May 9/High comex gold OI (591,340 contractions) causes bankers to initiate a huge raid/silver OI also climbs/GLD rises by 2.68 tonnes/China’s demand equates to 171 tonnes or approx 40.7 tonnes/per month/China has an awful April in exports/Poland now refuses to accept any refugees and will not tolerate any EU blackmail/Leader of the opposition in Venezuela assassinated/Austrian chancellor Faymann resigns/Clinton foundation took in 140 million in grants and only 9 million spent on aid with the rest on wages for family members/

Good evening Ladies and Gentlemen:

Gold:  $1,265.60 down $27.30    (comex closing time)

Silver 17.07  down 44 cents

In the access market 5:15 pm

Gold $1264.00

silver:  17.02

Let us have a look at the data for today


At the gold comex today we had a POOR delivery day, registering 0 notices for NIL ounces for gold,and for silver we had 17 notices for 85,000 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 230.39 tonnes for a loss of 73 tonnes over that period


In silver, the open interest rose by 1843 contracts up to 204,736 as the price was silver was up by  21 cents with respect to Friday’s trading . In ounces, the OI is still represented by just over 1 BILLLION oz i.e. .1.023 BILLION TO BE EXACT or 146% of annual global silver production (exRussia &ex China) We are now at the  all time highs for OI with respect to silver and very close in gold.

In silver we had 17 notices served upon for 85,000 oz.

In gold, the total comex gold OI ROSE BY A SPECTACULAR 21,848  CONTRACTS UP to 591,340 contracts AS THE PRICE OF GOLD WAS UP $21.50 with FRIDAY’S TRADING(at comex closing). i would again suggest that comex officials are facing “a Houston, I have a problem” situation and that would be ample reason to orchestrate a raid trying to get that OI down.


As far as the GLD, we had another increase today of 2.68 tonnes (with gold down)  of gold into the GLD. The new inventory rests at 836.87 tonnes.  I have no problem in telling you that the addition was paper gold and not physical as London is having a tough time finding real metal. We had no change in silver inventory at the SLV. Inventory rests at 336.119 million oz.


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

1. Today, we had the open interest in silver rise by 1843 contracts up to 204,736 as the price of silver was UP by 21 cents with FRIDAY’S trading. The gold open interest ROSE by ANOTHER HUGE 21,848 contracts as  gold ROSE by $21.50  ON FRIDAY. Somebody big is standing FOR SILVER and surrounding the comex with paper longs ready to ponce once called upon to take out physical silver.I also believe that for the first time we are witnessing players wishing to stand for real physical in gold. The May contract for gold investors are refusing the tempting fiat offer and want only physical.

(report Harvey).


2 a) Gold trading overnight, Goldcore

(Mark OByrne/off today

2b)  Gold trading earlier this morning;


2c) COT report



i)Late  SUNDAY night/ MONDAY morning: Shanghai closed DOWN BADLY BY 81.14 PTS OR 2.79%  /  Hang Sang closed UP 46.94 OR 0.23%. The Nikkei closed UP 109.31 POINTS OR 0.68% . Australia’s all ordinaires  CLOSED UP 0.54% Chinese yuan (ONSHORE) closed DOWN at 6.5072.  Oil FELL  to 44.10 dollars per barrel for WTI and 45.04 for Brent. Stocks in Europe DEEPLY IN THE RED . Offshore yuan trades  6.5294 yuan to the dollar vs 6.5072 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS.



The comatose economy inside Japan is a showcase for the economies of the world as Keynesian economics just do not work:

( zero hedge)


i)Late Saturday night, China released its exports and imports and they missed badly confirming weak demand both globally and inside China. Remember that POBC injected 1 trillion USA dollars into their economy in March but that seems to have dissipated. They are also reporting huge imports from Hong Kong but that is over invoicing and is a way to get money out of the country.

ii)Turmoil returns to Mainland Chinese stocks as Shanghai is down close to 6% over two trading days. Iron ore futures plummet setting the tone:

( zero hedge)
iii)We have highlighted this to you on several occasions in the past year. China has a huge debt problem.  Total loans in USA dollars equates to 31 trillion dollars and no doubt that about 20% is bad or non performing. Total Chinese GDP is around 10 trillion so a debt at 35 trillion shows that this economy is in serious trouble.

Natixis did a good thorough analysis of the problem:
They have found that 18% of all companies cannot pay interest on its debt.
In real estate, as a SUBSET, it is 35%
They are about to see their MINSKY MOMENT.


i)Christine Lagarde of the iMF has sent a letter to the 19 officials of the EU telling them Greece can never achieve a primary surplus of 3.5% (budget surplus-interest expenses). They propose a 1.5% primary surplus with debt reduction. If they do not offer both of these to Greece then the IMF will not participate.

Germany on the underhand has stated that for their vote two aspects are needed:

  1. to fulfill previous agreement of 3.0% primary surplus
  2. no debt reduction

seems we have a huge problem here as Germany has a huge 3.5 billion euro payment in July that it cannot meet.


ii)Then late Sunday afternoon, Greece was again shut down by protests and strikes.  The protest is over pensions again

( Mish Shedlock)

iii)Then much to the anger of protesters, the Greek Parliament passes further austerity hoping to unlock 4 billion euros of a bailout loan:

( zero hedge)

iv)The EU want Erdogan to reform his “anti terrorist law”.  This law gives him the right to arrest journalists or whomever he wishes. Erdogan just stated he would not go along with the wishes of the EU.

Now we have a two fold problem:

a) 80 million Turks will have via free travel inside Europe

b) How will they all deal with the migrant situation

dire indeed…

( Mish Shedlock)


v)On Friday, we brought you a story that UK Regulators were investigating Deutsche bank on a sale of bonds to Italian investors.  It seems that Deutsche bank was dumping their bonds while promoting the worthiness of these Italian bonds. Now we find out that the TTIP will protect megabanks from prosecution by investors.

This is why the TTIP must be defeated…
( Eric Zuesse)
vi)Austria’s Chancellor Faymann resigns after losing support of his party, the Social Democratic Party.  The surge in popularity of the anti immigrant Freedom Party is having an powerful effect on Austrian politics:

( zero hedge)
vii) Poland now refuses to accept any refugees as they pose a threat to security and they will not comply with the European “blackmail”

( zero hedge)


China’s demand for iron ore and copper has crashed causing the Baltic Dry Index to collapse.  What we are witnessing is a total crash in demand for base metals and crude throughout the globe:

( Baltic Dry Index/zero hedge)


i)The situation inside Venezuela is nothing but chaos. The leader of the opposition that is trying to overthrow Maduro was assassinated Sunday night, afte3r 1.8 million signatures petition to oust the President.

( zero hedge)

ii)Brazilian stocks and the Brazilian real tumble after the Brazilian Hous Chief calls for an annulment on the procedure used to impeach Roussef.  The markets want all the corrupt actors out of government.  They must due a new vote:

( zero hedge)


A real shocker:  long time Finance minister Al Naimi of Saudi Arabia was fired by basically replaced by the 30 yr son of King Salman, Mohammed.You can bet that Saudi Arabia will be intent on breaking the shale business of the USA, and hurt weaker countries like Venezuela

( zero hedge)

ii)The oil fires are out of control in Canada.  The city of Fort McKay has been evacuated.

( zero hedge)

iii)Sunday night:  OIl jumps on news of a new Saudi oil Minister:

( zero hedge)

iv)Large Cushing build causes oil to tumble into the 43 dollar handle for WTI

( zero hedge)


i)For the first time, investors are bailing out of high yielding bond funds and entered gold:

( zero hedge)

ii)We brought this story to your attention last week and it is worth repeating.  Paul Mylchreest who discovered the huge crossing trade by long Nikkei (short yen) and short gold.  It had an uncanny correlation by over 90%.Now Mylchreest has evidence that London has no float of gold.  Once investors realize that there is no float, the unallocated gold holders will immediately ask for allocated gold and may cause a run on the LBMA

He also states that there are 7 trillion USA bonds trading throughout the globe at negative interest rates.  With gold at 0 interest rate, the move to gold may also can be considered a move to a better rate:
a must read..
(Paul Mylcreest/zero hedge)
iii)TF Metals  (Craig Hemke) elaborates on the Mylchreest report(courtesy Craig Hemke)

iv)A terrific graphic display outlining the fraud at the LBMA:

( Ronan Manly)

v)The bloodbath on the base metals and crude carries over form China onto the USA Markets:

( zero hedge)


vi)For the month of April, China’s SGE withdrew 171.4 tonnes  which equals demand for gold inside China/this averages 40.7 tonnes per week and this is good demand.

( Lawrie Williams/Lawrie on gold)


i)The judge hearing the case whether to cut pension payouts is very troublesome.  The fund pays out more than it takes in and will be bust in 10 yrs.  However UPS gets a sigh of relief as it does not have to give extra funds to the Central States Pension Fund. It would have owed 3.8 billion USA:

(zero hedge)

ii)The Clinton foundation has took in 140 million dollars in grants and has just spent 9 million in direct aid.  The rest went for salaries to Clinton family members and friends”

( Mike Krieger/Liberty Blitzkrieg blog)
iii)David Stockman in round 3 advocates the elimination of payroll taxes and the elimination of corporate taxes in favour of a 15% value added tax on goods:

( David Stockman/ContraCorner)

Let us head over to the comex:

The total gold comex open interest ROSE TO ANOTHER EXTREMELY HIGH  OI level of 591,340  for a GAIN 21,848 contracts AS  THE PRICE OF GOLD WAS UP $21.90 with respect to FRIDAY’S TRADING. We are now entering the NON active delivery month of MAY. For the past two years, we have strangely witnessed two interesting developments and we have generally seen two phenomena happen respect to the gold open interest:  1) total gold comex collapses in OI as we enter any delivery month  and 2) a continual drop in the amount of gold standing in that month as that month progresses. IT SURE SEEMS THAT THE LATER HAS STOPPED.   The month of May saw its OI RISE 18 contracts UP to 1441. We had 50 notices filed ON FRIDAY so we surprisingly gained another 68 contracts or an additional 6,800 oz will stand for delivery. This is truly amazing as somebody is in desperate need of physical gold AND THEY ARE REFUSING FIAT. The next big active gold contract is June and here the OI ROSE by 5,164 contracts UP to 405,249.. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was excellent at 229,916. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was EXCELLENT at 294,758 contracts. The comex is not in backwardation. We are exactly 3 weeks away from first day notice for the huge June contract.

