March 28 c/For the 3rd straight month, no gold goes to Germany as FRBNY inventory remains constant/Gold and silver hold after another attack initiated last night/Open interest in gold and silver remain extremely elevated/The Chairman of China’s largest steel company hangs himself one day before bond matures/The unemployment rate in China continues to soar/Ancient city of Palmyra Syria liberated: Putin congratulates Syrian army, Obama mum on the issue/Atlanta Fed lowers first quarter GDP estimate to now only .6%/California raises minimum wage to $15.00 over a six yr period/State of Connecticut going after Yale University’ endowment/Ilinois loses big supreme court decisio on pension reform//More headaches for Valeant as these guys are one step closer to bankruptcy/

Gold:  $1,220.90 down $1.50    (comex closing time)

Silver 15.19  UNCHANGED

In the access market 5:15 pm

Gold $1221.50.00

silver:  15.23


Let us have a look at the data for today.

At the gold comex today, we had a poor delivery day, registering 0 notices for nil ounces and for silver we had 0 notices for nil oz for the active March delivery month.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 212.17 tonnes for a loss of 91 tonnes over that period.

In silver, the open interest FELL by only 1333 contracts DOWN to 170,580 as the silver price was down by 7 cents with respect to Thursday’s trading . In ounces, the OI is still represented by .852 billion oz or 122% of annual global silver production (ex Russia ex China).

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

In gold, the total comex gold OI rose by 306 contracts to 497,522 contracts despite the fact that the price of gold was down $2.30 with Thursday’s trading.(at comex closing). I was expecting a larger contraction in OI in both gold and silver and as such expect continual raids in both metals

we had no changes in the GLD despite gold’s drubbing for the past 3 days/ thus the inventory rests tonight at 823.74 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 tonight,  and thus the Inventory rests at 328.914 million oz


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

1. Today, we had the open interest in silver fell by 1333 contracts down to 170,580 as the price of silver was down 7 cents with Thursday’s trading. The total OI for gold rose by 306 contracts to 497,522 contracts despite the fact that  gold was down $2.30 in price from Thursday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

off today

2b COT report/





i)Late  SUNDAY night/ MONDAY morning: Shanghai closed DOWN BY 21.61 POINTS OR 0.73% , /  Hang Sang closed FOR HOLIDAY  The Nikkei closed UP 131.62 POINTS OR 0.71% . Australia’s all ordinaires was CLOSED FOR THE HOLIDAY. Chinese yuan (ONSHORE) closed DOWN at 6.5161.  Oil ROSE  to 39.62 dollars per barrel for WTI and 40.46 for Brent. Stocks in Europe MOSTLY CLOSED FOR HOLIDAY . Offshore yuan trades  6.5222 yuan to the dollar vs 6.5161 for onshore yuan.



none today


Friday trading in China:

ii)Yuan weakens for the 6th straight day as China sends a signal to the USA not to raise rates once or less they will massively devalue sending shock waves around the globe.

( zero hedge)

Saturday morning: important
iii)The following story is a biggy!! The Chairman of an insolvent Steel company,
Dongbei Special Steel Group, hanged himself one day prior to a bond redemption.
Up until now, the state has always paid the interest to kick the can down the alley for a future inevitability. Obviously, the Chairman knew that that day of reckoning has arrived and that POBC will not let companies default.  This will set of a whole slew of bankruptcies, massive layoff and probably social disorder.
( zero hedge)

iv) It sure looks like China is preparing for massive layoffs.  However they do not want social unrest, so they warn officials that their jobs are on the line with citizens protest:

( zero hedge)

v)Sunday night/Monday morning

Early this morning, we get a report from New York based China Beige Book International, a corporation which tries to give an honest assessment of what is going on in China.  It revealed a huge plunge in their unemployment rate to a 4 yr low as China desperately tries to adjust from a smoke-stack export model to a domestic consumption model. Their problem is that they will have million of people unemployed and if China cannot get these people relocated, there will be massive, social unrest:

( zero hedge)


vi)Hugh Hendry is another extremely bright individual and we must always pay attention to what he says.  He was invited for a conversation with another brilliant individual by the name of Raoul Pal, a close friend of Grant Williams (Hmmm fame).  They have a paid webcast and their thoughts are always enlightening.

Today’s talk was about China.  Strangely Hendry went against his host as stated that if China devalues by 20%  (to 8 yuan/dollar)” the world is over, everything hits the wall”.  He states that the USA dollar will rise to astronomical heights, causing scarcity of that currency together with a collapse of all commodity prices and in turn, a collapse in emerging markets with huge defaults on their sovereign bonds etc.He describes if that happens, China will be king of a MAD MAX world and who would want that? Hendry states that the only way out for China is for a stronger yuan, yet with a high Debt to GDP ratio of 350% he does not know how this is possible.

We now have two competing forces out there on China:

a) Kyle Bass who states that China must devalue

b) Huge Hendry who believes that China can muddle along at current yuan levels as the percentage of world trade has not been hurt at all, despite the lower amounts of world trade.

this is a must see/read.

( zero hedge)



i)SCARY!! Belgian nuclear guard murdered Thursday night and had his access badge stolen.


ii)Like Japan the demographics in Europe is just awful as the birth rate is around 1.5 children per woman. There is just not enough new workers to pay for the retirees

basically all of Europe is bankrupt:
( zero hedge)

Russian and Middle Eastern Affairs

i) Interesting!!! Jordan blames Turkey for terror in Europe as Erdogan supplied the necessary stuff to ISIS.  They also blames Israel for not attacking ISIS on their borders.  The Israelis had two enemies right on their border with Syria, Hezbollah  and ISIS. Israeli did the correct strategy by letting both of them attack each other and they stayed out of their way:


( zero hedge)


ii) The ancient city of Palmyra has been rescued by Hezbollah forces and Iran. Putin congratulated ASSAD but no congratulatory  message was sent by Obama:

( zero hedge)


i) A very important warning from Deutsche bank.  They are stating that global trade has lagged behind GDP growth. They actually state that peak global trade occurred in 2007 and has been downhill since. I have always used the Baltic Dry Index as a barometer of global trade and with the index at just above 400, having fallen from 10,000 in 2009, you can visually see the writing on the wall.  Thus currency wars to get a little bigger piece of a declining trade is futile

ii) And continuing on the same theme as above, Wolf Richter describes how world trade has collapsed due to collapsing commodity prices and the higher uSA dollar:
( Wolf Richter/WolfStreet)


It is now official, the entire surge in price of oil was nothing but the biggest short squeeze ever


( zero hedge)


i)Our good friends over at Barrick are being continuing to be plagued with lawsuits over their failure to bring Pasqua Lama into production.

( Reuters/GATA)

ii)Doorknobs!! These idiots (New Gold) are hedging again:

( Kovan/NationalPost Toronto)


iii)We have Ted Butler’s latest piece.  I am not in agreement with his thesis that JPMorgan has acquired over 500 million physical oz. However  if he is right, it is criminal activity to the highest degree:  knocking down the price of a commodity so as to acquire it cheaply.

( Ted Butler)


iv) Bill Holter’s latest piece is entitled:





i)The final figures for 2015 are now in and the USA GDP came it as expected at 1.4% Corporate profits plunged.  However first quarter 2016 is heading southbound in a hurry:

( zero hedge)

ii)Although the TVIX or the double levered long VIX complex falls to record lows, something unusual is happening in that the number of shares outstanding for the TVIX has risen remarkably in a similar fashion to the Blackrock ETF of a few weeks ago. VIX is a volatility index and a rise in volatility means trouble for the market.  Is the Dow/NYSE reaching an airpocket?

(zero hedge)


iii) The so called “restaurant recovery” is now over in the USA as casual dining sales tumble for the 4th straight month.  It will be interesting if the BLS reports a higher bartender and waiter increase in jobs to be announced next week

( zero hedge)

iv)Personal income growth reported early this morning, is the weakest since Q3 last yr at 0.2%. However spending growth slowed 3.8% year over year. Spending was revised downward from that big spike in January. The consumer is just not spending because they ran out of money..( zero hedge)


v)Because spending fell with the revised first quarter report, the Atlanta Fed has no choice but to lower its  GDP for first quarter to 1% or less:

( zero hedge)

vi)And as expected the Atlanta Fed lowered its expectation of first quarter GDP to only .6%.  Janet Yellen has a severe problem!( zero hedge)


vii)Thanks to Obamacare, the USA citizens spent the most on health care this last year:

( zero hedge)

viii)The Illinois supreme court rejects Chicago’s Pension reform bid and this sets the stage for Chicago and Illinois’s insolvency:

( zero hedge)

ix)California raises its minimum wage to 15 dollars per hr. This will be phased in over 5 yrs:( zero hedge)


x)As Connecticut has a huge funding problem as the budget defict surges, they are seeking to tax the Yale University Endowment as a plug:

( zero hedge)
xi) Chris Powell, a native of Connecticut and editor of the Inquier  responds:
as he gives his thought on the above tax on Yale University:
( Chris Powell/Journal

xii)The hits just keep on coming:

First Valeant must testify under oath

Second: the firm may have a merger agreement violation on that 1 billion pharmaceutical acquisition of a female libido drug


( zero hedge)

xiii)For your enjoyment a full account of who Valeant rose to great heights from its infancy in 2009 to its now probable ultimate collapse.  Stockman states that there are other Valeants trading on the NYSE ready to blow

( David Stockman/ContraCorner)

xiv) Wrap up with Greg Hunter and Dr Paul Craig Roberts

(Greg Hunter/Craig Roberts



Let us head over to the comex:

The total gold comex open interest rose to 497,522 for a gain of 306 contracts despite the fact that the price of gold was down $2.30 in price with respect to Thursday’s trading. I expected a much deeper slide in OI. As I stated before the holiday weekend: “Expect our bankers to undergo relentless attacks on our two precious metals.” They have not disappointed us with their antics. 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, both scenarios were in order.  The front March contract month saw its OI fall by 24 contracts down to 28.We had 0 notice filed upon yesterday, and as such we lost 24 contracts or an additional 2400 oz will not stand for delivery. .After March, the active delivery month of April saw it’s OI fall by 26,977 contracts down to 125,328.  The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was  fair at 208,167. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was  good at 242,029 contracts. The comex is not in backwardation.  First day notice is this Thursday, March 31.  The options for the comex is over today.  However we still have LBMA options and OTC options which expire March 31.2016.

Today we had 0 notices filed for nil oz in gold.


And now for the wild silver comex results. Silver OI fell by 1333 contracts from 171,913 down to 170,580 as the price of silver was down by 7 cents with Thursday’s trading. The next big active contract month is March and here the OI fell by 71 contracts down to 116 contracts. We had 0 notices served upon yesterday, so we lost 71 contracts or an additional 355,000 ounces will not  stand for delivery. The next contract month after March is April and here the OI  fell by 15 contracts down to 340.  The next active contract month is May and here the OI fell by 2844 contracts down to 113,192. This level is exceedingly high. The volume on the comex today (just comex) came in at 22,469 , which is poor. The confirmed volume yesterday (comex + globex) was good at 45,101. Silver is now in backwardation until May at the comex.   In London it is in backwardation for several months.
We had 0 notices filed for nil oz.

March contract month:

INITIAL standings for MARCH

March 28/2016

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 64.30 oz


Deposits to the Dealer Inventory in oz NIL
Deposits to the Customer Inventory, in oz  4639.228 oz



No of oz served (contracts) today 0 contracts
(nil oz)
No of oz to be served (notices) 28 contracts(2800  oz)
Total monthly oz gold served (contracts) so far this month  696 contracts (69,600 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 192,293.3 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 3 customer deposits:

i) Into Delaware: 1812.651 oz

ii) Into HSBC: 897.577 oz

iii) Into Scotia:  1929.000 oz  (60 kilobars)


total customer deposits:  4,639.228 oz


Today we had 1 customer withdrawals:

i) Out of Brinks;  64.30 oz  92 kilobars


total customer withdrawals; 64.30  oz

Today we had 0 adjustment:


Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the Mar contract month, we take the total number of notices filed so far for the month (696) x 100 oz  or 69,600 oz , to which we  add the difference between the open interest for the front month of March (28 contracts) minus the number of notices served upon today (0) 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 (696) x 100 oz  or ounces + {OI for the front month (28) minus the number of  notices served upon today (0) x 100 oz which equals 72,400 oz standing in this non  active delivery month of March (2.2519 tonnes).  This is a good showing for gold deliveries in this non active month of March.
we lost 28 contracts or 2800 additional gold ounces will not stand for March delivery.
We thus have 2.2519 tonnes of gold standing and 10.38 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 2.2519 tonnes (March) + 7.99 (total Feb)- .940 (probable delivery on March 1) tonnes -.0434 tonnes (March 11,12,17,18) = 9.525 tonnes standing against 10.38 tonnes available.  .
Total dealer inventor 338,458.211 oz or 10.38 tonnes
Total gold inventory (dealer and customer) =6,825,855.787 or 212.31 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 212.31 tonnes for a loss of 91 tonnes over that period. 
JPMorgan has only 21.15 tonnes of gold total (both dealer and customer)
And now for silver


/March 28/2016:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 218,179.480. oz



Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil
No of oz served today (contracts) 0 contractsnil oz
No of oz to be served (notices) 116  contracts (580,000, oz)
Total monthly oz silver served (contracts) 1199 contracts (5,995,000 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 11,136,487.2 oz

today we had 0 deposits into the dealer account

total dealer deposit: nil oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 0 customer deposits

total customer deposits: nil oz


We had 3 customer withdrawals:

i) Out of Scotia:

60,480.190 oz

ii) Out of CNT: 181,749.000 oz???  How can this be possible?

iii) Out of Brinks:

5950.29 oz



total customer withdrawals:  218,179.480 oz



 we had 1 adjustment

i) Out of CNT:  29,505.43 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 0 contracts for nil 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 (1199) x 5,000 oz  = 5,995,000 oz to which we add the difference between the open interest for the front month of March (116) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing 
Thus the initial standings for silver for the March. contract month:  1199 (notices served so far)x 5000 oz +(116{ OI for front month of March ) -number of notices served upon today (0)x 5000 oz  equals  6,575,000 oz of silver standing for the March contract month.
we lost 71 contracts or an additional 355,000 oz  will stand in this delivery month.
The comex is one complete fabricated fraud.
Total dealer silver:  32.373 million
Total number of dealer and customer silver:   155.624 million oz
 The crooks did not remove many silver contracts from the entire silver OI complex.It sure looks like we are going to have a commercial failure in silver.
Friday, the CME released the important COT will gives up position levels of our major players.
First, let us over to the gold COT:
Gold COT Report – Futures
Large Speculators Commercial Total
Long Short Spreading Long Short Long Short
258,646 79,815 73,290 127,081 327,075 459,017 480,180
Change from Prior Reporting Period
10,987 1,668 -3,717 8,471 22,934 15,741 20,885
172 102 103 48 59 273 220
Small Speculators  
Long Short Open Interest  
51,562 30,399 510,579  
1,752 -3,392 17,493  
non reportable positions Change from the previous reporting period
COT Gold Report – Positions as of Tuesday, March 22, 2016
Our large speculators:
As expected, our large speculators that are long in gold added 10,987 contracts to their long side.
Those large specs that have been short in gold added 1668 contracts to their short side.
Our Commercials:
Those commercials that are long in gold added 8471 contracts to their long side.
Those commercials that have been short in gold added a whopping 22,934 contracts to their short side.
Our Small Specs:
Those small specs that have been long in gold added 1752 contracts to their long side
Those small specs that have been short in gold covered 3392 contracts from their short side.
Our commercials reverse again from last week and go extremely net short by another;14,463 contracts which is bearish.  Remember that the report is from Tuesday March 15 ending on Tuesday March 22. Out of a total 510,579 contracts, the commercials are short 327,071 contracts or 64.9% of all shorts. On a net short position, the commercials are 199,994/510,579 or 39.17%  of total positions.  Both are I believe record high positions.

And now for our silver COT:

Silver COT Report: Futures
Large Speculators Commercial
Long Short Spreading Long Short
82,933 19,504 18,377 47,743 124,985
6,327 971 -741 1,296 8,514
99 50 47 34 42
Small Speculators Open Interest Total
Long Short 175,775 Long Short
26,722 12,909 149,053 162,866
2,713 851 9,595 6,882 8,744
non reportable positions Positions as of: 154 123
Tuesday, March 22, 2016   ©
Our Large Speculators
Those large specs that have been long in silver added a large 6,327 contracts to their long side
Those large specs that have been short in silver added 971 contracts to their short side.
Our Commercials:
Those commercials that have been long in silver added 1296 contracts to their long side
Those commercials that have been short in silver added a whopping 8514 contracts to their short side.
Small Specs
Those commercials that been long in silver added a large 2713 contracts to their long side
Those commercials that have been short in silver added 851 contracts to their short side.
Our commercials go net short by another: 7218 contracts.
The commercials have 124,985 / 175,775 or 71.10% of all short positions
The commercials on a net short basis have 77,242/175,775 or 43.94%.
These also are record levels.

And now the Gold inventory at the GLD

March 28/no change in inventory at the GLD/Inventory rests at 823.74 tonnes

March 24.2016: a deposit of 2.08 tonnes of gold into its inventory/and this after a big drubbing these past two days??/Inventory rests at 823.74 tones

March 23/no changes at the GLD today despite the gold drubbing. Inventory rests at 821.66 tonnes

March 22./no changes in inventory at the GLD/Inventory rests at 821.66 tonnes

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 28.2016:  inventory rests at 823.74 tonnes





Now the SLV Inventory
March 28/no change in silver inventory at the SLV/Inventory rests at 328.914 million oz
March 24.2016/no change in inventory/rests tonight at 328.914 million oz/
March 23/we lost 1.428 million oz as a withdrawal today/SLV inventory rests at 328.914 million oz
March 22./ a huge deposit of 1.809 million oz of a silver deposit into the SLV/inventory rests at 330.342 million oz.
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 28.2016: Inventory 328.914 million oz
1. Central Fund of Canada: traded at Negative 7.5 percent to NAV usa funds and Negative 7.5% to NAV for Cdn funds!!!!
Percentage of fund in gold 63.8%
Percentage of fund in silver:36.2%
cash .0%( Mar 24.2016).
2. Sprott silver fund (PSLV): Premium to NAV falls to  3.35%!!!! NAV (Mar 24.2016) 
3. Sprott gold fund (PHYS): premium to NAV falls  to -0.51% to NAV Mar 24.2016)
Note: Sprott silver trust back  into positive territory at +3.35%/Sprott physical gold trust is back into negative territory at -0.51%/Central fund of Canada’s is still in jail.
Federal Reserve Bank of New York report on gold leaving NY shores:
Today, the FRBNY reports no change in gold inventory and thus no gold is leaving for Germany’s Bundesbank .
FRBNY gold in Feb 2016:  7995 million dollars worth of gold at $42.22
FRBNY gold for March 2016: 7995 million dollars worth of gold at $42.22
total gold departing:  zer0

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’Byre

off today



Our good friends over at Barrick are being continuing to be plagued with lawsuits over their failure to bring Pasqua Lama into production.

(courtesy Reuters)_

Barrick Gold to face U.S. group lawsuit over South American mine

Submitted by cpowell on Fri, 2016-03-25 06:04. Section: 

By Amrutha Penumudi
Thursday, March 24, 2016

A federal judge on Wednesday granted class certification for a U.S. class-action lawsuit filed against Barrick Gold Corp claiming that Barrick misstated facts of its now-halted Pascua-Lama gold-mine project on the border of Argentina and Chile.

The class certification means the world’s largest gold producer will have to face the U.S. lawsuit.

U.S. District Judge Shira Scheindlin in Manhattan said that shareholders who purchased Barrick shares from May 7, 2009, through Nov. 1, 2013 are a part of the class-action lawsuit.

