Good evening Ladies and Gentlemen:
Gold: $1,253.20 up $0.20 (comex closing time)
Silver 17.13 up 16 cents
In the access market 5:15 pm
I WROTE THE FOLLOWING YESTERDAY:
Let us have a look at the data for today
At the gold comex today, we had a good delivery day, registering 95 notices for 9500 ounces for gold,and for silver we had 0 notices for nil oz for the non active April delivery month.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 220.60 tonnes for a loss of 82 tonnes over that period.
In silver, the open interest rose by another 946 contracts UP to 194,510 (yesterday’s number was revised downward) as the silver price was UP 72 cents with respect to TUESDAY’s bullish trading. In ounces, the OI is still represented by .972 billion oz or 139% of annual global silver production (ex Russia ex China). We are now at multi year highs in OI with respect to silver
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI ROSE BY A HUMONGOUS 13,553 contracts UP to 503,331 contracts as the price of gold was UP $19.40 with TUESDAY’S TRADING(at comex closing).Upon seeing that huge OI number in gold, the boys started their pounding of gold throughout the night and into trading today. But to no avail..gold and silver strength is showing its muscle.
We had no changes in gold inventory at the GLD, thus the inventory rests tonight at 805.03 tonnes.The boys loading gold into and/or removing gold at the GLD must be getting dizzy at the sheer pace of transactions!! 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’s SLV,we had no change in silver inventory. Thus the inventory rests at 334.724 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 946 contracts up to 194,510 as the price of silver was UP 72 cents with TUESDAY’S trading. The gold open interest rose by A LARGE 13,553 contracts WITH GOLD’S RISE YESTERDAY. Somebody big is standing FOR SILVER and surrounding the comex with paper longs ready to ponce once called upon to take out physical silver.
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i)Late TUESDAY night/ WEDNESDAY morning: Shanghai closed DOWN BADLY BY 70.23 POINTS OR 2.31% / Hang Sang closed DOWN 199.90 OR 0.73%. The Nikkei closed UP 32.10 POINTS OR 0.19% . Australia’s all ordinaires CLOSED UP 0.52%. Chinese yuan (ONSHORE) closed UP at 6.4655. Oil FELL to 40.18 dollars per barrel for WTI and 43.23for Brent. Stocks in Europe MOSTLY IN THE GREEN . Offshore yuan trades 6.4729 yuan to the dollar vs 6.4655 for onshore yuan.
REPORT ON JAPAN SOUTH KOREA AND CHINA
a) REPORT ON JAPAN
ii)Geez!! we got another one: Mitsubishi motors admits to rigging emissions:
( zero hedge)
iii) The negative interest rates are not having a positive effect on Japan’s economy. Coupled with that crippling earthquake causing disruptions in supplies, Japan willprobably double its equity purchases as soon as next week
b) REPORT ON CHINA
iv)China’s corporate bond market (bubble) is starting to unravel. Total aggregate debt issuance which includes bonds increased by one trillion usa dollars in March. (social financing plus corporate bonds). We have now seen many defaults in China and as such the yields rise showing the risk to investors. This has frightened investors away from this frightening bond market causing more trouble for firms that cannot refinance:
( zero hedge)
v)China is slow and methodical in their attack on the USA. They now retaliate in the trade wards by increasing steel output to record highs. With higher domestic prices buoying their decision, one can see output rising. Basically their book is full till July and then the problems will start with huge glut of steel on the global markets;
Get ready to the next intervention into Libya as Europe is planning on recolonizing Libya:They will try and add 1.3 million barrels per day to the world oil glut and steal whatever they can for themselves
5.RUSSIAN AND MIDDLE EASTERN AFFAIRS
Interesting: Russian stocks rise despite the lack of a DOHA agreement and a huge outflow of investing funds. Very strange!
( zero hedge)
i)this is very worrisome. With the huge amount of fracking done in the world, the earth’s crust is getting quite unstable: we are witnessing huge amounts of earthquakes and now the most dangerous volcano in Mexico has erupted:
( Michael Snyder/End of the American Dream Blog)
ii)Then at 5 pm est this happened in Mexico as a massive explosion rocks the PEMEX OIL Facility:
( zero hedge)
i) The Kuwaiti oil strike is over and that sends oil falling
( zero hedge)
ii)Russia never really intended to freeze production, which sends oil down more
iii)Then with everybody focusing on the USA production, oil starts to rebound above 42.00 dollars. USA production drops to 18 month lows: However the spike in price did not last and oil resumed its southbound trajectory!
iv)These fake OPEC meeting headlines is a total farce. They are frontrunning central bank purchases of crude:
i)An excellent article by John Browne of Euro Pacific Capital. He describes the world continuing to expound on the faulty virtues of negative interest rates. He correctly states that QE will effect and lower the long term interest rates, while negative interest rates naturally effects the lower end of the yield curve. It is the uncertainty and fear in the markets, by introducing negative rates that will propel gold forward:
( John Brown/Euro Pacific Capital)
ii)Another step in removing the power of the west to determine gold pricing
(courtesy From Russia Today, Moscow/GATA)
iii)The nemesis to the manipulators, the owner of NANEX provides a useful discussion of how the market rigging by the crooked bankers is getting worse by the day!
( Eric Hunsader/Chris Martenson/Adam Taggart/Peak Prosperity
iv)Stephen Leeb states that gold will rise to the 10,000 to 20,000 mark with the introduction of the Chinese gold fix:
v)The China yuan gold fix is part of a planned shift away from the dollar states China’s Bocom
9.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER
i)A good start to the morning: Bellwether stock Intel fires a massive 12,000 workers or 11% of its entire workforce. First quarter sales miss badly and they guide future revenues lower:
( zero hedge)
ii)David Stockman talks about the financial engineering with respect to IBM. With revenues dropping by 20%, the boys are buying back their stock in increasingly quantities and also rewarding shareholders with dividends. The total buybacks and dividends equal their income.
iii)Existing home sales rose marginally but disappoint at the low end ( due to non affordability) and at the high end (buyers spooked by January’s stock correction)( zero hedge)
iv)This does not look good at all. The Hanford Nuclear Reservation was used as part of the Manhattan project, i.e. building the atomic bomb. Now nuclear material is leaking and it is catastrophic:
( zero hedge)
v)The Fed Inspector General is furious with the Fed leaks especially from their mouthpiece, Jon Hilsenrath. Will the Fed change its ways: not in a heartbeat
vi)Lawrie on Gold comments on Von Greyerz’s presentation to the European Gold Forum;
vii)What is wrong with the USA regulators for not putting these thugs into jail:
State Street caught stealing from clients with markups of 1900% as well as secret commissions:
( zero hedge)
viii)I can see trouble brewing here as one of the largest USA Pension funds are set to cut retiree benefits because they state that if they do not cut funds they would be bust in 2025:
Let us head over to the comex:
The total gold comex open interest ROSE CONSIDERABLY to an OI level of 503,331 for a GAIN of 13,553 contracts as the price of gold UP $19.40 with respect to YESTERDAY’S TRADING. We are now entering the active delivery month of April. 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. We certainly witnessed both parts today . In the front month of April we lost 157 contracts from 1971 contracts down to 1814. We had 28 notices filed yesterday so we LOST 129 CONTRACTS or an additional 12,900 gold ounces will NOT stand for delivery. The next non active contract month of May saw its OI fall by 156 contracts down to 2866. The next big active gold contract is June and here the OI rose by 13,339 contracts up to 377,450. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was FAIR at 190,490 . The confirmed volume YESTERDAY (which includes the volume during regular business hours + access market sales the previous day was fair at 225,055 contracts. The comex is not in backwardation.
Today we had 95 notices filed for 9500 oz in gold.
April contract month:
INITIAL standings for APRIL
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| 2604.15 oz (Manfra,SCOTIA)
|Deposits to the Dealer Inventory in oz||8,000.000 OZ
|Deposits to the Customer Inventory, in oz||96,254.322
|No of oz served (contracts) today||95 contracts
|No of oz to be served (notices)||1719 contracts 171,900 oz/|
|Total monthly oz gold served (contracts) so far this month||2440 contracts (244,000 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||108,653.8 oz|
Today we had 1 dealer deposit
i) Into Brinks: ANOTHER OF THOSE IMPOSSIBLE DEPOSITS:
I) INTO BRINKS, 8,000.000 OZ (NOT KILOBARS AS NOT DIVISBLE BY 32.15 )
Total dealer deposits; 8,000.00 oz
Today we had 0 dealer withdrawals:
total dealer withdrawals: nil oz
Today we had 1 customer deposit:
i) Into Scotia: 96,254.322 oz
total customer deposit: 96,254.322 oz
Today we had 2 customer withdrawals:
i) Out of Manfra: 192.90 oz (6 kilobars)
ii) Out of Scotia: 2411.25 oz (75 kilobars)
total customer withdrawal:2604.15 oz
Today we had 1 adjustment:
Out of Brinks:
10,298.07 oz was adjusted out of the dealer and into the customer and that may be a settlement (.3203 tonnes)
APRIL INITIAL standings
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||1,301,109.97oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||991.56 oz
|No of oz served today (contracts)||0 contracts
|No of oz to be served (notices)||6 contracts)(30,000 oz)|
|Total monthly oz silver served (contracts)||189 contracts (945,000 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||6,704,691.0 oz|
today we had 0 deposits into the dealer account
total dealer deposit: nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 1 customer deposit:
i) Into CNT: 991.56 oz
Total customer deposits: 991.56 oz.
We had 3 customer withdrawals
i)Out of HSBC; 100,124.720 oz
ii) Out of Scotia: 600,985.97 oz
iii) Out of JPMorgan: 599,999.3 oz
total customer withdrawals: 1,301,109.97 oz
we had 4 adjustments and they were big
Out of Brinks:
We had 137,268.62 oz leave the dealer account and this landed into the customer account of Brinks
Out of CNT:
We had 142,537.83 oz leave the dealer and this entered the customer account of CNT
Out of HSBC:
We had 70,155.20 oz leave the dealer account and this entered the customer account of HSBC
Out of JPMorgan;
we had 150,255.600 oz leave the dealer account and this entered the customer account of JPMorgan
total amount leaving the dealers: 500,217.25 oz
APRIL 8/no changes in tonnage of gold/rests tonight at 819.60 tonnes
APRIL 7/ a huge deposit of 4.17 tonnes of “paper” gold was added to our GLD/Inventory rests tonight at 819.60 tonnes
APRIL 6/a withdrawal of .29 tonnes of gold and probably this was to pay for fees for the custodian and insurance/inventory rests at 815.43 tones
April 5/ a withdrawal of 2.37 tonnes of gold from the GLD/Inventory rests at 815.72 tonnes
April 20.2016: inventory rests at 805.03 tonnes
And now your overnight trading in gold, WEDNESDAY MORNING and also physical stories that may interest you:
By Mark O’Byrne
Silver Bullion “Has So Much More to Give” – 5 Must See Charts Show
Silver bullion has so much more to give according to Bloomberg today in an interesting article replete with 5 must see silver charts.
Silver’s bull run looks like it has legs.
The metal with the best return this year of any in the Bloomberg Commodity Index is poised for more gains, investors, traders and market data suggest.
“Silver has the best-looking chart among all the commodities,” said Andy Pfaff, who as chief investment officer for commodities at MitonOptimal Group in Cape Town increased his allocation to the metal over the past two weeks. “When silver moves, it really, really moves, and everyone wants to be on the right side of that trade.”
The metal is up more than 11 percent in the last two weeks after underperforming gold in the first quarter on concerns slow Chinese growth would curb demand in the biggest consumer of commodities. While both are precious metals, silver has more uses in manufacturing. Silver traded at $16.909 an ounce on Wednesday.
Following are charts that suggest the possibility of further gains.
The ratio of gold to silver prices fell to the lowest level since October on Wednesday after peaking in February at the highest since 2008. It will likely fall further, according to dealers such as brokerage GoldCore Ltd. in Dublin as reported by Bloomberg.
Read full Bloomberg article and see 5 charts here
Gold Prices (LBMA)
20 April: USD 1,247.75, EUR 1,098.09 and GBP 867.45 per ounce
19 April: USD 1,241.70, EUR 1,095.18 and GBP 867.01 per ounce
18 April: USD 1,237.70, EUR 1,095.02 and GBP 872.45 per ounce
15 April: USD 1,229.75, EUR 1,092.16 and GBP 867.46 per ounce
14 April: USD 1,240.30, EUR 1,101.04 and GBP 874.96 per ounce
Silver Prices (LBMA)
20 April: USD 16.62, EUR 14.67 and GBP 11.57 per ounce (Not updated)
19 April: USD 16.62, EUR 14.67 and GBP 11.57 per ounce
18 April: USD 16.20, EUR 14.33 and GBP 11.41 per ounce
15 April: USD 16.17, EUR 14.33 and GBP 11.40 per ounce
14 April: USD 16.13, EUR 14.32 and GBP 11.39 per ounce
Gold News and Commentary
Gold Silver Ratio “May Revert” Lower – GoldCore (Bloomberg)
Silver futures post highest close in nearly a year (Marketwatch)
Silver hits 11-month high. It’s up more than gold in 2016 (CNN)
Gold gains on dollar weakness, silver hits 10-month high (Reuters)
Russia and China plan platform to unite their gold trading (Russia Today)
Silver’s Bull Market Has So Much More to Give (Bloomberg)
Chinese Buying Silver: “Momentum Breaks Out To Highest In Years” – BOA (Zero Hedge)
Market rigging is getting worse – Hunsader (Peak Prosperity)
China moves to increase gold power — World supply looks to dwindle (Investor Intel)
China launches yuan gold fix in bid to be price maker (CNBC)
Read More Here
An excellent article by John Browne of Euro Pacific Capital. He describes the world continuing to expound on the faulty virtues of negative interest rates. He correctly states that QE will effect and lower the long term interest rates, while negative interest rates naturally effects the lower end of the yield curve. It is the uncertainty and fear in the markets, by introducing negative rates that will propel gold forward:
(courtesy John Brown/Euro Pacific Capital)
Why Negative Rates Are Positive For Gold
As 2015 came to a close, most investors believed that 2016 would be a year dominated by a series of Fed rate hikes. That conviction solidified in mid-October when comments from multiple Fed officials convinced many that prior hints that the Fed would stay at zero percent rates had been false alarms. The Fed delivered on its promise in mid-December by actually raising rates by 25 basis points. Based on this, gold declined by 10% from October 14 to the end of the year, nearly matching its six year low. Many on Wall Street thought the declines would continue into 2016. They were decidedly wrong.