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


And now for the wild silver comex results. Silver OI ROSE by 1843 contracts from 202,893 UP to 204,736 as  the price of silver was UP BY 21 cents with FRIDAY’S TRADING. For the first time in over 2 years, we have not witnessed a liquidation of open interest as we ENTERED first day notice .  The next active contract month is May and here the OI FELL by 240 contracts DOWN to 1071. We had 220 notices filed ON FRIDAY so we lost 20 contracts or 100,000 oz of silver will not stand for delivery in this active month of May. The next non active month of June saw its OI RISE by 294 contracts UP to 795  OI.The next big delivery month is July and here the OI ROSE by 1246 contracts up to 142,678. The volume on the comex today (just comex) came in at 49,613 which is EXCELLENT. The confirmed volume YESTERDAY (comex + globex) was AGAIN HUGE AT 59,277. Silver is not in backwardation. London is in backwardation for several months.
We had 17 notices filed for 85,000 oz.

MAY contract month:

INITIAL standings for MAY

Initial Standings for MAY
May 9.
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  354.321 OZ



Deposits to the Dealer Inventory in oz NIL
Deposits to the Customer Inventory, in oz  184,369.04 OZ



No of oz served (contracts) today 0 contracts
(NIL oz)
No of oz to be served (notices) 1441 CONTRACTS

144,100 OZ

Total monthly oz gold served (contracts) so far this month 632 contracts (82,500 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month  190,738.6 OZ

Today we had 0 dealer deposit


total dealer deposit: NIL oz

Today we had 0 dealer withdrawals:

total dealer withdrawals:  nil oz

Today we had 2 customer deposits:

i) Into Brinks:  119,679.660 oz

ii) Into Scotia: 64,689.38 oz

total customer deposit: 184,369.04 OZ

Today we had 2 customer withdrawals:

i) Out of Brinks:  64.28 oz

ii) Out of Delaware: 301.04 oz


Total customer withdrawals:  365.321 oz


Today we had 0 adjustment:


Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the MAY contract month, we take the total number of notices filed so far for the month (632) x 100 oz  or 63200 oz , to which we  add the difference between the open interest for the front month of MAY (1441 CONTRACTS) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals 207,300 oz, the number of ounces standing in this non active month.  This number is huge for May. Let us see if this number remains constant throughout themonth
Thus the initial standings for gold for the MAY. contract month:
No of notices served so far (632) x 100 oz  or ounces + {OI for the front month (1441) minus the number of  notices served upon today (50) x 100 oz which equals 207,300 oz standing in this non  active delivery month of MAY(6.4429 tonnes).
Since the comex allows GLD shares to be used for settling, it may take quite a while for the physical gold to enter the comex vaults.  So far I have seen little evidence of any settling of contracts but I will continue to monitor it for you. 
We thus have 6.4479 tonnes of gold standing for MAY and 18.308 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing.
We now have partial evidence of gold settling for last months deliveries We now have 6.4479 TONNES FOR MAY + 12.3917 tonnes (April) +2.2311 tonnes (March) + 7.99 (total Feb)- .940 (probable delivery on March 1) tonnes -.0434 tonnes (March 11,12,17,18) + March 31: 1.2470 and then  April 1,2: – .0006 tonnes  and last week April 16 .3203 and April 22 .(0009 tonnes) + april 29  .205 tonnes + May 5:  3.799 and May 6: 1.607 tonnes  = 21.301 tonnes still standing against 18.308 tonnes available.  .
Total dealer inventor 583,614.083 tonnes or 18.308 tonnes
Total gold inventory (dealer and customer) =7,407,157.204 or 230.39 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.67 tonnes for a loss of 73 tonnes over that period. 
JPMorgan has only 20.97 tonnes of gold total (both dealer and customer)
May is not a very good delivery month and yet 6.44 tonnes of gold is standing.  What is different from other months is that the bankers cannot offer any fiat to those standing. They want the real stuff. We are extremely close to the all time highs in both gold and silver OI.
And now for silver

MAY INITIAL standings

 May 9.2016

Withdrawals from Dealers Inventory nl oz
Withdrawals from Customer Inventory  84,578.340 oz


Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory nil
No of oz served today (contracts) 23  CONTRACTS

85,000 OZ

No of oz to be served (notices) 1054 contracts

5,270,000 oz

Total monthly oz silver served (contracts) 1757 contracts (8,785,000 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  1,619,275.2 oz

today we had 0 deposits into the dealer account

total dealer deposit:nil oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 0 customer deposit:

Total customer deposits: nil oz.

We had 1 customer withdrawals

i) out ouf CNT: 30,358.500 oz


total customer withdrawals:  30,358.500 oz



 we had 1 adjustment

Out of CNT:  44,845.49 oz was adjusted out of the customer and this landed into the dealer account of CNT

The total number of notices filed today for the MAY contract month is represented by 23 contracts for 85,000 oz. To calculate the number of silver ounces that will stand for delivery in May., we take the total number of notices filed for the month so far at (1757) x 5,000 oz  = 8,785,000 oz to which we add the difference between the open interest for the front month of MAY (1071) and the number of notices served upon today (23) x 5000 oz equals the number of ounces standing 
Thus the initial standings for silver for the MAY contract month:  1757 (notices served so far)x 5000 oz +(XXX{ OI for front month of MAY ) -number of notices served upon today (17)x 5000 oz  equals 14,055,000 oz of silver standing for the MAY contract month.
Total dealer silver:  29.226 million
Total number of dealer and customer silver:   152.545 million oz
The open interest on silver is still close an all time high with the record of 206,748 being set in the last week of April. The registered silver (dealer silver) is now at multi year lows as silver is being drawn out and heading to China and other destinations.
Somehow I did not notice that the COT report was late and I used last week instead of this week’s COT.  The report is always out at 3:30.  I took the report at 3:40 but did not notice it was not updated.
The real report is a humdinger:
Corrected COT from Friday (my error)
Gold COT Report – Futures
Large Speculators Commercial Total
Long Short Spreading Long Short Long Short
338,476 66,828 59,431 116,644 411,545 514,551 537,804
Change from Prior Reporting Period
50,303 -488 13,195 199 54,992 63,697 67,699
202 97 90 45 58 285 211
Small Speculators  
Long Short Open Interest  
51,223 27,970 565,774  
4,193 191 67,890  
non reportable positions Change from the previous reporting period
COT Gold Report – Positions as of Tuesday, May 03, 2016

Our large speculators:

Those large speculators that have been long in gold added a whopping 50,303 contracts to their long side.
Those large speculators that have been short in gold covered a tiny 448 contracts.
Our commercials;
Those commercials that have been long in gold added a  tiny 199 contracts to their long side
Those commercials that have been short in gold added a whopping 54,992 contracts to their short side.
Our small specs;
Those small specs that have been long in gold added 4193 contracts to their long side.
Those small specs that have been short in gold added 191 contracts to their short side.
we have a crime scene at the commercial side of things at the gold comex.
And now our silver COT:
Silver COT Report: Futures
Large Speculators Commercial
Long Short Spreading Long Short
100,401 24,526 14,599 55,731 146,325
627 3,525 -6,227 -969 -1,677
113 64 39 35 41
Small Speculators Open Interest Total
Long Short 198,237 Long Short
27,506 12,787 170,731 185,450
-1,942 -4,132 -8,511 -6,569 -4,379
non reportable positions Positions as of: 168 128
Tuesday, May 03, 2016   © SilverSeek.c
Our large specs:
Those large specs that have been long in silver added 627 contracts to their long side
Those large specs that have been short in silver added 3525 contracts to their short side.
Our Commercials:
Those commercials that have been long in silver pitched 969 contracts from their long side
Those commercials that have been short in silver covered 1677 contracts from their short side.
Our small specs:
Those small specs that have been long in silver pitched 1942 contracts from their long side.
Those small specs that have been short in silver covered 4132 contracts from their short side.
Commercials go net long by 708 contracts and please note the difference between gold and silver.
And now the Gold inventory at the GLD
May 9/Surprisingly we had another deposit of 2.68 tonnes of gold into the GLD with gold down!!
May 4/ we had a small deposit of .6 tonnes of gold into the GLD/inventory rests at 825.54 tonnes
May 3/no change in gold inventory at the GLD/Inventory  rests at 824.94 tonnes
May 2/a hugechange in gold inventory at the GLD a deposit of 20.80/Inventory rests at 824.94 tonnes
April 29/no change in gold inventory at the GLD/Inventory rests at 804.14 tonnes
April 28/we gained 1.49 tonnes of gold at the GL/Inventory rests at 804.14
April 27/no change in gold inventory at the GLD/rests at 802.65 tonnes
aPRIL 26/ a withdrawal of 2.38 tonnes of gold/inventory rests at 802.65 tonnes
April 25.2016: no change in gold inventory/rests tonight at 805.03 tonnes
April 22/ no changes in gold inventory/rests tonight at 805.03 tonnes
April 21/no change in gold inventory/rests tonight at 805.03 tonnes
April 20/no change in gold inventory/rests tonight at 805.03 tonnes
April 19./we had a huge withdrawal of 7.43 tonnes from the GLD/Inventory rests tonight at 805.03 tonnes
April 18.2016/a huge addition of 6.38 tonnes of gold  in gold inventory at the GLD/Inventory rests at 812.46

May 9.:  inventory rests tonight at 836.87 tonnes


Now the SLV Inventory
May 9. no change in silver inventory/rests at 336.119 million oz.
MAY 5.2016: NO CHANGE IN INVENTORY/rests tonight at 337.261 million oz
May 4/we had a good size withdrawal of 1.553 million oz from the SLV/Inventory rests at 337.261 million oz
May 3: we had another huge deposit of 1.807 million oz/inventory rests at 338.814 million oz
May 2/a huge in silver inventory at the SLV/a deposit of 1.49 million oz/Inventory rests at 337.007 million oz
April 29.2016/no change in silver inventory at the SLV/Inventory rests at 335.580
April 28/no change in silver inventory at the SLV/Inventory rests at 335.580 million oz
April 27/we had another addition of 856,000 oz into the SLV/Inventory rests at 335.580
aPRIL 26/no change in silver inventory at the SLV/Inventory rests at 334.724 million oz.
April 25.2016/ No change in silver inventory/rests tonight at 334.724 million oz.
April 22/ no changes in silver inventory/rests tonight at 334.724 million oz
April 21/no change in silver inventory/rests at 334.724 million oz/
April 20/no change in inventory/rests at 334.724 million oz
April 19./we had a huge inventory deposit of 1.437 million oz/inventory rests at 334.724
May 9.2016: Inventory 336.119 million oz
1. Central Fund of Canada: traded at Negative 5.7 percent to NAV usa funds and Negative 6.1% to NAV for Cdn funds!!!!
Percentage of fund in gold 60.9%
Percentage of fund in silver:37.7%
cash .+1.4%( May 9/2016).
2. Sprott silver fund (PSLV): Premium to  FALLS to -.46%!!!! NAV (MAY 9.2016) 
3. Sprott gold fund (PHYS): premium to NAV  RISES 1.45% to NAV  ( MAY 9.2016)
Note: Sprott silver trust back  into NEGATIVE territory at -0.46% /Sprott physical gold trust is back into positive territory at +1.45%/Central fund of Canada’s is still in jail.
It looks like Eric Sprott got on the nerves of our bankers as they lowered the premium in silver to -.46%.  Remember that Eric is to get 75 million dollars worth of silver in a new offering.



