy scapegoats – also threw its former CFO under the bus.

This is what it said:

Assessment of Disclosure Controls and Procedures and Internal Controls Over Financial Reporting

As a result of the restatement, management is continuing to assess the company’s disclosure controls and procedures and internal control over financial reporting. Management, in consultation with the committee, has concluded that one or more material weaknesses exist in the company’s internal control over financial reporting and that, as a result, internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2014 and disclosure controls and procedures were not effective as of March 31, 2015 and the subsequent interim periods in 2015 and that internal control over financial reporting and disclosure controls and procedures will not be effective at December 31, 2015.

The improper conduct of the company’s former Chief Financial Officer and former Corporate Controller, which resulted in the provision of incorrect information to the Committee and the company’s auditors, contributed to the misstatement of results. In addition, as part of this assessment of internal control over financial reporting,the company has determined that the tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation, may have been contributing factors resulting in the company’s improper revenue recognition.   

In connection with the Ad Hoc Committee’s work to date, certain remediation actions have been recommended and are being implemented by the company, including placing the company’s former Corporate Controller on administrative leave. The board and the talent and compensation committee, based on recommendations of the Ad Hoc Committee, have determined that the deficient control environment, among other things, would impact executive compensation decisions with respect to 2015 compensation for certain members of senior management. The company is in the process of implementing additional remedial measures.

And then this:

Valeant today announced that William A. Ackman, CEO of Pershing Square Capital Management, L.P., will join its board of directors, effective immediately. Mr. Ackman, whose firm has a 9.0% stake in Valeant, will join Pershing Square’s Vice Chairman, Stephen Fraidin, on the board.  As the maximum size of Valeant’s board currently is fixed at 14 directors, Katharine B. Stevenson voluntarily resigned from the Board to create a vacancy to permit Mr. Ackman’s appointment. The Board requested that former chief financial officer Howard Schiller tender his resignation as a director, but Mr. Schiller has not done so.

And so the amicable relationship between Valeant and Goldman is over, which probably means that Valeant will not hire Goldman’s restructuring team to advise it on its imminent Chapter 11 bankruptcy case.

* * *

For those who missed it last time, here again is Tying The Valeant Roll-Up Together: Presenting The Goldman “Missing Link””

While the Valeant soap opera has had constant, heart-pounding drama for weeks and following yesterday’s report that it allegedly fabricated prescriptions, even an element of career-ending (and prison-time launching) criminality, so far one thing had been missing: an antagonist tied to Goldman Sachs.

Thanks to a profile by Bloomberg, we are delighted to reveal the “missing link”, one which ties everything together. Its name is Howard Schiller.

Schiller was, between December 2011 and June 2015, the CFO of Valeant, and is currently on its board of directors.

More importantly, prior to joining Valeant, he worked for 24 years at Goldman Sachs as chief operating officer for the Investment Banking Division of Goldman Sachs, responsible for the management and strategy of the business.

How and why did Schiller end up at Valeant? Jeff Ubben, of the hedge fund ValueAct Capital, helped bring in J. Michael Pearson from McKinsey to run Valeant. Pearson then helped lure Schiller from Goldman Sachs.

And, as Bloomberg notes, “Goldman Sachs and other banks brought in investors, making many millions in fees in the process.”

All thanks to the “roll-up” strategy that blossomed and ballooned under Schiller.

Because much more important than using Valeant as a Wall Street fee piggybank, which in turn resulted in a circular loop whereby virtually every analyst covering the company had a “buy” recommendation as we showed two weeks ago…

…. which then pushed its price ever higher, making it even easier to acquire smaller (or larger) companies using the stock as currency, and creating the impression of virtually perpetual growth (simply due to the lack of any purely organic growth comps), and even more important than the company’s current fiasco involving Philidor (which may or may not involve a criminal investigation before too long), was that Valeant was nothing more than a massively indebted serial acquirer, or a “roll-up”, taking advantage of the recent euphoria for specialty pharma exposure, and with Ackman on board, a sterling activist investor to provide his stamp of approval (recall the surge of Weight Watchers stock just because Oprah Winfrey came on board).

That aggressive roll up strategy was the brainchild of Schiller (and Pearson) which in turn was developed with Wall Street’s help in one massive monetary synergy, whereby everyone profited, as long as the stock kept going up.

With the price crashing, the entire business model of the Valeant “roll-up” has now come undone.

So now that the time to count bodies has begun, let’s meet the architect who was the brain behind Valeant aggressive expansion spree.

Schiller ran Goldman Sachs’ health-care practice until 2009, when he became the chief operating officer of Goldman’s investment bank. The next year, the bank advised Valeant on its breakout purchase of Biovail Corp.