Investors who bought Barrick’s common stock during this period have said Barrick touted Pascua-Lama as a world-class project even as it became clear that the project would fall short of expectations. …

… For the remainder of the report:



Doorknobs!! These idiots are hedging again:

(courtesy Kovan/NationalPost Toronto)


Once reviled, gold hedging makes an unexpected return

Submitted by cpowell on Fri, 2016-03-25 06:24. Section: 

By Peter Kovan
National Post, Toronto
Thursday, March 24, 2016

New Gold Inc. was braced for a vicious backlash from the investment community when it decided to hedge some gold production earlier this month.

After all, hedging is the gold industry’s ultimate dirty word. It became such a toxic subject during the last decade that most chief executives decided that even talking about it was off-limits. And New Gold is led by Randall Oliphant, who headed up Barrick Gold Corp. back when it had the biggest — and most reviled — hedge book in the business.

But the response to New Gold’s move wasn’t negative. Instead, almost everyone cheered.

“We’ve heard nothing but positive reactions from shareholders, analysts, and media people to what we did,” said Oliphant, New Gold’s executive chairman. “So that will give other people who want to do this sort of stuff some ammunition.” …

… For the remainder of the report:…

* * *

Australian Gold Miners Are Starting to Embrace Hedging Amid Strong Prices

By Peter Ker
Sydney Morning Herald
Thursday, March 24, 2016

Once upon a time, Newcrest Mining was adamant that shareholders did not want the company to hedge its gold production.

“Our investors are looking for spot price exposure,” former chief executive Greg Robinson said in 2013, insisting that shareholders could hedge their own positions by purchasing shares in other companies and commodities.

However, with the gold price near record highs in Australian dollar terms, the largest gold miner on the ASX has decided to embrace hedging.

Newcrest confirmed on Thursday a portion of the gold produced at the Telfer mine in Western Australia had been hedged until June 2018. …

… For the remainder of the report:…


Here is Ted Butler’s latest piece.  I am not in agreement with his thesis that JPmorgan has acquired over 500 million oz.  If he is right, it is criminal activity to the highest degree:  knocking down the price of a commodity so as to acquire it cheaply.

(courtesy Ted Butler)

Five Years That Changed Silver Forever

Theodore Butler


March 24, 2016 – 8:14am

Ask any casual observer of the silver market what happened to the metal over the past five years and you’re likely to hear how the price fell from nearly $50 in April 2011 to under $14 at recent lows – a stunning decline of 70%. If you inquire further, you’ll likely hear a number of reasons for the decline, ranging from an oversupply of the metal, a strengthening dollar, falling inflation rates, and the collapse of the commodities markets.

What you will not hear is how a specific development has transpired over the past five years that ensures a coming explosion in the future price of silver beyond the most bullish predictions and optimistic upside targets. You’re also not likely to hear that the stunning decline in the price of silver over the past five years was a deliberate feature of an unusually bullish development that promises to change forever the future price landscape.

While I have closely researched the silver market for more than 30 years, uncovering more original findings (including silver’s price manipulation) than anyone, I fully admit that I did not immediately see the monumental change that began to occur five years ago. This astonishing development that had begun in 2011 did not come clear to me until late 2013.

I discovered that the largest U.S. bank, JPMorgan Chase, began to accumulate massive amounts of physical silver starting in 2011 and has continued that accumulation to this day. All told, I believe JPMorgan has acquired somewhere between 400 and 500 million ounces, the largest privately held stockpile of silver in history.

What this means is that the future price of silver is now destined to move far higher in price than anyone can imagine. I wasn’t looking for something to come along that would supersede my already ultra-bullish outlook on silver, but that is what occurred. That’s because the obvious motive JPMorgan has whenever it acquires a large investment position is to profit on that position to the greatest degree possible. And since JPMorgan is now in position to profit enormously when silver prices soar, that means anyone holding silver will profit as well.

How did JPMorgan come to acquire hundreds of millions of ounces of physical silver? It was a circuitous route, beginning in the financial crisis of 2008 when JPMorgan took over a failing Bear Stearns, then the largest short seller in COMEX gold and silver futures contracts. JPMorgan stepped smoothly into Bear Stearns’ role as the main silver and gold price manipulator and proceeded to drive the price of silver from $21 in March 2008 to under $9 through massive short sales on the COMEX. In the years that followed, JPMorgan continued its new role as the largest short seller in COMEX silver and reaped billions of dollars in ongoing profits by shorting silver on price rallies and buying back those short positions after it rigged the prices lower.

With manipulative intent and practice, JPMorgan continued to make illicit profits on the short side of COMEX silver until late 2010. Then a developing physical shortage in silver drove prices to almost $50 by the end of April 2011. JPMorgan was not prepared for the developing physical shortage and the price run up nearly crippled the bank. That’s when it dawned on JPM that it was on the wrong side (the short side) of silver and the bank resolved to get on the right side – the long side. But first, JPMorgan had to get off the short side.

JPM did this by causing silver futures prices to plummet with the full consent of the COMEX and government regulators at the CFTC, a process that has continued to this day. JPM regained control of silver prices on May 1, 2011 and by driving prices sharply lower killed off the developing investment demand that was causing the physical shortage. But while JPMorgan regained control of silver prices on the COMEX, it could not buy as many futures contracts as it desired without causing prices to soar – it needed another angle. That other angle was for the bank to begin to buy physical silver while it continued to sell short COMEX paper futures contracts. This way, JPMorgan could have its cake and eat it too – continuing to profit on paper short sales while acquiring physical silver at the depressed prices it had created. I labeled JPMorgan’s actions as the perfect crime in a public article in December 2014.

JPMorgan behaved illegally in manipulating prices lower while accumulating all the physical silver it could. However, there is no limitation on what any entity can hold in a physical commodity position. Limitations exist (loosely enforced) on what traders can hold in futures and other derivatives, but no such limitations apply to physical positions. This cleared the way for JPMorgan to hold as much physical silver as it could. Since the price of COMEX silver determines the price for silver throughout the world, this put JPMorgan in the catbird’s seat, by enabling it to depress the COMEX price and then scooping up physical silver in prodigious quantities and at ridiculously depressed prices.

As far as the forms of physical silver that JPMorgan has acquired over the past five years, the simple answer is in any form that could be acquired in size. Most of the silver that JPMorgan acquired was in the form of 1,000 ounce bars, the industry standard for silver and the kind deliverable on COMEX futures and held in the worlds silver ETFs and other investment vehicles. JPMorgan has secured hundreds of millions of ounces from the big silver ETF, SLV, and in deliveries against COMEX futures contracts, some of it held in JPM’s own COMEX warehouse, which opened for business in May 2011 and is now the largest COMEX silver warehouse (confirming my timeline). Their warehouse now holds 70 million ounces and is their most visible holding. Harder to see is the 100 million ounces they likely have in their London warehouse where they moved out 100 million ounces of other people’s silver to make room for their own in 2012.

But JPMorgan has also bought silver in the form of American Silver Eagles and Canadian Maple Leafs to the tune of 150 million ounces over the past five years, quickly re-melting the coins into 1,000 ounces bars because it would be impossible to sell so many coins in coin form. In fact, the curious riddle of record sales of Silver Eagles and Maple Leafs over the past five years coupled with bona fide reports of weak retail sales of these coins was an important clue that someone big was buying many of the coins, roughly 50% of all such coins sold.

When I say I wasn’t looking to uncover the most bullish development ever in silver that is an understatement. But as an analyst, I look to the data first and foremost. Not only has that data tipped me off to what JPMorgan has been up to, the continuing flow of public data confirm my conclusion daily. Everything from COMEX silver warehouse movement, deliveries against futures contracts, changes in the big silver ETF, SLV, sales of silver coins from the U.S. and Royal Canadian Mints point to the massive accumulation of silver by JPMorgan. They are positioned to make $100 billion or more in a runaway silver market. They will make $1 billion on a $2 rise in silver.

The very last thing I would be interested in at this stage of my life, is to come up with some wacky premise that threatened to undermine many of my previous findings. I studiously avoid anything that would damage a reputation I have spent decades constructing. On the other hand, if I have discovered the most shockingly bullish silver development ever, how could I not proclaim it far and wide?

I have discovered that JPMorgan has accumulated more physical silver than any private entity in history and I don’t care if great numbers of observers come to agree with me or not. I will openly discuss this with anyone who has questions, but most importantly I would remind you that if I am correct in my assertion anyone who aligns themselves with what JPMorgan has done and buys silver will most likely reap financial rewards of truly amazing proportions.

Ted Butler

March 24, 2016




And now Bill Holter with his very important piece:




“The rally you never sell”!  This is a topic Jim and I have spoken of and just recently discussed in our latest recorded chat.  This is also a topic very fitting to start off with for our “gold subscribers” because of where we are economically and financially on a global basis.  Hopefully as you go through this missive, a light bulb will go on (if it has not already) and fully understand that “when and how” are not really relevant, the big question is “what”, I’ll explain.
  We all know the system as a whole has hit “debt saturation” levels where even sovereign treasuries and central banks have been stretched.  It is no longer just about the banks or financial institutions, the danger is now risen to the level of “countries”.  Please remember, the 2008 episode was aborted (saved) ONLY because sovereign treasuries and in particular central banks stepped in and flooded the world with liquidity.  Since we now have negative rates permeating the financial world, it tells us central banks are approaching their greatest fear of “pushing on a string”.
  When looking at the real economy, we know from simple deduction and first hand views that the global economy is at best stagnant and most probably shrinking (especially if you look at trade numbers).  We also know this stagnation or decline is occurring AFTER eight years of total monetary and fiscal ease.  Call what has happened a period of “helicopter money” if you will because it is exactly what they’ve done …yet we now run again into tightening liquidity conditions.
  What do the above two paragraphs have to do with “the rally you never sell”?  They both lay the groundwork or foundation for our final conclusion!  The thought process has gone like this; the central banks have got the market’s back and they will be able to tighten once “escape velocity” is reached …tightening will ultimately be bad for gold and silver.  That was the theory, the reality is quite different!  As we have suggested all along, “printing” currency has never worked throughout history and would not work this time.  Here we are with proof positive of a failed experiment, negative interest rates are your proof!
  With the above as groundwork, if we saw gold move up to $1,700 and Silver up to $30 next month …why shouldn’t we take some profit and wait for a pullback?  Remember we spoke of “when and how” early on.  “When” do you sell and “how” (or why) did the rally occur to start you thinking of taking profits?  I would submit that “what” is the most important question.  What will you sell your gold for?  Please do not confuse “what” in this question with “why would you sell your gold?”. 
  Our question of “what” means for what will you trade your gold?  For dollars?  For euros, yen, pounds or any other currency?  Do you see where this is going?  I know many people made gold purchases “to make money”, in reality this is a horribly wrong thought process!  Since 2008 I have told people they should purchase gold or silver as a way to get OUT OF DOLLARS …as a way to get capital OUT OF THE SYSTEM.  Why in the world would you wake up one day with gold over $2,000 an ounce and “deposit” your capital back into they system?  When writing “what” will you trade your gold for it was meant literally.  Will you trade for currencies of countries that are already known to be mathematically bankrupt? 
  Before wrapping this up we need to look at one more area that is taken for granted but certainly should not be.  The area is “contacts” specifically and the rule of law in general.  Let’s look at banking first.  It used to be you deposited YOUR money INTO the bank, this has all changed.  Now when you “deposit” money you are LENDING it to the bank and (bail in) legislation has already been written into law.  Another area of course would be all the “paper” gold outstanding that can never perform.  We already know  that mathematically there are well over 100 ounces (over 300 on COMEX) of gold contractually obligated for every one real ounce available to deliver.  I would ask you this, would you bet your net worth on a game of musical chairs with more than 100 contestants but only one chair???  Of course you wouldn’t so why would consider an ETF or any other “promise” in lieu of real metal?
  To finish, we believe this IS the rally in gold that should never be sold until there is some sort of currency with real backing that can be trusted.  Only then can you trade your gold, when you can receive in return a trustworthy currency.  This is all about credit seizing up and a systemic change occurring.  The two biggest bears on gold, Harry Dent and Martin Armstrong say this almost exactly but come to the conclusion gold will collapse in price.  This is simply laughable.  Dent calls for credit collapse yet he believes the biggest debtor on the planet (the U.S.) will thrive …and the IOU’s from this deadbeat debtor will soar in value.  Armstrong believes we face a societal collapse and possibly governmental collapse.  Would you rather have gold buried in your back yard or electronic digits held in a banking institution where (bail in) legislation already exists to steal your balance?  Armstrong makes no sense whatsoever when he says the IOU’s  (dollars in this case) of any collapsed government can appreciate in value versus gold or silver.  A good illustration might be how many Confederate dollars does it take to purchase one ounce of gold today?
  No Ponzi scheme can unwind slowly.  When the current Ponzi scheme breaks you will have NO WARNING whatsoever.  In our opinion, it will be completely over within 48 hours and the markets will be locked up and you “locked in” to whatever you have … and “locked out” of whatever you don’t have but would like to!  Technical analysis will be worthless and of no help.  In a world where ALL ASSETS are nothing more than promises, gold and silver will do what have for 5,000 years.  They promise nothing as they need not promise anything but what they ARE, MONEY.  REAL MONEY that will have real value when the current credit system collapses and greater real value whenever a new system gets up and running!
  On a separate note, many of you know I have partnered with Jim Sinclair and had planned a “premium” site.  Our site is now live as of today and can be found at JSMineset Gold Is Now Live! :: Jim Sinclair’s Mineset .  My work will largely in the future only be found through subscription though I will post one or two “public” articles per month.  In addition Jim and I plan to “interview” each other once or twice per month and also interview a special guest once per month.  If you have enjoyed and or learned via my writings in the past, please consider subscribing to continue following my work!
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome,

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 6.5161 / Shanghai bourse  IN THE RED, DOWN 21.61 OR 0.73%/:  / HANG SANG CLOSED FOR THE HOLIDAY

2 Nikkei closed UP 131.62 or down .77%

3. Europe stocks MOSTLY CLOSED FOR THE HOLIDAY /USA dollar index UP to 96.30/Euro DOWN to 1.1158

3b Japan 10 year bond yield: FALLS   TO -.084%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 113.52

3c Nikkei now JUST BELOW 17,000

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

3e WTI::  38.86  and Brent: 39.65

3f Gold DOWN  /Yen DOWN

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS  to 0.180%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate RISE to 9.97%/: 

3j Greek 10 year bond yield RISE to  : 8.77%   (YIELD CURVE NOW INVERTED)

3k Gold at $1217.60/silver $15.25 (7:15 am est) 

3l USA vs Russian rouble; (Russian rouble UP 5/100 in  roubles/dollar) 68.12

3m oil into the 39 dollar handle for WTI and 40 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 .9774 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0906 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  + .180%

/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 1.91% early this morning. Thirty year rate  at 2.68% /POLICY ERROR)

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

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

Futures Rise In Thin Trading On Back Of Yen Weakness; Europe Closed

With European markets closed across the continent on Monday as the Easter holiday continues, overnight Asia was busy with the Shanghai Composite letting off some steam, and closing down 0.7% at session lows on concerns the Shanghai and Shenzhen home bubble have been popped prematurely by the politburo.

Japan was a different story with the Yen sliding following a report by the Sankei newspaperthat Abe will announce in May his intention to delay the planned April 2017 sales tax hike from 8% to 10%, coupled with additional reports that Japan will unveil a major fiscal stimulus (and just on Friday Abe said he is “not thinking at all about supplemental budget” at this time).

This turned out to be nothing but the latest Japanese market trial balloon, because hours after the report, Abe reiterated that Japan’s sales tax will indeed be raised as scheduled in April 2017 “barring a crisis like the one caused by the collapse of Lehman Brothers”, while cabinet secretary Suga said there is no truth in the report that the government has decided to delaythe sales tax hike. By the time these denials hit, however, the FX momentum algos were engaged, and the USDJPY jumped, leading to seven straight days of Yen losses, the longest losing streak since October 23 and in the process sending the Nikkei higher by 0.8%.

And thanks to the low volume, illiquid futures market, U.S. equity index futures followed the Japanese rebound, with the E-Mini rising 0.3% to 2034.5 in the thin premarket trade. Dollar falls slightly, reversing earlier gains, while gold also declines. Oil rises for first day in 3. Traders are pricing in a 6% chance of a U.S. rate increase in April, and about 38% probability of a boost in June, according to Fed funds futures. Increasingly many strategists are concerned that the market is underplaying the risk of a June rate cut and as a result odds will have to rise substantially in the coming weeks so the Fed will avoid a “surprise.”

Markets Snapshot

  • S&P 500 futures up 0.3% to 2035
  • Stoxx 600 closed
  • MSCI Asia Pacific up less than 0.1% to 128
  • Nikkei 225 up 0.8% to 17134
  • Hang Seng closed
  • Shanghai Composite down 0.7% to 2958
  • S&P/ASX 200 closed
  • US 10-yr yield up less than 1bp to 1.91%
  • Dollar Index down 0.06% to 96.22
  • WTI Crude futures up 1.1% to $39.88
  • Brent Futures up 0.8% to $40.78
  • Gold spot down less than 0.1% to $1,216
  • Silver spot up 0.3% to $15.23

Top Global News

  • Japan’s NTT to Acquire Dell Units for $3.055b: NTT Data to acquire Dell Systems Corp. and other units related to IT services.
  • Sanders Says He’s Seized Momentum After Crushing Caucus Wins: Sanders received 73% in Washington state, day’s biggest delegate prize, 70% in Hawaii, 82% in Alaska.
  • Bull Market in U.S. Stocks Goes AWOL as History Rewards Patience: S&P 500 Index hasn’t seen a new high in 10 months, longest streak outside a bear market since 1995.
  • Avon Activists Near Deal to Call Off Proxy Fight: WSJ: Deal would allow Barington Capital, NuOrion Partners to approve new independent director.
  • Third Point Warns Seven & I Against Nepotism Deciding CEO: Seven & i CEO Toshifumi Suzuki, 83, is having chronic health problems; investors fear he may try to name his son, Yasuhiro Suzuki, to lead Seven?Eleven Japan, eventually become president of Seven & i, Loeb wrote.
  • Microsoft Said to Meet With Possible Yahoo Bidders Seeking Funds: MSFT met with possible bidders for Yahoo! such as Verizon, private equity firms, who may seek backing from the software maker for their offers.
  • Fed’s Williams Sees ’Huge Impact’ on U.S. From China, Brazil: “The real issue is the global financial and economic developments. There’s uncertainty about what’s happening around the world and how that feeds back to the dollar and the U.S. economy,” Williams, who doesn’t vote on monetary policy this year, told CNBC.
  • ‘Batman v Superman’ Soars in Boost to Warner’s DC Franchise: Film opened with weekend sales of $170.1m in North American theaters, meeting estimates, giving studio a new foundation to build on.
  • Qlik Tech Said to Hire Morgan Stanley for Possible Sale: Reuters: Co. has begun exploring strategic alternatives.
  • Oil Halts Two-Day Slide After U.S. Rig Count Resumes Decline: Rigs targeting oil in the U.S. fell by 15 to 372, according to Baker Hughes.

Looking quickly at regional markets, we start in Asia where equities traded mixed with Topix, Nikkei 400 outperforming and CSI 300, Sensex 30 underperforming. As noted earlier the Chinese weakness was led by concerned about the potential bursting of the housing bubble: “developers are facing some headwinds as these measures are likely to cause immediate negative impact on the demand side,” said Wu Kan, fund manager at JK Life Insurance in Shanghai. “The market is in the stage of building a bottom so we’ll see lots of ups and downs.” 8 out of 10 sectors rise with health care, utilities outperforming and finance, energy underperforming.

Over the weekend, we got the latest China Jan.-Feb. Industrial Profit data, which rose 4.8% Y/y while China Feb. Diesel Stocks Increased 38.26% M/m; Shanghai New Home Sales Rise 48% on Week, Uwin Says.