In the first 14 weeks of the New Year, gold rose 16%. The first quarter qualified as its best beginning year performance in 30 years (CNBC, E. Rosenbaum, 4/14/16). The reversal was prompted by stumbling stock markets and a series of sharply dovish turns from central banks around the world.
Perhaps the main reason people buy gold is as a hedge against inflation. But uncertainty and fear contributed undoubtedly to gold’s stellar first quarter rise. But will it continue? Opinions vary among some of the most revered gold analysts in large financial firms. They remain focused almost exclusively upon the major historical influence of the inflation outlook and possible rate hikes. And as a result, the mainstream financial firms have yet to alter their decidedly bearish outlook on gold. This could prove positive for those who take the contrarian position.
In March, Kitco reported that Robin Bhar, head of metals research for Societe General, forecast an average gold price of $1,150 an ounce for 2016. Combined with the likelihood that fear and uncertainty are receding, Bhar believes that there may be a growing realization that “the risk of an imminent U.S. recession, while not negligible, is far lower than the markets are currently factoring in.” He expects the Fed could deliver multiple rate hikes in 2016 and perhaps several during the course of 2017. If this were to happen, the dollar should strengthen and gold should fall.
Mr. Bhar’s view is supported by Goldman Sachs’ global head of commodities, Jeff Currie, who in a CNBC TV interview on April 5th recommended not just a sell of gold, but a short sale. Given the drift of central bank policies around the world, it’s hard to imagine why these banks can hold to these beliefs. This is particularly true in light of how widely and rapidly negative interest rates are spreading around the world. Bloomberg reports that as of Feb. 9, 2016, over $7 trillion of bonds, comprising some 29 percent of the Bloomberg Global Developed Sovereign Bond Index, offered negative yields. Another $9 trillion yielded zero to one percent. It is widely accepted that this number will grow rapidly as central banks push yields deeper into negative territory. These rates have already started to be passed through to consumers, who are being charged interest on their bank deposits.
Negative rates are now looming so large that on April 15, the Wall Street Journal dedicated almost its entire “Money & Investing” section to the global consequences of negative rates, a phenomenon that has no precedent in human financial history. The section included five separate articles that detailed the absurdities of negative rates, the strains they are placing on the financial system now, and the risks they create for the future.
When bank charges are leveled on cash deposits that earn no interest, which are held in debased fiat currency, it may become tempting for more and more individuals to withdraw their funds. Their alternatives could be to buy stock investments, or to hold physical cash in the form of bank notes (which may or may not be stuffed into mattresses). A fall in bank deposits could hurt banks just when they may be hit with fines and increased regulation. Furthermore, even if arguably remote, falling deposits could trigger a cycle of further withdrawals. Given that central banks may confront such a scenario with even more currency debasement, precious metals could become an alternative form of cost-free cash.
Sovereign debt (including negative rate bonds) form ‘safe’ holdings in the portfolios of major banks, insurance companies and pension funds. In fact, one of the stories in the Journal described how German insurance companies are required to hold large quantities of “safe” government debt as “assets.” But these instruments not only offer negative returns, but they are vulnerable to declines in value if interest rates for newly issued bonds were to rise to anything approaching ‘normal’ rates. It may be unlikely that these bonds will allow the insurance companies to meet the promises they have made to policyholders. A similar dynamic could threaten the financial viability of the world’s “too big to fail” banks. This is just one more reason that we feel the world cannot tolerate a return to free market interest rates at this time.
If the U.S. economy were to further approach recession, the Fed might have to choose between restarting its Quantitative Easing program or following Europe and Japan into negative territory. A return to QE would be problematic on two levels. Firstly, QE has recently been tried by the Fed, and there is little consensus that it was effective. Also, the goal of QE is to lower long term interest rates. But as long term rates are already at record lows in the United States, it is questionable that the Fed can push them down much further. This leaves negative rates, which work on the short end of the yield curve, as the more likely option. Notably, when asked in February at a Congressional hearing if the Fed would consider moving to negative rates, Chairwoman Janet Yellen refused to take such an experiment “off the table.”
If negative rates fail to generate growth, and there is no sign that they will, central banks then may take the next logical step down the endless stimulus path. They may decide to bypass the financial system as a pathway to issue newly created fiat money (as in Quantitative Easing), in favor of delivering money directly to consumers. This is what is known as “helicopter money,” which the banks could drop from the skies onto an economy in hopes of getting consumers to spend. (But with consumer demand as low as it is, it remains to be seen whether consumers will spend such a windfall or hoard it.) While these policies are still on the fringes of central bank discussions, they may not be so for long.
It should be apparent that bankers will not be deterred from trying any policy imaginable that punishes savers and destroys the value of fiat currencies. As these policies have shown to fail to achieve their goals, we should imagine that they will be administered for many years to come.
Having risen so fast this year, and with confusion apparent even at the Fed regarding the outlook for interest rates, the price of gold could correct in the short-term. However, over the medium to long-term we remain very bullish. This view will be validated or impeached based on the behavior of the Federal Reserve over the next few months.
Another step in removing the power of the west to determine gold pricing
(courtesy From Russia Today, Moscow/GATA)
Russia and China plan platform to unite their gold trading
Submitted by cpowell on Tue, 2016-04-19 15:34. Section: Daily Dispatches
Russia and China Seeking to Dominate Gold Trade
From Russia Today, Moscow
Tuesday, April 19, 2016
The Bank of Russia and the People’s Bank of China want to create a joint platform that would unite gold trading by the world’s two biggest gold buying countries.
“BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China the gold trade is conducted in Shanghai. In Russia it is in Moscow. Our idea is to create a link between the two cities to increase trade between the two markets,” the first deputy governor of the Russian central bank, Sergey Shvetsov, told TASS. …
… For the remainder of the report:
Stephen Leeb states that gold will rise to the 10,000 to 20,000 mark with the introduction of the Chinese gold fix:
China’s gold fix is a step toward taking over the market, boosting price, Leeb says
Submitted by cpowell on Tue, 2016-04-19 17:54. Section: Daily Dispatches
1:55p ET Tuesday, April 19, 2016
Dear Friend of GATA and Gold:
Fund manager Stephen Leeb tells King World News today that China’s new daily gold price fixing in yuan is a step toward that nation’s taking over the gold market and driving the price up to maximize the value of all the metal that country has acquired surreptitiously. An excerpt from Leeb’s interview is posted at KWN here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The nemesis to the manipulators, the owner of NANEX provides a useful discussion of how the market rigging by the crooked bankers is getting worse by the day!
(courtesy Eric Hunsader/Chris Martenson/Adam Taggart/Peak Prosperity)
Eric Hunsader to Chris Martenson: Market rigging is getting worse
Submitted by cpowell on Tue, 2016-04-19 21:57. Section: Daily Dispatches
5:58p ET Tuesday, April 19, 2016
Dear Friend of GATA and Gold:
Eric Scott Hunsader, founder of the market data firm Nanex in Winnetka, Illinois, and the scourge of market manipulation in the United States, including gold market manipulation, is interviewed by Peak Prosperity’s Chris Martenson and describes how market rigging is worse than you think. The interview, headlined “Eric Hunsader: The Financial System is ‘Absolutely, Positively Rigged,’ and the Abuses are Getting Worse, Not Better,” is available as both audio and a transcript at Peak Prosperity here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The China yuan gold fix is part of a planned shift away from the dollar states China’s Bocom
China Launches Yuan Gold Fix To “Exert More Control Over Price Of Gold”
China’s shift to an official local-currency-based gold fixing is “the culmination of a two-yearplan to move away from a US-centric monetary system,” according to Bocom strategist Hao Hong. In an insightfully honest Bloomberg TV interview, Hong admits that “by trading physical gold in renminbi, China is slowly chipping away at the dominance of US dollars.” Gold, silver, and petroleum “are the three USD-based commodites that China wants most control of” according to Hong but “gold in particular is one of the commodities that China is hoarding very hard.”
Finally, as Hong explains above, for those who suggest that China will never dump Treasuries or ‘hurt’ the dollar, since they hold so much dollars on their balance sheet, things are chganging rapidly – “The gold reserve on the China balance sheet has almost doubled since 2009. By holding gold, and moving away from a US-dollar centric system, we actually require less US dollars.”
The following article is a lightly edited version of one which was first posted by me earlier today on thewww.sharpspixley.com website
The second day of this year’s much more upbeat European Gold Forum, given the relatively strong performance of gold and silver this year to date, was kicked off with a hugely positive (for gold investors) presentation from Egon von Greyerz of Matterhorn Asset Management. Von Greyerz’s views on gold are well known – he has virtually always been hugely bullish on the precious metal, or perhaps that should be bearish on national currencies, including the mighty US dollar. While gold bugs may like his predictions – gold to $10,000 within the next few years, they may not, on deeper analysis, be particularly happy on what will happen to the global economy on the way to getting there if it does.
Von Greyerz commented that investors in gold and gold stocks are likely to be about to have their best five years ever with the precious metal – and selected gold stocks will do even better. They will prove to be by far the best asset class out there he averred. We have already seen many of these stocks double in the past three months – even the normally sluggish to move majors like Barrick Gold (ABX) and Yamana (AUY) , although these were perhaps so oversold that this should not prove too surprising.
So on what does he base his predictions? The factors are hardly unknown to the gold investment fraternity, but von Greyerz does present his case most vehemently, aided by charts showing the enormous spikes in global debt and global population. Something’s got to give. Anything that looks like a spike won’t last von Greyerz says – it has to come down again sooner or later – history tells us that. But what has to be worrying for us all is how and why this may happen. The likelihood of global population coming back sharply at some time in the near future has to be exceedingly worrying for example. But the unwinding of global debt suggests also a pretty dire economic future too. The world has never been in such a worrying state as it is today he said.
All sovereign nations are, in effect, bankrupt notes von Greyerz. Take Japan for example – the most indebted of all with a ratio of net debt to GDP of 260% Japan will implode – particularly given its demographics of a declining overall population but huge growth in the over 60s element in its economy. There’s no way Japanese youth will be able to support the aspirations and entitlements of the aging population. And other countries are heading in the same direction.
China’s debt ratio has increased enormously this century. The EU he sees as a ‘basket case’ and is hugely thankful that his native Switzerland avoided becoming a part of it – but even Switzerland has huge debt problems going forwards describing its banks and policies as casino hedge fund banking – led by the US. This obviously applies to the whole global economic community. There’s much more when one starts analyzing the positions of nearly all economies. He even sees the U.S. dollar collapsing under the weight of its debt in the next two years!
So the case for gold is not necessarily that it will rise in real terms, but that the currencies against which it is measured will collapse. He sees central banks as having exhausted their ammunition and losing control, leading to a massive rise in interest rates – perhaps back to the kinds of levels seen in the 1970s and, ultimately some degree of hyperinflation. As he puts it – gold is eternal with constant purchasing power, but all fiat currencies against which it is measured will eventually collapse.
He recommends holding physical gold – and holding it outside the banking system. Swiss vaults he sees as as safe as anywhere against possible government confiscations.
As for general equities – he sees them falling dramatically against gold. He sees the Dow:Gold ratio falling back below 1 – perhaps as low as 0.5. Say the Dow at 5,000 and gold at $10,000.
As for the current situation he feels that gold has at last turned after a near 5 year downturn, and looking to silver he sees the junior precious metal performing even better than gold, but warns though that its volatility still means it is not suitable for investment by widows and orphans. Even so he sees the Gold:Silver ratio coming down dramatically – perhaps back to 30 or lower.
As to the slightly safer gold though he points out that his price prediction of $10,000 is not unprecedented. If one takes gold’s 1980 peak around the $800 mark and takes inflation into account then that was equivalent to around $9,000 in today’s dollar terms!
But as I’ve alluded in the article title, if gold does get to $10,000 it suggests the path to achieve this is so fraught with economic and geopolitical uncertainties that even the most ardent gold bugs should be worried about what kind of world we may be left with under such a scenario. Be afraid. Be very afraid!
Your early WEDNESDAY 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 UP to 6.4655 / Shanghai bourse CLOSED DOWN 7-.23 OR 2.31% / HANG SANG CLOSED DOWN 199.90 OR 0.73%
2 Nikkei closed UP 32.10- or 0.19%%/USA: YEN FALLS TO 109.18)
3. Europe stocks opened MOSTLY IN THE GREEN /USA dollar index DOWN to 94.07/Euro UP to 1.1372
3b Japan 10 year bond yield: RISES TO -.127% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 109.18
3c Nikkei now JUST BELOW 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 40.18 and Brent: 43.23
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 DOWN for WTI and DOWN for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS to 0.148% German bunds in negative yields from 8 years out
Greece sees its 2 year rate RISE to 12.60%/:
3j Greek 10 year bond yield RISE to : 9.28% (YIELD CURVE NOW DEEPLY INVERTED)
3k Gold at $1248.30/silver $17.04 (7:45 am est) BROKE RESISTANCE AT 16.52
3l USA vs Russian rouble; (Russian rouble UP 22 /100 in roubles/dollar) 65.66
3m oil into the 40 dollar handle for WTI and 43 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.
JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN COLLAPSES TO 108.33 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9606 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0925 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p BRITAIN STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.
3r the 8 Year German bund now in negative territory with the 10 year RISES to + .147%
/German 8 year rate negative%!!!
3s The Greece ELA NOW at 71.4 billion euros,
The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Next step for Greece will be the recapitalization of the banks and that will be difficult.