After Schiller arrived at Valeant, in late 2011, the drug company orchestrated some of its most controversial deals. In the process, Valeant enriched its shareholders. Its market value soared from $14 billion to $70 billion during Schiller’s tenure as CFO, as one Wall Street analyst after another placed “buy” on its stock.

It also enriched Wall Street:

Under Pearson and Schiller, Valeant became a lucrative client for Wall Street. Goldman Sachs, for instance, was entitled to more than $15 million in fees for the Biovail deal. The firm also earned about $55 million for helping the drug maker raise $9.3 billion in debt and equity financing for the 2013 acquisition of Bausch & Lomb Inc., including its role as sole underwriter of a $2 billion stock sale, regulatory filings show.

… Goldman at this point, of course, was Schiller’s former employer. Surely there was no conflict of interest there.

Goldman Sachs Lending Partners served as the lead lender among a group of banks that provided a credit line and term loans to Valeant. Later, the same banking group agreed to raise as much as $8 billion in financing for Valeant’s proposed acquisition of Allergan Inc. Goldman Sachs didn’t participate in that group offering financing and stepped down as the banking group’s administrative agent because it was involved in defending Allergan against the deal.

We don’t understand: why would that stop the bank that was just fined a whopping $50 million for wilfully and criminally stealing inside information (which helped it make who knows how many billions in profits) from the New York Fed?

And then, just as abruptly as when Hank Paulson quit Goldman to join the Treasury just so he could cash out of his GS stock tax free, Schiller announced his resignation one short month after Valeant’s failed attempt to acquire Allergan (in collusion with Bill Ackman who made hundreds of millions buying calls on Allergan having material non-public information that a hybrid strategic/financial bid was coming) fell appart after it was outbid by Actavis Plc.

As Bloomberg observes, “it was an opportune exit.” Under the terms of his departure, he stands to continue vesting in a stock and options package that made up the bulk of his $46 million in pay through 2014, according to company filings.

It gets better: before stepping down, he sold $24 million of Valeant stock to pay taxes, including a portion when the shares were trading above $200, company filings show.

Call him lucky, just don’t call him a criminal.

But while he is no longer CFO, he most certainly has present this past Monday on a conference call in which Valeant defended its relationship with Philidor: “Valeant turned to him, rather than to a company officer, to walk investors through a big part of Valeant’s presentation about its ties to Philidor.”

Schiller told listeners that Valeant had launched a pilot prescription-fulfillment program through Philidor, and based on its success decided to strengthen its relationship with the specialty pharmacy. Then, last December, Valeant “acquired the option to acquire Philidor,” he said.

Just four days later, after news broke that Philidor was fabricating prescriptions, that view changed at 5 am this morning when the company announced that “we have lost confidence in Philidor’s ability to continue to operate in a manner that is acceptable to Valeant and the patients and doctors we serve.”

Call it unlucky, just don’t call it criminal.

During the Monday call, Umer Raffat, an analyst at Evercore ISI, raised a question on many people’s minds: Why did Schiller leave when he did? “I feel like no one’s satisfied, and I keep getting that question from many investors in many meetings. So, would appreciate all your input there,” Raffat said.

Schiller reiterated that after two careers over 30 years, he wanted to “do some things on my own.”

He continued: “The timing was right. And again, just to be absolutely crystal clear, if I had –- and which I’m guessing, it could be an undertone of the question, if I had any concerns whatsoever about Valeant or Mike I would not have stayed on the board. It’s as simple as that.”

Pearson quickly followed up. He said Schiller had called him shortly after the stock-commentary site Citron Research, run by short-seller Andrew Left, sent Valeant’s stock into a tailspin with a report questioning the company’s accounting and its relationship with Philidor, the pharmacy. Pearson has since called for authorities to investigate Citron.

Good, and when those authorities find nothing wrong with Citron, which merely blew the whistle on a rollup that many others had suspected for years, they can focus all their attention on Valeant.

For their benefit, here is a quick primer from HBS on the rapid rise and even more rapid collapse of some of the best known (and most infamous), as well as unknown roll-ups yet, and what exactly bursts their bubble:

The notion behind roll-ups is to take dozens, hundreds, or even thousands of small businesses and combine them into a large one with increased purchasing power, greater brand recognition, lower capital costs, and more effective advertising. But research shows that more than two-thirds of roll-ups have failed to create any value for investors.