Asian Top News

  • Online Property Companies Soar on China’s Real Estate Recovery: Leju’s ADRs jump most on Bloomberg China-US Equity Index
  • Woes Descend on Japanese IPOs as Stocks Tank on First Day: 6 of 21 cos. this year opened below their offer price
  • Amazon to Flipkart Clash in India’s Nascent E-Commerce Market: Battlefield challenges accelerate pace of innovation
  • Indian Paradox: As Economy Soars Modi Reforms Face Big Headwinds: IMF warns prosperity at risk without structural reforms
  • Pakistan Vows to Hunt Terrorists After Easter Sunday Carnage: At least 65 people killed, death toll may rise further

European markets are closed today due to the Easter holiday.

European Top News

  • Belgium Conducts More Raids in Aftermath of Terror Attacks: Authorities conducted 13 raids in Belgium on Sunday, detaining nine people as part of their efforts to prevent further terrorist attacks.
  • Abengoa Wins Support of Creditors for Extension: Europa Press: Co. lined up enough support from creditors to ask court in Seville for an extension of several months in process of negotiation of financial restructuring; Abengoa Presents Standstill Request, Has 75% Creditor Support

FX markets are in consolidation mode for the most part, with the run up to US payrolls on Friday a usually quiet affair. This should keep many specs on the side-lines for now, but there looks to be some respite for GBP despite the uncertainty over the Brexit vote  overwhelmingly restrictive. Nevertheless, Cable has recovered towards 1.4200, but any move through the figure should find plenty of sellers from 1.4225-50. EUR/GBP should find some support from the mid .7800’s also, though larger support not until the mid-.7700’s.

USD/JPY has made some decent gains from the mid 111.00’s, but will start to find better offers ahead of 114.00, with 113.65¬70 capping the Asian session today. The commodity currencies are still looking heavy, but with Oil up off the lows, USD/CAD is threatening a return through 1.3200. All very tight so far, with much of Europe away, but North American players may take advantage of thin markets.

In Commodities, the energy complex was in a consolidation mode amid holiday thinned trading volumes and ahead of the eagerly awaited meeting by oil producing countries on April 17th to discuss the output freeze plan.

Bulletin Headline Summary from Bloomberg

  • Treasuries fall in overnight trading while European markets closed for holiday and Asian equity markets mixed; week’s U.S. auctions begin today with $26b 2Y notes, WI yield 0.87%, compares with 0.752% awarded in Feb., was 21st straight 2Y auction to stop through or even with WI yield at bidding deadline.
  • Hedge funds are crowding into U.S. Treasuries, and that has bond traders bracing for more turbulence. While the Federal Reserve doesn’t break out hedge-fund ownership, a group seen as a proxy increased its holdings to a record $1.27 trillion
  • Japanese primary dealers say negative bond yields are here to stay in 2016; bond investors are still trying to adjust to the conditions that have turned yields on 70% of the market negative; Japanese banks are sitting on profits made last year and can withstand the impact of negative rates, according to the Bank of Japan
  • Gold has been thrown onto the defensive by a resurgent dollar, sinking to the lowest in more than a month as the U.S. currency’s rally hurts the allure of the metal that’s been the best-performing commodity of 2016
  • Oil’s rebound to about $40 a barrel means some investors are nursing losses after betting that Saudi Arabia would abandon its three-decade-old currency peg
  • It’s been barely a month since investors first started betting on a copper rally, and they’re already on the retreat. Money managers cut their wagers on price gains for a second week, pulling back just before futures capped the worst slump in a month
  • Terrorism probes advanced across Europe in the wake of last week’s deadly bombings in Brussels, with suspects arrested in Italy and the Netherlands, and Belgium carrying out police raids in several areas
  • Sovereign 10Y bond yields mostly unchanged; European equity markets closed, Asian mixed; U.S. equity-index futures rise. WTI crude oil higher; gold and copper fall



In order to catch up here is a summary of Friday trading in China:

Holiday Market Summary

With all of Europe and the Americas closed for holiday, what little market action there was overnight came out of Asia, where China once again was engaged in its last hour “National Team” market manipulation, which saved the SHCOMP from a red close after the now traditional last hour buying spree, pushed the Shanghai Composite from red on the session an hour before close to near the highs of the day.

Elsewhere Japan’s Nikkei rose 0.7% after tracking the weakening yen as it always does tick for tick, which in turn dropped on some more BOJ jawboning (BOJ board member Harada says negative rate can go lower and there is room for more easing), although the biggest weekly gain in the USDJPY in two months was driven by news that Japanese investors bought record sum of foreign bonds and stocks last week as local investors continue their “silent bank run” (first noted two months ago) in an attempt to get away from Japan’s oppressive negative rates.

And since this, by definition, is Yen-negative, and since the entire Japane stock market is a function of currency strength, Japan’s capital flight from local stocks was…. bullish for local stocks.

Ah, the magic of centrally-planned markets.

To summarize, the MSCI Asia-Pacific Index adds 0.2%, as gains in consumer shares across the continent outweighed weakness in telecom and health care stks.

Away from Asia, in less than an hour the BEA will release its final revision to Q4 GDP; as a reminder the second revision was for a 1.0% print but since this data is woefully old, the markest will certainly ignore it – especially since it is closed – and will be far more focused on the Q1 GDP which yesterday the Atlanta Fed estimated has tumbled as low as 1.4% after hitting 2.7% just over a month ago.


i)Late  SUNDAY night/ MONDAY morning: Shanghai closed DOWN BY 21.61 POINTS OR 0.73% , /  Hang Sang closed FOR HOLIDAY  The Nikkei closed UP 131.62 POINTS OR 0.71% . Australia’s all ordinaires was CLOSED FOR THE HOLIDAY. Chinese yuan (ONSHORE) closed DOWN at 6.5161.  Oil ROSE  to 39.62 dollars per barrel for WTI and 40.46 for Brent. Stocks in Europe MOSTLY CLOSED FOR HOLIDAY . Offshore yuan trades  6.5222 yuan to the dollar vs 6.5161 for onshore yuan.

 FIRST:  report on Japan

none today

SECOND: report on China

Friday trading in China:


Yuan weakens for the 6th straight day as China sends a signal to the USA not to raise rates once or less they will massively devalue sending shock waves around the globe.

(courtesy zero hedge)

The Threat Continues: Yuan Weakens For 6th Straight Day – Longest Losing Streak In 2 Years

PBOC fixed the Yuan at its weakest in 3 weeks, pushing the devaluation streak to its longest since early January. However, Offshore Yuan has now dropped over 1.1% against the USD, extending losses for the 6th straight day to 3-week lows. This is the longest streak of weakness in the offshore Yuan since April 2014.

It appears EUR and JPY took enough pain so the basket is reverting to the USD again…

What’s the opposite of passive-aggressive as a clear message is being sent to The Fed –tighten and we unleash the Yuan-weakness-driven turmoil…

Saturday morning: important
The following story is a biggy!! The Chairman of an insolvent Steel company,
Dongbei Special Steel Group, hanged himself one day prior to a bond redemption.
Up until now, the state has always paid the interest to kick the can down the alley for a future inevitability. Obviously, the Chairman knew that that day of reckoning has arrived and that POBC will not let companies default.  This will set of a whole slew of bankruptcies, massive layoff and probably social disorder.
(courtesy zero hedge)

Chairman Of Insolvent Chinese Steel Company Hangs Himself Day Before Bond Maturity

Back in October when we first looked at ground zero of the commodity price collapse, we found something striking: as of the end of 2014, one half of China’s commodity companies with corporate debt were totally insolvent – based on Macquarie data they were unable to cover even one interest payment (let along debt maturity) with existing cash creation.

And since in the intervening time period, both commodity prices have dropped far lower, while Chinese corporate debt has proceeded to soar exponentially, we said it was “safe to assume that up to two-thirds of Chinese commodity companies are now at imminent danger of default, as they can’t even generate the cash to pay down the interest on their debt, let alone fund repayments.”

We concluded that “we fully expect this to be the source of the next market freakout: when the punditry turns its attention away from macro China, which has more than enough problems to begin with, and starts to focus on the cash flow devastation in China at the micro, or corporate, level.

To be sure, the Chinese government has done everything in its power to delay this day of reckoning and mask just how extensive the devastation at the local level is, by having its entire focus on the recently concluded People’s Congress on the topic of sustainability and debt leverage, going so far as to propose a wholesale, and utterly mind-boggling, debt-for-equity exchange at the bank level, one which would involve the nationalization of China’s insolvent commodity enterprises. Alas, we along with most rational observers, are skeptical this plan would ever get off the ground, as it would mean encumbering banks not with secured if impaired loans, but with unsecured equity in still insolvent companies, in the process making China’s solvency problems even worse.

That said, the punditry has indeed started to focus away from macro China and to the “devastation at the corporate level”, most notably in a recent Reuters article which suggested that “China’s campaign to slim down its bloated industries could be derailed by more than $1.5 trillion of debt in its steel, coal, cement and non-ferrous metal sectors, which threatens to overwhelm local banks.

The story is well known: China is providing more than 100 billion yuan ($15 billion) in the next two years to handle layoffs from coal and steel, but that will only be made available once debts have been settled. Critics say there is no clear mechanism for tackling the debt burden, which will put huge strain on the weakest sections of the banking sector.

The debt figures, revealed in papers submitted to China’s parliament this month, highlight the dilemma facing state firms grappling with surplus capacity and how difficult it will be to pull off this central plank of Beijing’s economic reform plans.

Costs for the estimated 1.3 million coal-sector layoffs alone are as much as 195 billion yuan, and coal industry delegates attending parliament urged government to provide more support to deal with the mounting debts of hundreds of stricken “zombie” firms.

* * *

A lawyer who handles steel industry non-performing loans for mid-sized Chinese banks said: “Banks’ fear is not without reason. The steel sector’s continued slump increases the difficulty of disposing of outstanding non-performing loans.”

The four sectors targeted in the battle against overcapacity owe around 10.2 trillion yuan ($1.56 trillion), according to documents submitted to parliament by Wang Mingsheng, head of Anhui-based coal firm Huaibei Mining.

China’s statistics bureau puts coal and steel debts alone at 8 trillion yuan, of which about a third is bank debt. If 20 percent of that were to go bad in 2016, which industry analysts say is not unrealistic, it would raise Chinese banks’ non-performing loans by nearly half.

Therein, as the bard said, lies the rub, and explains why China will continue jawboning and talking instead of taking any decisive action as there is simply no effective way out: once the debt starts being marked to something resembling fair value, it will unleash a tsunami of insolvencies which Beijing will be helpless to stop, which would then lead to mass layoffs in the tens of millions, social unrest and possibly culminating with civil war as tens of millions of angry workers are no longer able to make enough money to feed their families.

* * *

And while Beijing dithers, and does its best to kick the can as far as it can without doing anything, it was too late for one person: on Friday morning, Dongbei Special Steel Group reported that the company’s Chairman Yang Hua, 53, was found dead after hanging himself in his residence. 

We tried to find if the company is at or near insolvency and were unable to confirm this suspicion until last night, when a Chinese news report confirmed that as we expected, the company is indeed insolvent and will most likely be unable to make a 800 million yuan bond payment. To wit:

Dongbei Special Steel announced on the evening of March 25 that, due to tight liquidity, deposit principal and interest payment uncertainty, 800 million yuan bonds maturing 27 15 Eastern Steel CP001 (called the Northeast special steel Group Co., Ltd. 2015 year the first phase of short-term bonds) or face default.

It is reported that the current short margin issue size of 800 million yuan, 6.5% interest rate, the total amount of principal and interest payable of 852 million yuan, the lead underwriter for the China Development Bank.

Joint credit 25 afternoon announcement in Chinese currency network, in view of the Northeast Special Steel, chairman of death by hanging and 15 Eastern Steel CP001 is about to expire payment of principal and interest, will be included in the Northeast Special Steel lowered the credit rating watch list.

At 13:20 on the 24th, the Dalian City Public Security Bureau received a report, found that the chairman Dongbei Special Steel Group Co., Ltd., party secretary Yang Hua (male, 53 years old) Death by hanging at his residence. At present, the authorities are conducting investigations.

But why is this a problem: historically the Chinese government, either directly or indirectly through state-owned banks has mostly bailed out insolvent companies, especially those in the commodity sector. Has something changed this time? It appears the answer is yes.

Earlier this week, Caixin reported that Guangxi Nonferrous Metals Group Co., a state-owned enterprise in the southern region of Guangxi, said in a statement given to the Shanghai Clearing House, on February 22 that it filed an application for bankruptcy in Nanning Intermediate People’s Court in December. What makes this bankruptcy particularly notable is that Shanghai Clearing House is a state-backed financial institution for the interbank market.In other words, the government is now allowing even state-backed companies to go under, a radical departure from its recent bailout ways.

Guangxi Nonferrous owed 14.51 billion yuan to 108 creditors, namely subsidiaries, financial institutions, suppliers, construction companies and private bondholders. The largest creditors are a subsidiary named Guangxi China Tin Group Co. Ltd., which is owed 1.63 billion yuan, and China Development Bank, which holds a debt of 1.60 billion yuan.

The firm has received government subsidies but still reported a loss of 2.29 billion yuan from 2012 to 2014, its financial reports show. In June last year, Guangxi Nonferrous said it was having difficulty repaying its bonds, citing excess capacity and falling prices.

Guangxi Nonferrous was founded in 2008 in Nanning by the State-owned Assets Supervision and Administration Commission, a central government agency that oversees state-owned enterprises, with registered capital of 1.16 billion yuan. The Guangxi government wants to protect its nonferrous metals industry.

“The nonferrous industry is facing downward pressure and the company had limited return on new investments in the past few years,” a person close to Guangxi Nonferrous said. “These factors have resulted in tight cash flow.”

All of this was expected and is proceeding just as we warned last October: after all there is only so far you can stretch reality before the lack of cash flow catches up to you.

But what makes this default especially curious, in addition to the fact that the bankrupt company is an SOE, is that the lender in the case of Guangxi is the same as that behind the imminent, and now tragic bankruptcy, of Dongbei: China Development Bank.

The problem was solved when China Development Bank agreed to help, a bank employee told Caixin. But Guangxi Nonferrous defaulted on two other bond payments that were due in November and February, he said. The company is being restructured, several people with the knowledge of the matter said.

Guangxi Nonferrous’ executives met with creditors on March 18 to discuss restructuring, but no detailed plans were drawn up, the sources said. The management team said at the meeting that the Guangxi government promised to see that the restructuring was done in six months.

And while we lament that there is no way to buy CDS on China Development Bank, these two defaults hint at big trouble ahead for insolvent corporate China.

For the past four years China had effectively bailed out and otherwise “saved” all of its insolvent companies, but that period of wholesale rescues now appears to be over: are these two defaults confirmation that the tipping point in how Beijing handles bankruptcies, has finally arrived.

If so, how many more suicides by hanging (or otherwise) are imminent for China’s commodity, and financial, sectors. One thing we know is that courtesy of $36 trillion in Chinese bank “assets”, amounting a whopping 367% of GDP…

…. the short answer is “a lot.”


It sure looks like China is preparing for massive layoffs.  However they do not want social unrest, so they warn officials that their jobs are on the line with citizens protest:

(courtesy zero hedge)

China Warns Officials: Allow Social Unrest, Lose Your Job

To be sure, there are always going to be financial and geopolitical landmines and every once in awhile we – and by “we” we’re referring to the market, or the country, or humanity, or whatever collective you want to choose – are going to step on one on the way to ushering in a black swan event.

But when we look out across markets and across the political landscape it’s difficult to escape the feeling that there are more black swans waiting in the wings – so to speak – than usual. There’s the threat of a dirty bomb being detonated in a crowded Western European urban center for instance. Or the chance that Turkey ends up “accidentally” killing a Russian or Iranian soldier while shelling the Azaz corridor. And how about the possibility that China tries to save its economy by chancing a 30% devaluation of the yuan and inadvertently plunges the world into a crisis far worse than 2008?

The interesting thing to note about the third crisis event listed above is that an economic implosion in China may spawn a black swan far larger than that which would emanate from a crisis in the country’s banking sector and/or a deeper devaluation of the RMB.

As we’ve discussed on multiple occasions of late, China desperately needs to purge its economy of excess capacity. The industrial sector is weighed down by too much debt and too little demand, but an acute overcapacity problem prevents the market from getting anywhere close to clearing. Either Beijing moves quickly to ameliorate this, or else a wave of defaults will ripple through the industrial complex on the way to crippling the country’s banking sector, where NPLs are probably at least five times greater than the official numbers suggest.

The big question is this: how will China manage to restructure or otherwise wind down insolvent SOEs without triggering a wave of layoffs that will leave millions of Chinese jobless, destitute, and, most importantly, furious? In other words, the biggest black swan of them all – with the possible exception of terrorists detonating an actual nuclear weapon – may be a coup in China stemming from the sweeping layoffs the country must implement to restore the industrial sector to some semblance of solvency.

Indeed we’re already hearing the rumblings of social unrest. Thousands 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. Earlier this month, protesters marched through the streets of Shuangyashan city in Heilongjiang province, venting their frustration at Longmay Mining Holding Group, the biggest coal firm in northeast China.

Subsequently, 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.

“Don’t take the public for fools,” one citizen wrote on Chinese social media. “You think the people don’t understand your purpose in using public sentencing?

Just to be clear the “purpose” is this: discouraging protests which the politburo rightly views as the precursor to social unrest.

Just this week, “the Communist Party’s Central Committee and the State Council, China’s cabinet, warned party and state officials that they will lose their jobs if they fail to control public unrest,” WSJ writes. And while “that’s not altogether surprising [as it is] on one level,  just a restatement of longstanding practice, [it] marks the first time authorities have come up with a definitive public statement explicitly warning party and state officials ‘at all levels’ that their jobs are on the line.’”

The warning from the politburo is likely tied directly to the abovementioned protests in what The Journal describes as the “gritty” streets of Shuangyashan. “Government officials are likely worried that the Shuangyashan incident and others could inflict a political cost on the leadership by highlighting issues such as the deficit of labor rights in China,” WSJ continues, before delivering the following summary of everything outlined above:

Party chiefs face a difficult task. Over the next five years, they need to shut down millions of tons of industrial capacity that’s making China’s economy inefficient. This means downsizing scores of steel, coal and other large industries that currently employ hundreds of thousands of workers. They have promised to do this without large-scale layoffs. Those displaced, Mr. Li said, would be given new jobs or government assistance.

These promises now hang in the balance.

Yes they do, and as we outlined a week ago, reassigning steelworkers and miners to lower paying jobs in sanitation, logging, and other industries may keep the official unemployment rate subdued, but it will do very little to appease workers who are forced to take a 60% pay cut. Strikes, The Journal goes on to note citing China Labour Bulletin, have risen by 200% from July 2015 to January of this year. Click the image below for an interactive map.

Needless to say, we’re highly skeptical that Beijing will be able to avert widespread protests. The question is whether those protests coalesce into an organized, political movement or whether the frustration simply manifests itself in disparate, ad hoc demonstrations against specific SOEs and/or local governments.

Of course manifestos like that which appeared on March 4 on Wujie News may help to galvanize public opinion and focus frustrations on the central government. On that note we’ll close with what we said earlier this month: “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.”

*  *  *


Sunday night/Monday morning

Early this morning, we get a report from New York based China Beige Book International, a corporation which tries to give an honest assessment of what is going on in China.  It revealed a huge plunge in the unemployment rate to a 4 yr low as China desperately tries to adjust from a smoke-stack export model to a domestic consumption model. Their problem is that they will have million of people unemployed and if China cannot get these people relocated, there will be massive, social unrest:

(courtesy zero hedge)

China Beige Book Reveals Employment Plunges To 4-Year Low, Capex Worst In History

Back in December, New York-based China Beige Book International released what they called a “disturbing” set of data that pointed to pronounced weakness in the Chinese economy.