4. USA 10 year treasury bond at 1.77% early this morning. Thirty year rate at 2.57% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Crude Slides After Kuwait Strikes Ends; China Markets Tumble
The biggest catalyst for overnight markets, first reported on this site, was the announcement by Kuwait that its oil workers had ended their strike which disrupted oil production in the 4th largest OPEC producer for 3 days cutting it by as much as 1.7 mmb/d, and had served to offset the negative news from the Doha debacle. Kuwait Petroleum also added that it would boost output to 3m b/d within 3 days, which in turn has pressured the price of oil overnight, and the May WTI contract was back to just over $40 at last check, sliding 2%. Not helping things was a very dejected Venezuela oil minister Eulogio Del Pino who said at a conference in Moscow that he sees oil prices returning to lows in 3-4 weeks if oil producers can’t make a deal. For now the algos – and central banks – disagree.
And speaking of central banks, it is probably safe to say that after yesterday’s negative inventory build data and the news of the Kuwait strike ending, should oil resume its climb and somehow end green (even if DOE reports another inventory build later today) that it is indeed central banks who are now actively propping up and daytrading oil, as so many have now suspected.
It wasn’t just oil: overnight Chinese stocks also snapped and dropped by the most since February, with the SHCOMP sliding 2.3% after dropping as much as 4.5% earlier, to the lowest since March 17 as analysts questioned the PBoC’s willingness to conduct further monetary easing. The catalyst was the PBOC research bureau chief economist Ma Jun who said late Tuesday that future policy operations, while observing the need to continue supporting growth, will pay attention to heading off macroeconomic risks. “We will probably see the PBOC take a wait-and-see approach and assess the macro-economic data coming through” before adding to stimulus measures, said Niv Dagan, executive director at Peak Asset Management LLC in Melbourne. “The fundamentals for oil are still bearish.”
Dai Ming from Hengsheng Asset Management added that the “decline today was seen as a technical correction as market faces resistance near 3,100-point level, unlikely to see loss over consecutive sessions” adding that the “market worries central bank might turn cautious in monetary policy in 2Q due to large scale money supply in 1Q.” Considering China injected $1 trillion in direct and shadow loans in Q1, one can see why this may be a concern. As a result, the Shanghai Composite closed at its lower level this month and Hong Kong’s Hang Seng Index was down 1.2%.
On any other day, rolling over Crude and China would have been enough to pressure global stocks even more…
… but not today – at least not yet – because while futures and European stocks were looking uglier overnight, it was once again BOJ-driven levitation by the USDJPY which was magically activated just as Europe opened, that pushed US equity futures back to the unchanged, on speculation that the BOJ will now announce even more QE in its April meeting, this time in the form of expanded ETF purchases, which according to Goldman may be almost double the existing size.
Still, if only for now, the Stoxx Europe 600 Index slipped from a three-month high, down 0.3% with health care and media companies posting the biggest losses. BHP Billiton and Rio Tinto added more than 3 percent. Despite recent gains, the European gauge has still tumbled 16% since reaching a record a year ago, and optimism over European Central Bank stimulus has given way to skepticism about its ability to boost growth.
But that may change: “It’s difficult to find a major positive trigger from here,” said Otto Waser, chief investment officer at R&A Research & Asset Management. “Central banks are done so we don’t expect anything positive from them anymore. Earnings trends are not positive enough in Europe to support a major positive market.”
Investors are also awaiting the ECB’s next meeting on Thursday for clues about the path of monetary policy. While economists are virtually certain ECB President Mario Draghi won’t touch interest rates, recent history shows that increased stock volatility is still likely. Intraday swings for the Euro Stoxx 50 Index averaged 4.1 percent during the ECB President’s past four policy updates, or about double that for all meetings since 2010.
Futures on the Standard & Poor’s 500 Index declined 0.2 percent, after the gauge closed above 2,100 for the first time since since Dec. 1. Of the benchmark’s 60 members to have reported first-quarter earnings so far, 77 percent have beaten profit estimates, according to data compiled by Bloomberg.
What is, however, most ironic is that global equities have climbed more than 15 percent from this year’s low, spurred by now rejected rumors of an oil production cut (at first), then freeze (also rejected), and signs of stabilization in China’s economy, which in turn has been nothing more than another massive credit injection and once the credit impulse fizzles, will leave the Chinese economy in an even worse shape than it was.
It’s a quiet day for data again in the US with just more housing market data due out in the form of existing home sales in March. There’s also some central bank speak for us to keep an eye on. ECB President Draghi is scheduled to make opening remarks in Frankfurt this morning while the BoE’s Hauser and McCafferty are due to speak. Earnings wise we’ve got 25 S&P 500 companies set to report including Coca-Cola and American Express.
Where markets are now:
- S&P 500 futures down 0.2% to 2088
- Stoxx 600 down 0.4% to 348
- FTSE 100 down 0.4% to 6377
- DAX down 0.4% to 10310
- German 10Yr yield down 2bps to 0.15%
- Italian 10Yr yield down less than 1bp to 1.4%
- Spanish 10Yr yieldunchanged at 1.54%
- S&P GSCI Index down 1% to 340.2
- MSCI Asia Pacific up less than 0.1% to 133
- Nikkei 225 up 0.2% to 16907
- Hang Seng down 0.9% to 21236
- Shanghai Composite down 2.3% to 2973
- S&P/ASX 200 up 0.5% to 5216
- US 10-yr yield down 3bps to 1.76%
- Dollar Index up 0.09% to 94.06
- WTI Crude futures down 2.4% to $40.10
- Brent Futures down 2% to $43.16
- Gold spot down less than 0.1% to $1,250
- Silver spot up 0.3% to $16.99
Top Global News:
- Kuwait Oil Workers Ending Strike After Three-Day Disruption: decision came after minister pledged no talks during strike
- Lexmark to Be Bought by Apex, PAG Asia in $3.6b Deal: agreement for whole company follows interest in parts
- Intel to Cut 12,000 Jobs, Forecast Misses Amid PC Blight: Krzanich to increase focus on data center, Internet of things
- Google’s Curbs on Phone Makers Choke App Competition, EU Says
- Yahoo CEO Says Acting Decisively on Sale as Interest Sharpens: Mayer touts process as 1Q revenue tops estimates
- China’s Stocks Tumble Most in Seven Weeks to Break Trading Calm: Shanghai Composite Index falls below key 3,000 level
- Mitsubishi Motors Admits Manipulating Fuel Economy Test Data: President Tetsuro Aikawa to brief reporters on the matter
- BHP Joins Rio in Cutting Ore Output Forecast as Prices Gain: Australian iron ore output forecast cut by 4% on bad weather
- Daily Mail Said to Be Among Yahoo Bidders, WSJ Says: Verizon, Daily Mail, TPG all submitted separate bids, WSJ says
- UnitedHealth to Exit Obamacare in 16 States to Stem Losses: Texas, North Carolina, Connecticut, Pennsylvania affected
- Trump, Clinton Win New York Primaries to Control Their Races: Presidential front-runners sought to rebound after defeats
- Global Payments to Replace Gamestop in S&P 500: GameStop demoted to S&P MidCap 400; changes effective post-mkt April 22
- Companies reporting earnings today include Coca- Cola, Qualcomm, Abbott, US Bancorp
Looking at regional markets we start in Asia, where stocks traded mixed and off their best levels as sentiment was largely dictated by oil prices. ASX 200 (+0.5%) and Nikkei 225 (+0.2%) were supported by yesterday’s gains in the commodity complex after oil futures advanced following a 3rd day of strikes by Kuwait oil and gas workers. This saw Nikkei 225 rise briefly above 17000, while Australian mining names were supported by strength in metals prices which overshadowed BHP Billiton’s miss on production and saw the Co. trade in firm positive territory. However, stocks have pared some gains amid a pull-back in crude during Asia hours after a larger than expected API build and reports that Kuwait strikes have now ended , while subdued Chinese markets also dampened the tone with the Shanghai Comp. lower by 2.3% as analysts questions the PBoC’s willingness to conduct further monetary easing. 10yr JGBs traded flat as heightened risk-sentiment in Japan was counterbalanced by the BoJ’s presence in the market for over JPY 1.2trl of government debt, while there was also a decline in yields led by the super long-end with the 40yr yield falling to record lows.
Top Asian News
- China Default Chain Reaction Looms Amid 192 Day Cash Turnaround: Wait increases risks firms can’t repay debts, Natixis says
- All Japan Sovereigns Yield Below 0.4% as 40-Year Hits Record Low: 40-year yield drops to 0.31%, 30-year falls to record 0.3%
- Kuroda Rejects Idea of Helicopter Money, Citing Legal Hurdles: BOJ governor says notion of helicopter money contradicts the law
- China Said to Mull Shenzhen-Hong Kong Link Approval Before July: Final approval by Chinese regulators may include start date
- HSBC Sees India Yield Dropping to 7% as Rajan Gets Cash Flowing: 3-mo. treasury bill yield slides to lowest since 2010
In a relatively subdued session so far in terms of newsflow, European equities have seen modest downside, following on from choppiness seen in US and Asian hours. In terms of stock specific news, the likes of Heineken, ABB and Accor have all seen strength this morning in the wake of pre market earnings, while Renault underperform, weighed on by their stake in Nissan after Mitsubishi Motors announced they used fuel economy testing methods that were not in line with Japanese regulations, including 468k vehicles made for Nissan.
Fixed income has benefitted this morning from the uncertain mood in equities, with Bunds trading higher, and above the 163.50 level. Analysts at Informa suggest that core paper has also benefitted this morning from Japanese accounts switching out of JGBs. In terms of today’s European auctions Germany hosted another respectable Bund auction which drew a b/c in-line with the previous at 1.4 while the UK hosted a strong linker auction.
Top European News
- ASML Sees Rising Sales, Margin Pressure on New Technology: Dutch company trying to fuel demand for new EUV technology
- Commerzbank CEO Says Slow Quarter Means ‘Challenging’ 2016: Blessing says first-quarter will likely be weaker than in 2015
- U.K. Unemployment Posts First Rise Since 2015 as Market Cools: U.K. unemployment rose for the first time in seven months
- Syngenta Ups Cost Cuts as It Targets ChemChina Deal by Year- End: co. reports fifth quarterly sales decline
- ABB’s Profit Beats Estimates on Orders from Power Utilities: maker of power grids reports lower first-quarter profit
- Heineken Beer Volume Beats Estimates on Asia, Americas: 7% increase in shipments soars past analyst consensus of 2.4%
- SAP Sees 2016 Sales on Track After Sluggish Start to Year: Finance chief Mucic said no large acquisitions on horizon
- Russia-Germany Gas Link Polarizes Europe, EU Energy Chief Says: Nord Stream 2 isn’t aligned with bloc’s energy principles
In FX, the yen strengthened 0.2 percent to 109.01 per dollar after Bank of Japan Governor Haruhiko Kuroda said monetary easing is not a promise of a weaker currency or stronger equities. Japanese exports dropped 6.8 percent from a year earlier in March, while imports declined 14.9 percent, data showed Wednesday.
The main event in FX markets this morning was the UK jobs report, which disappointed on both the jobless claims — which rose 6.7k vs -12.5k expected — and a lower than expected rise in average earnings (+1.8% vs 2.3% f/c). We saw a very brief hit on GBP, and with focus in the USD rates, Cable snapped down to 1.4345-50 before edging higher again. This was largely on the tech based support at the previous highs, and we expect to see 1.4400+ heavily offered. This was very much the case last night, and there is even more reason to cap now. Elsewhere, EUR trade is limited ahead of the ECB tomorrow, but the commodity currencies continue to probe higher levels with AUD back above .7800 again while the CAD returns through 1.2700 despite a quiet session for Oil. NZD looks reluctant to retest .7050, despite the GDT auctions beating the futures indications yesterday. European stocks are pretty stable after mixed sentiment in Asia, so the JPY pairs are range-bound to slightly softer in this respect.
In commodities, oil prices were pressured due to the larger than expected increase in API stockpiles, WTI prices are currently down below the USD 42.00/bbl level with the lows of the session at USD 41.30/bbl and later today we will be looking out for DOE inventory levels which will also provide some volatility. Gold has been trading sideways after touching the USD 1245.50/oz support level. Elsewhere, copper and iron ore prices remained firm after yesterday’s broad-based commodity gains with the red metal at near 3-week highs while Dalian iron ore futures hit limit-up to print its highest levels since October 2014 alongside expectations of increased steel demand.
On today’s calendar we have US Existing Home Sales, DoE crude inventories, while central bankers on deck include ECB’s Draghi (Dove) and BoE’s McCafferty (Soft Hawk). Companies reporting earnings today include Coca- Cola, Qualcomm, Abbott, US Bancorp
Bulletin Headline Summary from Bloomberg and RanSquawk
- European equities enter the North American crossover in modest negative territory as weakness in energy prices guide price action in an otherwise uneventful session
- GBP has shrugged off disappointing jobs data after GBP/USD ran in to support at the recent previous high for the pair at 1.4347
- Treasuries rise during overnight trading amid drop in crude oil and global equities; China’s stocks tumbled most in two months, pushing a gauge of volatility up from its lowest level this year as turnover surged.
- In the debate over helicopter money, a form of stimulus that many believe is at odds with the European Union treaty, even the option with the fewest legal hurdles risks kicking off a political battle that may contribute to the euro’s demise
- Bank of Japan Governor Haruhiko Kuroda said he isn’t thinking about using so-called helicopter money and that the notion contradicts the law
- Japan’s 40-year bond yield fell to a record low, meaning all the nation’s sovereign bonds yield less than 0.3 percent as investors rush for securities with positive income
- Primary dealers are getting more picky in what they will buy so European sovereign issuers are experimenting with new maturities, smaller auctions and liquidity-boosting measures, while some are consulting more with investors before going ahead with syndicated offerings
- Commerzbank AG Chief Executive Officer Martin Blessing said a “slow” first quarter will make it more difficult to match last year’s profit, just a month after the bank projected an increase in full-year earnings
- Donald Trump and Hillary Clinton won their New York presidential primaries Tuesday, ending losing streaks for both campaigns and allowing the two front-runners to reassert control over their party nominating fights
- Sovereign 10Y bond yields lower; European, Asian equity markets lower; U.S. equity-index futures fall. WTI crude oil, metals mostly lower
DB’s Jim Reid concludes the overnight wrap
One of the big themes in 2016 so far has been the weakness in the US Dollar with the Greenback plummeting 5% or so since the turn of the year. Not helped by some soft US housing data, the pressure was on the Dollar again yesterday with the currency finishing down over half a percent to take it to the weakest level since June last year. As a result we saw a number of currencies make year-to-date highs yesterday (including Norway, Canada, New Zealand, Australia and South Africa) while the move in the Dollar also helped to continue the positive tone to the start of the week with the S&P 500 (+0.31%), Dow (+0.27%) and Stoxx 600 (+1.46%) firmer once again, while Oil (WTI +3.27%) broke back up past $41/bbl and above where we closed on Friday ($40.36/bbl) pre-Doha with the rally off the Monday lows a touch above 9%.