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

Trading in gold and silver overnight in Asia and Europe
Mark O’Byrne (goldcore)/

London Property Bubble Bursts

The London property bubble shows renewed signs that it is beginning to burst. Property sellers in the UK have reduced their asking prices and London property prices have fallen by 7.8 per cent on average and as much as 30% in some areas according to City AM today.

London_propertyCity AM – Data via Zoopla

“People trying to sell their homes are increasingly having to mark down their original asking price – and the amount they are dropping it by is going up.

Last month we heard that sellers in some London boroughs were having to drop prices by as much as 29 per cent, but new research suggests the issue is even more wide-spread – and the amounts are getting bigger.

On average, sellers are now reducing their asking price by more than £25,000 – a jump of £4,000 of 17 per cent since the start of the year, according to Zoopla.

Almost a third (29 per cent) of properties currently listed for sale on the portal have had their price reduced at least once since originally being listed – an increase of 0.43 per cent since start of 2016.

London certainly has its fair share of price cut-backs – as with the previous study, Kensington & Chelsea came out top, but this time around there is an even higher proportion of homes being marked down (33.3 per cent compared with 29 per cent). Homes in this borough were reduced on average by £137,421.

London as a whole had an average reduction percentage of 7.8 per cent – above the overall national average of 6.86 per cent.”

The full article can be on City AM here.

Sharp falls in London and UK home prices will severely impact the heavily indebted and vulnerable UK economy.

Gold and Silver Prices and News
Gold slips as dollar holds firm after U.S. jobs data (Reuters)
Belarus Central bank deputy wants to build up gold and fx reserves (Reuters)
Japan Stocks Rise First Time in Seven Sessions After U.S. Jobs (Bloomberg)
Gold jumps after U.S. payrolls data misses forecasts (Reuters)
Gold Jumps as Jobs Deal ‘Devastating Blow’ to Fed Rates Outlook (Bloomberg)

Jim Grant Asks When World Will Realize “That Central Bankers Have Lost Their Marbles” (Zero Hedge)
Historic Dow Jones-Silver Ratio Points To $300 Silver (SRS Rocco Report)
Death of the Gold Market (Mylchreest via GATA)
Gold—and the COT Report: Words Fail Me (Goldseek)
Why Gold Is Hot Again (Bloomberg)
Read More Here

Gold Prices (LBMA)
09 May: USD 1,277.75, EUR 1,121.54 and GBP 884.68 per ounce
06 May: USD 1,280.25, EUR 1,121.06 and GBP 883.04 per ounce
05 May: USD 1,275.75, EUR 1,114.95 and GBP 879.23 per ounce
04 May: USD 1,280.30, EUR 1,114.18 and GBP 883.59 per ounce
03 May: USD 1,296.50, EUR 1,118.15 and GBP 881.32 per ounce

Silver Prices (LBMA)
09 May: USD 17.33, EUR 15.21 and GBP 11.99 per ounce
06 May: USD 17.31, EUR 15.15 and GBP 11.93 per ounce
05 May: USD 17.38, EUR 15.21 and GBP 12.01 per ounce
04 May: USD 17.18, EUR 14.96 and GBP 11.86 per ounce
03 May: USD 17.49, EUR 15.10 and GBP 11.92 per ounce

Protecting_Your_Savings_in_the_Coming_Bail_In_Era_-_Copy-3.jpg Essential_Guide_to_Storing_Gold_in_Singapore.jpg 7_Key_Storage_Must_Haves.png

Read Our Most Popular Guides in Recent Months

Mark O’Byrne
Executive Director
Published in Market Update



For the month of April, China’s SGE withdrew 171.4 tonnes  which equals demand for gold inside China/this averages 40.7 tonnes per week and this is good demand.


(courtesy Lawrie Williams/Lawrie on gold)




China’s SGE gold withdrawals in April 171 tonnes

May 9, 2016 lawrieongold

The latest announcement from China’s Shanghai Gold Exchange (SGE) shows that gold withdrawals for April totalled 171.4 tonnes so remain subdued compared with the past couple of years. For the first four months of the year 687.3 tonnes were withdrawn, very sharply below the 820.6 tonnes at this stage a year earlier (admittedly a record year) – representing a fall of over 19% year on year. However, even at the current lower monthly rate taken out over the full year this would suggest SGE withdrawals remaining at over 2,000 tonnes for the full year Thus even at a lower level Chinese gold demand as represented by SGE withdrawals – although there are some arguments from top analysts that these overstate the nation’s true absorption of physical gold – do account for a very significant proportion of the world’s newly mined supply of gold – currently around 3,200 tonnes a year.

Indian gold imports have also been low in the first four months – initially due to demand being held back ahead of the late February budget in the hope of a reduction in import duties – and subsequently due to strike action by the jewellery sector disappointed that the duty cuts were not forthcoming. Thus the recent performance of gold, given what has been a strong downturn in Asian demand, has been all the more remarkable.

To a significant extent growth in Western demand, represented by purchases into the major gold ETFs and strong buying of gold coins and investment bars has been making up a lot of the shortfall from Asia. The biggest of the gold ETFs, SPDR Gold Shares (GLD) for example, has added around 192 tonnes of gold so far this year alone. It is still hugely below its peak, but is currently back at a level last seen in December 2013 with holdings at the end of last week at 834.19 tonnes. It has put on 30 tonnes since the end of April. And according to Bloomberg i inflows into all the gold ETFs it follows totalled around 330 tonnes in Q1 alone. It thus looks as though ETF inflows are taking up any slack represebted by what is very probably a temporary downturn in Asian demand and gold flows.

The other contributor to the strong price performance in terms of logistics rather than just sentiment is that physical gold actually appears to be in relatively short supply with available inventories falling in the USA and the UK, where most is held. The head of one of Switzerland’s largest gold refineries recently told Jim Rickards of problems in securing sufficient supplies to meet demand. With new mined gold supply almost certainly plateauing, and possibly even beginning to turn down, demand shortages could be exacerbated further. A recent analysis by Paul Mylchreest, who many may remember as the author of the sadly missed Thunder Road Report also even suggests that the London Bullion Market may even be in deficit. withdrawals-in-april-171-tonnes/


For the first time, investors are bailing out of high yielding bond funds and entered gold:

(courtesy zero hedge)

Gold “Flight To Safety” Surges Amid Biggest Junk Bond Outflows In History

Something happened this week that has never happened before. While outflows from equity ETFs soared, the $3.6 billion redemptions from high yield bond ETF HYG this last few days is the largest ever – almost twice as big as the previous largest outflows (seen in May last year).

The last week saw the biggest outflows from the high-yield bond ETF (HYG) ever…

As Bloomberg reports, the withdrawals from equity and credit funds highlighted the lack of faith in the rally that helped stocks briefly erase their annual losses last month. Equity traders have remained on the sidelines, with volume down in recent weeks as investors sought safer assets such as gold.

The S&P 500 just suffered its biggest two-week retreat since February as signs of slowing growth in the world’s largest economy mounted. Worldwide stock ETFs lost $12.6 billion in the four days through May 5, wiping out more than six weeks of inflows, as the MSCI All-Country World Index capped its worst week in three months.

“The market is becoming more cautious and using ETFs to allocate tactically. We’ll probably continue to see more flows into gold and less into equities.”

The $5.3 billion pulled from State Street’s SPDR S&P 500 ETF Trust represented more than 40 percent of the total withdrawals recorded in the first days of the month, according to data compiled by Bloomberg tracking funds of more than $100 million. Underscoring the flight from risk assets, BlackRock Inc.’s iShares iBoxx $ High Yield Corporate Bond ETF also saw outflows as traders yanked $2.3 billion from it.

Instead, they poured more than $1 billion in the SPDR Gold Shares and almost $540 million in the iShares TIPS ETF, which tracks inflation-protected Treasury notes.

The last week saw the biggest inflows to the gold ETF (GLD) since Nov 2011…

“There are a lot of things going on in the market right now, and investors are reacting to that,” said Deborah Fuhr, a former ETF research head at BlackRock who helped found London-based research firm ETFGI. “Investors are moving toward safer havens. Clearly gold is for many the safe haven, long-term store of wealth and inflation hedge.”

There’s clearly a flight to safety, though some of it is probably profit taking,” said Christopher Johnson, the vice-president of ETF sales and strategy for the Americas at Macquarie Capital (USA) Inc. in New York.

“On the one side, some say things are much better than people think and the markets are coming back, while on the other people are very guarded and concerned. There are so many headline risks out there that it’s causing investors, particularly in the institutional space, to hesitate.”

As a reminder, it’s all smoke and mirrors…

Friday’s U.S. jobs report did nothing to allay lingering worries over weak economic expansion and the efficacy of unprecedented central-bank policies.

We brought this story to your attention last week and it is worth repeating.  Paul Mylchreest who discovered the huge crossing trade by long Nikkei (short yen) and short gold.  It had an uncanny correlation by over 90%.Now Mylchreest has evidence that London has no float of gold.  Once investors realize that there is no float, the unallocated gold holders will immediately ask for allocated gold and may cause a run on the LBMA
He also states that there are 7 trillion USA bonds trading throughout the globe at negative interest rates.  With gold at 0 interest rate, the move to gold may also can be considered a move to a better rate:
a must read..
(Paul Mylcreest/zero hedge)

“The Death Of The Gold Market” – Why One Analyst Thinks A Run On London Gold Vaults Is Imminent

When it comes to tracking the nuances at the all important margin of the gold market, few are as observant as ADMISI’s Paul Mylchreest, whose December 2014 analysis showed the stunning role gold holds in the new normal as a funding “currency” for BOJ interventions in the form of a long Nikkei/short gold (and vice versa) pair trade, indicating that central banks directly intervene in gold pricing (by selling, of course) when seeking to push paper asset prices higher.