National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months,” the firm – whose CBB is modeled on the Fed’s survey of US economic conditions and is supposed to provide a more objective assessment of China’s economic health than the goalseeked figures that emanate from the NBS – remarked.

In the three months since the CBB’s last report, we haven’t seen a whole lot in the way of positive data that would have caused us to believe that things are looking up. Exports, for instance, cratered more than 20% in RMB terms last month and 25% in USD terms – the third worst performance in history.

Sure enough, the CBB’s latest quarterly read on the Chinese economy betrays more pervasive problems including a persistent lack of hiring and a disheartening dearth of capex. “Only 33% of firms reported capital expenditure growth in the first quarter, the lowest in the survey’s five-year history,” Reuters reports, adding that “the share of firms reporting capex growth has fallen by over 40 percent since the second quarter of 2014.”

The CBB’s survey, which includes 2,200 companies and 160 bankers, showed that although profits have risen, hiring has collapsed to a four-year low and that poses a very real problem for the Party which is perpetually concerned with optics. “The weakness in the job market hits at a paramount concern for the Chinese Communist Party,” WSJ notes, before quoting CBB president Leland Miller, who said the following in the report:

“The party cares very much about the state of the labor market. The first quarter may therefore be one of the rare occasions when investors see the data and react mostly with relief, while the results cause some mild panic back in Beijing.”

“Our data show that firms first stopped borrowing, then cut spending and now are becoming allergic to hiring,” Miller continues.

Right. And if there’s anything the politburo does not need in the current environment, it’s for firms to develop a hiring “allergy.”

As we’ve documented exhaustively of late, China is staring down what may end up being a catastrophic employment crisis as the government must choose between allowing an acute industrial overcapacity problem to sink the entire economy or else move to implement a massive restructuring of elephantine SOEs.

Reforming grossly inefficient government enterprises will likely cost hundreds of thousands if not millions of jobs and if Beijing can’t manage to mitigate the situation by reassigning workers or otherwise providing some manner of social safety net, they’ll be widespread social unrest.

Of course besides the whole “popular revolt”/ “angry coup” issue, mass layoffs also do not bode well for China’s nascent transition from a smokestack economy to an economic model that revolves around consumption and services. As we put it earlier this month, “if, as the PBoC says, China intends to depend on domestic consumption rather than exports to fuel growth, then someone had better get to explaining how exactly it is that hundreds of thousands of recently jobless factory workers are going to be able to power the hoped-for but still nascent transformation.”

On that note, we close with the following from WSJ’s take on the latest CBB survey:

The government’s bid to regear the economy toward consumption and services and away from manufacturing and investment is having mixed results, at least this quarter, the survey found. Revenue growth in services and in retail – especially furniture, appliances and clothing — slowed in the first quarter, while holding steady in manufacturing.

Mission accomplished?


Hugh Hendry is another extremely bright individual and we must always pay attention to what he says.  He was invited for a conversation with another brilliant individual by the name of Raoul Pal, a close friend of Grant Williams (Hmmm fame).  They have a paid webcast and their thoughts are always enlightening.

Today’s talk was about China.  Strangely Hendry went against his host as stated that if China devalues by 20%  (to 8 yuan/dollar)” the world is over, everything hits the wall”.  He states that the USA dollar will rise to astronomical heights, causing scarcity of that currency together with a collapse of all commodity prices and in turn, a collapse in emerging markets with huge defaults on their sovereign bonds etc.He describes if that happens, China will be king of a MAD MAX world and who would want that? Hendry states that the only way out for China is for a stronger yuan, yet with a high Debt to GDP ratio of 350% he does not know how this is possible.

We now have two competing forces out there on China:

a) Kyle Bass who states that China must devalue

B) Huge Hendry who believes that China can muddle along at current yuan levels as the percentage of world trade has not been hurt at all, despite the lower amounts of world trade.

this is a must see.

(courtesy zero hedge)

Hugh Hendry: “If China Devalues By 20% The World Is Over, Everything Hits A Wall”

Once upon a time Hugh Hendry was one of the world’s most prominent financial skeptics, arguing with anyone who would listen that the status quo is doomed and that central planning will never work.

Most famously, back in 2010 during a BBC round table discussion with Jeffrey Sachs and Gillian Tett when discussing Europe’s crashing experiment with the single currency, he said that we should “purge this system of its rottenness. Let’s take on a recession. It’s going to be tough, people are gonna lose their jobs. They are going to lose their jobs anyway. We can spread this over 20 years, or we can get rid of it over 3 years” before concluding “I recommend you panic.”

Ultimately everyone did panic, which led to the single biggest episode of global QE and negative rates ever seen, resulting in ever louder speculation even among the most “serious” people that central bankers are now powerless.

But perhaps most notably, Hendry was one of the biggest China bears, certain that the country’s massive overcapacity, insolvency and bad debt problems will result in disaster (back then China only had about 200% debt/GDP, it has since risen to over 350%). His Chinese skepticism led to his fund generating a 40% profit by late 2011.

And then after a poor two year performance spell, Hendry had a historic burnout and threw in the towel on bearishness, infamously saying he can no longer “look at himself in the mirror“:

“I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell’. The S&P 500 is up 30% over the past year: I wish I had thought this last year… Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending.”

He proceeded to buy momentum stocks and 3D printer companies.

Fast forward to the present, when countless hedge funds – key among them Kyle Bass’ Hayman Capital and Mark Hart’s Corriente – have become China megabears, expecting the country’s financial collapse and trading it by shorting the Yuan expecting a massive Yuan devaluation.

It is here that Hugh Hendry has once again proven contrarian, even if it means agreeing with the dominant textbook meme of the day, namely that China can contain its economic hard landing, and in his most recent interview with RealVision’s Raoul Pal, he cautions against a Chinese devaluation saying that tomorrow we wake up, I mean, I would jump out the hotel window if this was the scenario, but we wake up and China has devalued 20%. The world is over. The world is over.”

What makes this interview doubly ironic is not just that Hendry is wildly contradicting everything he himself believed in a few short years ago, but disagrees with his interview host himself – recall that one month ago, we showed an excerpt from a Raoul Pal interview in which he previewed “the Big Reset” and laid out how the Kondratieff Winter would unwind, one in which China would play a prominent part.

Whether Hendry is right or wrong remains to be seen: for now he has the powerful People’s Bank of China at his back which has been especially active recently especially after the PBOC stated recently it intends to crush all hedge funds who have shorted the Yuan even if it means slamming Chinese trade and the economy once again (as a reminder, one of the biggest reasons why China needs a weaker Yuan is not just the stronger dollar to which it is pegged but because its exports have been crashing against all of its trading partners making the need for a weak currency paramount).

For now, as we showed just ten days ago, those short the Yuan have swung from wildly profitable to losing money as both the USD has slid and the Yuan has spiked, although both of these trades appear to be reversing now.

Needless to say, Hendry disagrees with the China contrarians and believes that the way to fix the Chinese economy is through a stronger currency, even if there is no logical way how that could possibly work when China’s debt load is 350% of GDP while its NPLs are over 10% and rising.

So, borrowing from a favorite Keynesian trope, one where  the counterfactual to his prevailing – if incorrect – view of the world finally emerges, Hendry is convinced that a 20% devaluation would lead to global devastation; the same way if Paulson did not get Congress to sign off on his three page term sheet that would lead to the “apocalypse.” Only unlike Paulson who only hinted at a Mad Max world, for Hendry the alternative to him being right is a very explicit doomsday scenario, as he explains in the following excerpt from his RealVision interview:

Tomorrow we wake up and China has devalued 20%, the world is over. The world is over. Euro breaks up. The world is over. The euro breaks up. Everything hits a wall. There’s no euro in that scenario. The US economy, I mean everything hits a wall! Everything hits a wall!

The dollar strength that you imagined is devastation because you just eliminated dollars. They’re a scarce commodity. You’ve wiped them out. And China is a pariah state.

It’s a ‘Mad Max’ movie, right. OK, China gets to be the king in ‘Mad Max’ world. How appealing is that? There is no world after the tomorrow where China devalues by 20%. There is no world. Yeah, it’s looney tunes to believe that, people say, ‘oh wow, they needed to catch a break.’

Their share of world trade has never been higher. They’re facing no pressure, immense terms of trade improvement, and you would destroy world trade. World trade is down 25%. You would probably have passport restrictions, the world is over.

And while it is clear on which side of the Yuan Hugh is currently positioned (Hendry’s Eclectica is down 2.1% through March 18 and -5.9% YTD) either directly or synthetically, we can’t wait to see who is right in the end: China and its central bank (as well as Hugh Hendry) or reason and common sense (as well as some of the smartest hedge funds in the world).

The RealVisionTV interview excerpt is below:

To view the full interview, subscribe to Real Vision Television, which offers Zero Hedge readers a 7-day free trial.



SCARY!! Belgian nuclear guard murdered Thursday night and had his access badge stolen.


“Dirty Bomb” Fears Rise After Belgian Nuclear Guard Murdered, Access Badge Stolen

Hours after brothers Khalid and Ibrahim El-Bakraoui and two other men (one of whom may or may not have been bombmaker Najim Laachraoui) detonated explosives-laden vests and luggage at the Brussels airport and metro murdering nearly two dozen people and wounding scores more, we were alarmed but not entirely surprised to see Belgium evacuate the Tihange nuclear power plant.

We say we weren’t entirely surprised because way back on November 30, a raid on an Auvelais home rented by Mohamed Bakkali – who was arrested four days earlier and may have used the residence to shelter the Paris attackers including the supposed leader of the Brussels cell Abdelhamid Abaaoud – turned up an hours-long (some reports had suggested it was a mere 10 minutes long, an apparently incorrect assessment) surveillance tape that appeared to show a top Belgian nuclear official (see here).

“A small video camera stashed in a row of bushes silently recorded the comings and goings of the family of a Brussels-area man with an important scientific pedigree last year, producing a detailed chronology of the family’s movements,” Foreign Policy wrote, late last month. “At one point, two men came under cover of darkness to retrieve the camera, before driving away with their headlamps off, a separate surveillance camera in the area revealed later.”

If, as some suspect, those two men were the Bakraoui brothers, it would suggest that the Brussels cell which is now well on its way to going down in jihadist lore as the most “successful” sleeper cell in the history of radical Islam, was in the advanced stages of trying to procure the materials needed to build a dirty bomb.

Belgian lawmakers were beside themselves when they learned of the video, as it was apparently kept secret for months. “Your services possessed this videotape since Nov. 30, and the nuclear control agency was informed immediately,” said Jean-Marc Nollet, a Parliament member from Ecolo, told interior minister, Jan Jambon. “So I don’t understand how you could have been in possession of this video since Nov. 30, but on Jan. 13, when I questioned you on this, you answered, ‘There is no specific threat to the nuclear facilities.’”

We don’t really understand that either, but we imagine Belgian authorities will be discussing the issue quite a bit in the weeks and months ahead because it’s now emerged that on Thursday, Didier Prospero was shot and killed while walking his dog in Charleroi (about an hour drive from Brussels). Why should you care about Didier? Well, because he is (or “was”) a security guard at Tihange. His security pass was stolen as he lay dying.

“The murder was completely ignored and was committed on Thursday night in the judicial district of Charleroi,” Derniere Heure reported. “A security guard, accompanied by his dog, was shot in the early evening. His badge was stolen.”

The badge itself was immediately deactivated. It’s as yet unclear whether this is connected to Belgian jihadists, but it would certainly be difficult to write it off as a coincidence. Well, it would be difficult to write it off as a coincidence unless you are a Belgian prosecutor. In that case it would be easy. “”A terrorist track is not considered in the case,” the Charleroi prosecutor’s office told TASS on Saturday.

Meanwhile, the mainstream media is beginning to sound the alarm bells on the threat to Belgium’s nuclear infrastructure. Here, for instance, is The New York Times:

The investigation into this week’s deadly attacks in Brussels has prompted worries that the Islamic State is seeking to attack, infiltrate or sabotage nuclear installations or obtain nuclear or radioactive material. This is especially worrying in a country with a history of security lapses at its nuclear facilities, a weak intelligence apparatus and a deeply rooted terrorist network.

On Friday, the authorities stripped security badges from several workers at one of two plants where all nonessential employees had been sent home hours after the attacks at the Brussels airport and one of the city’s busiest subway stations three days earlier. Video footage of a top official at another Belgian nuclear facility was discovered last year in the apartment of a suspected militant linked to the extremists who unleashed the horror in Paris in November.

Asked on Thursday at a London think tank whether there was a danger of the Islamic State’s obtaining a nuclear weapon, the British defense secretary, Michael Fallon, said that “was a new and emerging threat.”

While the prospect that terrorists can obtain enough highly enriched uranium and then turn it into a nuclear fission bomb seems far-fetched to many experts, they say the fabrication of some kind of dirty bomb from radioactive waste or byproducts is more conceivable. There are a variety of other risks involving Belgium’s facilities, including that terrorists somehow shut down the privately operated plants, which provide nearly half of Belgium’s power.

The fears at the nuclear power plants are of “an accident in which someone explodes a bomb inside the plant,” said Sébastien Berg, the spokesman for Belgium’s federal agency for nuclear control. “The other danger is that they fly something into the plant from outside.” That could stop the cooling process of the used fuel, Mr. Berg explained, and in turn shut down the plant.

The revelation of the video surveillance footage was the first evidence that the Islamic State has a focused interest in nuclear material. But Belgium’s nuclear facilities have long had a worrying track record of breaches, prompting warnings from Washington and other foreign capitals.

Some of these are relatively minor: The Belgian nuclear agency’s computer system was hacked this year and shut down briefly. In 2013, two individuals managed to scale the fence at Belgium’s research reactor in the city of Mol, break into a laboratory and steal equipment.

Others are far more disconcerting. In 2012, two employees at the nuclear plant in Doel quit to join jihadists in Syria, and eventually transferred their allegiances to the Islamic State. Both men fought in a brigade that included dozens of Belgians, including Abdelhamid Abaaoud, considered the on-the-ground leader of the Paris attacks.

One of these men is believed to have died fighting in Syria, but the other was convicted of terror-related offenses in Belgium in 2014, and released from prison last year, according to Pieter Van Oestaeyen, a researcher who tracks Belgium’s jihadist networks. It is not known whether they communicated information about their former workplace to their Islamic State comrades.

The reference there is to Ilyass Boughalab, a 26-year old Moroccan man who worked at Doel before travelling to Syria. After passing a background check in 2009 he was given a job inspecting welds. He had access to highly secure areas of the reactor. He was, according to employer AIB-Vincotte, an efficient employee whose work was “flawless.”

One can only assume that Boughalab discussed his time workinig at Doel with other members of Islamic State and it seems entirely likely that someone in the organization would have conveyed his specialized experience up the chain of command. It’s easy to imagine that he may very well have met with more senitor members of the group if they indeed learned about his employment history.

Whatever the case, it’s fairly clear that there are any number of ways for jihadists to exploit Belgium’s notoriously lax nuclear security apparatus and although one would think that the more straightforward approach would be to simply bomb the facilities or have an insider sabotage something, the threat of a dirty bomb is quite real. We’ll close with a short quote from Laura Holgate, the National Security Council’s senior director for weapons of mass destruction: “I’m surprised it hasn’t happened yet.

*  *  *

As an aside, Belgian authorities have identified the third suspect in the airport bombings. The man is one Faycal Cheffou, a freelance journalist. He was reportedly detained outside the prosecutor’s office with two other men on Thursday in the sweeping raids that led to 6 arrests.

Like Japan the demographics in Europe is just awful as the birth rate is around 1.5 children per woman. There is just not enough new workers to pay for the retirees
basically all of Europe is bankrupt:
(courtesy zero hedge)

How Stupid Do You Have To Be To Let This Happen?

Submitted by John Rubino via,

Europe is the birthplace of Western civilization and the source of most of the trends and bodies of knowledge that define modernity. The average European speaks several languages versus sometimes less than one for Americans. They are, in short, a well-schooled people with vast accumulated wisdom.

So how do we explain this: After World War II most European countries set up generous entitlement systems including government pensions designed to offer dignified retirements to citizens who had worked hard and paid taxes and obeyed the rules for a lifetime. BUT they didn’t bother putting anything aside for the inevitable — and mathematically predictable — retirement of the immense baby boomer generation. Here’s an excerpt from a recent Wall Street Journal article outlining the problem:

Europe Faces Pension Predicament

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.

Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers.

“Western European governments are close to bankruptcy because of the pension time bomb,” said Roy Stockell, head of asset management at Ernst & Young. “We have so many baby boomers moving into retirement [with] the expectation that the government will provide.”

The demographic squeeze could be eased by the influx of more than a million migrants in the past year. If many of them eventually join the working population, the result could be increased tax revenue to keep the pension model afloat. Before migrants are even given the right to work, however, they require housing, food, education and medical treatment. Their arrival will have effects on public finances that officials have only started to assess.

A Growing Mismatch

The pension squeeze doesn’t follow the familiar battle lines of the eurozone crisis, which pits Europe’s more prosperous north against a higher-spending, deeply indebted south. Some of the governments facing the toughest demographic challenges, such as Austria and Slovenia, have been among those most critical of Greece.

Germans, meanwhile, “are promoting fiscal rules in Spain and other countries, but we are softening the pension rules” at home, said Christoph Müller, a German academic who advises the EU on pension statistics. He pointed to a recent change allowing some workers to collect benefits two years early, at 63. A German labor ministry spokesman called that “a very limited measure.”

Europe’s state pension plans are rife with special provisions. In Germany, employees of the government make no pension contributions. In the U.K., pensioners get an extra winter payment for heating. In France, manual laborers or those who work night shifts, such as bakers, can start their benefits early without penalty.

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In 2012, the Polish government launched a series of changes in its main national pension plan to make it more affordable. One was a gradual rise in the age to receive benefits. It will reach 67 by 2040, marking an increase of 12 years for women and seven for men. The changes mean the main pension plan now is financially sustainable, said Jacek Rostowski, a former finance minister and architect of the overhaul.

The party that enacted the changes lost an election in October, however, and a central promise of the winning party is to undo them. Recently, Poland’s president introduced a bill to reverse some of the measures. “You have to take care of people, of their dignity, not finances,” said Krzysztof Jurgiel, agriculture minister in the current Law & Justice Party government.

The implication is that Germany, Italy, Spain, France et al are functionally bankrupt, apparently (amazingly) by choice. They saw the avalanche coming decades ago and instead of getting out of the way or reinforcing their chalets, simply sat there watching the snow roll down the mountain. It will be arriving shortly, and they’re still debating what — if anything — to do about it.

In fact the only thing that can be reasonably described as preparation is the decision to ramp up immigration. This might have worked if Europe had chosen more compatible immigrants, but that’s a subject for a different column. For now let’s focus on insanely stupid choice number one, which is to offer entitlements with no funding mechanism other than future tax revenue. If an insurance company or corporate pension plan did something like that its executives would be led away in handcuffs — rightfully so, since the essence of such deferred-payout entities is an account that starts small and grows to sufficient size as its beneficiaries begin to need it.

So what the Europeans have aren’t actually pensions, but a form of election fraud designed to give an entire generation of politicians the ability to offer free money to voters without consequence.

Soon, a whole continent will be left with no choice but to devalue its currency to hide the magnitude of its mismanagement. The math will work like this: devalue the euro by 50% while raising pension payouts by 20%, thus cutting the real burden significantly — while taking credit for the nominal benefit increase at election time. It might work, based on the level of voter credulity displayed so far.

Now here’s where it gets really interesting. The US “trust funds” that have been created to guarantee Social Security and Medicare are full of Treasury bonds, the interest on which is paid from — you guessed it — taxes levied each year on US citizens. So the only real difference between the European pay-as-you-go and US trust fund models is that the former is more honest.