That said it’s been a different story for Oil after the US close last night with the news that workers in Kuwait are set to end the 3-day strike which had caused a decent disruption in production levels and was largely attributed to the recovery from the early post-Doha lows at the start of the week. Local press (Al Jarida) are reporting the announcement from the trade union and the news comes just after Kuwait oil’s minister had announced that negotiations with workers would not commence until the strike is halted. On the back of the news WTI is currently over 2% lower this morning at a shade above $40/bbl.
Markets in Asia are fairly mixed following the news, although are trending lower as we type. The Hang Seng (-1.11%) and Shanghai Comp (-2.55%) are currently heavily in the red after opening initially on a positive note, while the Kospi is unchanged. The Nikkei (+0.35%) and ASX (+0.46%) are the relative out-performers although have also given up bigger gains from the open. Commodity sensitive currencies have weakened a tad while metals markets have generally firmed up.
Meanwhile the early data this morning was out of Japan where the March trade numbers were released. Exports were reported as declining slightly less than expected (-6.8% yoy vs. -7.0% expected) however that’s after printing at -4.0% yoy in February. Imports declined a steep -14.9% yoy (vs. -16.6% expected) which is the 15th consecutive monthly fall, with the trade surplus expanding as a result to the highest since October 2010. A reminder that the BoJ is due to meet next Thursday.
The other story overnight is from the US presidential election campaign where both Donald Trump and Hilary Clinton have recorded victories for their parties at the NY primary which was largely as expected.
Earnings season is slowly ramping up and yesterday we had the busiest day so far with 17 companies out with their latest quarterly numbers. The highlight came from Goldman Sachs where once again the big theme was a bigger than expected cut in operating costs helping the bank to exceed EPS guidance, while revenues were a slight miss. As we noted yesterday the bar for earnings is particularly low this season, with some of the headline beats overshadowing what have been huge downward revisions to the consensus street forecast GS’s EPS yesterday of $2.68 was a decent margin above the $2.48 consensus estimate, although a snapshot of that forecast at the end of the last three months shows just how far expectations have fallen in a short space of time (March: $3.51, February: $4.30, January: $4.60). Putting in perspective this quarter’s earnings for GS, net income was 56% lower yoy, while revenue was down about 40%.
Johnson & Johnson and United Health were other corporates who exceeded profit guidance yesterday and which helped contribute to the overall more positive tone for risk assets, however it’s the tech sector which is providing some of the unexpected downside misses so far. Following on from Netflix twenty-four hours earlier, Intel became the latest name to offer a fairly bleak outlook ahead with the announcement that they are to cut up to 12,000 jobs over the next twelve months in what will be the biggest cut back in a decade. Management also downgraded revenue growth guidance which helped to weigh on the share price by a couple of percent in extended trading. Prior to this the Nasdaq (-0.40%) was one of the few markets to close in the red yesterday.
Switching to the macro, yesterday also saw the ECB release the results of its Q1 bank lending survey (BLS). It was generally supportive of an improvement in euro area lending conditions which will offer some relief given recent weakness in bank equities and concerns over the sector. Credit standards for loans to enterprises eased further (net percentage of reporting banks: -6% vs. -4% previous). There was some evidence of an impact from tighter Q1 market conditions in e.g. Italy, but improvement of other factors – increased competition between banks, improved perception of the macro outlook – offset this. Net loan demand from enterprises continued to increase, albeit at a slower rate than the quarter before (+17% vs. +27% previous). This slowdown was mostly focused in Spain, suggesting that the political uncertainty there could be weighing on firms’ borrowing decisions. Meanwhile, credit standards for loans for house purchases tightened (+4% vs. -7% previous), largely driven by the implementation of the EU mortgage credit directive which requires an in-depth creditworthiness assessment of mortgage borrowers. In general banks expect these trends to continue into the next quarter, with a Q2 outlook of continued easing of lending standards for enterprises (-4%) but a tightening of credit standards on housing loans (+7%). Recent weakness in equity prices remains a worry though so we’ll continue to watch for anecdotal evidence of Euro bank lending standards before next quarter’s release.
In terms of the other data yesterday, the April ZEW survey out of Germany was fairly mixed. While the current situations index declined unexpectedly to the tune of 3pts to 47.7 (vs. 50.8 expected), the expectations index was however up a robust 6.9pts to 11.2 (vs. 8.0 expected) and the highest level this year. Meanwhile, over in the US and as mentioned earlier, the latest housing market indicators were softer than expected. Housing starts were recorded as falling -8.8% mom last month (vs. -1.1% expected), while building permits (-7.7% mom vs. +2.0% expected) also fell sharply. These numbers will be worth keeping a close eye on next month with regards to which way momentum swings in the US housing market in Q2.
Looking at the day ahead, this morning in Europe the early release shortly after we go to print is out of Germany where the March PPI data is due. Later this morning the focus will be on the UK where we get the latest employment report, for which no change to the 5.1% unemployment rate is expected. It’s a quiet afternoon for data again in the US this afternoon with just more housing market data due out in the form of existing home sales in March. There’s also some central bank speak for us to keep an eye on. ECB President Draghi is scheduled to make opening remarks in Frankfurt this morning while the BoE’s Hauser and McCafferty are due to speak. Earnings wise we’ve got 25 S&P 500 companies set to report including Coca-Cola and American Express.
i)Late TUESDAY night/ WEDNESDAY morning: Shanghai closed DOWN BADLY BY 70.23 POINTS OR 2.31% / Hang Sang closed DOWN 199.90 OR 0.73%. The Nikkei closed UP 32.10 POINTS OR 0.19% . Australia’s all ordinaires CLOSED UP 0.52%. Chinese yuan (ONSHORE) closed UP at 6.4655. Oil FELL to 40.18 dollars per barrel for WTI and 43.23for Brent. Stocks in Europe MOSTLY IN THE GREEN . Offshore yuan trades 6.4729 yuan to the dollar vs 6.4655 for onshore yuan.
FIRST REPORT ON JAPAN SOUTH KOREA AND CHINA
a) JAPAN ISSUES
Geez!! we got another one: Mitsubishi motors admits to rigging emissions:
(courtesy zero hedge)
“We Express Deep Apologies” – Mitsubishi Admits Rigging Emissions Test Data
It’s all fun and games until someone is caught cheating. That is the lesson that Volkswagen learned last fall, when the German car manufacturer was caught using software that could detect when an emissions test was taking place in order to give better results. Today, it looks like Mitsubishi Motors will learn that very same lesson.
As Bloomberg reports, Japanese automaker Mitsubishi was the latest (but surely not last) to admit manipulating the load placed on the tires of four different models in order to make their fuel economy performance appear better. Thus far, an estimated 625,000 vehicles are impacted, including models that are manufactured and supplied to Nissan for their DayZ model (Nissan ultimately discovered the issue). Mitsubishi is no stranger to lies and poor public relations, as back in 2000 it admitted to lying about faulty fuel tanks, clutches, and brakes.
“We express deep apologies to all of our customers and stakeholders for this issue,” Mitsubishi said in a statement, also saying that the company “conducted testing improperly to present better fuel consumption rates than the actual rates.”
Japan’s traditional management bow when caught engaging in fraud,
somehow it makes everything better.
Mitsubishi shares plunged 15.2% to close at $6.74 on Wednesday, according to the Wall Street Journal.
What this means economically for Japan could be just as devastating. Between Mitsubishi now having to face significant trust issues in the market, and the fact that Toyota had to be completely shut down recently in the wake of the devastating earthquakes, Japan’s auto exports are going to be under pressure for the quarter and perhaps the year, depending on how long it takes for supply chains to come back on line. Fresh off of reporting awful economic data in March, and pretty disastrous import and export data last night, these issues certainly will not help aid the turnaround.
Wait, did we say devastating? We meant fantastic, because as the companies that anchor Japan’s economy are either put offline or humiliated, it will be up to Kuroda-san to come up with another rabit out of the hat, which as Goldman suggested overnight he will do when he doubles the Japanese purchase of ETFs during the BOJ’s next announcement.
Why Stocks Rebounded Overnight: Goldman Expects BOJ To Double Its Equity Purchases As Soon As Next Week
With oil – until recently the key signal for the S&P – down substantially overnight, many were scratching their heads why US equity futures not only rebounded from overnight lows but proceeded to wipe out all overnight losses and are currently trading in the green. The reason: another overnight ramp in the USDJPY which is the default fallback signal for stocks whenever oil isn’t going higher.
But what precipirated the bounce in USDJPY?
The answer: a note from Goldman released overnight titled “Bringing forward our main scenario for additional easing to April from June” in which the bank announced it is now making an April easing by the BOJ as its main case scenario instead of June as was the case before, and it now expects that the BOJ to double its pace of equity purchases via ETFs from the current ¥3.3 trillion to ¥7.0 trillion as soon as the BOJ’s next meeting on April 26-27.
This is precisely what we wrote last week in “The Bank Of Japan Already Owns Over Half Of All ETFs; It Wants To Own More“, and Goldman now agrees.
Here is the summary from Goldman’s Naohiko Baba:
The Bank of Japan (BOJ) is due to hold its next monetary policy meeting (MPM) on April 26-27.To date, our base-case scenario has been for additional easing at the June MPM, and we had regarded possible easing at the April MPM as a risk scenario (see our February 17 Japan Views). However, we now make easing in April our base-case scenario, given the rising risk that business confidence has been dented by recent financial market instability and the Kumamoto earthquakes, and in view of BOJ governor Haruhiko Kuroda’s recent proactive statements on possible additional easing in response to the sharp deceleration in inflation in April.
And the details:
- At its end-January MPM, the BOJ decided to introduce a negative interest rate to head off the risk that rising financial market volatility could dampen business confidence and delay the shift away from a deflationary mindset. We think the BOJ would have originally been looking to keep monetary policy unchanged at the April MPM while it assessed the effect of the negative interest rate, given that it generally takes at least six months for policy effects to become apparent.
- However, market volatility did not let up, and the yen continued to appreciate and share prices continued to be unstable despite the introduction of the negative rate. On top of that, the Kumamoto earthquakes in mid-April have caused significant supply chain disruption in the manufacturing sector, particularly in transportation equipment, heightening concerns that business confidence could deteriorate further. In addition, the failure at the end of last week of the major oil producing nations to reach a deal to freeze oil production casts further doubt on the BOJ’s consumer price outlook, and the latest G-20 meeting confirmed a major gap between Japan and the US on appropriate currency levels, reducing considerably the likelihood of currency market intervention.
- We also note that the daily price index (Nowcast), frequently cited by Governor Kuroda as evidence of bullish corporate price setting, has slowed sharply in April (see Exhibit 1). We have forecast that inflation would stall particular from the start of in the new fiscal year as the cost-push factor due to past weak yen fades away, but the slowdown has been slightly more rapid than we had expected. We now see a stronger likelihood that March nationwide core CPI (yoy), due out the same day as the April MPM, could be negative.
- Governor Kuroda’s recent proactive comments regarding the possibility of additional easing have also been attracting market attention. In an interview published in the April 18 Wall Street Journal, Mr. Kuroda said, “If excessive appreciation continues, that could affect not just actual inflation, but even the trend in inflation through its impact on business confidence, business activity, and even through inflation expectations. Although our monetary policy is not targeted to the exchange rate, we continue to carefully monitor exchange-rate movements. And as I always emphasize, if necessary to achieve 2% inflation target at the earliest possible time, we would not hesitate to take further easing measures”.
- Taking these words at face value, we believe the BOJ would likely need to act in the face of the recent market situation, the continuing deterioration of business confidence and inflation expectations, and the rapidly decelerating aforementioned daily price index. Based on the above, we think the probability of the BOJ opting for additional easing at its April MPM has risen sharply of late.
- The main issue for the BOJ, in our view, will be the means of applying additional easing (Exhibit 2). From an exchange rate perspective, the most effective means would be to widen the negative interest rate. However, financial institutions have not reacted positively to negative interest rate and we think there is a general unease among the population with respect to the policy, so we think the BOJ is unlikely to take rates deeper into negative territory at this stage.
- Another option would be to increase quantitative easing by again stepping up JGB purchases (currently at the rate of 80 trillion yen per year), but the marginal effect would be minimal as the decline in the yield curve is already more than sufficient, and we think additional expansion would even risk giving the impression that the BOJ is closer to the limit of purchasing JGBs at the current pace.
- By a process of elimination, we think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn.
- We also see a possibility that the BOJ may combine the expansion of ETF purchases with a cut in the interest rate of its loan support scheme. A cut in the interest rate at which financial institutions can borrow from the BOJ under the scheme from 0% currently to -0.1% would be good news for financial institutions, which have seen earnings depressed by the negative rate on current account balance. Not only would this offset some of the negative impact about the negative interest rate policy, but it might also ease the upward pressure on the yen if the market starts to factor in a possible deeper move into negative territory for interest rates on current account balance in the future.