In his latest report he follows up with an even more disturbing analysis on the state of the gold market. Specifically, he looks at what historically has been the hub of gold trading, the London bullion market, and finds that it “is running into a problem and is facing the biggest challenge since it collapsed from an insufficient supply of physical gold in March 1968.

We suggest readers set aside at least an hour, and two coffees for this “must read” report. For those pressed for time, the executive summary is as follows: using data from the LBMA and Bank of England on gold stored in London vaults and net UK gold export data from HM Revenue & Customs, Mylchreest calculates that the “float” of physical gold in London (excluding gold owned by ETFs and central banks) has recently declined to +/- zero.

 Summarizing the data in the report.

The full details of how Mylchreest gets to this number are broken out in detail in the attached report; fast-forwarding to his troubling summary we read the following conclusion, one we have observed numerous times when analyzing the troubling trends within the gold vaults of none other than the Comex itself: “if we are correct, the London Bullion Market is running into a problem and is facing the biggest challenge since it collapsed from an insufficient supply of physical gold in March 1968.”

Some more of the report’s core findings, most of which should come as no surprise to regulatr readers:

* * *

Besides the growth in physical gold demand from existing sources, there is more than US$200 Billion of trading every day in unallocated (paper) gold. If buyers lose confidence in the market’s structure and ability to deliver actual bullion, the market could become disorderly (via an old fashioned “run” on the vaults) as it seeks to find the true price of physical gold.

Intuitively, we think that central banks might have lent/leased gold to maintain the status quo and mask what is technically a default. However, rather than being used to provide temporary liquidity, it is possible that loans/leases are being rolled. This is not sustainable and implies dual ownership claims.

Going forward, the market is vulnerable to several trends in physical gold trading patterns:

  • Since 2009, central banks have switched from net sellers to net buyers ;
  • The extraordinary strength in Chinese gold demand as indicated by withdrawals of bul-lion on the Shanghai Gold Exchange, e.g. an astonishing 2,597 tonnes, or more than 80% of all of the gold mined worldwide, in 2015;
  • The rebound in gold held by London-based gold ETFs, which has been increasing since January 2016, as western investors dip their toes back into physical gold; and
  • Net gold exports by the UK – mainly to support strong Asian (especially Chinese) demand – which have been a feature of the market since 2013.

But the vulnerability is not confined to current trends in physical bullion.

If there is no gold float, there is nothing supporting more than US$200 Billion of trading every day in unallocated (paper) gold instruments which accounts for more than 95% of gold trading in London.

The convention of trading unallocated gold has been based on a fractional reserve system. It works as long as gold buyers retain confidence that the banks could deliver physical gold if demanded, but our analysis suggests that they could not.

For more than four years, selling of paper gold overwhelmed growing demand for physical gold from the likes of China and central banks (in aggregate). The “gold market” became a chimera as fundamentals were turned upside down. Banks added paper “gold supply” in almost elastic fashion on occasions when western investors increased net gold exposure via paper gold instruments.

We’ve argued for many years that a breakdown and bifurcation in the gold market between physical and paper gold substitutes would be necessary for accurate price discovery of physical gold bullion. The lead article in the January 2016 edition of the LBMA’s quarterly magazine was titled “Wholesale Physical Markets are Broken”, which might be confirmation that this process is reaching an advanced stage.

In the interim, we could move towards a two-tier gold market – where physical gold trades at a premium to paper gold instruments, such as unallocated gold in London and COMEX gold futures in the US.

It saddens us that London’s position and reputation as the hub of the world gold market is in jeopardy unless the LBMA, BoE and other stakeholders embrace rapid and far-reaching reform. The London Bullion Market is structurally flawed and overdue for reform – it is not an exchange, it is under-regulated and there is near zero transparency. More than anything, it is primarily a system of paper credits/debits which benefits the banks and undermines the investment case for gold and, consequently, interests of gold investors.

Seeing the Achilles Heel of London’s gold market, China’s Shanghai Gold Exchange (SGE) launched a Yuan-denominated physical gold benchmark gold contract on 19 April 2016.Examining the SGE’s white paper, it’s clear that China acknowledges that its introduction should lead to a more realistic price for physical gold and that its strategy is to shift price discovery in the gold market from London to Asia.

Unfortunately time is running out for London and meanwhile…

The vast pools of western capital are not underweight gold, they are almost zero–weighted. Ultimately, gold is a bet on financial system mismanagement in many guises – such as inflation, deflation, rising credit risk, declining confidence in policy makers, etc. The fact that mainstream investors and commentators have started to have doubts about central bank policies has been positive for gold.

For years, the typical pushback on investing in gold by western investors was that it had no yield. In a bizarre twist of investing, more than US$7 Trillion of bonds now have negative yields thanks to unconventional monetary policies like ZIRP/NIRP, and gold investing can be justified on a yield basis. Unlike every other financial asset, including sovereign bonds, physical gold has no counterparty risk.

We have been here before…

“Someone once said, ‘no one wants gold, that’s why the US$ price keeps falling.’ Many thinking ones laugh at such foolish chatter. They know that the price of gold is dropping precisely be-cause ‘too many people are buying it’! Think now, if you are a person of ‘great worth’ is it not better for you to acquire gold over years, at better prices? If you are one of ‘small worth’, can you not follow in the footsteps of giants? The real money is selling ALL FORMS of paper gold and buying physical! Why? Because any form of paper gold is losing value much, much faster than metal. Some paper will disappear all together in a fire of epic proportions! The massive trading continues at LBMA, but something is now missing”

Anonymous quote from many years ago (the 1990s!)

* * *

Mylchreest full must read report below (pdf):



TF Metals  (Craig Hemke) elaborates on the Mylchreest report

(courtesy Craig Hemke)

TF Metals Report elaborates on reports by Mylchreest and Williams

Submitted by cpowell on Sun, 2016-05-08 18:50. Section: 

2:50p ET Sunday, May 8, 2016

Dear Friemd of GATA and Gold:

The TF Metals Report’s Turd Ferguson today elaborates on Paul Mylchreest’s new report on the exhaustion of the gold supply in London as well as on Grant Williams’ recent report on the gold market, “Nobody Cares,” perhaps because people may be starting to care after all. Ferguson’s commentary is posted at the TF Metals Report here:…

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



A terrific graphic display outlining the fraud at the LBMA:

(courtesy Ronan Manly)

Bullion Star graphic displays the fraud of the London gold market

Submitted by cpowell on Sun, 2016-05-08 19:32. Section: 

3:30p ET Sunday, May 8, 2016

Dear Friend of GATA and Gold:

Bullion Star has created a graphic illustration of the London gold market, showing that it is a fractional-reserve-based and largely unallocated market seemingly designed to deceive naive investors looking for a hedge against currency volatility in the form of an asset that can’t be infinitely created in a flash, but often is. The graphic is posted at Bullion Star here:…

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




The bloodbath on the base metals and crude carries over form China onto the USA Markets:

(courtesy zero hedge)

China Commodity Carnage Spills Over To US Markets – Crude, Copper Clubbed

WTI Crude prices have puked back all the “yay we have a new Saudi Oil Minister” algo-buying gains and even with just modest strength in the USD Index, the bloodbath overnight in Chinese commodity marketsappears to be spilling over. Gold and Silver are also being punished as commodity currencies collapse.

Copper clubbed in China trading but fading more as US opens. Crude gave it all back and PMs stumbling as JPY strengthens significantly

Of course, there is another factor one must weigh as to why Crude is crashing… Gartman!! is time to buy crude oil and to sell equity futures, with the only problem now to decide how to weight the position; that is, do we sell equal dollar sums on both sides or do we weight the trade for “beta,” if there is such a thing for crude oil. We shall try to research that today and tomorrow and perhaps for most of this week, for that shall be a critical, deciding factor in the implementation of this position.

It’s not working out so well..


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



1 Chinese yuan vs USA dollar/yuan DOWN to 6.5072 (BIG DEVALUATION ) / Shanghai bourse  CLOSED DOWN 81.14 OR 2.79%  / HANG SANG CLOSED UP 46.94 OR 0.23%

2 Nikkei closed UP 109.31 OR .68% /USA: YEN RISES TO 108.12

3. Europe stocks opened ALL IN THE GREEN  /USA dollar index UP to 93.99/Euro DOWN to 1.1386

3b Japan 10 year bond yield: RISES   TO -.103%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 107.26

3c Nikkei now WELL BELOW 17,000

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

3e WTI::  45.37  and Brent: 45.88

3f Gold DOWN  /Yen DOWN

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund RISES to 0.161%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate FALL to 9.34%/: 

3j Greek 10 year bond yield FALL to  : 8.55%   (YIELD CURVE NOW DEEPLY INVERTED)

3k Gold at $1274.20/silver $17.32(7:45 am est) BROKE RESISTANCE AT 16.52 

3l USA vs Russian rouble; (Russian rouble UP 73 in  roubles/dollar) 65.44-

3m oil into the 45 dollar handle for WTI and 45 handle for Brent/

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


30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9675 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1038 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.


3r the 8 Year German bund now  in negative territory with the 10 year RISES to  + .161%

/German 8 year rate negative%!!!

3s The Greece ELA NOW a 71.4 billion euros,

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

4. USA 10 year treasury bond at 1.775% early this morning. Thirty year rate  at 2.636% /POLICY ERROR)

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

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

US Futures, Europe Stocks Jump On Oil, USDJPY Surge; Ignore Poor China Data, Iron Ore Plunge

The overnight session has been one of alternative weakness and strength: it started in Chinawhere stocks tumbled 2.8% to a two month low following an unexpected warning in the official People’s Daily mouthpiece that debt and NPLs are too high, not to expect more easing will come, and that the Chinese Economy’s performance won’t be U- or V-shaped but L-shaped.

This took place after another month of disappointing, sharply weaker trade data as fears about China’s slowdown returned. An expected freefall in key commodity prices led by a crash in the iron ore complex did not help Chinese sentiment, as China’s latest commodity bubble has by now clearly burst.