This is why gold bugs and other sound money people are so certain that precious metals will soon be a lot more valuable. The pension numbers are catastrophic everywhere and the reckoning that was once merely inevitable is now imminent. Europe is a little further along demographically and so might have to devalue its currency first, but $80 trillion in unfunded Medicare liabilities can’t be denied. We’ll be following along shortly.


Russian and Middle Eastern Affairs

Interesting!!! Jordan blames Turkey for terror in Europe as Erdogan supplied the necessary stuff to ISIS.  They also blames Israel for not attacking ISIS on their borders.  The Israelis had two enemies right on their border with Syria, Hezbollah  and ISIS. Israeli did the correct strategy by letting both of them attack each other and they stayed out of their way:

(courtesy zero hedge)

Bombshell: King Of Jordan Blames Turkey For Terror In Europe, Says Israel “Looks Other Way” On Al-Qaeda

When Vladimir Putin told the world that ISIS gets a significant portion of its funding by selling oil to Turkey, he had just finished meeting with Jordan’s King Abdullah.

The King is no stranger to confronting the jihadists. Last year, Abdullah threatened to fly combat missions against Islamic State himself following the release of a horrific video that depicted a Jordanian pilot being burned alive in a cage.

Here is the picture the King sent to the militants:

In January, Jordan agreed to share intelligence with Russia in the fight against ISIS and when the French began flying sorties against the extremists following the Paris attacks, their staging ground was an undisclosed Jordanian location.

In short, Jordan has at times appeared to be more genuine in its commitment to fighting extremism than say, the Saudis, whose determination to spread Wahhabism adds fuel to the ideological fire that drives the groups the kingdom claims to be fighting. “The global war — what I call the Third World War by other means — is one that is a generational one,” Abdullah told CNN in January. “Not only inside Islam, as we as Muslims gain the supremacy against the crazies, the outlaws, of our religion, but also reaching out to other religions that Islam is not what they have seen being perpetuated by 0.1% of our religion.”

On Friday, we learn that Abdullah met with US lawmakers in secret during the week of January 11 and disclosed that British SAS forces as well as Jordanian soldiers had been on the ground fighting ISIS in Libya since at least the beginning of the year. “Jordanian slang is similar to Libyan slang,” Abdullah said, explaining how his men have been able to assist the British in cleaning up the mess NATO made in Libya which, you’re reminded, became a lawless wasteland in the wake of the uprising that toppled Muammar Gaddafi in 2011.

But the revelation that British SpecOps were fighting in Libya wasn’t the most interesting thing to emerge from the meeting which purportedly included John McCain, Bob Corker, the chairman of the Senate foreign relations committee, and House Speaker Paul Ryan. Indeed, according to notes seen by The Guardian, Abdullah also implicated Erdogan in perpetuating Sunni extremism as well as purposefully sending terrorists to Europe. The King also suggested that Israel is allowing al-Nusra to operate on its borders because Netanyahu views the al-Qaeda affiliate as a counterweight to Hezbollah.

Below, find the bullet points from The Guardian presented with no further comment because frankly, nothing further need be said here.

The memo indicates that Abdullah also told US lawmakers:

  • The Turkish president, Recep Tayyip Erdogan, “believes in a radical Islamic solution to the problems in the region” and the “fact that terrorists are going to Europe is part of Turkish policy, and Turkey keeps getting a slap on the hand, but they get off the hook”.
  • Intelligence agencies want to keep terrorist websites “open so they can use them to track extremists” and Google had told the Jordanian monarch “they have 500 people working on this”.
  • Israel “looks the other way” at the al-Qaida affiliate Jabhat al-Nusra on its border with Syria because “they regard them as an opposition to Hezbollah”.


The ancient city of Palmyra has been rescued by Hezbollah forces and Iran. Putin congratulated ASSAD but no congratulatory  message was sent by Obama:

(courtesy zero hedge)

ISIS Suffers Major Blow As Assad, Russia, Hezbollah Drive Terrorists From Ancient Syrian City

“You know I mean look… broadly speaking …. you know… it’s not a great choice… an either/or… but… you know…”

That was the response from State Department spokesman Mark Toner when two reporters asked him whether the US was pleased that the Syrian army, backed by Hezbollah ground forces and Russian airstrikes was set to retake the ancient city of Palmyra from Islamic State.

The lack of enthusiasm for the Russian-backed effort made for an amusing soundbite and might have come as a surprise to the uninitiated. But for those who follow the conflict in Syria it was par for the course in Washington. As recently as last August The Pentagon and CIA were still holding out some hope that rebel forces might manage to oust Assad and that somehow, ISIS and al-Nusra would subsequently be subdued. The worst case scenario would have seen ISIS itself march into Damascus and take control of the country, but that would have been fine too because then the Marines would simply march in and promptly eliminate the group paving the way for Washington and Riyadh to step in and install a puppet government.

Then the entire calculus changed when Russia entered the fray on September 30. From October on, Washington struggled with how to respond to gains made by Hezbollah and Russia. On the one hand, Moscow was hitting ISIS and al-Nusra hard from the air and the US couldn’t very well condemn that without admitting that “the terrorists” serve a purpose in Syria. On the other hand, relentless bombing runs by Russian warplanes paved the way for Hezbollah and other Iran-backed militias to lay waste to the “moderate” rebels that stood between Assad and Aleppo and that, the US said, was “no fair.” Once Aleppo proper (i.e. the city itself) was surrounded, the rebels basically surrendered (that’s not what they’ll say, nor is it the line you’ll get from Washington and Riyadh, but it’s no coincidence that the ceasefire was agreed at the exact same time that the city was surrounded).

And so, with that bit of messy business out of the way, and with the rebels having agreed to lay down their weapons in exchange for Russia’s promise that the air force wouldn’t seek to wipe them out entirely, Russia, Iran, and Hezbollah did exactly what we said they would do: turned their sights east towards Palmyra, Deir el-Zour, and Raqqa. Here’s what we said in October:

“Hezbollah and Iranian troops are advancing on Aleppo and Moscow is backing the offensive from the sky which means that the hodgepodge of anti-regime forces that control Syria’s largest city will almost (and we say “almost” because there are no sure things in war) certainly be routed, which would effectively serve to restore the Assad regime in Syria.

After that, the Russian bear and Qasem Soleimani will turn their eyes to the East of the country and at that point, it is game over for ISIS.

Well, we hate to say “we told you so,” but that assessment has proven to be 100% accurate and after a weeks long siege, Bashar al-Assad announced on Sunday that with the help of Russia and Hezbollah, the Syrian army has driven ISIS from Palmyra.

Syrian government forces backed by Russian airstrikes drove Islamic State fighters from Palmyra on Sunday, ending the group’s 10-month reign of terror over a town whose famed 2,000-year-old ruins once drew tens of thousands of visitors each year,” AFP reports. “In comments reported on state TV, President Bashar Assad described the Palmyra operation as a ‘significant achievement’ offering ‘new evidence of the effectiveness of the strategy espoused by the Syrian army and its allies in the war against terrorism.’” Here’s more:

Gen. Ali Mayhoub announced on the station that that the fall of Palmyra “directs a fatal blow to Daesh, undermines the morale of its mercenaries, and ushers in the start of its defeat and retreat,” referring to IS by its Arabic acronym. He said it lays the ground for further advances toward Raqqa, the IS group’s de facto capital, and Deir el-Zour, an eastern city it largely controls.

Troops in Palmyra are now dismantling explosive booby traps planted by IS, the station reported. State TV and a Britain-based monitoring group later reported that troops captured a military airport to the east.

The advance marks a strategic and symbolic victory for the government, which has sought to portray itself as a bulwark against terrorism. The town was an important juncture on an IS supply line connecting its territory in central and northern Syria to the Anbar province in Iraq, where the group also holds territory.

Unfortunately, ISIS did manage to destroy quite a bit of the city’s cultural heritage, including the Triumphal Archs.

Here’s a rundown of the damage, again from AFP:

  • State TV showed the rubble left over from the destruction of the Temple of Bel as well as the damaged archway, the supports of which were still standing. It said a statue of Zenobia, the 3rd century queen who ruled an independent state from Palmyra and figures strongly in Syrian lore, was missing.
  • Artefacts inside the city’s museum also appeared heavily damaged on state TV.
  • A sculpture of the Greek goddess Athena was shown decapitated.
  • The museum’s basement appeared to have been dynamited, the hall littered with broken statues.

Of course ISIS also desecrated a The Roman Theatre where last year, city residents were forced to watch as two dozen teenage ISIS trainees carried out a mass execution of captured SAA soldiers.

As Syrian and Iran-backed Shiite forces cleared the city, Vladimir Putin called Bashar al-Assad to congratulate him on the victory. Russia, Putin said, would continue to support the government in its efforts to drive ISIS, al-Nusra, and other jihadist elements from the country.

At last check, Assad hadn’t received a congratulatory call from Obama…



A very important warning from Deutsche bank.  They are stating that global trade has lagged behind GDP growth. They actually state that peak global trade occurred in 2007 and has been downhill since. I have always used the Baltic Dry Index as a barometer of global trade and with the index at just above 400, having fallen from 10,000 in 2009, you can visually see the writing on the wall.  Thus currency wars to get a little bigger piece of a declining trade is futile

Deutsche Bank’s Dire Warning On Global Trade: “The Currency War Is Futile”

“It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”

That’s from WTO chief economist Robert Koopman, and it’s a quote we’ve used on a number of occasions. Koopman is referring to the fact that for several years in a row, the rate of growth in global trade has lagged GDP growth. That’s a problem for two reasons: 1) GDP growth is hardly robust as it is, and 2) before the recent downturn, the last time trade growth underperformed the rate of economic expansion was two decades ago.

As WSJ noted last autumn, trade growth has averaged just 3% per year. That’s half of the 1983-2008 average.

“It’s fairly obvious that we reached peak trade in 2007,” Scott Miller, trade expert at the Center for Strategic and International Studies, a Washington, D.C., think tank told the Journal.

Since then, the evidence has continued to pile up that global trade has flatlined. Freight volume in the US fell for the first time in three years in November, while monumental declines for Class 8 truck sales vividly demonstrate the extent to which commerce is simply grinding to a halt across the US economy. As for global trade, well, the Baltic Dry speaks for itself.

It is worse than in 2008. The oil price [is low] and freight rates are lower. The external conditions are much worse,” Maersk CEO Nils Andersen said, just last month. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter alone.

In this environment the “answer” has been competitive devaluation – i.e. a currency war. Although this is, in the end anyway, a zero sum game, until recently there was still some hope that key EMs could rely on devlaued currencies to help cushion their current accounts from the slowdown and restore some semblance of balance and competitiveness.

However, it would appear that, as outlined above, the link between output and trade growth might have been severed sometime in the post-crisis world. If that’s the case, the FX wars may be largely futile and what looks like an undervalued currency might have much, much further to fall – or could simply decline in virtual perpetuity. That’s a rather disconcerting proposition to say the least. Especially for EM.

Below, find excerpts from a new note out of Deutsche Bank where FX strategist Gautam Kalani believes the fundamental relationships officials all take for granted and use to justify the whole “devalue our way to prosperity” line may no longer hold.

*  *  *

From Deutsche Bank

1) Is the currency war futile? It looks increasingly so.

The fundamental currency-current account relationship is as follows: large currency undervaluation current account improvement currency appreciation. The first link describes the ‘currency war’ argument, whereby a weaker currency leads to an exports pickup and thus a boost to growth. The second link underlines how current account improvement in response to a large undervaluation is an important channel through which large undervaluations can trigger FX appreciation.

There is a concern that this competitive devaluations channel (the first link) may have broken down (to a large extent) because of the collapse in global trade. Global growth today is generating much less trade growth than in the past (chart below). As a result, currency adjustment is not enough to spur growth significantly because global trade is increasingly less important to the overall makeup of GDP. This raises the possibility that the currency war is largely futile, as currency depreciation does not give much of a boost to exports/growth, and certainly much less impetus than in the past.

2) What is the implication of a futile currency war for EM FX? Beware of going long currencies purely on the basis of fundamental undervaluation.

(Harvey: EMEA : Europe, Middle East and Africa)

Focusing on EM, lingering growth concerns further increase the perceived need for currency depreciation. However, since currency depreciation does not translate easily into exports improvement, more currency adjustment is probably required than in the past to obtain the same growth/current account impetus; currencies must be more undervalued before substantially improving the current account. In sum, a significant undervaluation of an EM currency may not be sufficient to drive appreciation via the current account channel; rather, even more currency adjustment may be required for some undervalued currencies.

Current accounts, especially in LatAm but also in high-yielding EMEA, still reflect excessive domestic absorption. Improvements have been limited despite large scale FX depreciation. Further, what current account improvement has taken place has been mainly on account of import compression rather than exports – perhaps FX weakness has played some role in this as imports become more expensive with a weaker currency, but a majority of it reflects demand slowdown in EM. Therefore, for currencies running large current account deficits, more FX adjustment may be on the cards before undervaluations start providing material support.

3) Which currencies to be wary of going long purely on the basis of fundamental undervaluation? In EMEA, ZAR stands out as an example.

If global trade growth has collapsed and the currency war is futile, a currency that is heavily undervalued on a fundamental model like BEER or PPP could easily become more undervalued. In this context, the FEER model, which estimates misalignments based purely on the distance of the cyclically- adjusted current account balance from its long-term average, could provide an appropriate warning signal. That is, one should be wary about long a currency on the basis of BEER undervaluation if it is also showing FEER overvaluation, as FEER overvaluation signals that the current account balance is still below its long-term average and therefore has not adjusted by ‘enough’.

*   *   *

We’ve said it before and we’ll say it again: central banks better figure out how to print trade, and fast.

And continuing on the same theme as above, Wolf Richter describes how world trade has collapsed due to collapsing commodity prices and the higher uSA dollar:
(courtesy Wolf Richter/WolfStreet)

“Worse Than 2008” World Trade Collapses To 10 Year Lows

Submitted by Wolf Richter via,

This wasn’t part of the rosy scenario.

The Merchandise World Trade Monitor by the CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, tracks global imports and exports in two measures: by volume and by unit price in US dollars. And the just released data for January was a doozie beneath the lackluster surface.

The World Trade Monitor for January, as measured in seasonally adjusted volume, declined 0.4% from December and was up a measly 1.1% from January a year ago. While the sub-index for import volumes rose 3% from a year ago, export volumes fell 0.7%. This sort of “growth,” languishing between slightly negative and slightly positive has been the rule last year.

The report added this about trade momentum:

Regional outcomes were mixed. Both import and export momentum became more negative in the United States. Both became more positive in the Euro Area. Import momentum in emerging Asia rose further, whereas export momentum in emerging Asia has been negative for four consecutive months.

This is also what the world’s largest container carrier, Maersk Lines, and others forecast for 2016: a growth rate of about zero to 1% in terms of volume. So not exactly an endorsement of a booming global economy.

But here’s the doozie:In terms of prices per unit expressed in US dollars, world trade dropped 3.8% in January from December and is down 12.1% from January a year ago, continuing a rout that started in June 2014. Not that the index was all that strong at the time, after having cascaded lower from its peak in May 2011.

If June 2014 sounds familiar as a recent high point, it’s because a lot of indices started heading south after that, including the price of oil, revenues of S&P 500 companies, total business revenues in the US…. That’s when the Fed was in the middle of tapering QE out of existence and folks realized that it would be gone soon. That’s when the dollar began to strengthen against other key currencies. Shortly after that, inventories of all kinds in the US began to bloat.

Starting from that propitious month, the unit price index of world trade has plunged 23%. It’s now lower than it had been at the trough of the Financial Crisis. It hit the lowest level since March 2006:


This chart puts in perspective what Nils Andersen, the CEO of Danish conglomerate AP Møller-Maersk, which owns Maersk Lines, had said last month in an interview following the company’s dreary earnings report and guidance: “It is worse than in 2008.” [Read… “Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade.]

But why the difference between the stagnation scenario in world trade in terms of volume and the total collapse of the index that measures world trade in unit prices in US dollars?

The volume measure is a reflection of a languishing global economy. It says that global trade may be sick, but it’s not collapsing. It’s worse than it was in 2011. This sort of thing was never part of the rosy scenario. But now it’s here.

The unit price measure in US dollars is a reflection of two forces, occurring simultaneously: the collapsed prices of the commodities complex, ranging from oil to corn; and the strength of the US dollar, or rather the weakness of certain other currencies, particularly the euro. It didn’t help that since last summer, the Chinese yuan has swooned against the dollar as well. So exports and imports from and to China, measured in dollars, have crashed further than when measured in yuan.

And these forces coagulated at a time of lackluster global demand despite, or because of, seven years of QE, zero-interest-rate policies, and now negative-interest-rate policies. It forms another indictment of central bank policies that have failed to stimulate demand though they have succeeded wonderfully in stimulating asset prices, malinvestment, and overcapacity.

World trade in goods is just one factor in the global economy. Now the global financial sector is getting hit too as the artful QE bonanza is bumping into real-world limits. And for global investment banking revenues, a key income source for “systemically important” banks, it has been one heck of a terrible first quarter. Read… The Big Unwind Hits Investment Banking





It is now official, the entire surge in price of oil was nothing but the biggest short squeeze ever


(courtesy zero hedge)

It’s Official: The Oil Surge Was Driven By The Biggest Short-Squeeze Ever

Two months ago, just before crude dropped to 13 year lows, we warned oil traders that there is a constant short squeeze threat” because “oil shorts are at all-time highs, adding that “we have seen extreme short positioning building up in the oil futures market. The quantity of short positions opened is at an all-time high for Brent, and still high for WTI futures.”

We also warned that “a positive surprise could happen quite sharply, as short positions are likely to be squeezed by a profit-taking move. On WTI, the in-the-money short positions are really dominating at the front end of the curve while out-of-the-money long positions are dominating at the long end of the curve: the front end of oil curve could thus be more exposed to some profit-taking.”

It was, and just a few days later, the algos took this warning to heart and, courtesy of the most recurring headline (that of a “farcical” oil production freeze) as a recurring catalyst, unleashed an historic short squeeze. Actually make that a record short squeeze.

Wait, that’s impossible: surely it was more than just shorts covering and oil rose because actual longs were piling in, one could say.

One would be wrong, and it is now official: as crude soared 50% since Feb. 11, Bloomberg writes, the number of bets on increased prices has barely budged. “Instead, the upward pressure on prices appears to have come from traders cashing out of bearish wagers at an unprecedented pace. The liquidation of short positions during the last seven weeks covered by data from the U.S. Commodity Futures Trading Commission was the largest on record.

“The rally has come from shorts getting scared out of their positions, and you’re not seeing a lot of money coming in on the long side,” said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. “It really calls into question the fortitude and staying power of the rally.”

The details: “short positions on West Texas Intermediate crude, or bets that prices will fall,have dropped by 131,617 contracts since Feb. 2, the biggest liquidation in CFTC data going back a decade. To close out a bearish position, traders buy back futures and options, putting upward pressure on prices. In the same period, bullish wagers fell by 971. In the past 10 years, there have been only two other seven-week short-covering streaks, CFTC data show. The first started in September 2009 and the second in December 2012. Both were much smaller than the recent one and were accompanied by oil rallies.”


It gets better: as we showed previously, the irony is that as oil futures shorts were squeezed out, ETF longs actually declined instead of growing as absolutely nobody – except those who have to buy-in – believes this quote-unquote rally.


Bloomberg notes that the rebound faltered a day after WTI prices touched a four-month high of $41.45 a barrel on March 22, tumbling 4 percent in New York after government data showed U.S. crude supplies surged the prior week to the highest level since 1930.