- In addition to the aforementioned lending support scheme, the BOJ also has in place a fund supplying scheme to support financial institutions in areas affected by the Great East Japan Earthquake of March 2011. Under the scheme, which was set up just after that earthquake, the BOJ supplies funds to financial institutions in affected areas, helping those institutions provide funding for restoration and rebuilding work. The interest rate on financing via the scheme is currently +0.1%, the ceiling for total lending is ¥1 tn, and the deadline for new applications is April 30, 2017. We see a possibility that the BOJ may expand the scope of the scheme to cover areas affected by the Kumamoto earthquakes, and that it may cut the interest rate to -0.1% (in line with that of the loan support scheme), increase the maximum lending amount, and extend the application deadline (we note, however, that uptake under the scheme by financial institutions in areas affected by the Great East Japan Earthquake peaked at ¥511.2 bn in April 2012, well short of the ¥1 tn ceiling).
b) CHINA ISSUES
China’s corporate bond market (bubble) is starting to unravel. Total aggregate debt issuance which includes bonds increased by one trillion usa dollars in March. (social financing plus corporate bonds). We have now seen many defaults in China and as such the yields rise showing the risk to investors. This has frightened investors away from this frightening bond market causing more trouble for firms that cannot refinance:
(courtesy zero hedge)
“Swimming Naked” – Chinese Corporate Bond Market Worst Since 2003
A week ago we highlight the “last bubble standing” was finally bursting, and as China’s corporate bond bubble deflates rapidly, it appears investors are catching on to the contagion possibilities this may involve as one analyst warns “the cost has built up in the form of corporate credit risks and bank risks for the whole economy.”As Bloomberg reports,local issuers have canceled 61.9 billion yuan ($9.6 billion) of bond sales in April alone, andStandard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003. Simply put, the unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel.
As Bloomberg notes, China’s leaders face a difficult balancing act.
On one hand, allowing troubled companies to default forces money managers to pay more attention to credit risk and accelerates government efforts to curb overcapacity.
The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5 percent over the next five years.
However, as we pointed out previously,economic figures for March reveal a growing dependence on debt. China’s aggregate financing — a broad measure of credit that includes corporate bonds – grew by over $1 trillion in Q1…
And yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year. Three of those were part-owned by China’s government, seen not long ago as a provider of implicit guarantees for bondholders.
The reaction has been swift in China’s 18.8 trillion yuan corporate bond market (a figure that excludes certificates of deposit). The extra yield investors demand to hold seven-year onshore corporate bonds with top ratings over similar-maturity government notes has jumped by 28 basis points from an almost nine-year low in January, to 91 basis points as of Monday.
At least 64 Chinese firms have postponed or scrapped planned note sales this month, six times more than the same period a year earlier.
“As more and more issuers default, lenders and investors will reassess their portfolio and lending, and that will cause yields to rise,” said Christopher Lee, chief ratings officer for Greater China at Standard & Poor’s in Hong Kong. “If the onshore market has any dislocation, that will have a spillover effect in the offshore market.”
Rising defaults are actually healthy for China’s bond market, said Xia Le, the chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong.
“It shows the government is taking away the implicit guarantee,” Xia said.“Now risk awareness is rising, so we will see which issuers are swimming naked.”
While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before. The numbers suggest more pain ahead:
Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis.
As Qiu Xinhong, a Shenzhen-based money manager at First State Cinda Fund Management Co. said…
“The spreading of credit risks is only at its early stage in China.”
We leave it to Xia Le to conclude,
“The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid,” said Xia Le, the chief economist for Asia at Banco Bilbao. “A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets.”
“Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash… This game can’t go on forever.”
China Retaliates In Trade Wars – Increases Steel Output To Record High
A funny thing happened when US slapped a major tariff on China’s steel exports… prices exploded higher. But the almost 50% surge in steel prices since mid-December back to 15-month highs have left traders equally split on what happens next. Will record production levels exaggerate a global glut amid tumbling exports and rising tariffs, or will China’s trillion-dollar surge in credit fuel yet more so-called “iron rooster” projects driving domestic demand even higher. For now, it appears the former is more likely as US Trade reps suggested further protectionism looms.
Since Dec 23rd 2015 when the US imposed a 256% tariff on Chinese steel imports, composite steel prices have soared almost 50% even as exports have slipped…
Faced with collapsing exports and a lack of domestic demand (and surging inventories) along with zombie steel mills on the verge of bankruptcy and desperately in need of cash flow or else China’s whole red ponzi would fail, the central planners unleashed a trillion dollars of new credit in Q1…
Which enabled, among other things, the so-called “iron rooster”-stimulus program:
“Mills now have their order books filled till July or onward,” said Li Qibao, an analyst at Changjiang Futures Co. in Wuhan, who predicts that prices will go on rising.
There are “unmistakable signs of recovery in demand, with the help of an ‘iron rooster’-style construction boom that has come back at full speed,”Li said, referring to a nickname for China’s previous growth model as the Chinese pronunciation of the phrase translates as ‘railroad, highway, infrastructure.’
The unexpected rebound in China’s steel market this year is set to keep rolling because record output by mills has so far failed to replenish inventories as the government cranks up stimulus to boost growth.
Stockpiles of steel reinforcement bar, used in construction, sank for a sixth week, contracting 6.8 percent in the period to April 15 in the biggest drop since October 2014, according to Shanghai Steelhome Information Technology Co. Rebar futures in Shanghai rallied to the highest in a year on Tuesday, and are up 39 percent in 2016. Spot prices have risen 46 percent.
The rally in 2016 follows five straight years of declines and has been a welcome respite for the world’s largest steel industry, which has been grappling with overcapacity, losses and forecasts for a long-term drop in the nation’s demand. In March, mills in China churned out more metal than any month on record as the economy stabilized, with a surge in new credit spurring a property sector rebound. The surprise rally in the biggest steel producer has also helped to lift global iron ore prices.
And that explains the surge in price (domestic demand) despite global weakness and inventory glut…
However, there is a dark side to all this credit-fueled malinvestment...as Reuters reports, despite pressure to curb steel output and relieve a global glut, China said on Tuesday its production actually hit a record high last month as rising prices, and profits, encouraged mills that had been shut or suspended to resume production.
The China Iron & Steel Association (CISA) said March steel production hit 70.65 million tonnes, amounting to 834 million tonnes on an annualized basis. Traders and analysts predicted more increases in April and May.
The data comes as major steel producing countries failed to agree measures to tackle an industry crisis, with differing views over the causes of overcapacity. A meeting of ministers and trade officials from over 30 countries, hosted by Belgium and the OECD on Monday, concluded only that overcapacity had to be dealt with in a swift and structural way.
US Trade representatives were not happy at this slap in the face – in a somewhat ironic turn of fate considering America’s role in the global glut of over-capacity in crude oil markets…
Washington pointed the finger at China, saying Beijing needed to cut overcapacity or face possible trade action from other countries.
“Unless China starts to take timely and concrete actions to reduce its excess production and capacity … the fundamental structural problems in the industry will remain and affected governments – including the United States – will have no alternatives other than trade action to avoid harm to their domestic industries and workers,” U.S. Secretary of Commerce Penny Pritzker and U.S. Trade Representative Michael Froman said in a statement.
Asked what steps the Chinese government would take following the unsuccessful talks, Commerce Ministry spokesman Shen Danyang told reporters on Tuesday:
“China has already done more than enough. What more do you want us to do?”
“Steel is the food of industry, the food of economic development. At present, the major problem is that countries that need food have a poor appetite so it looks like there’s too much food.”
In a monthly report, the CISA said a recent rally in steel prices in China – up 42 percent so far this year – was unsustainable given the rising production, and it warned that increased protectionism in Southeast Asia and Europe would make steel exports more difficult.
“The big rise in steel prices has led to a rapid reopening of capacity that had been shut or suspended … a large rise in output will not be good for the gap between market demand and supply,” the CISA said.
* * *
So that’s why Steel, Iron Ore, The Baltic Dry are all surging – Yet another (record in fact) credit-fueled malinvestment boom enabling zombie firms to survive amid totally artificial demand for an already over-supplied and over-capacity industry.
“Given time, output will be raised to a level that tips the market back into oversupply,” said Xu Xiangchun, chief analyst at Mysteel Research. “China’s steel industry remains in severe overcapacity, so a glut will return.”
The obvious question – With China’s debt/GDP already estimate at 350%, how much longer can China sustain this stunning debt (and by definition, deposit) growth continue? … and if not much longer then what happens to the mills’ order books after July? When inventory levels are sky-high once again, tariffs are even higher, and demand (real demand) remains lower than ever?
Judging by the sudden weakness in China corporate debt, that moment may be getting closer than many think…
Get ready to the next intervention into Libya as Europe is planning on recolonizing Libya:They will try and add 1.3 million barrels per day to the world oil glut and steal whatever they can for themselves
Europe’s Inevitable Intervention In Libya Will Add 1.3 Million Barrels To The World Oil Glut
Europe is planning on recolonizing Libya, and so it will send in armed forces in the coming months to restore order and stem the flow of migrants coming from Africa.If this expedition army succeeds in securing parts of the country and restoring law and order, Italian and German engineers from ENI and Wintershall will follow suit to help resume the country’s oil production, which will add 1.3 million barrels per day(Libya produced 1.7 million barrels per day before Muammar Gaddafi was toppled in 2011) to the world oil glut.
Until a couple of weeks ago Libya was governed by three governments:
- The original government just after the ousting of Muammar Gaddafi, formed by the Muslim Brotherhood residing in Tripoli, the Libyan capital.
- The internationally recognized (except for Turkey and Qatar) government in Tobruk. This government, created with the help of the European Union, which organized mock elections, was subsequently driven out of Tripoli;
- A kind of ISIS-run government controlling the area around Benghazi.
The real power of any of these groups does not seem to extend beyond the immediate neighbourhood of their residency; it is the chieftains of particular local tribes that de facto rule the rest of the area.
For a year, the Europeans have been trying in vain to create a unity government. In the meantime, the security situation is increasingly deteriorating. Libya has become a sanctuary for ISIS and other Jihadist groups and a transit country for millions of Africans that want to migrate to Europe. French Defence Minister Jean-Yves Le Drian said in March that some 800,000 migrants are in Libya hoping to cross the Mediterranean this year).
The only way to prevent this from happening outside their jurisdiction i.e. neither on European soil nor using European law enforcement, is for the Europeans to regain control over the old Italian colony. It is no option for the Europeans to wait for the Libyans until they sort out their internal problems. For Europeans to be able to send in an expedition army, they need an official request from the Libyan government. An official invitation will make it “legal” for the “European Africa Corps”, which is yet to be formed, to operate freely as did the Russians in Syria. For that reason, they need first to install a government that will invite the European forces. Last month the Europeans created a new fresh “democratic” unity government out of thin air, which was, however, not recognised by the governments in Tobruk and Tripoli. As the Europeans made an attempt to set up this government in Tripoli, the local administration closed the airspace around the city and blocked the roads from Tunis to prevent the imposed authorities from entering the city.
For that reason, the new administration had to come by boat. Rumor has it that Mr. Fayez Serraj, the Brussels-appointed head of state, was brought by the Italian navy. Officially, he was carried by a Libyan naval vessel, with no image footing to corroborate this claim.
The EU resorts to threats as regards the members of the rival governments in Tobruk and Tripoli if they do not support the Brussels-backed government as a result of which some members of the official government in Tripoli have resigned without putting up a fight; there was the case when a dissenter opposing the move of the new masters from Brussels, saw his house mysteriously blown up.
The first task of the new UN “unity government” is to get rid of the two other rival governments and to stem the flow of migrants to Europe as soon as possible. Last week over 6000 immigrants from Africa arrived in Italy within four days.
The second task is to secure French, Italian and German corporate interest in Libya.The oil installations in Libya, partly owned by France Total, Italian ENI and German Wintershall were abandoned last year and left to the protection of 27.000 fighters strong Petroleum Facilities Guard. This guard is not under the authority of the Libyan army anymore and leaves the installations vulnerable to Jihadist militia attacks. It is in the interest of Saudi Arabia to destroy as many installations as possible through their jihadist proxies before the Europeans try to restore order in Libya. Saudi Arabia has a history of using Jihadists to pursue its national interest. The country was founded on this principle as Abdul ibn Saud used Wahibist extremists to conquer the Arabic Peninsula around 1925. While all Libyan rival tribes are trying to prevent the destruction of the Libyan oil infrastructure, there have been some mysterious attacks on oil terminals since the oil price dropped under 50 dollars. Oil storage tanks were set ablaze by jihadists in the major Libyan terminal of Ras Lanuf in January this year. End 2014, an oil terminal was burned down as a result of it after a boat attack that also killed 22 Libyan soldiers.
The Europeans are in a hurry. Without the new unity government fully installed and with some street battles going on in Tripoli, the Italian, French and German foreign ministers visited the city last week to pledge their support for the heavily contested “unity government”. French, Italian and British special forces are operating in Libya for the last couple of months according to the French newspaper Le Monde. But these forces are not able to fulfill Brussels’ objectives.
The question is not whether but rather when the Europeans will send armed forces into Libya. The British have already pledged 1000 men while the Italians have said they would add 5000 soldiers to the newly formed army to restore order in Libya. We expect Brussels to use this as a good opportunity to strengthen the Eurocorps, the harbinger of the pan-European army that is at present performing a minor military operation in Mali. The Eurocorps could probably deploy 5000 men. The coming operation in Libya will be the first large-scale EU joint military intervention ever. No matter how Brussels will frame it, it is a hostile military takeover of the country.
RUSSIAN AND MIDDLE EASTERN AFFAIRS
Interesting: Russian stocks rise despite the lack of a DOHA agreement and a huge outflow of investing funds. Very strange!
(courtesy zero hedge)
Russian Stocks Soar After Biggest Outflow In 11 Months
The Doha-disappointment appears to have sparked some risk-aversion as yesterday saw Russia’s biggest exchange-traded fund – Market Vectors Russia ETF – suffer its largest outflows since May 2015.
However, in a perfect example of ill-timed moves, Russian stocks have soared over 6% from the knee-jerk lows pushing back up towards cycle highs.
Of course, this selling pressure makes some sense given that oil and natural gas account for about a third of Russia’s budget revenue and almost 60 percent of its exports. But of course, a disappointing Doha appears to have sparked panic-buying around the world in everything.
this is very worrisome. With the huge amount of fracking done in the world, the earth’s crust is getting quite unstable: we are witnessing huge amounts of earthquakes and now the most dangerous volcano in Mexico has erupted:
(courtesy Michael Snyder/End of the American Dream Blog)
The Shaking Continues: The Most Dangerous Volcano In Mexico Has Erupted In Spectacular Fashion
More than 25 million people live in the vicinity of Mt. Popocatepetl, including Mexico City’s 18 million residents. At 2:32 local time on Tuesday morning, the most dangerous volcano in Mexico roared to life in spectacular fashion, and this has many experts extremely concerned about what is coming next. Popocatepetl is an Aztec word that means “smoking mountain”, and historians tell us that once upon a time entire Aztec cities were buried in super-heated mud from this volcano. In fact, the super-heated mud flows were so deep that they buried entire Aztec pyramids. A full-blown eruption of Mt. Popocatepetl would be a catastrophe unlike anything that modern Mexico has ever experienced before, and considering what has been happening in Ecuador, Japan and at Yellowstone over the past week, I believe that there is great reason for concern.