We were interested to find that many roll-ups were afflicted by fraud—among them, MCI WorldCom, Philip Services, Westar Energy, and Tyco—but we won’t focus on those in this article because for the most part the lesson is simply, “Don’t do it.” Instead, let’s look at the fortunes of Loewen Group. Based in Canada, it grew quickly by buying up funeral homes in the U.S. and Canada in the 1970s and 1980s. By 1989, Loewen owned 131 funeral homes; it acquired 135 more the next year. Earnings mounted, and analysts were enthusiastic about the company’s prospects given the coming “golden era of death”—the demise of baby boomers.

Yet there wasn’t much to be gained from achieving scale. Loewen could realize some efficiencies in areas like embalming, hearses, and receptionists, but only within fairly small geographic proximities. The heavy regulation of the funeral industry also limited economies of scale: Knowing how to comply with the rules in Biloxi doesn’t help much in Butte. A national brand has little value, because bereaved customers make choices based on referrals or previous experience, and being perceived as a local neighborhood business is actually an advantage. In fact, Loewen often hid its ownership. And it damaged whatever reputation it did have with its methods of shaming the bereaved into buying more expensive products and services (such as naming its low-end casket the “Welfare Casket”).

Nor did increased size improve the company’s cost of capital. Funeral homes are steady, low-risk businesses, so they already borrow at low rates. The cost of acquiring and integrating the homes far outweighed the slight scale gains. What’s more, the increase in the death rate that Loewen had banked on when buying up companies never happened. Fast-forward several years and the company filed for bankruptcy, after rejecting an attractive bid. (Relaunched under the name Alderwoods, Loewen was sold to the same suitor for about a quarter of the previous offer.)

Often roll-ups cannot sustain their fast rate of acquisition. In the beginning, all that matters is growth—buying a company or two or four a month, with all the cultural and operational issues that accompany a takeover. Investors know that profitability is hard to decipher at this point, so they focus on revenue, and executives know that they don’t have to worry about consistent profitability until the roll-up reaches a relatively steady state. Operating costs frequently balloon as a result. Worse, knowing that the company is in buying mode, sellers demand steeper prices. Loewen overpaid for many of its properties. In another case, as Gillett Holdings and others tried to roll up the market for local television stations in the 1980s, the stations began demanding prices equal to 15 times their cash flow. Gillett, which bought 12 stations in 12 months and then acquired a company that owned six more, filed for bankruptcy protection in 1991.

Finally, roll-up strategies often fail to account for tough times, which are inevitable. A roll-up is a financial high-wire act. If companies are purchased with stock, the share price must stay up to keep the acquisitions going. If they’re purchased with cash, debt piles up. All it took to finish off Loewen was a small decline in the death rate. For Gillett, it was an unexpected TV ad slump. When you go into a roll-up, you need to know exactly how big a hit you can withstand. If you’re financing with debt, what will happen if you have a 10%—or 20% or 50%—decline in cash flow for two years? If you’re buying with stock, what if the stock price drops by 50%?

This is precisely what just happened to junk-rated Valeant (which has leverage of just over 6 times) which – even if found innocent of any Philidor wrongdoing – is essentially finished: the rollup bubble has burst and now it has to show it can be profitable and generate cash.

Judging by its stock price today, few are hanging around to see if it can.



The former CFO responds:
(courtesy zero hedge)

Peak Drama: Valeant’s Ex-Goldman CFO Responds, Refuses To Resign From Board, Accuses Valeant Of Smear Campaign

As we wrote first thing this morning, while the fate of Valeant CEO Pearson was largely known (he is now out) and that Ackman will go down with the Valeant ship was largely as expected, what was a complete shock in the copmany’s press release was that the decision to throw its former CFO, Howard Schiller who formerly ran Goldman’s healthcare group, under the bus and accuse him of cooking the company’s books.

Moments ago Schiller responded, with an even more surprising announcement, saying he did nothing wrong (as expected) and that since he did not engage in any “improper conduct” he refuses to resign from the Valeant Board, which means upcoming VRX board meeting which include both Ackman and the former Goldmanite will be particularly unpleasant.

This is what he said:

Valeant has 22,000 incredible employees and a collection of very strong franchises.  While the challenges facing the Company are significant, I am confident that Valeant will prevail and emerge again as a very strong company.

As former CFO of the Company, I want to be very clear that the 8-K filed by the Company today, and the Company press release issued today, contain an incorrect statement.  Contrary to the statement in the 8-K and press release, at no time did I engage in any improper conduct that relates to any restatement of revenue the Company is considering.  In addition, at no time did I ever provide any incorrect information to the Audit and Risk Committee or the Company’s outside auditors regarding this accounting issue.

As a result of the fact that I did not engage in any improper conduct regarding this proposed restatement, I have respectfully declined the request from the Company’s Board to resign from the Board. 