Perhaps there are no more shorts left to squeeze, in which case watch out to the downside: “When energy markets get loaded to one side of the boat like that, you can have vicious reversals,” said Kilduff. And vice versa.


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 113.52 UP 0.370 (Abe’s new negative interest rate (NIRP)a total bust/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP)


USA/CAN 1.3245 DOWN.0009

Early THIS MONDAY morning in Europe, the Euro ROSE by 2 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: 6.5161 / (yuan DOWN AND SENT A HUGE MESSAGE TO THE USA NOT TO RAISE RATES AT ALL / IF CHINA DEVALUES ITS CURRENCY, IT  will cause MASSIVE 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 SOUTHBOUND trajectory RAMP as IT settled DOWN in Japan by 51 basis points and trading now well BELOW that all important 120 level to 112.69 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 UP this morning by 37 basis points as it now trades WELL BELOW the 1.44 level at 1.4157.

The Canadian dollar is now trading UP 9 in basis points to 1.3245 to the dollar.

Last night, Chinese bourses AND jAPAN were ALL IN THE RED/Japan NIKKEI CLOSED DOWN 108,65 , OR 0.64%HANG SANG DOWN 269.62 OR 1.31% SHANGHAI DOWN 48.99 OR 1.63%     / AUSTRALIA IS LOWER / ALL EUROPEAN BOURSES ARE IN THE RED, as they start their morning/.

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

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

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

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

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

The NIKKEI: this MONDAY morning: closed DOWN 108.65 OR 0.64%

Trading from Europe and Asia:
1. Europe stocks ALL CLOSED

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

Gold very early morning trading: $1216.20


Early MONDAY morning USA 10 year bond yield: 1.91% !!! UP 2 in basis points from THURSDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield RISES to 2.68 UP 1/2 in basis points from THURSDAY night.

USA dollar index early MONDAY morning: 96.30 DOWN 2 cents from THURSDAY’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:  2.96% PAR in basis points from THURSDAY

JAPANESE BOND YIELD: -.084% PAR in   basis points from THURSDAY

SPANISH 10 YR BOND YIELD:1.52% PAR IN basis points from THURSDAY

ITALIAN 10 YR BOND YIELD: 1.30  PAR basis points from THURSDAY

the Italian 10 yr bond yield is trading 22 points lower than Spain.




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

Euro/USA 1.1198 UP .0040 (Euro UP 40 basis points/still represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japn: 113.35 UP .341 (Yen DOWN 34 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 1.4258 UP .0137 Pound UP 137 basis points/LESS Brexit concern.

USA/Canada: 1.3181  down  .0.0073 (Canadian dollar UP 73 basis points as oil was LOWER IN PRICE (WTI = $39.35)



This afternoon, the Euro was DOWN by 40 basis points to trade at 1.1198   as the markets generally moved against the dollar as Europe was off for today.

The Yen FELL to 113.35 for a LOSS of 34 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  137 basis points, trading at 1.4162 (LESS BREXIT CONCERNS)

The Canadian dollar ROSE by 73 basis points to 1.3181 , as  the price of oil was down today (as WTI finished at $39.38 per barrel)

The USA/Yuan closed at 6.5050

the 10 yr Japanese bond yield closed at -.084% par  IN basis points in yield

Your closing 10 yr USA bond yield: DOWN 2 basis point from THURSDAY at 1.88% //trading well below the resistance level of 2.27-2.32%) policy error

USA 30 yr bond yield: 2.66  DOWN 1 in basis points on the day and will be worrisome as China/Emerging countries continues to liquidate USA treasuries (policy error)


Your closing USA dollar index, 95.96 DOWN 36 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


The Dow was up 19.66 points or 0.11%

Nasdaq  down 6.72 points or 0.14%
WTI Oil price; 39.35 at 2:30 pm;

Brent Oil: 40.23
USA dollar vs Russian Rouble dollar index: 68.44 (Rouble is DOWN 26 /100 roubles per dollar from yesterday)AS the price of Brent and WTI OIL FELL


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: 40.18


USA DOLLAR INDEX:95.97down 37 cents


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

Trading Today in Graph form:

(courtesy zero hedge)

Stocks Shrug Off Dismal Data, Shootings, Bomb Alerts, And Viruses To Close Unchanged

Well that was a busy (no volume) day…But first some Easter Bunny fun…


Overnight JPY selling juiced stocks up but as soon as reality slapped them in the face – with housing data that everyone ignored for its idiocy and spending data that crushed hopes and dreams for Q1 GDP. However, the afternoon saw shootings at The Capitol, Times Square bomb alerts, and FBI investigating a major virus… stocks did not care.

We were not surprised…

On the lowest volume day of the year…


But for the 5th day in a row (and of increasing magnitude) Trannies were crushed at the open as it appears someone is dumping en masse…


Wonder what happens next?


Treasury yields dropped very modestly on the day (and the curve flattened)…Notice that as all the headlines this afternoon hit, investors decide to pile out of bonds – makes perfect sense…


The US Dollar index dropped today for the first time in 7 days…driven by a EUR-strengthening between 8amET abnd 10amET…


Commodities were mixed despite the USD weakness. Oil did its crazy volatile stop-run thing…


Gold was monkey-hammered at the China open (again) but oince again scrambled back higher…


Charts: Bloomberg



The final figures for 2015 are now in and the USA GDP came it as expected at 1.4% Corporate profits plunged.  However first quarter 2016 is heading southbound in a hurry:

(courtesy zero hedge)

U.S. GDP Rose 1.4% In Final Estimate Of Q4 Growth As Corporate Profits Plunged

While the final revision to Q4 2015 GDP was so irrelevant it was released on a holiday when every US-based market is closed, even the futures, it is nonetheless notable that according to the BEA in the final quarter of 2015 US GDP grew 1.4%, up from the 1.0% previously reported, and higher than the 1.0% consensus estimate matching the highest Q4 GDP forecast. The final Q4 GDP print was still well below the 2.0% annualized GDP growth reported in Q3.

The figure marks a slowdown from the 2.2% average pace in the first three quarters of 2015. For all of last year, the U.S. economy grew 2.4% matching the advance in 2014.

The reason for the change was largely due to upwardly Personal Consumer Spending, which rose from a contribution of 1.38% to the annualized bottom line to 1.66%. In CAGR terms, personal consumption rose 2.4%, following the 3.0% increase in Q3, higher than the 2.0% previously estimated.

Stripping out inventories and trade, the two most volatile components of GDP, so-called final sales to domestic purchasers increased at a 1.7 percent rate, compared with a previously estimated 1.4 percent pace.

The rest of the GDP components were largely unchanged, with Fixed Investment adding 0.06% to the bottom line, up from 0.02% in the previous estimate, Private Inventories contracting fractionally more than previously estimated (-0.22% vs -0.14%), net trade subtracting 0.1% less from growth (-0.14% vs -0.25%), and finally government spending largely unchanged and hugging the unchanged line at 0.02%.

But while the “resilient consumer” once again carried the US economy in the fourth quarter, largely due to an estimated jump in spending on Transportation and Recreational services, which added an annualized $13 billion to the US economy vs the prior estimate, more disturbing was the drop in profits which we already knew courtesy of company reports and is known confirmed by the BEA whose GDP report also showed that corporate profits dropped in 2015 by the most in seven years.

As Bloomberg writes, the earnings slump illustrates the limits of an economy struggling to gather steam at the start of this year. Some companies, encumbered by low commodities prices and sluggish foreign markets, are cutting back on investment while a firm labor market and low inflation encourage households to keep shopping.

Pre-tax earnings declined 7.8 percent, the most since the first quarter of 2011, after a 1.6 percent decrease in the previous three months. The estimate of nonfinancial corporate profits was reduced by a $20.8 billion settlement, considered a transfer to the government, between BP and the U.S. after the 2010 oil spill in the Gulf of Mexico.

Profits in the U.S. dropped 3.1 percent in 2015, the most since 2008. Corporate earnings are being weighed down by weak productivity, rising labor costs and the plunge in energy prices. Economists at JPMorgan had expected a 9.5 percent drop in pre-tax earnings in the fourth quarter.

“The pace of growth slowed as we ended 2015, though consumer spending is still the primary underpinning of this economic expansion,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “Any pickup we might see is still likely going to be capped given the overall global picture.”

And now that we can put 2015 GDP growth to rest, it’s time to focus on Q1 2016, where as the Atlanta Fed reported yesterday, growth is on pace to match the anemic 1.4% GDP growth of Q4.

“If profits remain depressed, the prospects for capex and hiring will come under greater pressure,” Wells Fargo’s Bullard said in a research note. Corporate outlays for equipment declined at a 2.1 percent annualized pace, subtracting 0.12 percentage point, the Commerce Department said.

Finally, the upward revision to Q4 consumer spending primarily on services, likely means pulling forward some of the growth that was supposed to prop up Q1 GDP growth, and as such we expect Wall Street economists to promptly revise lower their first quarter growth forecasts as soon as they come back from vacation, which however considering the Fed is now looking for excuses to have cut its dots as drastically as it did a week ago, will be very welcome by Janet Yellen.

Although the TVIX or the double levered long VIX complex falls to record lows, something unusual is happening in that the number of shares outstanding for the TVIX has risen remarkably in a similar fashion to the Blackrock ETF of a few weeks ago. VIX is a volatility index and a rise in volatility means trouble for the market.  Is the Dow/NYSE reaching an airpocket?
(courtesy zero hedge)

Something Just Snapped In The VIX ETF Complex

As TVIX, the double-levered long VIX ETF unleashed in Nov 2010, decays to record low prices…

An unusual (and almost unprecedented) event has occurred. Just as we saw in Gold ETFs, and Oil ETFs, TVIX Shares Outstanding have exploded by a stunning 225% in the last 4 weeks… [the last 3 times TVIX has undeergone such an epic surge in demand marked a major turning point and led a violent surge in VIX]

with the largest inflows (bearish bets) on record in the last week

The entire VIX complex is perturbed as the huge bearish TVIX flows contrast with the complacency of the steepest term structure since Nov 2014 (post Bullard-Bounce)…

And net speculative positioning at its shortest VIX (most bullish) in 2016…

We saw this kind of manic ETF creation recently in Blackrock’s Gold ETF, which forced them to halt creation – for lack of supply…

In the case of the current scramble for TVIX units, forced buying of VIX futures (which explains the steepness of the futures curve) suggests VIX buying pressure is building…

As Barron’s adds, volatility is back, but too few investors even know it.

Most are too focused on the CBOE Volatility Index’s extraordinary collapse in recent weeks to 15 from about 28. When the VIX is low, as it is now, it tends to be interpreted as a green light to buy stocks. . .or a sign of investor complacency.

Not enough people realize that the VIX is just a 30-day snapshot of expected returns for the Standard & Poor’s 500 index. A more meaningful, if esoteric, indicator is the VIX futures curve, which offers a long-term view of the stock market’s perceived risk.

The curve has lately been flat, indicating little risk to owning stocks between now and more distant months. But the futures curve is now “upward sloping,” as if sophisticated investors have suddenly regained visibility into what was an opaque stock market.

Nothing bores people more than nerdy derivatives measures, including VIX futures curves. But you should add this volatility gauge to your arsenal of indicators if you trade options or want to be a smarter stock investor.

Once again it appears the ETF tail is wagging the underlying market ‘dog’ as hedging with the ‘cheapest’ instrument – no matter how bad the basis – is the new normal. Remember, options markets are already medium term complacent and longer-term terrified.

As detailed previouslythe VXV has been around only since 2007. Over that time, the VIX/VXV ratio has dropped to 78% on 4 prior distinct occasions:

  • March 12-20, 2012 – The S&P 500 chopped sideways for a few weeks before falling some 9% over the next 2 months
  • August 13-22, 2012 – The S&P 500 chopped sideways for a few weeks before rallying by as much as some 4% over the next few weeks. 2 months later, the index had lost that entire gain, and another 4%.
  • December 5, 2014 – The S&P 500 immediately dropped 5% over the next 2 weeks before chopping sideways for several months.
  • March 20, 2015 – The S&P 500 dropped 2.5% over the next week before moving sideways for several months.

Now there is no guarantee that stocks are about to hit an air pocket. However, given the (albeit limited) precedents, the track record in the short to intermediate-term following such readings has not been a positive one. In fact, following the prior 15 days with VIX/VXV readings below 79%, the S&P 500 was lower 3 months later 14 of the days by a median of -3.7%. The only positive return was the 1 point gain following the March 2015 occurrence.

All in all, this may not be a Defcon 5 level red flag for the market. However, for a rally that has seen scant evidence of exuberance, this is at least one of the first indications of complacency.

The so called “restaurant recovery” is now over in the USA as casual dining sales tumble for the 4th straight month.  It will be interesting if the BLS reports a higher bartender and waiter increase in jobs to be announced next week
(courtesy zero hedge)

The “Restaurant Recovery” Is Over: Casual Dining Sales Tumble For Fourth Straight Month

While the US manufacturing sector has been in a clear recession for the past year as a result of the collapsing commodity complex, so far the stable growth in low-paying service jobs – at least according to the BLS’ statistical assumptions – such as those of waiters and bartenders have kept the broader service economy out of contraction (even though recent Service PMI data has been downright scary).

This is now changing: as we showed a month ago, according to the lagged effect of the collapse of the Restaurant Performance Index, that party is over:

… just like it was in 2008;

But while such macro indices suffer from the same calendar and statistical aberrations which the BLS is all too famous for, a confirmation of the troubling restaurant downward trend was provided yesterday by company-level channel checks, courtesy of Sterne Agee, which showthat same store sales trends at America’s casual dining restaurants – those which cater to the vast majority of the US middle class – have suffered a fourth consecutive month of declines, something not observed since the first financial crisissliding a whopping 3% in March.

From Sterne Agee’s March 24 channel checks:

Our channel checks for casual dining suggest a decline in casual dining same store sales (SSS) trends in the first half of March. While it is too early to determine if this is a trend, it appears that a fourth month in a row of negative SSS may occur, which we believe would be a disappointment to investors.

Casual Dining Stocks are Under Pressure in Recent Trading: On a month-to-date basis, we note that casual dining stocks have been under pressure, with an average price decline of -3.1%, including bottom-tier performers: Buffalo Wild Wings -10.2%, Red Robin -8 4% and Brinker -8.3.

To be sure, Sterne Agee tries to spin this disturbing trend as faborably as posible:

While there is much debate on whether the discounting/promotional environment in the quick service (QSR) space is affecting casual dining, we think it is too early to call this a shift in consumer behavior or change in trend.

However, it is becoming all too obviouos that not only has the great gas price collapse of 2015/2016 done anything to boost consumer spending on such core discretionary items as dinner, but that the purchasing power of the US middle class continues to deteriorate with every passing month – having troughed so far in March – and that economists are clueless to explain the reason behind this.

And the worst news is that with gas prices set to anniversary their 2015 lows in a few months at which point they will start rising due to the base effect, suddenly the great “gas tax savings” which did nothing to boost spending, is about to go into reverse, and lead to the next even sharper leg lower in US household spending. We are confident economists will be very confused about the reasons why the US economy is about to deteriorate substantially in the second half, however surely they will find some climatic anomaly to blame it on.



Personal income growth reported early this morning, is the weakest since Q3 last yr at 0.2%. However spending growth slowed 3.8% year over year. Spending was revised downward from that big spike in January.

the consumer is just not spending because they ran out of money..

(courtesy zero hedge)

Personal Income Growth Weakest Since QE3 As January’s Spending “Surge” Revised Entirely Away

Headline data for income modestly beat expectations (+0.2% MoM vs +0.1% MoM) and spending met expectations at +0.1% MoM respectively. Income growth YoY slowed to 4.0% however – near its weakest since Nov 2013. Spending growth also slowed to +3.8% YoY (from 2.9% in Jan) but the big story is the major downward revisions in spending. January’s +0.5% ‘surge’ in spending was revised to a mere +0.1% trickle – the weakest in over a year.

Since QE3, income growth has been a one way street lower…

And January’s “surge” in spending has magically disappeared…

Still what does anyone care about the reality of a collapsein real economic data? We have Bullard to keep markets afloat.

Because spending fell with the revised first quarter report, the Atlanta Fed has no choice but to lower its  GDP for first quarter to 1% or less:
(courtesy zero hedge)

The Fed’s Next Headache: One Third Of Q1 GDP Growth Was Just “Revised” Away

On Friday, the US government’s Bureau of Economic Analysis had some good and some not so good news: the good news was that the final estimate of Q4 GDP was revised higher from 1.0% to 1.4% (driven by an odd rebound in spending on Transportation and Recreational services). The bad news was that pre-tax earnings tumbled 7.8%, the most since the first quarter of 2011, after a 1.6 percent decrease in the previous three months, suggesting that while it is only the “strong” US consumer that is keeping the US economy afloat on their shoulders.

Unfortunately moments ago we got a revised glimpse of the true state of the US consumer, and unfortunately it was anything but strong.

As we reported moments ago, while the February personal consumption expenditures (aka personal spending) – that all important data about the well-being of the US consumer – was in line with expectations rising 0.1%, it was the January revision that was striking. From a 0.5% increase reported a month ago, it was now revised to a paltry 0.1%. In nominal dollar terms, this means that instead of US consumer spending a whopping $67.5 billion more in January, the increase was a paltry $14.7 billion, a delta of $52.8 billion!

As a result of the revision, that other most important indicator of consumer health, the savings rate, also jumped, and as of February, it is now at 5.4%, matching the highest print in four years suggesting that US consumers are far more eager to save (deflationary) than to spend (inflationary).

What this revision also means is that absent a massive rebound in March spending, or some dramatic revision to the February data next month, up to 0.5% of Q1 GDP was just wiped away.

Which is a problem: recall that last week the Atlanta Fed slashed its Q1 GDP estimate from 1.9% to 1.4%, matching the final Q4 GDP print.

As a result of today’s spending data, the Atlanta Fed will have no choice but to revise its Q1 “nowcast” to 1.0% or even lower, which would make the first quarter the lowest quarter since the “polar vortex” impacted Q1 of 2015, and the third worst GDP quarter since Q4 2012. It means one-third of already low Q1 GDP growth has just been wiped away.

Finally, it also means that the Fed is now officially stumped because despite core CPI and PCE continuing to rise dangerously high on soaring rent inflation, US economic growth is simply not there, which will make the case for a June rate hike that much more improbable. On the other hand, this is just the “great” news stock trading algos needed to hear: no June rate hikes, and a slowing US economy means the S&P500 levitation party can continue indefinitely.



And as expected the Atlanta Fed lowered its expectation of first quarter GDP to only .6%.  Janet Yellen has a severe problem!

(courtesy zero hedge)

Q1 GDP Crashes To 0.6% Per Latest Atlanta Fed Estimate

Earlier today we said that following the abysmal January spending data revision as shown in the chart below:

… that “the Atlanta Fed will have no choice but to revise its Q1 “nowcast” to 1.0% or even lower, which would make the first quarter the lowest quarter since the “polar vortex” impacted Q1 of 2015, and the third worst GDP quarter since Q4 2012. It means one-third of already low Q1 GDP growth has just been wiped away.”

It was “even lower.”

Moments ago the Atlanta Fed which models concurrent GDP, slashed its Q1 GDP from 1.4% to a number not even we expected: a paltry 0.6%, which would match the “polar vortexed” GDP print from Q1 2015, and should the number drop even more, will be the lowest since Q1 of 2014 when the US economy suffered its most recent contraction of nearly -1%.

This is what it said:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from –0.26 percentage points to –0.52 percentage points following this morning’s advance report on international trade in goods from the U.S. Census Bureau.

Here is another way of visualizing just how bad things suddenly are in the US economy, and no – this time one can’t blame ther weather:

There is one problem with even this sharply reduced number: the downward revised Atlanta Fed’s consumer spending estimate of 1.8% is still about 0.5% higher than where the hard data says it should be, suggesting when all is said and done, Q1 GDP may be 0% or negative, especially if more much overdue inventory liquidation takes place.