The eruption of Mt. Popocatepetl very early this morning took residents of the area very much by surprise. The following is how one Mexican news course reported the news…
The volcano Popocatépetl came to life at 2:32 this morning, sending out a column of ash that fell on much of the city of Puebla and closed the airport.
The National Disaster Prevention Center, Cenapred, said the volcano spewed ash to an altitude of about three kilometers above the crater.
The explosion was accompanied by the emission of incandescent fragments which were reported to be landing up to 1.6 kilometers away, northeast of the volcano, which is commonly known as El Popo.
But words cannot really describe just how spectacular this eruption was. If you are interested, you can view video footage of the moment when Popocatepetl erupted right here…
Meanwhile, seismologists all over the globe are speculating about which area of our planet may be hit next.
For example, scientists in India believe that the tremendous amount of tectonic strain that has built up out there could ultimately produce a magnitude 8 or magnitude 9 earthquake, and they are convinced that this quake “can come at any time”…
A subduction process similar to the one that caused the Ecuadorean quake is happening under the Himalayan region as well, where the Indian plate is getting inside the Chinese landmass.
This northward push has been creating a huge amount of tectonic strain in the region, making it particularly prone to earthquakes.
Scientists believe there is so much energy stored in the area that an earthquake of magnitude greater than 8, possibly even 9, would be needed to release it. This earthquake can come at any time.
Here in the United States, some experts are deeply concerned that the west coast is particularly vulnerable. One of those experts is former USGS scientist Jim Berkland. The following is what Wikipediahas to say about him…
Jim Berkland studied geology at the University of California, Berkeley earning the Bachelor of Arts degree in 1958. Thereafter he worked for the United States Geological Survey while pursuing graduate study. In 1964, he took a position at the United States Bureau of Reclamation. After further graduate study, he taught for a year at Appalachian State University, 1972–1973, then returned to California to work as County Geologist for Santa Clara County from 1973 until he retired in 1994.
During a recent interview with Bobby Powell, Berkland explained that most “megaquakes” take place either during a new moon or a full moon, and he pointed to the San Andreas Fault and the Cascadia Subduction Zone as areas that he is particularly concerned about at the moment…
Is “The Big One” imminent? Famed USGS scientist Jim Berkland, the man who predicted the Loma Prieta “World Series Earthquake,” has a terrifying warning for the West Coast of the US in the wake of massive earthquakes in Ecuador and Japan that have left hundreds dead, awakened volcanoes around the Pacific Ocean’s “Ring of Fire,” and kicked off earthquake swarms in Hawaii, Arizona, and Yellowstone National Park.
“Beware the new and full moons,” Berkland says in this exclusive interview. The “maverick geologist” says that 20 of the last 25 “megaquakes” have occurred on the dates of new and full moons, the result of “equinoctal tides,” extreme gravitational forces that cause solid earth to expand and contract much as ocean tides rise and fall.
Berkland says that he is particularly worried about the San Andreas Fault in the LA Basin and the Cascadia Subduction Zone along the coast of Oregon and Washington State, where a long overdue earthquake would undoubtedly be accompanied by a massive tsunami that could kill thousands and cause billions of dollars in property damage.
Even though I recently wrote a major article about the vulnerability of the Cascadia Subduction Zone, I want to make it clear that I am not forecasting that any particular disaster will hit any particular area at any particular time.
But what we can say with certainty is that the crust of our planet is becoming increasingly unstable. Our world is being pummeled by dozens of earthquakes of magnitude 4.0 or greater, and as you read this article a total of 38 volcanoes are erupting worldwide.
And it is quite interesting to note that in 1906 there were major earthquakes in Ecuador and Japan that preceded the historic San Francisco earthquake.
Of course most Americans know about the magnitude 7.8 earthquake that hit San Francisco on April 18th of that year, but most people don’t understand that it came in the context of these other major quakes.
Could we be witnessing a similar pattern today?
Then at 5 pm est this happened in Mexico as a massive explosion rocks the PEMEX OIL Facility:
(courtesy zero hedge)
Hundreds Evacuated After Massive Explosion Rocks Pemex Oil Facility In Mexico
Hundreds have been evacuated following a blast at a Pemex oil facility in southern Mexico. The blast occurred in in the port city of Coatzacoalcos.
According to Bloomberg, the explosion occurred at Clorados 3 petrochemicals unit of Pajaritos complex in the port of Coatzacoalcos in Veracruz state, says co. spokesperson Alfonso Villalobos on phone. First responders are attending the emergency, according to tweet from Veracruz civil protection official twitter account.
As Breaking News adds, the explosion happened just before 4 p.m. CT on Wednesday at the Pajaritos complex near the Coatzacoalcos River, according to the Civil Protection agency in Veracruz. It said emergency services were at the scene.
Photos from the scene showed huge plumes of black smoke rising from the site, but details about the exact circumstances of the incident were not immediately known. Pemex reported that at least 3 workers had been injured.
The cause of the blast is unknown at this time.
The Kuwaiti oil strike is over and that sends oil falling
(courtesy zero hedge)
Kuwait Oil Workers Strike Over; Oil Tumbles
The catalyst that moved oil prices higher over the past two days, and which had overriden the “bad news” from the Doha talks failure, was the Kuwait oil workers strike announced over the weekend and which resulted in up to 1.6mmb/d in production being taken offline. As of moments ago, however, according to Kuwait’s Aljarida press website, the strike is now over.
Urgent | News about the decline of Union oil unions on strike and return employees to work tomorrow and enter into negotiations with the Government after the cessation of the strike.
* * *
Confirmation of the news “newspaper”/oil Union strike and declared all employees to work
Oil may have ignored the bigger than expected API crude inventory build this afternoon, but will the algos also be able to ignore this latest development as Kuwait ramps up to full production in days?
* * *
Update: Oil tumbles upon resuming trading.
Crude Slides After Russia Warns Of Production Increase: “Was Never Ready To Cut Output”
Perhaps upset at the weekend’s development, Russia has decided to rattle the global crude complex cage. Amid hopes of a freeze, Russia’s energy minister Alexander Novak has reversed course and stated that Russia could “in theory” increase oil output and “was never ready to cut production.” It appears things are rapidly breaking down between Russia and The Kingdom – which perhaps explains Obama’s rapidly arranged trip to kiss the ring in Riyadh.
The oil market is not transparent enough, which leads to the demand-supply mismatch, Russia’s Deputy Prime Minister Arkady:
“The policy of certain countries regarding diversification of energy sources aimed at supporting local production is sometimes implemented inefficiently as it creates extra costs for consumers and changes the oil and gas market balance. From our viewpoint, the situation is not transparent enough as not the whole information is provided to consumers,” he said.
WTI Crude Spikes Above $42 As US Production Drops To 18-Month Lows
Following API’s 3.1mm reported build overnight, expectations were for a 3mm build and DOE reported a 2.08mm build. Cushing saw a 235k draw from API and was expected to drop 1mm barrels but DOE reported just 248k drop in inventories as Gasoline inventories drewdown just 110k barrels (drastically less than the 1mm exp) and Distillates saw a large 3.55mm draw – the most in 3 months. Production appears more of a focus for now and fell once again last week to 8.953mm barrels (down 4.41% YoY) – lowest since Oct 2014. Crude prices had slipped overnight as Kuwait’s strike ended and Russia threatened to increase supply but the production slowdown and lower than expected inventory data sent WTI back above $42.
- Crude +3.1mm
- Cushing -235k
- Gasoline -1mm
- Distillates -2.5mm
- Crude +2.08mm (+3mm exp)
- Cushing -248k (-1mm exp)
- Gasoline -110k
- Distillates -3.55mm
Production fell once again last week to its lowest since October 2014…
And the reaction in crude…
Stocks, Oil Continue Soaring On Fake OPEC Meeting “Headline” That Was Just Denied
It has become a daily farce.
Having soared above yesterday’s highs on the Iraqi’ deputy oil minister’s comments on renewed production freeze meetings, not even 10 minutes later Russia immediately poured cold water all over it:
- RUSSIA SAYS NO AGREEMENT ON OIL MEETING IN MAY IN RUSSIA
But no reaction in crude as the HFT algos’ upward momentum has already been ignited, which was the only purpose behind the leak in the first place… as $43 stops taken out
Stocks likewise continue to surge.
Which is funny, because seconds before Noval issued his rejection, we tweeted the following:
When Iraq says “major oil producers” will meet in Russia it means Iraq, Venezuela and Ecuador. Not even Russia will be present.
Following promptly by this: RUSSIAN ENERGY MINISTER NOVAK SAYS HAS NO INFORMATION ABOUT MEDIA REPORTS ON OPEC MEETING IN RUSSIA IN MAY
Russia Crushes ‘Freeze Deal’ Hope – “Doubts Any Agreement Possible In Near Future”
Despite a denial by the Russians, and now an outright statement that Russia “doubts any freeze deal is possible in the foreseeable future,” crude prices are surging as momo algos jump on every headline!
- RUSSIA DOUBTS ANY FREEZE DEAL IN FORSEEABLE FUTURE: NOVAK
- RUSSIA IS SAFE EVEN IF PRICES GO DOWN AGAIN: ENERGY MINISTER
- AFTER DOHA POSSIBILITY OF OIL FREEZE IS ‘RELATIVELY LOW’: NOVAK
Moscow has played down hopes of a deal with Opec countries to freeze production and raised its own output forecasts following the breakdown of talks in Doha.
Alexander Novak, Russia’s energy minister, said on Wednesday he was doubtful that any deal to regulate production would be reached.
Mr Novak poured cold water on those hopes. “I am not sure that Opec countries will reach an agreement among themselves,” he said on the sidelines of an energy conference in Moscow.
A deal to freeze production may no longer be necessary by June, he said, pointing to the rise in the oil price since February as evidence that supply and demand were beginning to rebalance. On Wednesday, Brent, the international oil marker, rose 85 cents to $44.89 a barrel.
“In February [the deal to freeze output] was relevant, in April it was already less relevant. I do not exclude the possibility that in June it will in principle no longer be relevant,” Mr Novak said.
Mr Novak said that Russia would produce as much as 10.92m b/d in 2016, an increase from the energy ministry’s forecast of 10.78m b/d, and marginally above January’s level of 10.91m b/d that was to be the benchmark for the production freeze deal.
But none of that matters…
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/WEDNESDAY morning 7:00 am
Euro/USA 1.1372 UP .0014 ( STILL REACTING TO USA FAILED POLICY)
USA/JAPAN YEN 109.18 DOWN 0.024 (Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER
GBP/USA 1.4382 DOWN .0002 (STILL THREAT OF BREXIT)
USA/CAN 1.2672 down .0024
Early THIS WEDNESDAY morning in Europe, the Euro ROSE by 14 basis points, trading now WELL above the important 1.08 level RISING to 1.1318; 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 Shanghai composite was DOWN 70.23 POINTS OR 2.31%/ Hang Sang DOWN 199.90 OR 0.73% / AUSTRALIA IS HIGHER BY 0.52% / ALL EUROPEAN BOURSES ARE MIXED as they start their morning/
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade HAS BLOWN up/and now NIRP)
3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this WEDNESDAY morning: closed UP 452.50 OR 2.73%
Trading from Europe and Asia:
1. Europe stocks MIXED THEY START THEIR DAY
2/ CHINESE BOURSES / : Hang Sang CLOSED IN THE RED . ,Shanghai CLOSED IN THE RED/ Australia BOURSE IN THE GREEN: /Nikkei (Japan)CLOSED IN THE GREEN/India’s Sensex FLAT /
Gold very early morning trading: $1248.70
Early WEDNESDAY morning USA 10 year bond yield: 1.77% !!! DOWN 1 in basis points from TUESDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.59 PAR in basis points from MONDAY night.
USA dollar index early WEDNESDAY morning: 94.07 DOWN 5 cents from TUESDAY’s close.(Now below resistance at a DXY of 100.)
This ends early morning numbers WEDNESDAY MORNING
And now your closing WEDNESDAY NUMBERS
Portuguese 10 year bond yield: 3.14% UP 1 in basis points from TUESDAY
JAPANESE BOND YIELD: –.133% DOWN 2 in basis points from TUESDAY
SPANISH 10 YR BOND YIELD:1.53% DOWN 1 IN basis points from TUESDAY
ITALIAN 10 YR BOND YIELD: 1.40 PAR IN basis points from TUESDAY
the Italian 10 yr bond yield is trading 13 points lower than Spain.
GERMAN 10 YR BOND YIELD: .153% (DOWN 2 IN BASIS POINT ON THE DAY)
IMPORTANT CURRENCY CLOSES FOR WEDNESDAY
Closing currency crosses for WEDNESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM
Euro/USA 1.1300 DOWN .0058 (Euro DOWN 58 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/reacting to dovish YELLEN/ANOTHER FALL IN USA;YEN CROSS TODAY
USA/Japan: 109.79 up .580 (Yen DOWN 58 basis points)
Great Britain/USA 1.4364 DOWN .0020 Pound DOWN 20 basis points/
USA/Canad 1.2627 DOWN 0.0069 (Canadian dollar UP69 basis points with OIL (WTI AT $42.74
This afternoon, the Euro was DOWN by 58 basis points to trade at 1.1300
The Yen fell to 109.79 for a loss of 58 basis points as NIRP is STILL a big failure for the Japanese central bank/also all our yen carry traders are being fried!!.
The pound was DOWN 20 basis points, trading at 1.4364
The Canadian dollar rose by 69 basis points to 1.2627, WITH WTI OIL AT: $42.74
the 10 yr Japanese bond yield closed at -.133% DOWN 2 BASIS points in yield/AND THIS IS GETTING DANGEROUS!~!