Concerns about China, however, were promptly forgotten and certainly not enough to keep global assets lower, with European stocks gapping higher at the open and rallying from a one-month low, shaking off the Chinese trade data drag that pushed Shanghai shares lower along with industrial metals, driven by a “surprising” surge in the USDJPY which has moved nearly 200 pips higher since its post-payrolls low. Another driver is the jump in oil, which rallied just shy of $46 a barrel, buoyed by Canadian wildfires that are curbing production and speculation that the Saudi Arabian oil minister succession will be bullish for oil prices.

Certainly helping Europe rebound was the latest Goldman trade recommendation which came out about an hour ago, and was as follows:


As is common knowledge always do the opposite of what Goldman recommends and at last check, the Stoxx Europe 600 Index advanced 1.4% with health care and technology companies leading the gains. Apart from mining companies, all of the 19 industry groups on the Stoxx Europe 600 Index advanced. Copper fell to its lowest in almost a month after imports into China slipped from a record, while iron ore tumbled following an increase in stockpiles at Chinese ports. Oil climbed as high as $45.94 a barrel in New York and gold retreated as a gauge of dollar strength rose for a fifth day.

S&P 500 futures added 0.3 percent, after U.S. stocks Friday halted a three-day decline amid investor speculation that the payrolls data will encourage the Federal Reserve to raise interest rates gradually. Traders are pricing in little chance of higher borrowing costs next month, with December the first month with more than even odds of a hike.

Putting the global rebound in perspective, consider that Chinese trade figures released over the weekend showed exports fell in dollar terms in April and imports dropped for the 18th month in a row, while U.S. jobs figures on Friday were weaker than economists forecast, several Federal Reserve officials have said over the past week that U.S. interest rates are headed higher, comments that have given a boost to the greenback; this happens as earnings season is set to conclude the worst quarterly report in decades.

In other words, lots of central bank multiple expansion, and lots of buybacks are taking place behind the scenes.

Euro-area finance ministers and International Monetary Fund officials are meeting Monday to decide whether Greece’s government has done enough belt-tightening to gain another aid disbursement. Germany reported a bigger increase in March factory orders than economists forecast, while companies including Enel SpA and Tyson Foods Inc. are scheduled to announce earnings.

Global Markets Snapshot

  • Stoxx 600 up 1.4% to 336.3
  • Eurostoxx 50 +1.6%,
  • FTSE 100 +0.8%, CAC 40 +1.4%,
  • DAX +1.9%, IBEX +1.5%
  • FTSEMIB -0.1%
  • SMI +1.3%
  • S&P 500 futures up 0.3% at 2058
  • Brent Futures up 1.5% to $46.1/bbl
  • Vstoxx Index down -2.1% at 24.6
  • MSCI Asia Pacific down 0.2%
  • Nikkei 225 up 0.7% to 16216
  • Hang Seng up 0.2% to 20156.8
  • Kospi down 0.5% to 1967.8
  • Shanghai Composite down 2.8% to 2832.1
  • Euro down 0.09% to $1.1394
  • Dollar Index up 0.07% to 93.96
  • German 10Yr yield up 2bps to 0.16%
  • Italian 10Yr yield down 1bps to 1.49%
  • Spanish 10Yr yield down 1bps to 1.59%

Top Global News

  • Brexit Battle Rages in Week of Bigwig Barrage on U.K. Risks: Carney, Lagarde, Osborne due to speak as decision day nears
  • Cameron Evokes War, Churchill Memory in Bid to Avoid Brexit: Britain has ‘fundamental national interest’ in EU, Cameron says
  • Bill Gross, Mohamed El-Erian Warn Against Counting the Fed Out: Gross says Fed rate increase may come in June as wages rise
  • Bloomberg Editorial: The IMF Is Right About Greece’s Need for Debt Relief: any plan to resolve its financial crisis has to involve debt relief
  • Filipinos Vote as Populist Mayor Rides Wave of Discontent: Duterte leads main rivals by 11 points in final opinion polls
  • World’s Most Expensive Rough Diamond Sells for $63m: 813- carat diamond recovered by Lucara in Botswana last year
  • Twitter Cuts Off U.S. Spy Agencies From Analytics, WSJ Reports: move comes after Apple battled with Justice Department

Looking at regional markets, Asia stocks started the week mostly lower following Friday’s NFP miss coupled with weak Chinese trade data in which exports and imports printed below estimates. ASX 200 (-0.4%) was pressured with sentiment soured by a decline in imports from its largest trading partner, although advances in oil amid uncertainty after Saudi replaced oil minister Al-Naimi helped stem losses. Nikkei 225 (+0.7%) outperformed after a 6-day losing streak as JPY weakness boosted exporter names, while the Shanghai Comp (-2.8%) led the region lower amid weak trade data and the PBoC decreasing its liquidity injection. 10yr JGBs traded lower amid increased appetite for riskier assets in Japan, while mild support was seen early in the long-end as the 20yr yield declined to fresh record lows, with the BoJ also in the market to purchase around JPY 1.2trl of government debt.

Asian Top News

  • Takata Projects Second Annual Loss on Air-Bag Recall Charges: Company forecasts 13 billion yen loss; had estimated profit
  • Soros Chart Signals BOJ Bond Buying Already Enough to Weaken Yen: Japan monetary base rises to 96% that of U.S. in dollar terms
  • Japan Finance Minister Fires Another Verbal Salvo at Strong Yen: Aso says Japan has means to intervene
  • Chinese Imports From Hong Kong Raise Red Flag Amid Yuan Worries: Import surge from Hong Kong may show capital exit, OCBC says
  • Goldman Fund Manager Bearish on Aussie as Dollar Bets Falter: Fund bearish Aussie against kiwi, loonie after RBA rate cut
  • Rajan Stimulus Working as Rare Issuers Revive Rupee Bond Market: Issuance in May has second-best start for month in 11 years
  • Mitsubishi Heavy Surges After Profit Outlook Beats Estimates: Forecasts 13% increase in op. profit this fiscal year to 350b yen, exceeding est. of 334b yen
  • Commonwealth Bank Profit Gains 4.5%, Bad-Debt Charges Rise: Provisions for impaired loans up 67% on corporate defaults

In Europe, equities trade firmly in the green this morning (Euro stoxx: +1.5%), opening higher and going on to close the opening gap throughout the session as higher oil prices fuel risk appetite with gains exacerbated by the upside in IT names. The notable movers this morning come from the materials sector, with the likes of Anglo American, ArcelorMittal, Glencore and Rio Tinto all among the worst performers in Europe after the soft trade balance data from China. Fixed income markets have seen similar price action to equities so far this morning, opening lower before going on to grind higher over the following 2 hours. Of note, EUR denominated corporate bond sales may pick up this week with some noting that a total of EUR 15bIn worth of debt could be sold, as companies look to take advantage of low interest rates after publishing their quarterly earnings as well as the prospect of ECB buying IG bonds in June as part of its QE program. Furthermore, it was also reported earlier in the session that Italy are exploring the sale of a 50yr bond.

European Top News

  • Total to Buy French Battery Maker Saft in $1.1 Billion Deal: acquisition forms part of plan to expand clean-energy business
  • Imagination Tech Climbs on Bid Speculation Spurred by Tsinghua: Chinese state-backed technology co. Tsinghua Unigroup buys 3% stake in co.
  • Investec Finances Four Emirates A380s in $1 Billion Jet Deal: bank says low oil price makes superjumbo more attractive
  • Glencore Becomes Top Holder in Iron Ore Miner After Debt Revamp: has also secured marketing offtake rights
  • Ikea in Talks to Take Over Some BHS Stores, Times Reports: Swedish retailer registered interest with BHS’s administrators
  • Italy Favors Erdemir-Led Group for Ilva vs Mittal: Repubblica: group seen as able to counter possible bid by Arcelor Mittal
  • Korian Plans to Buy Foyer de Lork; Deal EPS Accretive This Year: deal to be financed with cash from Korian, available credit lines
  • G4S 1Q Continuing Businesses Rev Rises 4.5% to GBP1.51b: comments ahead of CEO Ashley Almanza presentation at JP Morgan conf.
  • Abengoa Assets Have EU1b Less Value Than Estimate: Confidencial: reports citing sources it doesn’t identify
  • Adidas May Be Only Bidder for German Soccer Team Sponsoring: FAZ: cites unidentified people close to the negotiations

In FX, the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.1 percent following its biggest weekly jump since November.The greenback’s reaction to weaker-than-expected U.S. jobs figures on Friday was muted by comments from Fed Bank of New York President William Dudley, who said in a New York Times interview that it remained a “reasonable expectation” the central bank would raise interest rates two times this year.

Aside from the one way surge in the USDJPY, moves across key pairs have been relatively quiet, though some early volatility seen in GBP, but losses since recouped with Cable back in the mid 1.4400’s. This may signal some moderation in the USD reversal we are seeing at the moment, with the greenback fighting back hard after the headline miss in US jobs on Friday. EUR/USD is proving resilient under 1.1400, as is USD/JPY ahead of 108.00, but direction hard to read as yet — as is usually the case on the Monday after US payrolls. CAD should perhaps be a little stronger with Oil moving higher again, but the USD perspective is strong, and specs are quick to pounce on any dip at present. USD/CAD still trading on a 1.2900 handle, but strong resistance seen ahead of 1.3000. AUD/USD through key support under .7400, but downside momentum lacking on stable stocks. EU Sentix investor confidence slightly better than expected this morning, while UK Halifax HPI showing some softening, but both to little effect on the markets.

In commodities, iron ore plummeted in Asia after port stockpiles in China expanded to the highest in more than a year, following moves by local authorities to quell speculation in raw-material futures. The SGX AsiaClear contract for June settlement tumbled 7.9 percent to $51.17 a metric ton, the lowest in a month, retreating alongside contracts for steel and coking coal.

Copper fell with industrial metals, extending its worst weekly slide since November, after China slashed purchases from a record high. The metal fell 1.7 percent to $4,728 a metric ton, having touched the lowest in almost a month. Nickel lost 2.7 percent and zinc dropped 1.5 percent. Gold fell 0.8 percent to $1,278.56 an ounce, declining for the fifth time in six days as the dollar strengthened. Silver dropped 0.4 percent and platinum slid 1.1 percent.