* * *

Finally, there is an even bigger problem here: see if you can spot it when looking at the Atlanta Fed index vs lagged US macro…

… and lagged US stocks.

And with, Janet, the ball is in your “rate-hiking” court.




Thanks to Obamacare, the USA citizens spent the most on this last year:

(courtesy zero hedge)

Thanks Obamacare: This Is What Americans Spent Most Money On In 2015

We have been covering the consumption tax, pardon, endless spending black hole that is Obamacarefor over a year, so we doubt it will come as a surprise to anyone that in 2015 healthcare was the second biggest use of US consumer funds, soaking up a record $1.9 trillion in real dollars, and more importantly for US economic “growth”, the single biggest source of incremental spending by nearly a factor of two.

Incidentally, with spending on healthcare (courtesy of the Supreme Court’s Obamacare tax) soaring, while outlays on the traditionally most consumption-intensive category, housing and utilities, going nowhere for the past several years, it is only a matter of 2-3 quarters before Healthcare surpasses Housing as the biggest use of American cash.

So, without further ado, this is what drove American consumer spending in the officially concluded, for GDP purposes, 2015. We show this just in case there is still any confusion why US households are unable to channel more spending into “discretionary”, non-mandatory purchases unlike Obama’s “health insurance” scheme.

The Illinois supreme court rejects Chicago’s Pension reform bid and this sets the stage for Chicago and Illinois’s insolvency:
(courtesy zero hedge)

Countdown To Insolvency Begins For Chicago Pensions As State Supreme Court Rejects Reform Bid

Last July, Cook County judge Rita Novak dealt Chicago Mayor Rahm Emanuel a bitter blow in his efforts to cut pension expenses.

“A Cook County judge will rule on the legality of a 2014 pension law aimed at reforming two of Chicago’s underfunded city retirement systems,” the Illinois Policy Institute wrote, in the lead up to the crucial ruling. “While the pension law included some much-needed reforms, such as an increase in the retirement age, if upheld the law ultimately would put Chicago residents on the hook for millions of dollars of tax increases.”

Novak’s decision came on the heels of a May ruling by the state Supreme Court which, in a unanimous decision, struck down a pension reform bid as an unconstitutional violation of benefits that are widely seen as sacrosanct. The read through from that ruling prompted Moody’s to downgrade Chicago to junk, giving the Windy City the dubious distinction of being the only major metropolitan area “in recent history” to carry such a low rating other than Detroit.

Two months later, Novak cited the state Supreme Court’s ruling on her way to declaring Emanuel’s plan unconstitutional.

“This principle is particularly compelling where the Supreme Court’s decision is so recent, deals with such closely parallel issues and provides crystal-clear direction on the proper interpretation of the law,” Novak wrote. “The Constitution of Illinois provides that public pensions shall not be diminished or impaired.”

There you go. As we’ve discussed on a number of occasions, the Illinois Supreme Court’s decision has ramifications far beyond the state’s borders. “My reaction was, ‘Yeah, that’s going to play here,’ ” John D. McGinnis, a lawmaker in Pennsylvania told The New York Times last summer. Pennsylvania, The Times continued, “has also been diverting money from its pension system, setting the stage for a crisis as more and more public workers retire.”

Essentially, what Illinois has done is set a precedent whereby efforts to reform pension plans and restore sustainability will everywhere and always be struck down. That leaves lawmakers with few options and may end up forcing officials to extend and pretend with ponzi-like schemes such as pension obligation bonds.

In any event, Chicago made a last ditch effort to salvage the reform effort after Novak’s ruling by appealing Cook County’s decision to the State Supreme court.

Put simply: Emanuel lost. The court deemed his plan unconstitutional.

“These modifications to pension benefits unquestionably diminish the value of the retirement annuities the members of (the city workers and laborers funds) were promised when they joined the pension system. Accordingly, based on the plain language of the act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority,” the justices wrote in their opinion.

“Emanuel tried to require city workers and laborers to increase their retirement contributions by 2.5 percentage points — to 11 percent of their wages — in phases over five years,” The Chicago Tribune writes, adding that “in exchange, the city agreed to increase its annual contributions to the pension funds by hundreds of millions of dollars a year [by] increasing fees on telephone and cellphone bills for emergency dispatch services by $1.40 a month, to $3.90, on every line billed to a city address.”

Stephen Patton, counsel for the city, tried to make an argument that was absurd and yet completely accurate all at the same time. The changes, he said, did not diminish or impair pension benefits, rather the city’s plan “preserved and protected” them.

As we wrote immediately after Novak’s ruling last summer, “while we certainly understand the idea that cutting pension benefits amounts a breach of the so-called ‘implicit contract’ between public sector employees and state and local governments, it seems as though workers and the courts are suffering from an acute case of myopia and denial of economic realities. Put simply:if the pension system isn’t reformed, it will run out of money and no one will get anything.”

“A recent analysis by the Municipal Employees’ Annuity and Benefit Fund of Chicago concluded its assets would be depleted by 2024 if Emanuel’s pension plan failed to pass constitutional muster,” The Tribune continues. So Patton is correct. The reforms would “preserve and protect” benefits but they would of course also diminish them materially from current levels.

The good news for taxpayers is that they’ll be off the hook in the short-term. Some $250 million the city had committed to spend to sweeten the deal for pensions that went along with the plan will no longer be needed. But over the long haul, this is a disaster. “The city faces a short-term benefit of about $89 million that’s currently in escrow that can be used to help other areas of the budget. But it will be a very hollow victory for the beneficiaries,” Civic Federation President Laurence Msall said.

“While their contributions will diminish slightly, the condition of the funds will revert back to something that is totally unsustainable and in danger of being completely insolvent within 10 to 15 years,” he continued, before delivering the following rather dire assessment: “Hundreds of millions in savings from rationalized pension benefits will be lost that will either have to be made up from reductions in city services, increased taxes or by allowing these funds to further deteriorate.”

Of course it’s not that representatives of city employees don’t understand what the word “insolvent” means. They just don’t think it’s workers’ responsibility to figure out how to dig out of the hole. “For too long, city workers have been labeled as the problem when, in fact, we are part of the solution.,” Jeff Johnson, president of the Municipal Employees’ Society representing city workers, said. “With a modest pension of $34,000 and a high population residing in Chicago, we are the single largest tax base of any group.”

AFSCME Council 31, the Chicago Teachers Union, the Il. Nurses Association and Teamsters Local 700 all agree. “Politicians caused the pension debt by failing to adequately fund employee retirement benefits while city employees were faithfully paying their share,” they said, in a joint statement. Here’s more color from the Chicago Sun Times:

Earlier this week, top mayoral aides said the city’s course of action would depend largely on how Thursday’s Supreme Court ruling is worded.

If the court gives Chicago a road map on how benefit reductions and increased contributions might be negotiated — in exchange for some other benefit chosen by the employee — then Emanuel will bring labor leaders back to the bargaining table to hammer out such an agreement.

If the door is slammed shut and the court says there is nothing the city can do to change the benefits, then the mayor will have no choice but to find a way to pay the added costs.

In that case, he’ll try to negotiate work-rule changes, lower break-in pay for new employees, another round of health care reforms, and other cost-saving concessions, and dedicate those savings to pensions, City Hall sources said.

The remaining shortfall could come from raising the telephone tax. Chicago is legally authorized to raise its telephone tax to the highest rate charged by any municipality in the state. That means there’s room to grow.

More property tax increases are unlikely, considering the fact that Emanuel just raised property taxes by $588 million for police and fire pensions and school construction and has promised to raise them by another $170 million for teacher pensions, whether or not the state does its part to help a nearly bankrupt Chicago Public School System.

“Obviously, we would have preferred a win, but we don’t think the door is completely shut. They left the door open on collective bargaining as a possible,” said a top mayoral aide who asked to remain anonymous.

Emanuel acknowledged that borrowing more money is “not my favorite option.” But it’s a “better option” than asking property owners to pay more at a time when Rauner’s pro-business, anti-union agenda has the state “spinning around and not doing anything,” the mayor said.

What all of the above means is that irrespective of who’s ultimately at fault, there will be no legislating away pension benefits – even if doing so is the only realistic way for officials to ensure that state and local governments can continue to pay out any benefits at all going forward. That is, even if long-run insolvency is certain, benefits will be paid out in full up to and until the day of reckoning finally comes and it will be up to lawmakers to figure out how to rescue the system in the meantime. If that means raising taxes and/or going into further debt, then that’s what it means.

Obviously, this doesn’t bode well for fiscal sustainability and one can’t help but think that further downgrades from Moody’s are right around the corner. The takeaway for the rest of the country’s state and local governments: if you were considering pension reform, don’t.

*  *  *

Full ruling

Illinois Supreme Court Chicago Municipal Pension






California raises its minimum wage to 15 dollars per hr. This will be phased in over 5 yrs:

(courtesy zero hedge)

California Says To Hell With Economics, Will Hike Minimum Wage To $15/Hour

Over the past 12 months, America has had front row seats for a real-life experiment with across-the-board wage hikes.

In January of last year, a grinning Doug McMillon appeared in a video message posted to Wal-Mart’s website to announce that the world’s biggest retailer was set to implement one of the “largest single-day, private-sector pay increases ever.”

Now first of all, McMillon and the rest of the executive suite probably should have reread the statement in quotes above and asked themselves whether that sounded like something that was likely to turn out well. Wal-Mart employs a whole lot of people, and giving everyone a raise is the kind of thing that can end up having unintended consequences – especially when your business runs on the thinnest of margins.

But Wal-Mart pressed ahead anyway and almost immediately, things started to unravel. First, Bentonville moved to squeeze suppliers by forcing them to plow their excess cash into savings rather than in-store advertising. Next came storage fees and eventually, Wal-Mart even tried to compel vendors to pass along any savings they might have recognized from the yuan devaluation.

But squeezing the supply chain proved inadequate to make up the money spent on higher wages and so, Wal-Mart did what anyone with any common sense knew they would end up doing: they fired thousands of people and closed hundreds of stores. Or, visually:

A valuable lesson was learned by all. Or maybe not, because over the weekend, California lawmakers and labor union reps struck a deal to raise the statewide minimum wage to $15/hour.

“The deal was confirmed Saturday afternoon [and the] compromise ends a long debate between Democratic governor Jerry Brown and some of the state’s most powerful labor unions,” the LA Times writes, adding that “for Brown, it’s political pragmatism; numerous statewide polls have suggested voters would approve a minimum wage proposal — perhaps even a more sweeping version — if given the chance.”

Here’s how it will work: the statewide minimum will rise from $10 an hour to $10.50 on Jan. 1, 2017, with a 50-cent increase in 2018 and then $1-per-year increases through 2022. Here’s more from the Times:

Sources say the Legislature could vote on the wage compromise as soon as the end of next week by amending an existing bill on hold since 2015. Its passage would place California ahead of a minimum wage increase now being considered in New York, and would probably add fodder to the raucous presidential race. Both Sen. Bernie Sanders of Vermont and former Secretary of State Hillary Clinton have endorsed the goals of a nationwide campaign to raise wages to $15 an hour, and advocates say swift action in California could force both Democratic candidates to embrace what would be a more aggressive plan of action.

In January, Brown warned of a $4-billion-a-year increase in state budget expenses if public-sector care workers — who are paid the minimum wage — were to receive $15 an hour. The gradual ramping up of wages and benefits in the new agreement is more aligned with Brown’s larger budget philosophy.

“Raising the minimum wage to fight income inequality has cropped up on many Democratic candidates’ agendas ahead of the November presidential, congressional and state elections,” Reuters wrote this morning. “But the idea has drawn fierce opposition from conservatives and some business groups, who have said a higher minimum would harm small businesses and strain the budgets of government agencies forced to pay more to workers.”

Yes, this could “harm small businesses.” Businesses like the Marmalade Café which has seven locations. “First, you have to raise prices, otherwise you’ll be out of business,” owner Selwyn Yosslowitz told the Times. So higher prices for diners. That’s “first.” We imagine you can guess what’s “second.” “We will try to re-engineer the labor force,” Yosslowitz said. “Maybe try to reduce the number of bus boys and ask servers to bus tables.” In other words: “Maybe” we’ll fire some folks and the people who keep their jobs will have to be more efficient.

Yosslowitz also worries about the dynamic we’ve discussed over the course of documenting Wal-Mart’s experience with wage hikes: namely that you have to preserve the wage hierarchy. You can’t hike wages for the lowest paid workers and then expect those further up the pay ladder to be satisfied with what they made before. “The other big worry [is] that employees already making $15 an hour will demand a raise as well”, Yosslowitz said. “It’s a chain reaction.”

Indeed, the problems with haphazard wage hikes are now readily apparent even to those who stand to benefit the most from the new legislation. Take Miguel Sanchez of Highland Park who works two jobs making tortillas. “It’s good for workers, but I imagine this is not going to be good news for employers and small businesses,” he says. “Will the cost of things go up?” he asks. “Are employers going to cut back hours because they can’t afford it? I worry.”

So even tortilla makers get it, but like Wal-Mart, “some folks” will need to actually see the layoffs before they’ll concede that you can’t cheat economic truisms and that’s really a shame for the people who will lose their jobs in the meantime.

Of course how much you earn and even whether or not you have a job at all only matters to the extent that “shit” costs money, which is why it might be a good idea to just go ahead and vote for “A Future To Believe In”…

As Connecticut has a huge funding problem as the budget defict surges, they are seeking to tax the Yale University Endowment as a plug:
(courtesy zero hedge)

“It’s An Attack On Higher Education”: Connecticut Seeks To Tax Yale Endowment As Plug To Surging Budget Deficit

One week ago, we observed an unexpected spike in the yield spread of Connecticut bonds over AAA-rate munis:

There were two specific catalysts for the spike in yield:

  • First was last week’s disappointing bond auction, as a result of which CT bond risk has spiked to 65bps over the benchmark,  a record spread demanded by investors to take CT repayment risk. In the process CT, one of the states historically most preferred by the wealthy hedge fund community, became the 4th riskiest US state after NJ, IL, and PA. As Bloomberg noted at the time, the state’s $550 million general-obligation sale on March 17, which included debt due in 2026, priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index.
  • The second, and more troublesome, reason was that the state’s office of policy and management said two weeks ago 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. Worse, the state is facing a $266 million shortfall for fiscal 2016, according to the state Office of Fiscal Analysis.

One week later, we find that the state with the ballooning budget deficit has taken proactive measures to fill said gap, even if the proposed measures are not particularly enticing for one of the highest profile tenants of the state: Yale University.

According to Bloomberg, a proposed Connecticut bill would seek a share of Yale’s endowment gains as a source of state tax revenue. According to the introduced legislature, schools with funds of $10 billion or more, which is clearly aimed at Yale as that is the only university to fit the criteria. Yale’s record $25.6 billion fund is the second largest in U.S. higher education, behind Harvard University’s $37.6 billion.

It’s not just the state which is seeking to collect a share of these generous returns: the richest college endowments, many at their highest values ever, also have drawn scrutiny from federal lawmakers. Last month, the U.S. Senate Finance and House Ways and Means committees sent a joint inquiry to the richest 56 private schools about endowments, seeking to understand the impact of their tax-exempt status on the price tag of higher education, among other issues.

But back to CT, where legislators believe that taxing the endowment’s earnings could help close the state’s budget gap. “Supporters of the bill want Yale to spend more money to expand access to higher education and “create innovative, high-paying jobs,” Martin Looney, a Democrat who presides over the Senate and whose district includes Yale’s campus in New Haven, said in written testimony submitted for a committee hearing on March 22.”

“It is our hope that these rich schools can use their wealth to create job opportunities, rather than simply to get richer,” Looney said, adding that Yale “possesses the resources to have an even greater impact on our economy.”

To be sure, Yale and the Greater New Haven Chamber of Commerce urged legislators to reject the bill. Yale currently makes a voluntary payment to New Haven of more than $8.2 million annually, according to the school.

Yale was particularly distressed, and Richard Jacob, the school’s associate vice president for federal and state relations, said in written testimony that the bill and a second one that would tax college property are a “specific attack on higher education.”

Yale does have a point:

“The proposed taxes on Yale would diminish the university’s ability to carry out its charitable mission and to enable and support growth in New Haven,” Jacob wrote. “Yale’s generous financial aid policies, which enable Yale College students to avoid any loans, and which waive any parent contribution for low-income students, exist because of the endowment.”

Unfortunately, in a time when only the 1% are swimming, while the rest are sinking, any profitable entity becomes a target.

Bloomberg adds that Yale’s endowment allocated $1.1 billion to the operating budget for the year ended June 30, according to the school’s annual report. The fund earned a return of 11.5% in the period, among the top performers of endowments. It returned an annualized 10 percent over the last decade.

The school’s annual budget is $3.2 billion, including $2 billion in wages and benefits, and almost a third of Yale’s 13,000 employees live in New Haven, according to the school.

The budget will promptly change if first the State, followed shortly by the Federal government, decide that it is only fair that well-endowed colleges such as Yale can double down as piggybanks for cash-strapped and money-losing entities, of which there are many within the government apparatus.

And our own Chris Powell gives his thought on the above tax on Yale University:
(courtesy Chris Powell/Journal

At least the Looney Principle might rid Connecticut of Yale

Chris Powell

Posted: Saturday, March 26, 2016 1:00 am

Let no one accuse Connecticut’s Democratic Party of not having any principles. The party seems to be operating on a principle of state Senate President Martin Looney. The Looney Principle is simply: What’s yours is mine.

The Looney Principle is on display more than ever now with his legislation to tax large private college endowments, the threshold set so that only Yale University’s endowment, nearly $26 billion, would be subject to taxation. Looney and other supporters of the legislation say it would prod Yale to invest more in ways beneficial to New Haven, as if Yale doesn’t have a right to spend its own money in its own interests.

But the core constituencies of Connecticut’s Democratic Party, the government and welfare classes, are growing anxious as their parasitism and mistaken policy premises keep driving the state down and tax revenue with it, and they see Yale’s endowment as ripe for plunder. After Yale’s endowment is taxed, maybe private endowments and savings will be next. For Connecticut must not ever tell its government employees that they no longer can take Columbus Day off with pay, nor its welfare recipients that they should stop thrusting on state government the support of children they never were in a position to support themselves.

Despite the claim that Yale should do more for New Haven, Yale already does a lot for the city, voluntarily paying the city millions of dollars each year out of guilt for being tax-exempt like other colleges and nonprofit civic organizations. Indeed, without Yale and its thousands of middle-class employees and its students bringing a lot of money into the city from all over the country and the world, New Haven, impoverished as much of it is, would be Bridgeport, whose miles of crumbling industrial hulks along the Northeast Corridor railroad tracks give rail passengers the impression that a nuclear war broke out shortly after they left New York.

Actually what broke out was the Looney Principle.

Yale officials have responded indignantly to it, but the endowment tax legislation is just what the university deserves for long having subsidized the parasitism that is now turning on it. No college in the country has been more politically correct than Yale. From nullification of federal immigration law to nullification of free speech to the coddling of the fascist impulse of its students demanding “safe spaces” against disagreement, Yale has supported many of the movements that are wrecking the country.

So if the endowment tax gives Yale ideas like those recently entertained by General Electric as it considered Connecticut’s future, saw ahead only decades of tax increases, and began packing up in Fairfield to depart for Boston, at least Connecticut would be rid of a bad influence and New Haven’s government and welfare classes would have to turn their parasitism on each other.

As for the state’s premier purportedly public institution of higher education, the University of Connecticut, it again has defeated demands for greater accountability for its own endowment, managed by the UConn Foundation, which has enjoyed exemption from state freedom-of-information law.