The Philidor sales transactions in Q4 2014, and the subsequent accounting treatment, was the result of a careful and reasoned accounting decision made by the Company’s Corporate Controller based on what she considered to be complete and accurate facts, and I was told by the Corporate Controller that the outside auditors reviewed the transactions in question.  The accounting decision was not my decision, but I was advised of the decision and the rationale behind the decision by the Corporate Controller, and I agreed with the decision.  The now-former Corporate Controller was incredibly experienced, she was trusted and respected by the Audit and Risk Committee, and she consistently received among the highest employee rankings inside the Company and strong support from the Company’s outside auditors. 

My hope at this point is to see the Company recover from its challenges and for its employees and shareholders to once again prosper.

Much awkwardness and revealing of dirty laundry  to follows.

The all important Chicago’s National Mfg Activity index tumbles back into contraction and it is near two year lows:  at -.29
(courtesy zero hedge)

January ‘Bounce’ Dies As Fed’s National Activity Index Tumbles Back Into Contraction Near 2-Year Lows

After January’s hopeful spike to 6 month highs, Chicago Fed’s National Activity Index plunged back into contraction (at -0.29) near 2 year lows.

A shockingly large 58 of the 85 individual indicators within the index made negative contributions to the overall index which printed notably below the lowest economist’s expectations.


The slowing economy causes existing home sales to crash the most in almost 6 years:
(courtesy zero hedge)

Existing Home Sales Crash Most In 6 Years: NAR Blames Slowing Economy, Bubbly Home Prices

Existing home sales plunged 7.1% MoM in February, massively missing expectations of a 3.0% drop. Absent the regulation-driven drop in November, this is the largest MoM drop since July 2010 as realtors warn that home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers.”

Median prices appear to have ended in an airpocket:

As NAR reports,

After increasing to the highest annual rate in six months, existing-home sales tumbled in February amidst unshakably low supply levels and steadfast price growthin several sections of the country, according to the National Association of Realtors®. Led by the Northeast and Midwest, all four major regions experienced sales declines in February.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 7.1 percent to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. Despite last month’s large decline, sales are still 2.2 percent higher than a year ago.

And then Larry Yun tries to explain, it was the weather, the stock drop, and bubbly home prices and weakness in the economy

“Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest,” he said. “The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February’s lack of closings. However, the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.”

However, according to Yun, job growth continues to hum along at a robust pace, but there appears to be some uneasiness among households that the economy is losing some steam. This was evident in NAR’s latest quarterly HOME survey – released earlier this month – which revealed that fewer respondents believe the economy is improving, and a smaller share of renters said that now is a good time to buy a home.

“The overall demand for buying is still solid entering the busy spring season, but home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers,” says Yun.

Which is odd since President Obama said everything was awesome.

Finally, there appears to have been an odd jump in investor purchases this February, suggesting that the Chinese capital controls evaders are back front and center:


This cannot be so: such fine and upstanding citizens involved in rigging!!

(courtesy New York Post)

Goldman Sachs probed in alleged Treasury riggingWashington’s probe into the alleged rigging of the $13 trillion US Treasurys market by Wall Street banks has narrowed its focus to a handful of firms — including Goldman Sachs, The Post has learned.

In addition, European authorities have opened up their own investigation into possible Treasurys bid-rigging, sources said.

Investigators in the fraud division of the Justice Department have obtained chats and e-mails from Goldman that appear to implicate the company in manipulating the price of Treasury bonds, according to two sources familiar with the investigation.

Those chats and e-mails are being analyzed to determine if traders at other banks could be involved with any possible bid-rigging of US government debt, those two people said.

The identities of any traders in investigators’ cross- hairs couldn’t be learned.

Goldman is said to be cooperating with the probe, one person said. rigged-prices-of-treasury-bonds/



 Wow!! this one came out of nowhere: Connecticut sees is credit risk spiking to record highs
(courtesy zero hedge)

Connecticut Credit Risk Spikes To Record High

Amid cuts in aid and surging taxes, it appears the market remains less than impressed at Connecticut’s debt sustainability. Following last week’s disappointing bond auction, CT bond risk has spiked to 65bps over the benchmark – a record spread demanded by investors to take CT repayment risk. CT becomes the 4th riskiest US state after NJ, IL, and PA.


As Bloomberg notes,

The likely culprit was the state’s $550 million general-obligation sale on March 17, which included debt due in 2026 that priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index. 


The state’s office of policy and management said last week that the budget deficit for the current fiscal year is $131 million, an increase of $111 million from the prior month’s estimate.


Moody’s Investors Service dropped its outlook on the state to negative earlier in March.

Is it any wonder more people than ever are looking to leave the increasing tax burden of this troubled state?


Well that about does it for tonight
I will see you tomorrow night

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