Crude rose as expanding Canadian fires knocked out about 1 million barrels a day of production, outweighing the new Saudi Arabian oil minister’s pledge to maintain the country’s policy of near-record output. China’s crude imports rose 7.6% Y/Y last month, marking the third straight month that crude imports surpassed 30 million tons. Day by day, China shipped in 7.9 min/bpd in April. In the first four months of the year, China imported 123.67 min tons of crude, which is equivalent to a 12% on-year rise. Saudi Arabia on Saturday replaced its long-serving oil minister Ali al-Naimi, who had held the post since 1995, with Khalid al-Falih, chairman of the state oil Co., Saudi Aramco as his replacement. In separate reports, Saudi’s new oil minister Khalid al-Falih stated that hat he will maintain Saudi’s stable oil policy. 

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Light newsflow thus far with European equities trading firmly in the green with higher oil prices helping fuel risk appetite.
  • Saudi Arabia have replaced their long-serving oil minister Ali al-Naimi with Khalid al-Falih, chairman of the state oil Co., Saudi Aramco named as his replacement.
  • Highlights today include US Labour Market Condition alongside Fed’s Kashkari.
  • Treasuries little changed in overnight trading as global equities and oil rally, precious metals sell off; this week will see $62b in U.S. Treasury auctions.
  • China’s problem with fake trade invoices appears to be getting worse. Imports from Hong Kong surged a record 204% last month, data on Sunday showed, intensifying the spotlight on a channel used to get capital out of the country
  • The yuan fell the most in two weeks amid speculation depreciation concerns are prompting investors to shift money overseas and as the dollar headed for its biggest five-day gain since November
  • China’s stocks capped their biggest two-day loss since late February, led by commodity producers and industrial companies, as trade data disappointed and the People’s Daily warned about the country’s rising debt in a front-page article
  • For all the Communist Party’s rhetoric about giving a decisive role to markets, China’s financial system remains dominated by state-owned lenders. The PBOC has also been expanding support for “policy banks” that support government objectives
  • Euro-area finance ministers will debate possible debt-relief measures for Greece Monday, after IMF Managing Director Christine Lagarde warned them that the fiscal targets envisaged in the country’s latest bailout agreement are not realistic
  • Voters tuning into the fraught battle over the U.K.’s future will hear from heavy-hitters who have already warned about the risks of leaving the single market
  • U.K. house prices fell 0.8% in April after a surge of rental investors rushing to beat a tax change bolstered the market earlier in the year, according to Halifax
  • German factory orders advanced 1.9% in March from the prior month as strong global trade helped offset a lull in domestic demand, data from the Economy Ministry in Berlin showed
  • U.S. economic fundamentals are “good” and “wait and see” stance for monetary policy is appropriate, said Chicago Fed Pres. Charles Evans, speaking on panel at International Financial Services Forum in London
  • Three of the world’s most influential bond investors and the head of the Federal Reserve Bank of New York say the U.S. central bank is on course to raise interest rates even after an April jobs gain that was smaller than economists forecast
  • Sovereign 10Y yields mixed, Greece rallies 25bp; European and Asian equity markets higher; U.S. equity- index futures rise. WTI crude oil rallies, precious metals drop

DB’s Jim Reid concludes the overnight wrap

It’s always a relatively quiet week after payrolls but the debate over Friday’s employment report will continue to rumble on with the 160k number below the 200k expected with the unemployment rate unchanged after hopes had been for a dip lower (5.0% vs. 4.9% expected). Those of a bullish persuasion might just conclude that this is reflecting an economy getting close to full employment and running out of workers. The bears might argue that full employment this cycle is less useful for the economy given the large amount of people who have left the work force. One concern we continue to have is that with corporate profits well off their late 2014 peaks, are the slightly softer recent employment numbers reflecting a corporate sector that is more reluctant to hire now with profits waning? As the chart we used in our 2016 outlook showed (repeated in last Thursday’s EMR), the last 11 recessions have started only after corporate profits peaked. The average time it took from peak profits to recession is 2 years. If profits have peaked then this is another of the supportive late cycle indicators we have and it will be interesting to see if employment slowly takes the brunt of reduced profitability over the next 12 months.

So as well as further digesting those employment numbers from Friday, there’s also been some important newsflow over the weekend to contend with. The first comes from the Oil market and specifically out of Saudi Arabia with the news that the Kingdom has appointed a new Oil minister. Khalid Al-Falih replaced Ali al-Naimi on Saturday following 20 years of service as part of a major reshuffle by King Salman. Much of the focus however is on what this means for Saudi production and output with the bulk of the commentary suggesting that we shouldn’t expect to see a huge change in policy. Ahead of the June OPEC meeting, Falih was reported as saying yesterday that Saudi Arabia would ‘remain committed to maintaining our role in international energy markets and strengthening our position as the world’s most reliable supplier of energy’. Indeed Bloomberg, the FT and the WSJ are all suggesting that the new appointment should result in some continuity in oil policy.

The other big story for energy markets are the tragic wildfires spreading through Canada currently. Over the weekend the fires which have raged through Alberta are now said to have spread to the oil-sands facilities north of Fort McMurray. The chatter is that roughly 1m barrels of production from the region could be impacted however the improving weather conditions overnight are helping to the slow the spread for now. A number of producers have declared a force majeure in the region while evacuations are taking place. This morning WTI opened nearly 3% on higher on the news and close to $46/bbl, but has settled slightly now and is currently +2% higher at around $45.50/bbl.

Meanwhile, the other news over the weekend concerns the latest economic data out of China. FX reserves were reported as rising unexpectedly last month by $6.4bn to $3.22tn (vs. $3.20tn expected), the second consecutive month that reserves have increased. The softer US Dollar last month and resulting impact on valuation adjustments looks to have been a big factor in that however. Also out over the weekend were the April China trade numbers. In US Dollar terms exports were reported as declining -1.8% yoy last month (vs. 0.0% expected) from +11.5% in March. That said, a sharper than expected fall in imports (-10.9% yoy vs. -4.0% expected; -7.6% previously) has resulted in the trade surplus increasing. In CNY terms exports were reported as increasing close to that expected by the market (+4.1% yoy vs. +4.3% expected).

lancing at our screens, bourses in China have opened this morning on the back of that data on a weak note. The Shanghai Comp and CSI 300 have tumbled -2.23% and -1.71% respectively, although it’s a bit of a mixed performance elsewhere in Asia. The Kospi (-0.67%) and ASX (-0.37%) are also lower, however the Nikkei (+0.54%) and Hang Seng (+0.61%) are off to reasonable starts. Base metals have weakened post the China data, although it’s a bit more mixed in currency markets.

Moving on. As you’ll see at the end in the week ahead, earnings season is winding down now with the vast majority of the big reports now behind us. With that, it’s a good time to recap how the quarter has gone so far. As it stands we’ve now had 437 of the S&P 500 companies report their latest quarterly numbers. Earnings beats are currently standing at 75%, which is roughly in line with recent quarters, while sales beats stand at 54% – a touch ahead of the recent trend. More importantly however, the bottom-up Q1 EPS of $27.01 is -5.3% yoy according to our US equity strategists, while bottom-up sales are currently -2.0% yoy. Significantly, if you strip out the impact of energy names, earnings are actually flat yoy while sales are +1.7% yoy. If you go further and strip out financials as well, then earnings are actually +3.4% yoy and sales +2.4% yoy. So the combined impact from those two sectors has been very material. Meanwhile, as we’ve noted previously this has been a massive quarter for downward revisions to earnings expectations. In fact, despite the Q1’16 EPS beat running at +2.4% versus a +3.2% average from Q1’11 to Q4’15, that EPS has been revised down by nearly 10% since the turn of the year which is the most since 2011 and compares to an average downward revision in that time of -3.9%.

Back to Friday and a quick recap of the rest of the data. Average hourly earnings for the US in April were reported as increasing +0.3% mom as expected last month. That’s had the effect however of lifting the YoY rate by two-tenths to +2.5%. The labour force participation rate declined two-tenths to 62.8% unexpectedly, while average weekly hours rose one-tenth as expected to 34.5hrs. The broader U-6 measure of unemployment edged down one-tenth to 9.7% and so matching the recent low in February. Markets reacted in a typical knee-jerk fashion with the US Dollar weakening, Treasury yields sharply lower and risk assets weaker. That said markets quickly went into reverse gear as investors digested the data. The USD index closed a smidgen higher (+0.12%) after being down as much as half a percent. 10y Treasury yields closed up over 3bps higher at 1.780% after touching as low as 1.703% in the immediate aftermath, while finally the S&P 500 ended up with a +0.32% gain after also being down as much as half a percent. Credit markets were little changed by the end of play however.

It was hard to determine what swung sentiment back the other way. Some pointed to comments from the Fed’s Dudley, arguably one the closest-followed Fed officials. Dudley said that the employment report was ‘a touch softer, maybe, than what people were expecting, but I wouldn’t put a lot of weight on it in terms of how it would affect my economic outlook’. Dudley went on to confirm and stick to the Fed’s script of still expecting two rate hikes this year. The futures market gave little weight to this however as we saw the June probability dip into single-digit territory at 8% (from 10% at Thursday’s close).

Away from the employment report and later on in the evening, the March consumer credit reading printed at $29.7bn (vs. $16.0bn expected). The revolving credit component which includes credit card spending was reported as increasing at the biggest annualized pace since July 2000. Elsewhere, in Europe the sole data release was out of Spain where industrial production was reported as increasing +1.2% mom in March and more than expected. We’ll get the rest of the IP reports for Europe this week. Price action had been relatively mixed to close the week in Europe on Friday. The Stoxx 600 closed -0.36% however the DAX (+0.18%) managed to jump back into positive territory by the end of play.

Away from the data there is more Fedspeak for us to digest this week. We’ll hear from both Evans and Kashkari today, Rosengren and George on Thursday and Williams on Friday. The ECB’s Constancio is also scheduled to speak this morning. Earnings season is beginning to wind down meanwhile. We’ve got just 20 S&P 500 companies due to release their quarterlies including Macy’s and Walt Disney. In Europe there are 90 Stoxx 600 companies due to report however including more of the Banks.



i)Late  SUNDAY night/ MONDAY morning: Shanghai closed DOWN BADLY BY 81.14 PTS OR 2.79%  /  Hang Sang closed UP 46.94 OR 0.23%. The Nikkei closed UP 109.31 POINTS OR 0.68% . Australia’s all ordinaires  CLOSED UP 0.54% Chinese yuan (ONSHORE) closed DOWN at 6.5072.  Oil FELL  to 44.10 dollars per barrel for WTI and 45.04 for Brent. Stocks in Europe DEEPLY IN THE RED . Offshore yuan trades  6.5294 yuan to the dollar vs 6.5072 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS.