Instead of subjecting the UConn Foundation to that law as all other public agencies are subjected, state legislators have agreed to require only that the foundation submit an annual report summarizing its financial transactions. The foundation would remain free to conceal the identity of donors and thus free to keep selling them university favors, as it did several years ago when an especially arrogant donor purchased the dismissal of the university’s athletic director.

Since UConn will remain in effect a private university, state government might as well tax away its endowment too.


Chris Powell is managing editor of the Journal Inquirer.




The hits just keep on coming:

First Valeant must testify under oath

Second: the firm may have a merger agreement violation on that 1 billion pharmaceutical acquisition of a female libido drug

popcorn anyone?

(courtesy zero hedge)


The Hits Just Keep On Coming: Valeant CEO To Tesity Under Oath, Following Accusation Of Merger Agreement Violation

It’s been a terrible month for investors in Valeant (and Pershing Square) and it is about to get even worse following news that the outgoing CEO of the troubled company, which is under scrutiny for dramatically hiking the price of older drugs, has been summoned to testify at a U.S. congressional hearing on April 27, the panel said on Monday.

According to Reuters, the Senate Special Committee on Aging hearing comes as the Canadian-based company is coping with a variety of federal investigations into its accounting practices that led to a restatement and delays in the filing of its annual report.

Valeant said last week CEO Michael Pearson would step down, after a board committee probing the company’s ties to specialty pharmacy Philidor Rx Services had found accounting problems dating back to December 2014. Billionaire William Ackman, whose Pershing Square Capital Management owns a 9 percent stake in Valeant, has joined the company’s board.

Pearson’s testimony under oath will take places as prosecutors in Massachusetts and Manhattan are probing Valeant’s pricing and distribution channels, while the Securities and Exchange Commission is investigating its accounting and disclosure issues.

The Senate committee is one of two congressional bodies that are looking into aggressive prescription drug pricing.

Both committees are particularly focused on Valeant and Turing Pharmaceuticals, a private company founded by Martin Shkreli, a 32-year-old entrepreneur who has come under fire for raising the price of the drug Daraprim by more than 5,000 percent to $750 a pill.

In February, the U.S. House Committee on Oversight and Government Reform held a long and contentious hearing on drug pricing. At that hearing, Shkreli, who is facing unrelated securities fraud charges, asserted his Fifth Amendment right against self-incrimination.

Pearson did not testify at the hearing in the U.S. House of Representatives because he was on medical leave. Howard Schiller, Valeant’s then-interim CEO and former chief financial officer, testified in Pearson’s place. This is the same Schiller who since then has been publicly accused of “improper conduct” which helped contribute to a misstatement of its financial results.  Schiller, through his attorneys, has denied any wrongdoing.

In short, bring out the popcorn, this will be one epic spectacle, one which sooner or later culminate with one or more people in prison as Valeant revealed to be the pharma industry’sEnron we predicted months ago it would ultimate devolve into.

But wait, that’s not all.

Over the weekend, Bloomberg reported that investors in Sprout, the female libido pill maker bought by Valeant Pharmaceuticals International Inc. for $1 billion last year, said Valeant has failed to successfully commercialize the treatment by setting the price too high and neglecting to market it, putting the drugmaker at risk of violating the merger agreement.

So add corporate lawsuits to civil and criminal: the board will be very busy (assuming there is one in a few weeks). 

The group, representing all Sprout shareholders at the time of the acquisition, sent Valeant a letter on March 14 requesting materials showing that the drugmaker can fulfill its obligations under the deal going forward. Among the documents, the investors are seeking evidence that Valeant plans to spend $200 million for marketing and research and development for 2016 and half of 2017, as part of the agreement. They also ask for assurance that Valeant will keep a sales force of 150 to distribute the drug, called Addyi, which has posted disappointing sales since its introduction five months ago.

 “Valeant predatorily priced Addyi at $800 a month even though Sprout had established a price point of approximately $400 a month for the drug based on market research,” the investor group said in the letter. “As a result of this predatory pricing, insurance companies refused to cover the drug, which has led to the drug not being affordable for millions of women.”

Oh the irony: a drug which has been a speculatcular flop (and which the “investors” would have loved to see Valeant sell at $800 per month) is now said that it would sell better if only the price was cut in half.

Valeant has received the letter and will respond in due course, spokeswoman Laurie Little said in an e-mail. “While confidentiality obligations under the merger agreement prohibit us from commenting on specific contractual terms, Valeant intends to comply with all of its obligations under our agreement with the former shareholders of Sprout, including as they relate to marketing spend, number of sales reps, and post-marketing studies.”

The investor group, represented by Boies Schiller & Flexner LLP managing partner Jonathan Schiller, received cash in the acquisition, but they stand to collect royalty payments if the drug is successful. They are requesting that Valeant provide all “books, contracts, documents and records” related to the development and commercialization of Addyi by April 13, according to the letter.

“The Sprout shareholders have a contractual right to obtain the information that we have requested of Valeant,” Schiller said by e-mail.

“They also have legal remedies under the merger agreement to pursue claims against Valeant for its failure to perform its obligations.”

Sprout is one of four business lines that have performed poorly and need fixing, Pearson told senior managers this month. The struggling unit has started to cut jobs and eliminated the positions of its two national sales directors, according to people familiar with the matter, who asked not to be identified because the moves aren’t public. In addition, about 12 regional sales directors have been asked to interview for their jobs, the people said.

At the time of the merger agreement in August — within days of its approval by the U.S. Food and Drug Administration — both parties expected Addyi to hit $1 billion in net sales in the first full seven quarters following its introduction, the investors said in their letter.

Now, not so much, as suddenly Valeant’s entire rollup enterprise is under threat of imminent collapse.


For your enjoyment a full account of who Valeant rose to great heights from its infancy in 2009 to its now probable ultimate collapse.  Stockman states that there are other Valeants trading on the NYSE ready to blow

(courtesy David Stockman/ContraCorner)

A Scam Called Valeant——Why The Casino Is Going To Blow

by  • March 24, 2016

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If you need evidence that Wall Street is a financial time bomb waiting for ignition look no further than the recent meltdown of Valeant Pharmaceuticals (VRX). In round terms, its market cap of $90 billion on August 5th has suddenly become the embodiment of that proverbial sucking sound to the south, having plunged to less than $12 billion by Wednesday’s close.

That’s nearly a 90% haircut and VRX was no microcap penny stock. It was a giant inhabitant of a hedge fund hotel.

Needless to say, the cliff-diving pattern in the graph below provides evidence that the ticking bombs in the casino are of the neutron variety. In this case, the hotel may be still standing but the inhabitants have been ionized. On a single day last week, hedge funds lost $5.3 billion in value.

Condign justice, some might say, for the likes of rank gamblers like William Ackman (Pershing Square) and Jeffrey Ubben (ValueAct Holdings) who lost $700 million each that day. The fact that they have successfully promoted themselves for so long as masters of the universe, however, is the real moral of the story.

The financial markets and media have been so corrupted by central bank bubble finance that they did not even recognize that Valeant was a monumental scam and that Ackman and Ubben are snake oil salesman in $5,000 suits.  Presently it will become clear that the hedge fund hotels are heavily occupied by many more of the same.
VRX Chart

Alas, Valeant wasn’t caught selling poisoned pills or torturing kittens during the last seven months. What it was doing for the past seven years——aggressively pursuing every one of the financial engineering strategies that are worshipped and rewarded in the Wall Street casino——finally came a cropper.

Indeed, Valeant’s evolution during that period arose straight out of the financial engineering playbook. That is, it was a creature of Goldman Sachs and the various dealers, underwriters, hedge funds and consulting firms which ply the Bubble Finance trade.

At the end of the day, the latter have turned the C-suites of corporate America into gambling dens by attracting, selecting and rewarding company-wrecking speculators and debt-crazed buccaneers to the top corporate jobs.

In this case, the principal agent of destruction was a former M&A focussed consultant from McKinsey & Co, Michael Pearson, who became CEO in 2008.

Pearson had apparently spent a career in the Dennis Kozlowski/Tyco school of corporate strategy. That is, advising clients to buy, not build; to slash staff and R&D spending, not invest; to set ridiculously ambitious “bigness” goals such as taking this tiny Canadian pharma specialist from its $800 million of sales to a goal of $20 billion practically overnight; and to finance this 25X expansion with proceeds from Wall Street underwriters, not internally generated cash.

He even replicated the Tyco strategy of moving the corporate HQ to Bermuda to slash its tax rate.

Pearson’s confederate in this scorched earth corporate “roll-up” enterprise was Howard Schiller, a 24-year veteran of Goldman Sachs, who became CFO in 2011, and soon completed the conversion of Valeant into a financial engineering machine.

During their tenure, Pearson and Schiller spent about $40 billion on some 150 acquisitions. And exactly what common expertise and value added leverage did these far flung acquisitions in contact lenses, ophthalmological therapies, dermatology, cosmeceuticals, anti-aging creams, Botox equivalents, acne fighters, toenail fungus ointments and much more bring to the table?

Well, what they brought was an opportunity to slash thousands of jobs, eliminate R&D and fund massive amounts of goodwill and intangible assets with cheap debt. Most especially these deals enabled Valeant to fill its purchase accounting “cookie jars” with fulsome amounts of reserves that could thereafter be used to cause inconvenient integration costs to disappear, as needed.

Indeed, Valeant not only failed to acquire any significant pharmacuetical synergies, but actually went in the opposite direction. That is, it has militantly eschewed investment in drug research and development in an industry who’s very purpose is the development of new drugs and therapies.

Yet the alternative strategy they peddled to the occupants of the hedge fund hotel that became increasingly crowded with VRX punters as its shares soared skyward was downright nonsensical and economically vapid. It could only have thrived during the late stages of a Bubble Finance mania.

In essence, Pearson and Schiller claimed that the rest of the industry was infinitely stupid, and that tens of billions of market cap could be created instantly by the simple expedient of buying companies with seasoned drugs and then jacking up prices, often by orders of magnitude.

In fact, Valeant has acquired a reputation for ferociously raising prices. In one year alone the company jacked-up the price of 81% of the drugs in its portfolio by an average of 66%.

The point here is not to echo the Hillary Chorus in favor of government drug price controls. Quite the contrary. Despite a crony capitalist inspired patent regime and the endless legal obstacles thrown up by the Big Pharma cartel, the drug market is not immune to the laws of economics.

Raise the price of drugs radically enough and you will eventually attract competitors into the market with new formulations that circumvent the patent; or get greedy enough and generics will swamp you on the patent’s expiration.

Stated differently, what seasoned industry executives know that may have escaped the attention of Wall Street hot shots like Pearson and Schiller or the spreadsheet jockeys who congregate in the hedge fund hotels, is that massive, wanton, overnight price escalation is not a business strategy that builds sustainable value and reinforces brand equity; it’s a scalping tactic that works in the casino, but not the real world.

At the same time, Pearson and Schiller slashed staff and chopped down R&D spending to a comically low 3% of sales. That compares to an industry norm of 12% to 18%.

Finally, this Wall Street witches brew was stirred together in pro forma financials that assumed these predatory price hikes would be permanent and that these back-of-the-envelope cost savings would be immediately realized in full.

The resulting profit projections, of course, had virtually nothing to do with the company’s actual results, but they did conform to sell-side hockey sticks like a hand-in-glove. Thus, in 2014 it earned only $912 million under GAAP accounting principles, but claimed “cash” earnings of $2.85 billion.

The latter meant that at its peak market cap in mid-2015 it was trading at a sporty 32X earnings, but not really. It was actually being valued in the casino at 101X the type of  profits you don’t go to jail for when you report them to the SEC.

Needless to say, on the back of that kind of financial scamming, it did not take long to turn Valeant into a veritable debt-mule. Its debt outstanding rose from $400 million in 2009 to $31 billion at present, and that 78-fold eruption of debt is the skunk in the woodpile.

To wit, Valeant has been a veritable cash burning machine during its Wall Street driven M&A spree.During the 12 months ending in September, for example, VRX  generated only $2.54 billion of operating cash flow, but spent $14.3 billion of cash on CapEx, M&A deals and other investments.

Nor was that an aberration. During the 27 quarters since the end of 2008, VRX has generated a mere $7 billion in operating cash flow, but has consumed nearly $26 billion of cash on investments and deals. Stated differently, it was a Wall Street Ponzi pure and simple.

Likewise, during that 27 quarter period, which roughly tracks Pearson’s tenure, the company has posted rapidly rising sales—-with the top line growing from $757 million in 2008 to $10 billion in its most recent LTM report.

But it has been an absolutely profitless prosperity—–not unlike the typical financial engineering driven roll-up. Thus, over this 27 quarter period as a whole, sales totaled just under $30 billion, but its cumulative net income amounted to a miniscule $130 million.

That’s right. Over the last seven years, Valeant’s GAAP profits have amounted to just 0.4% of sales. 

So why did Valeant’s market cap soar from $1.2 billion, when Pearson arrived in 2008, to the recent peak of $90 billion during a period when the company has generated hardly a dime of profits?

It was just another case of Wall Street financial engineering and speculative hype at work. The entire story has been based on pro forma, ex-items forward looking Wall Street hockey sticks, and not the least those published by Goldman Sachs.

It goes without saying, of course, that these Bubble Finance deformations have resulted from the lunatic cheap money and wealth effects levitation policies of the Fed. Financial repression and QE deeply subsidize corporate borrowing to fund financial engineering deals, thereby reducing the after-tax cost of even sub-investment grade debt to low single digit levels.

Likewise, ZIRP is the mother’s milk of Wall Street speculation. It enables hedge funds and other fast money traders to build-up positions in rocket ships like Valeant at virtually no cost through the options and dealer financing markets.

Indeed, as VRX’s market cap grew from $14 billion to $90 billion in just 36 months from mid-2012 to mid-2015, it generated a daisy chain of rising “collateral” value that enabled leveraged speculators to chase its stock to an ever more absurd height relative to the company’s GAAP financials.

Yet there is no mystery as to why these financial engineering scams happen over and again in financial markets which have been corrupted and disabled by the Fed and other central banks.

Namely, because the deal fees from financial engineering are so lucrative; and because the checks and balance of a healthy free market in finance——such as short-sellers, heavy hedging expense and meaningful carry costs for debt financed speculations—–have been destroyed by the central banks.

Needless to say, Valeant is not a one-off aberration. It is the epitome of today’s speculation swollen and highly combustible financial markets.

Yet the all-powerful central bank which has fueled this dangerous, unhinged casino is now being led by a Keynesian school marm stumbling around in an explosives vest. She apparently has no idea that a 38 bps money market rate is not a pump toggle on some giant bathtub of GDP; it’s an ignition fuse that is fueling the greatest speculative mania in modern history.

As I said earlier this week:

Given the overwhelming facts on the ground—–4.9% unemployment, 2.3% core CPI and a 23.7X PE multiple on the S&P 500—-her decision to “pause” after 87 months of ZIRP actually proves she is a blindfolded monetary arsonist—-armed, dangerous and lost.

Janet and her posse of pettifoggers don’t even have the “Humphrey-Hawkins made me do it” excuse any longer. The truth is, there is nothing in the act that says they must hit 2.00% inflation to the second decimal point or anything else more specific than “stable prices”. Nor is there any quantitative target for full employment, let alone something like 4.85%—- since we apparently are not there at 4.90%.

But even if these targets are taken as a serviceable approximations of its so-called ‘dual mandate’, who in their right would be quibbling about the second decimal point so late in the recovery cycle that the next recession is fairly palpable? .

Simple Janet is lost in a time warp. The 1960’s notion that the US economy is a closed bathtub in which inflation, unemployment and all of the other crude, ill-measured macro-variables on Janet’s dashboard can be mushed around by central bank injections of ethers called “aggregate demand” and  “financial accommodation” was not true even back then.

It was also never true that the financial market is merely a neutral transmission channel to the main street economy that can be used as a pumping device to manage GDP and the dual mandate variables embedded in it.

In fact, financial markets are the delicate mainspring of the entire capitalist economy. The nuances of pricing in the money and debt markets, the exact shape of the yield curve, the cost of carry and maturity transformations, the price of options and hedging insurance, capitalization rates on earnings and cash flows and much more are what actually enable sustainable growth, real wealth creation and financial stability.

But the blunderbuss Keynesians who have taken control of the Fed and other central banks lock, stock and barrel are clueless. Their massive, chronic, heavy-handed intrusions in financial markets have falsified all prices and turned the financial markets into incendiary gambling casinos. There is no true price discovery left—-just an endless cycle of speculation and front-running that eventually reaches a breaking point and implodes.

We are there now. Valeant’s spectacular implosion didn’t happen on another planet. To the contrary, it’s a product of what the Wall Street casino does.




Let us close with this wrap up with Greg Hunter and Dr Paul Criag Roberts:


(courtesy Greg Hunter/Dr Paul Craig Roberts)

Criminal Bankers Control US Government Push War-Paul Craig Roberts

1aBy Greg Hunter’s (Early Sunday Release)

Former Assistant Treasury Secretary in the Reagan Administration, Dr. Paul Craig Roberts, contends it is no accident why bankers do not get jail time for constantly committing fraud by stealing documents and committing fraudulent, criminal insider trading and market manipulations. Dr. Roberts explains, “Look at Edward Snowden and Julian Assange.  They claim they stole documents, and we are determined to destroy them.  One of them is hiding out in Russia, and one of them is hiding out in the Ecuadorian embassy in London.  This again shows the immunity of the banks.  They are not held accountable because they are in control.  Who controls the Fed?  Who controls the Treasury?  Where do all the Treasury Secretaries come from?  They come from the big New York banks.  Look at the financial regulatory agencies that are supposed to be regulating the banks.  They are filled with executives from the banks.  The banks control the government. There isn’t a government, there’s the banks. . . . We have the entire economic policy in the United States concentrating on saving five banks.  We had 10 million people who lost their homes, and nothing was done for them, but five banks are saved.”

On the 2016 election, Dr. Roberts says, “The United States is controlled by powerful private interests groups, and these groups don’t trust outsiders because they don’t have their hooks in them. How would they have their hooks in Trump?  He’s a billionaire.  He doesn’t need their money.  They can’t tell Trump, hey, look we will give you a $153 million in speaking fees like we did Bill and Hillary Clinton.  He doesn’t care.  He doesn’t need $153 million.  He’s got billions.  So, they can’t control him, and it’s the same for Bernie Sanders, even though he is a Democratic Senator.  He is not really part of the Washington Democratic establishment.  What the establishment is interested in doing is to control the party.  They would much rather keep control of the party than to win an election if it means they lose control to an outsider.”

Dr. Roberts goes on to say, “Even if Trump were to be permitted to be President, and I don’t think he will be permitted, I think they will do the same thing they did with Ron Paul. They just won’t recognize his delegates.  The Neoconservatives are already organizing a way to block Trump when he wins the nomination from being given the nomination. . . .There is an oligarchy.  The oligarchy protects itself and hides behind the elections, but it controls the candidates.  This time, it hasn’t been able to control the candidates because the American people are finally catching on that neither political party represents them.”

Dr. Roberts has a new book out titled “The Neoconservative Threat To World Order.” In it, he talks about the dreadful shape of the global economy and how war might be forced on the world.  Dr. Roberts says, “The Neoconservative ideology is American world hegemony . . . this means you have to subdue the others, and this includes Russia and China.  These are two nuclear powers with massive military capabilities, and they are in the way of the Neoconservative agenda of World Empire . . . . So, the Neoconservatives are driving the United States and Western Europe into conflict with Russia and China. Russia and China are not going to give up and be American vassals. . . . Our economy is a house of cards.  It’s held up by the Federal Reserve.  The question is how long can they hold it up? . . . There is no way around the coming war unless the American empire begins unraveling, which it could do.”

Join Greg Hunter as he goes One-on-One with Dr. Paul Craig Roberts, author of the new book “The Neoconservative Threat To World Order.”

(There is much more in the video interview.)




See you tomorrow night



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