Your closing 10 yr USA bond yield: UP 6 basis points from TUESDAY at 1.847% //trading well below the resistance level of 2.27-2.32%) HUGE policy error
USA 30 yr bond yield: 2.66 UP 7 in basis points on the day ( HUGE POLICY ERROR)
Your closing USA dollar index, 94.51 UP 39 CENTS ON THE DAY/4 PM
Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates forWEDNESDAY
London: CLOSED UP 4.91 POINTS OR 0.08%
German Dax :CLOSED UP 71.70 OR 0.69%
Paris Cac CLOSED UP 25.44 OR 0.56%
Spain IBEX CLOSED UP 175.90 OR 1.96`%
Italian MIB: CLOSED UP 210.38 OR 1.14%
The Dow was up 42.67 points or 0.24%
NASDAQ up 7.80 points or 0.16%
WTI Oil price; 42.74 at 3:30 pm;
Brent Oil: 45.39
USA DOLLAR VS RUSSIAN ROUBLE CROSS: 65.33 (ROUBLE UP 0.55 ROUBLES PER DOLLAR FROM MONDAY) AS THE PRICE OF BRENT ROSE AND WTI ROSE
This ends the stock indices, oil price, currency crosses and interest rate closes for today
Closing Price for Oil, 5 pm/and 10 year USA interest rate:
WTI CRUDE OIL PRICE 5 PM: $42.63
USA 10 YR BOND YIELD: 1.85%
USA DOLLAR INDEX:94.55 UP 57 cents on the day
And now your more important USA stories which will influence the price of gold/silver
Trading Today in Graph form:
Stocks Soar To 10-Month Highs On Crude’s FauxPEC Meeting Headlines
Pride comes before the fall…
The Dow soared once again – why not – to its highest since June 2015 (when Fwd EPS was 1178 as opposed to 1120 currently)…
VIX was slammed down to a 12-handle at the open… which sparked a bounce in VIX but once the S&P fell below 2,100, VIX smash was back on…
Which slammed the VIX term strcuture to Dec 2014 steeps…
Which marked the top then…
The late-day fade today (snapping S&P futures back to VWAP)…
Dragged Nasdaq back into the red for the week…
Energy and Financials remain the leaders on the week as Utes fade…
Nothing to see here, move along..as goes everything
It seems some panic-selling EUR ahead of tomorrow’s ECB meeting sparked USD strength – pushing it back to unchanged on the week…
Treasury yields spiked today (almost as if someone was sending a message to Obama as he visited The Sauds)…
Pushing 30Y yields back above their 50DMA… (and the 2Y, 5Y, 7Y, and 10Y)
Commodities were steady until towards the close when stocks rolled over and gold, crude, & silver were slammed lower…
Silver moves are becoming considerably more volatile…back below $17 at the close…
Despite all the denials and negative headlines, crude oil spiked irrationally… above $44 in June contract
As May expired… (May drastically outperforming June into expiration as someone appears to have got squeezed…_)
As it appears the massive unwind of crude hedges was the big driver…but it appears vol has normalized.
Finally – as a reminder of how these ‘bounces’ end… sometimes…
A good start to the morning and a good reason for the Dow to skyrocket: Bellwether stock Intel fires a massive 12,000 workers or 11% of its entire workforce. First quarter sales miss badly and they guide future revenues lower:
(courtesy zero hedge)
ZERO HEDGE TWEET:
In a nearby post Jeff Snider makes a clean kill of the sell side hockey stick. Just 22 months ago (June 2014), Wall Street projected GAAP earnings of$144.60 per share for the S&P 500 in 2015.
Needless to say, that was off by a country mile. In fact, it was too high by67%, but the instructive tale lies in the process of getting there.
Since 2013 actual results and 10K filings were long done by June 2014, you have to say that the street was virtually wallowing in hopium. To wit, the above 2015 estimates embodied a two-year gain of 45% from the actual figure of $100.20 per share for 2013.
And so it went. By March 2015 the consensus estimate had been lowered sharply to $111.34 per share because the fond hopes of the prior June had not quite worked out. In fact, GAAP results for 2014 had come in at only$102.31 per share, meaning a tiny gain of just 2.1% for the year and an impossible hole to fill with respect to the two-year gain of 45%.
Worse still, this December 2014 LTM reported figure was not just way short of the mark; it actually represented a reversal of direction. The post-crisis earnings recovery had already peaked at $106 per share in the September 2014 LTM period and was now down nearly 4%.
But no matter. The consensus estimate of $111.34 for 2015 made midway through the year represented a gain of nearly 9% over 2014. As per usual, of course, that was all back-loaded to the second half. The actual Q1 2015 GAAP profit of $25.81 was already in and represented a 6% decline from prior year.
But on Wall Street the hockey stick springs eternal. By the time of the September consensus estimate, first half earnings were already down by 17%. But the consensus assumed a stick save in the final quarter. Earnings per share were now projected.at $95.06 per share, representing a full year drop of just 7%.
The stick save didn’t happen. GAAP profits for the year ended down 14%from the 2013 level, not up by 45%!
Yet that’s not the half of it. In this age of Bubble Finance, Wall Street assumes that profit growth is definitional. So notwithstanding the total wipeout described above with respect to its 2015 hockey stick, the forward estimates are heading back toward the rafters. Even on a GAAP basis, the year end consensus estimates are $111.50 and $126.50 for 2016 and 2017 respectively.
The point, however, is not just that the hockey stick is up by 29% for the current year when Q1 results/estimates are already down by 10% or that 2017 is up by 46%. The point is that the sell side stock peddlers are so intoxicated by life in the casino that they do not recognize that the jig is up. To wit, profit margins have been at an all-time high, but have visibly peaked, and the financial engineering boost to per share earnings is surely over and done.
As highlighted in another nearby post, profit margins for the S&P 500 peaked at an all-time high or nearly 10% in 2014 and have already dropped by one-fifth. And as we must repeat again, the business cycle has not been outlawed and this one is getting increasingly long in the tooth. The chart provides all the information necessary about what happens to profit margins when the next recession makes its inexorable appearance.
At the same time, stock buybacks are certain to plunge as interest rates eventually normalize and borrowing to buy stock becomes less attractive. Financial engineering, therefore, has an inherent sell-by date.
Indeed, the poster boy for financial engineering reported last night, and not only were IBM’s results another fiasco; they are actually just a leading indicator of where stock-option crazed C-suites are taking corporate America under the auspices of the Fed’s destructive regime of Bubble Finance.
Not surprisingly, IBM’s sales were down for the 16th straight quarter—-this time by 4.5%. Meanwhile, its pre-tax profits plunged by 67% from $3 billion in Q1 2015 to just $1 billion in the current quarter.
Perhaps fittingly, IBM’s bottom line results were saved from a total wipeout only by a final gasp of financial engineering. It posted a negative tax provision of $983 million or negative 95%. Save for that fig leaf, IBM posted the lowest quarterly pre-tax profit in two decades!
Needless to say, more than a decade of extreme financial engineering does not have much to write home about. IBM has flooded the casino with share repurchases and dividends in order to levitate its stock price and keep its executives flush with stock option gains. But even that short-sighted liquidation of its own seed corn is no longer working. After last night’s disaster, its stock is down by 6% from its recent dead cat bounce, and now dwells 33% below its early 2013 high of $215 per share.
That its hapless CEO and Board have not been sent packing long ago is undoubtedly due to the never ending gifts it showers on the casino and the brokers and fast money operators who ply their trade there. To wit, during the last decade, IBM has repurchased $100 billion worth of shares and paid $33 billion of dividends.
That happens to equal 100% of its cumulative net income——-so it is perhaps not surprising that its sales and profits continue to erode. At the same time, IBM made almost $30 billion of acquisitions and increased its outstanding debt from $10 billion to $31 billion.
In short, IBM has been a financial engineering dream. It is hard to imagine what Wall Street generated maneuver or gimmick it has overlooked.
But, alas, financial engineering does create value, and if practiced long enough, it destroys it.
That much is evident in the bank of charts below. During the last three years, IBMs sales have dropped by 21% or more than $20 billion. Likewise, its net income is down by 23% and its pre-tax profits by 37%.
That’s right. Its pre-tax profits of $14 billion for the March LTM period compared to $22.3 billion for the LTM period ending three years ago.
Stated differently, shrinking sales on top of steadily eroding operating margins, which dropped from 20.6% to 17.4% over the period, have wreaked havoc with IBM’s true profit. The only reason that its net income line does not fully reflect the financial shipwreck that IBM’s financial engineers have wrought is that they did make its tax provision virtually disappear.
As shown in the third panel, it’s effective tax rate was already a low 24.0% in the LTM period ending in March 2013. It is now 7.3% on an LTM basis. While it is undoubtedly heading slightly lower, that particular gimmicks is reaching its natural limits.
Indeed, not paying taxes is no particular vice. Even then, however, you can’t capitalize on a permanent basis one time gains in income that have been filched from the tax man.
From time to time, Simple Janet has averred that there are no bubbles in the stock market and that she is puzzled as to why productivity has petered out and growth remains in the ultra-slow lane.
Perhaps she should contemplate the consequences of the massive central bank intrusion in financial markets that has supplanted honest price discovery and healthy financial discipline with hockey sticks and financial engineering.
As to the former, the market closed today at 24X actual S&P earnings. That is a meltdown waiting to happen, and one that is wholly attributable to the lunacy of 87 straight months of ZIRP and massive QE.
In the case of latter, IBM is no aberration, but the poster boy for the kind of financial engineering based liquidation of productive assets that is the inexorable result of Bubble Finance. On an inflation adjusted basis, Big Blue’s R&D spending is down 20% in the past four years and its CapEx by 40%.
You could even call this a Wall Street witches brew of hockey sticks and financial engineering. But Simple Janet wouldn’t have a clue.
Existing home sales rose marginally but disappoint at the low end ( due to non affordability) and at the high end (buyers spooked by January’s stock correction)
(courtesy zero hedge)
Low- And High-End Existing Home Sales Disappoint – Supply & Stock Market Blamed
Existing home sales rose more than expected in March, bouncing back from a dismal February (+5.1% in March from revised -7.3% Feb). Year-over-year, existing home sales rose just 1.5% to a SAAR of 5.33m (vs 5.28m expectations). However, sales dropped at the lowest-end (due to unaffordability and lack of supply) and sales at the highest-end (above $1mm) disppointed, rising at onbly 4.6% YoY due to buyers being “spooked by January’s stock market correction.”
Home Sales growth has stagnated…
As NAR explains,
Closings came back in force last month as a greater number of buyers – mostly in the Northeast and Midwest – overcame depressed inventory levels and steady price growth to close on a home,” he said.
“Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.”
The median existing-home price for all housing types in March was $222,700, up 5.7 percent from March 2015 ($210,700). March’s price increase marks the 49th consecutive month of year-over-year gains.
So both high- and low-end sales disappointed…
“The choppiness in sales activity so far this year is directly related to the unevenness in the rate of new listings coming onto the market to replace what is, for the most part, being sold rather quickly,” adds Yun.“Additionally, a segment of would-be buyers at the upper end of the market appear to have been spooked by January’s stock market correction.”
This does not look good at all. The Hanford Nuclear Reservation was used as part of the Manhattan project, i.e. building the atomic bomb. Now nuclear material is leaking and it is catastrophic:
(courtesy zero hedge)
“This Is Catastrophic” – Thousands Of Gallons Of Radioactive Waste Leak At Nuclear Site
The ongoing radioactive leak problems at the Hanford Site, a nuclear storage tank in Washington State, are nothing new.
We first wrote about the ongoing radioative leakage at the Hanford Nuclear Reservation, created as part of the Manhattan Project to build the atomic bomb, in 1943.
As a reminder, during the Cold War, the project was expanded to include nine nuclear reactors and five large plutonium processing complexes, which produced plutonium for most of the 60,000 weapons in the U.S. nuclear arsenal. Alas, the site has been leaking ever since, as many of the early safety procedures and waste disposal practices were inadequate and Hanford’s operations released significant amounts of radioactive materials into the air and the neighboring Columbia River.
Hanford’s weapons production reactors were decommissioned at the end of the Cold War, but the decades of manufacturing left behind 53 million US gallons of high-level radioactive waste, an additional 25 million cubic feet of solid radioactive waste, 200 square miles of contaminated groundwater beneath the site and occasional discoveries of undocumented contaminations.
The Hanford site represents two-thirds of the nation’s high-level radioactive waste by volume. Today, Hanford is the most contaminated nuclear site in the United States and is the focus of the nation’s largest environmental cleanup. The government spends $2 billion each year on Hanford cleanup — one-third of its entire budget for nuclear cleanup nationally. The cleanup is expected to last decades.
However, as Krugman would say, the government was not spending nearly enough, and after a major documented leak in 2013, over the weekend, thousands of gallons of radioactive waste are estimated to have leaked from the Site once again, triggering an alarm and causing one former worker to label it as “catastrophic.”
As AP reported, the expanded leak was first detected after an alarm went off at the Hanford Nuclear Reservation on Sunday, and on Monday workers were preparing to pump the waste out of the troubled area. They were also trying to determine why the leak became worse.
It’s unclear exactly how much waste spilled out, but estimates place the amount at somewhere between 3,000 and 3,500 gallons,according to the Tri-City Herald.
The problem occurred at the double-wall storage tank AY-102, which has the capacity to hold one million gallons of the deadly waste, and which has been leaking since 2011. At the time, the leak was “extremely small”, and the waste would dry up almost right after spilling out between the inner and outer walls, leaving a salt-like substance behind.
However, over time the small leak got bigger.
In March, the US Department of Energy began pumping what was left in the storage tank, which originally held some 800,000 gallons of waste. However, after leak detector alarms sounded early Sunday morning, crews at Hanford lowered a camera into the two-foot-wide space between the tank’s inner and outer walls. They discovered 8.4 inches of radioactive and chemically toxic waste has seeped into the annulus.
Pumping work on the tank has been halted as officials reevaluate the situation and figure out how to get to the leaked radioactive waste. It’s possible that the leak was made worse when the pumping began, but that has not been confirmed.