The comatose economy inside Japan is a showcase for the economies of the world as Keynesian economics just do not work:

(courtesy zero hedge)

Japan’s “Coma Economy” Is A Preview For The World

The 1980s were the apex of Japanese culture and economic might. Back then, Japan’s economy was growing so fast, it was thought they would overtake the US. But that all came to a screeching halt. Truth is, Japan’s meteoric rise was fueled by an epic lending bubble. Similar to the Roaring 20s in America.

And when the bubble popped, the government launched massive and misguided measures that set Japan back decades. Their economy hasn’t expanded since. They are stuck in the 1980s. There’s been no growth for 30 years. And as Mike Maloney and Harry Dent explain, the United States could be going down the same path…

“For more than 20 years now, Japan has proved that Keynesian economics does not work… they’ve tried to print their way to prosperity… and failed…they didn’t let the reset happen…”

See more here…




Late Saturday night, China released its exports and imports and they missed badly confirming weak demand both globally and inside China. Remember that POBC injected 1 trillion USA dollars into their economy in March but that seems to have dissipated. They are also reporting huge imports from Hong Kong but that is over invoicing and is a way to get money out of the country.

Chinese Exports, Imports Slump, Miss Expectations As Debt-Fueled Growth Burst Is Over

Overnight China reported April exports and imports, both of which dropped after a strong pick up in March, and missed consensus expectations, confirming weak demand at home and abroad and cooling hopes of a recovery in the world’s second-largest economy.”

Exports fell 1.8% from a year earlier, following a strong 11.5% rebound in March (mostly due to last year’s base effect), the General Administration of Customs said on Sunday, supporting the government’s concerns that the foreign trade environment will be challenging in 2016. April imports tumbled 10.9% from a year earlier after a 7.6% drop last month and falling for the 18th consecutive month, driven by weaker processing trade, confirmg domestic demand remains weak despite a pickup in infrastructure spending and record credit growth in the first quarter.

The net effect meant China posted a trade surplus of $45.56 billion in April, versus forecasts of $40 billion, although with much of that “trade” the result of another record month of capital flight via Hong Kong “import remits”, nobody really has any idea what China’s true trade number is. In fact, looking at the chart below, Nomura concludes that capital outflows may have accelerated in April despite the USD6.4BN increase in FX reserves (largely due to valuation effect). Import growth from Hong Kong continued to surge, to 203.5% y-o-y in April from 116.5% in March, versus a drop in import growth from other markets, to -11.9% from -8.2% (see chart below). This implies continued capital outflows disguised as imports.

Perhaps it’s time for the PBOC to swallow its pride and admit that without a Yuan devaluation, as much as it hates to admit Soros, Bass (and this website since last summer) et al are right, it simply can’t stimulate its export-driven economy.

Both exports and imports came in weaker than expected, in line with the soft trade performance across Asia, pointing to another challenging year for emerging markets,” said Zhou Hao, senior emerging market economist at Commerzbank in Singapore. China’s exports to the United States, the country’s top export market, fell 9.3% in April from a year earlier, while shipments to the European Union, the second biggest market, rose 3.2 percent, customs data showed.

A full breakdown of the details from Nomura:

Exports growth returned to negative territory as favourable base effects fade

Export growth in USD terms declined to -1.8% y-o-y in April after surging to 11.5% in March, below the market consensus of a flat change. On the one hand, we should not over-interpret this decline since the rebound in March was mainly due to a low base last year. On the other hand, this figure does reflect that external demand remains weak. Moreover, the number may have been helped by continued weakness in USD in April – both EUR and JPY appreciated further against USD, which should have increased the USD value of export contracts denominated in those currencies.

Export growth to all major destinations fell in April; those to the US to -9.3% y-o-y from 9.0% in March, to the EU to 3.2% from 17.9%, and to Japan to -11.8% from 9.3%.

Import growth disappointed on weaker processing trade, while the improvement in domestic demand may be losing steam

Import growth in USD terms surprised on the downside in April, falling further to -10.9% y-o-y from -7.6% in March, against market consensus and our forecast of an improvement to -4%. As such, the trade surplus widened to USD45.6bn from USD29.9bn in March.

Imports component data suggest that the improvement in domestic demand is likely losing steam. Growth of ordinary imports, which cater to domestic demand, fell to -8.6% y-o-y in April from -7.1% in March. Excluding key commodities (i.e., crude oil, iron ore and copper), it fell to -4.4% from -2.3% (Figure 2). The growth of imports value of key commodities improved slightly to -21.7% y-o-y from -23.0%, but largely on the recovery of commodity prices, while in volume terms, import growth of iron ore, crude oil and copper all declined in April from March.

Weakening processing trade was also a big contributor to the decline in imports growth. Growth of imports for processing and assembly fell to -20.1% y-o-y in April from -15.3% in March. We notice a declining trend for the share of processing trade in total – down to near 30% recently from almost 50% in 2006 – and processing trade growth (Figure 3). This could be due to the weaker global economy as well as rising costs (e.g. labour) in China and, in turn, a lower competitiveness in producing /assembling goods in China, which does not bode well for future growth.

China’s economic growth slowed to 6.7% in the first quarter – the weakest since the global financial crisis, but activity picked up in March as policy steps to boost the economy, including six interest rate cuts since late 2014, seemed to be taking effect.

After China’s economy grew at just 6.7% in Q1, the Chinese government injected a record $1 trillion in total loans in the economy, halting the rapid economic slowdown from the end of 2015, and easing concerns of a hard-landing in China after the strong March data, but analysts have warned the rebound may be short-lived.

“The market has to prepare a little bit for the downside risk in other Chinese data and some sort of market correction might be inevitable,” Zhou said. The official factory survey and Caixin’s private-sector gauge for April painted a mixed picture of the health of the manufacturing sector. The official purchasing managers’ index (PMI) showed factory activity expanded for the second month in a row in April but only marginally, while Caixin’s manufacturing PMI pointed to 14 straight months of sector contraction.

China’s central bank said on Friday that it will fine tune policy in a pre-emptive and timely way, as the economy still faces downward pressure despite signs of steadying. Amid shrinking global demand, China still managed to grow its share of world exports to 13.8 percent last year from 12.3 percent in 2014, indicating the country’s export sector remains competitive despite higher costs.

The bottom line, as Nomura puts it, “overall, these trade data reinforce our view that the debt-fuelled improvement in domestic demand and growth may be short-lived. We maintain our view that investment.”

In other words, it cost China $1 trillion in three months in debt “stimulus” just to slow down what is once again a downward sloping growth trajectory. We wonder what Beijing will do for an encore?

 Turmoil returns to Mainland Chinese stocks as Shanghai is down close to 6% over two trading days. Iron ore futures plummet setting the tone:
(courtesy zero hedge)

China’s Crashing – Stocks, Commodities Plunge After “Top Authority” Implies “Abandoning Loose Policy”

“After comprehensive judgment, our economic recovery cannot be U-shaped, cannot be V-shaped, but will be L-shaped,” warns an ‘authoritative’ person according to a shocking report published by Government mouthpiece People’s Daily. The report, explaining why investors should not expect growth to pick up soon or expect more stimulus to come soon further sets expectations for China to “face the issue of rising non-performing loans” and not continue to create zombie companies. The result –  a bloodbath in stocks and commodities…

Chinese stocks are down 4.5 to 7% in the last 2 days… as turmoil returns…

The report (found here), as Bloomberg summarizes, suggests China shouldn’t loosen monetary conditions to enable growth…

  • China should abandon idea of loosening money conditions to accelerate economic growth, People’s Daily reports, citing interview with an “authoritative” person who wasn’t identified.
  • Monetary conditions shouldn’t be loosened to cut levels of leverage
  • China won’t use stock, forex and property-market policies as tools to ensure economic growth
  • Economic growth won’t be too low without stimulus as potential is sufficient
  • China should face the issue of rising non-performing loans of banks and not cover it up or delay handling it
  • Economy’s performance will be L-shaped for quite some time, instead of just 1-2 yrs
  • Economy’s performance won’t be U- or V-shaped
  • China will limit bankruptcies for “zombie” cos; at the same time it will definitely close cos. that can’t be saved, instead of converting debt to equity or forced restructuring

And the impact on stocks and commoditiers (as the latter’s bubble implodes) is clear – Short-term…

And Long-term…

As the churn collapses, volume disappears and Iron ore, Steel rebar, and copper all collapse back to un-credit-speculated reality – smashing The Baltic Dry lower also.


We have highlighted this to you on several occasions in the past year. China has a huge debt problem.  Total loans in USA dollars equates to 31 trillion dollars and no doubt that about 20% is bad or non performing. Total Chinese GDP is around 10 trillion so a debt at 35 trillion shows that this economy is in serious trouble.

Natixis did a good thorough analysis of the problem:
They have found that 18% of all companies cannot pay interest on its debt.
In real estate, as a SUBSET, it is 35%
They are about to see their MINSKY MOMENT.

China’s Bad Debt Problem Is Much Deeper Than Just Real Estate

Among the bigger financial problems covered in depth on Zero Hedge over the past several years, have been China’s massive amount of newly created credit adding to an already unsustainable debt load (estimated as high as 350% to GDP), its rapidly growing bad debt pile (what we call China’s “neutron bomb” which as we first estimated last October is about 20% of total bank debt), and its sub-prime real estate bubble. Lately many others – especially Kyle Bass – have also started looking the same problems and asking a simple question: what is the real repayment ability of Chinese corporates now that this credit monster has been unleashed, and is the NPL problem isolated to just real estate.

For those answers, we look at a recent Natixis report.

The note starts by pointing out that the incredible credit binge that took place in Q1 2016, actually exceeded the previous peak that was seen during the 2008-2009 financial crisis. This is a topic we will touch on later today when we look at the sustainability of this record credit impulse.

To show where China’s corporate leverage resides Natixis breaks sectors into two groups, old and new. The purpose is to reflect how Chinese policy makers have been working to rebalance the economy toward consumption and services.

As the following chart shows, while leverage (total liabilities/common equity) has climbed steadily since the financial crisis across the board, the concentration of debt is on the balance sheets of the Old industries. Old industries are carrying much more leverage than the overall average, significantly higher than China’s “New industries.”

Knowing where the leverage resides, we can evaluate which industries can actually repay such massive amounts of debt, or even just cover the interest expense.

To achieve this, we look at EBITDA which shows a very distinct picture. While the economic slowdown has impacted both sectors, “Old” is growing at a more subdued rate, roughly a third of the “New” industries growth rate, which makes the ability to service and repay the additional debt-load much more difficult.