Taking a page right out of the TEPCO playbook, the U.S. Department of Energy released a statement Monday calling the leak an “anticipated” outcome of an ongoing effort to empty the tank in question. The Washington state Department of Ecology said, “There is no indication of waste leaking into the environment or risk to the public at this time.”
But one former tank farm worker said the leak should be considered a major problem.
“This is catastrophic. This is probably the biggest event to ever happen in tank farm history. The double shell tanks were supposed to be the saviors of all saviors (to hold waste safely from people and the environment),” said former Hanford worker Mike Geffre.
He should know: Geffre is the worker who first discovered that the tank, known as AY-102, was failing in 2011. In a 2013 series, “Hanford’s Dirty Secrets,” the KING 5 Investigators exposed that the government contractor in charge of the tanks, Washington River Protection Solutions (WRPS), ignored Geffre’s findings for nearly a year. The company finally admitted the problem in 2012.
Another problem: tank AY-102 is just one of 28 double-shell tanks at Hanford (there are 177 underground tanks total) holding nuclear byproducts from nearly four decades of plutonium production on the Hanford Nuclear Site, located near Richland. Initially the plutonium was used to fuel the bombed dropped on Nagasaki, Japan, in World War II.
The new leak poses problems on several fronts. The outer shell of AY-102 does not have the exhaust or filtration system needed to keep the dangerous gases created by the waste in check. Workers have been ordered to wear full respiratory safety gear in the area, but the risk remains. And unlike Fukushima where cleanup crews are aware of the danger, in Hanford virtually nobody is aware of the dangers of the radioactive seepage.
“The hazards to workers just went up by a factor of 10,” said Geffre.
The breakdown calls into question the viability of three other double-shell tanks at Hanford that have the exact design of AY-102. It is not clear how many of them may have comparable “extremely small” leaks which have gotten bigger, and even if there was it is likely that the DOD would not reveal them.
“The primary tanks weren’t designed to stage waste like this for so many years,” said a current worker. “There’s always the question, ‘Are the outer shells compromised’”?
Oh, and let’s not forget that the accumulation of waste in the outer shell also means “the deadliest substance on earth is that much closer to the ground surrounding the tank. And currently there is no viable plan in place to take care of it.”
Or, as Ben Bernanke would say, the Plutonium is contained.
“It makes me sad that they didn’t believe me that there was a problem in 2011,” said Geffre. “I wish they would have listened to me and reacted faster. Maybe none of this would be happening now. It’s an example of a culture at Hanford of ‘We don’t have problems here. We’re doing just fine.’ Which is a total lie,” said Geffre.
Dear Mike, if you think that is bad, you should see what they say about the “markets”…
* * *
Full clip from King5 after the jump
Fed Inspector General: “We Discovered Issues That Warrant Immediate Attention”
he Fed’s troubling, recurring and perhaps criminal data “leakage” problem has been thoroughly documented over the past years: from Tim Geithner telling bank CEOs what the Fed will do will in advance of it becoming before, to early leaks of Fed Minutes, to breached embargoes, to the release of material non-public information to consultants such as Medley (which the FBI has been supposedly probing for the past year, and which cost Pedra da Costa his WSJ job), to the Fed’s cozy relationship with the WSJ’s Hilsenrath over the years, by now everyone knows that when it comes to giving advance looks of critical information to various preferred parties, the Fed has had no qualms.
It appears that finally changed a week ago, when the Fed’s Inspector General already having had put his foot down on assuring there would be no more future leaks, got infuriated when the WSJ again managed to leak the story about the Fed failing various bank’s “living wills” before it was released. As a Reuters reported, “the Federal Reserve and Federal Deposit Insurance Corporation are investigating how the Wall Street Journal came to report that the two agencies were giving failing grades to some U.S. banks’ “living wills” the day before the regulators officially announced their determinations.
A Fed spokesman, Eric Kollig, confirmed on Wednesday that the U.S. central bank has asked its inspector general, its internal watchdog, to check how the news outlet was able to report on Tuesday that at least half of the eight biggest U.S. banks, including J.P. Morgan Chase would receive “harsh verdicts” on their plans for handling a potential bankruptcy without a federal bailout.
The FDIC’s chairman on Tuesday night asked the agency’s acting inspector general, Fred Gibson, to investigate the leak to the Journal of the results of the living will determinations, spokeswoman Barbara Hagenbaugh said.
The Journal’s story hit Twitter and its home page hours before the regulators officially posted their determinations early on Wednesday morning and as financial markets prepared for banks to release their quarterly earnings.
In short: the Fed’s deepthroat struck again, using his or her preferred outlet, the Wall Street Journal.
So now what? Well, earlier today the Office of the Fed Inspector General finally admitted that there is a problem when in a scathing report titled “The Board Should Strengthen Controls to Safeguard Embargoed Sensitive Economic Information Provided to News Organizations” in which it confirmed that as per its audit,“we discovered issues that warranted the Board’s immediate attention. We issued a restricted early alert memorandum to the Board on July 16, 2015, that outlined these concerns and included recommendations.”
And yet the leaks continue. Furthermore, if so much trivial information is consistently leaked to the press and paid subscription services, one can only imagine what happens behind closed doors between (bribed?) Fed staffers and commercial bankers, who as even Bernanke’s former advisor admitted, are the ones who truly own the Fed.
Here is the release:
The Board Should Strengthen Controls to Safeguard Embargoed Sensitive Economic Information Provided to News Organizations
The Office of Inspector General (OIG) conducted this audit to assess the Board of Governors of the Federal Reserve System’s (Board) controls to protect sensitive economic information from unauthorized disclosure when it is provided under embargo to news organizations either (1) through a press lockup room located at the Board or (2) via the Board’s embargo application, which enables news participants to remotely access information made available by the Board. The OIG’s audit covered the period April 2014 through March 2015 and included the Federal Open Market Committee (FOMC) statements and Summaries of Economic Projections, the FOMC minutes, the Summary of Commentary on Current Economic Conditions by Federal Reserve District (also known as the Beige Book), and the four principal federal economic indicators (as designated by the Office of Management and Budget). We also conducted live observations of the press lockup room on June 17, 2015, and March 2, 2016.
The FOMC and the Board produce several economic publications, including statistical releases, on a periodic schedule and provide approved news organizations access to them under embargo before they are available to the general public on the Board’s website. The Board told the OIG that it provides news organizations embargoed access to economic publications to facilitate the “smooth and accurate” dissemination of sensitive economic information to the public.
The Board should strengthen controls to safeguard sensitive economic information that is provided to news organizations under embargo. We identified opportunities for the Board to (1) more strictly adhere to controls already established in policies, procedures, and agreements with participating news organizations and (2) establish new controls to more effectively safeguard embargoed economic information. We also identified risks to providing information under embargo through the embargo application.
During the course of this audit, we discovered issues that warranted the Board’s immediate attention. We issued a restricted early alert memorandum to the Board on July 16, 2015, that outlined these concerns and included recommendations.
On August 19, 2015, a news organization broke the embargo of the FOMC meeting minutes that had been provided through the embargo application. On August 21, 2015, the Board ceased using the embargo application to provide news organizations embargoed access to FOMC-related information and other market-moving economic publications within the scope of our audit. Separately, the Board relocated its press lockup room in September 2015, a move that had already been planned prior to the start of our audit.
Our report contains recommendations designed to strengthen the Board’s controls to safeguard sensitive economic information provided to news organizations under embargo and includes actions taken by the Board in response to the early alert memorandum. In its response to our draft report, the Board generally concurs with our recommendations. The Board notes that substantial improvements were planned before we began our review and that many were implemented during our review.
The full report, which nobody at the Fed will ever read, can be found here.
Will anything change? Most certainly: the WSJ will be far more careful when reported on B-grade stories that are hardly market moving, while Jon Hilsenrath will be put behind even more expensive firewalls sothat only the richest hedge fund managers will have access to his “Fed expert network” information.
Will the Fed actually stop leaking information that makes billionaires out of millioinaires? Don’t make us laugh.
What is wrong with the USA regulators for not putting these thugs into jail:
State Street caught stealing from clients with markups of 1900% as well as secret commissions:
(courtesy zero hedge)
“We Are Taking Them To The Cleaners” – State Street Caught Stealing From Clients With Up To 1,900% Markups
In a scene right out of Office Space, one week ago we read that TD Bank, the fourth-largest retail bank in Massachusetts, was pulling out its coin-counting equipment for “servicing” following reports that the machines were short-changing customers who came in to exchange their nickels and pennies for bills. As a recent NBC’s Today show revealed when it tested several coin counting machines, it found that TD’s Penny Arcades weren’t accurate. In one case, the bank’s machine gave $43 less than the change deposited.
TD officials said they were disappointed by the “Today” show’s experience. “All of our coin-counting machines are in the process of being taken out of service and will be evaluated and retested,” TD said in a statement.
What else were they going to say: that they literally nickel and dime their customers?
But while that excuse may have flown, another far more egregious example of “nickel and diming” from one’s clients was revealed today when Massachusetts’ top securities regulator alleged a unit of custody bank State Street Corp routinely overbilled customers for items such as messaging services, even as an executive worried one client might “discover that we are taking them to the cleaners.”
According to Reuters, in its administrative complaint, Secretary of the Commonwealth William Galvin said State Street has engaged in a pattern of overcharging, noting the company often labeled charges for secure electronic messages, also known as SWIFT messages, as “out-of-pocket” expenses that contained concealed markups of up to 1,900 percent.
In a statement e-mailed by spokeswoman Anne McNally, State Street said in December “it discovered invoice errors on some expenses and notified authorities including Galvin’s office. It will repay clients and reform its billing practices as needed.”
Here is an artist’s impression of how shocked the bank was when it “discovered” it was stealing from its customers.
The bank also has been in talks with clients over the matter, it said, as well as with government authorities, with whom it pledged to cooperate. “We deeply regret this error,”the statement said, adding the bank cannot comment further because an internal review is still ongoing.
This is not the first time State Street has gotten in trouble for nickel-and-diming. In a 2014 settlement with the United Kingdom Financial Conduct Authority, State Street agreed to pay of a fine $32.91 million for charging clients “substantial mark-ups” they had not agreed to pay.
Apparently the bank thought that a few years later nobody would remember, so it reverted back to its old ways.
Also, in what Galvin’s complaint calls “a related matter,” U.S. prosecutors earlier this month alleged two former State Street executives conspired to add secret commissions to fixed-income and equity trades.
Galvin’s complaint claims State Street routinely concealed markups to clients and earned hundreds of millions of extra dollars, in what it describes as “a dishonest and pervasive culture of overbilling.”
He could have used another perfectly acceptable word: stealing.
But why didn’t State Street fight the accusations? Simple: it admitted long in advance that it was aware it was stealing from its customers.
The complaint quotes several internal emails suggesting its own employees were concerned about how it billed expenses. One wrote that a charge of $5 per message was “an exorbitant markup that will certainly piss off clients when they figure this out.”
Another wrote of a concern that a large client might discover that “we are taking them to the cleaners on SWIFT charges.”
Even better: State Street knew it had been exposed when clients described in the complaint as “an international financial organization” and “a boutique investment manager” did raise concerns about their bills but got little relief at least initially, the complaint states.
Only when the regulator stepped in did the stealing stop.
Galvin’s complaint seeks a censure, an administrative fine and other actions including client reimbursements.
Translation: State Street will repay what it has stolen and will quietly resume doing so in a few months. Meanwhile, all other financial companies that engage in identical overbilling and massive markups – which is most of them – will continue doing just that.
“This Is Going To Be A National Crisis” – One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits
A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits.
As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.
Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.
Pension funds applying to lower promised benefits is a new development, albeit not unexpected (we warned of this mounting issue numerous times in the past). For many years there existed federal protections which shielded pensions from being cut, but that all changed in December 2014, when folded neatly into a $1.1 trillion government spending bill, was a proposal to allow multi employer pension plans to cut pension benefits so long as they are projected to run out of money in the next 10 to 20 years. Between rising benefit payouts as participants become eligible, the global financial crisis, and the current interest rate environment, it was certainly just a matter of time before these steps were taken to allow pension plans to cut benefits to stave off insolvency.
The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year.
As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done. The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month,the PBGC projects that they will also be insolvent by 2025 – it appears there is something very foreboding about that particular year.
As the Washington Post writes:
Ava Miller, 64, and her husband, Ed Northrup, 68, could see their combined monthly pension income cut to about $3,000 from the nearly $7,000 they receive now, according to a letter they received from Central States in October.
If the cuts go through, Miller, who worked as a dispatcher in Flint, Mich., said they will need to dip into their savings to help cover their $1,300 mortgage payment, heating bills and trips to visit her 84-year old mother. Northrup, a retired car hauler, has started applying for truck driving jobs that could supplement their potentially smaller pension payments.
What makes the cuts more painful, Miller said, is that she took pay cuts so that the company could continue making contributions to the pension.
“I did everything I was supposed to,” Miller said, adding that she and her husband made extra payments on their car loan to cut down on their monthly bills after they received letters in October informing them of the potential cuts.
All hope is not lost, however.
Democratic candidate Bernie Sanders has proposed a bill that would repeal the measure allowing cuts, and instead calls for the government to provide assistance to troubled pension funds.
In other words, another bailout.
Which brings us to the current juncture, where we remind everyone that the governments own safety net, the PBGC has itself become insolvent, and according to CNN, projects that more than 10% of the roughly 1,400 multiemployer plans, covering more than 1 million workers fits the current criteria to be able to apply for benefit cuts for participants.
“This is going to be a national crisis for hundreds of thousands, and eventually millions, of retirees and their families. It’s going to open the floodgates for other cuts.” said Karen Friedman, executive president of the Pension Rights Center.
We can’t help but wonder that as more pension funds become insolvent, and more and more participants are forced to take reductions in benefits, whether helicopter money won’t soon become a reality for the United States, even before it becomes one in Japan. Especially if it is spun by some opportunistic politicans as the “only hope” for America’s workers to preserve some of their retirement savings.
Well that about does it for tonight
Expect a huge epic battle tonight/tomorrow as the bankers take on gold and silver
I will see you tomorrow night