The slower EBITDA growth has lead to the critical deteriorating interest coverage ratios, or repayment ability, something we first covered last fall when explicitly looking at China’s levered commodity sector, where we found that over half of corporations can not fund even one interest payment with organic cash flow.

Gone are the days where massive stimulus provided enough corporate growth to give a nice cushion, and with China’s hands currently tied on providing more stimulus (discussed here), the downward pressure EBITDA will continue and Chinese corporates ability to repay will only get worse.

As expected, an increasing number of Chinese companies cannot cover their interest payments with their cash flow. In 2010 about 8% of overall companies couldn’t cover interest payments with ETBIDA; that number has since exploded to nearly 18%. This means that the debt burden is so large, that companies will only be able to survive by adding more debt.

In other words, roughly a fifth of China’s entire corproate sector is now in the Ponzi stage of the infamous Minsky cycle.

Natixis goes on to help us understand the severity of the sub-prime real estate crisis as well. New loans are skyrocketing, and the percentage of real estate companies unable to service interest payments with their revenue is over 30%.

The real estate sector: from engine to beast
One of the key beneficiaries of the 2008-09 massive credit binge was the real estate sector. In fact, the assets of property developers to total corporate assets jumped from 8% in 2004 to 21% 2015.1 The interesting fact is that this trend is not yet changing, on the contrary. The most recent data on loan growth to real estate developers shows a record high at 1.5 RMB trn, which is almost twice the level of 2009 (Chart 7). In other words, there is no sign of a deleveraging cycle in china’s real estate sector.

While not telling much we didn’t already know, what we can learn from this report is just how deeply over leveraged Chinese corporates are across the board, and how much the economic slowdown as impacted the ability of these firms to service debt. Worse, as cash flows continue to deteriorate, only even more (cheap) debt will delay either a default tide, although it will ultimately make the problem even worse.

While the real estate bubble has been highlighted often, the interesting revelation is just how much other industries have levered up in the face of declining cash flow growth. The NPL problem China faces is much more widespread than perhaps many first believed.




Christine Lagarde of the iMF has sent a letter to the 19 officials of the EU telling them Greece can never achieve a primary surplus of 3.5% (budget surplus-interest expenses). They propose a 1.5% primary surplus with debt reduction. If they do not offer both of these to Greece then the IMF will not participate.

Germany on the underhand has stated that for their vote two aspects are needed:

  1. to fulfill previous agreement of 3.0% primary surplus
  2. no debt reduction

seems we have a huge problem here as Germany has a huge 3.5 billion euro payment in July that it cannot meet.


Showdown! In Leaked Letter IMF Tells Germany “Debt Relief For Greece Or IMF Drops Out”

Submitted by Mish Shedlock of MishTalk

Showdown! In Leaked Letter IMF Tells Germany “Debt Relief For Greece Or IMF Drops Out”

It’s showdown time.

The IMF has threatened it will pull out of the Greek bailout program unless Greece gets debt relief.

German Chancellor Angela Merkel, Austria, Finland, and the other Eurozone creditors will not like today’s development one bit.


Please consider IMF Tells Eurozone to Start Greek Debt Talks.

The International Monetary Fund has told eurozone finance ministers they must immediately begin negotiations to grant debt relief for Greece despite German opposition, upending carefully orchestrated negotiations ahead of an emergency meeting on Monday.

In a letter to all 19 ministers sent on Thursday night and obtained by the Financial Times, Christine Lagarde, the IMF chief, said stalemated talks with Athens to find €3bn in “contingency” budget cuts, which have gone on for a month, had become fruitless and that debt relief must be put on the table immediately, or risk losing IMF participation in the programme.

Athens is facing €3.5bn in debt payments in July that it needs bailout aid to pay, and EU officials have told Greek government officials they do not want messy negotiations to continue during the Brexit campaign — meaning if no agreement is reached this month, leaders will not begin discussions again until just weeks before a possible default.

Similar last-minute talks a year ago rattled the Greek economy and raised questions about whether Greece could be ejected from the eurozone.

Relations between the IMF and Athens, already strained after last year’s brinkmanship, have reached a new low in recent weeks following WikiLeaks’ publication of a transcript of a private teleconference between Mr Thomsen and other IMF officials — a transcript Greek officials claimed showed the IMF was negotiating in bad faith.

Ms Lagarde stuck by the IMF’s assessment that such reforms would only produce a primary surplus of 1.5 per cent in 2018 — not the 3.5 per cent the EU has mandated.

“We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.”

Leaked Letter

Dear minister:

Program discussions between Greece and the institutions have made progress in recent weeks, but significant gaps remain to be bridged before an agreement can be reached that would include the IMF under one of our program facilities. I think it is time for me to clarify our position, and to explain the reasons why we believe that specific measures, debt restructuring, and financing must now be discussed simultaneously.

In particular, a clarification is needed to clear unfounded allegations that the IMF is being inflexible, calling for unnecessary new fiscal measures and – as a result – causing a delay in the negotiations and the disbursement of urgently needed funds.

First, together with the other institutions we have negotiated in good faith with our Greek partners on a package of fiscal measures yielding 2.5 per cent of GDP – close to being agreed – that will in our view be sufficient to reach a primary surplus of 1.5 per cent of GDP by 2018. Our assessment is based on realistic assumptions informed by Greece’s track record, the international environment, and the latest data released by Eurostat.

Second, this target falls short of what Greece promised its European partners in July last year – namely that it would achieve a primary surplus of 3.5 per cent of GDP in 2018. If the Eurogroup decided to hold Greece to this target, we could support an additional effort to temporarily reach this level, although it is higher than what we consider economically and socially sustainable in the long-run (see below).

However, let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive. Greece’s fiscal adjustment has in the past fallen short of what was needed because of the lack of structural reforms underlying the adjustment effort. We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting on one-off measures as has been proposed in recent weeks. The additional adjustment effort of 2 per cent of GDP would only be credible based on long overdue public sector reforms, notably of the pension and tax system.

Unfortunately, the contingency mechanism that Greece is proposing does not include such reforms. Instead, the authorities have offered to make short-term across-the-board cuts in discretionary spending – which has already been compressed to the point where the provision of public service is severely compromised – or transitory cuts in pension and wages not supported by fundamental parametric reforms. Based on past performance, such ad-hoc measures are not very credible, but they are also undesirable as they add to uncertainty and fail to resolve the underlying imbalances. I should also add that Greece has legislated a dozen contingency-type mechanisms in the past that have largely not worked.

Third, going forward, we do not expect Greece to be able to sustain a primary surplus of 3.5 per cent of GDP for decades to come. Only a few European countries have managed to do so, carried by a strong social consensus that is not in evidence in Athens. It would be unrealistic to expect future governments to resist pressure to relax fiscal policy over political cycles stretching far into the future. The recent experience – when first a center-right and then a center-left government quickly succumbed to easing pressures once a small primary surplus was achieved – should inform us against making such exceptional assumptions in the case of Greece. In our view, maintaining a primary surplus of 1.5 per cent of GDP over the foreseeable future may be achievable in the context of a successful program and strong European budget surveillance for many years to come thereafter.

…understand the urgency of the situation in the case of Greece and Europe as a whole, and our common objective is to quickly agree on a way forward. This requires compromises from all sides, and we have contributed our part by focusing conditionality on what we see as the absolute minimum, leaving important structural reforms to a later stage. However, for us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them. We insist on such assurances in all our programs, and we cannot deviate from this basic principle in the case of Greece. The IMF must apply the same standard to Greece as to other members of our institution.


Christine Lagarde

Loaded Gun

I am uncertain if the emphasis in bold is by Lagarde or the Financial Times, but I suspect the latter.

This “purposely leaked” letter puts enormous pressure on German chancellor Angela Merkel who is already under severe strain due to her complete bungling of the refugee crisis.

Pick Your Poison

  1. The German parliament only agreed to do this deal if the IMF was in it.
  2. The Germany parliament only agreed to do this on the specific terms previously offered.

The terms included no more debt relief, Greece primary surplus (budget surplus not counting interest on debt) of 3% of GDP by 2018.

I said that would never happen and it won’t.

Lagarde’s letter stated “Third, going forward, we do not expect Greece to be able to sustain a primary surplus of 3.5 per cent of GDP for decades to come.

By the way, Lagarde knew all along Greece could not meet a primary surplus of 3.5% of GDP for decades to come. So, why did it sign the deal in the first place?

Lagarde now proposes a primary surplus of 1.5%.

Well guess what? That is nearly as unlikely as a surplus of 3.5%.

And at a rate of 1.5%, it will take decades longer for Greece to pay back the hundreds of billions of euros it owes in these programs.

So… that means outright debt reductions.



Then late Sunday afternoon, Greece was again shut down by protests and strikes.  The protest is over pensions again

(courtesy Mish Shedlock)

Greece Again Shut Down By Protests And Strikes Over Pensions

Submitted by Mish Shedlock of MishTalk

Greece Shut Down By Protests And Strikes Over Pensions; Emergency Eurogroup Meeting Monday

In protest of still more pension cuts, Greek unions started a 3-day strike on Friday that has shut down much of the country.

The Greek parliament holds a pension reform vote on Monday. The vote is expected to pass but perhaps barely. Syriza has a slim three seat majority in the 300-seat Greek parliament.

Also on Monday, the Eurogroup called an “extraordinary” meeting in Athens to discuss the state of play of the macroeconomic adjustment program for Greece.

“Extraordinary” is a euphemism for “emergency”. More demands on Greece are coming up. Greece is way off projected (and mandated) budget surplus targets.

Greek Protesters

Greek protests

Protesters have gathered outside parliament in Greece ahead of a vote on further austerity measures in return for more international bailout money. The rally coincides with a three-day general strike against the introduction of tax and pension changes.

The BBC reports Greece Protests Ahead of Vote on Pension and Tax Change.

Once again protesters have gathered in Syntagma Square, just outside Greece’s parliament, as lawmakers debate tax and pensions reforms inside the building. Thousands marched in Athens on Saturday – but Sunday’s rally is expected to be even bigger.

The changes expected to be approved by MPs include tax hikes and pension cuts. Greece has been unable to unlock the next loan installment of €5bn (£4bn) after clashing with its creditors over the need for more reforms.

The nationwide strikes are the fourth series to be called since Prime Minister Alexis Tsipras’s government won re-election after organising a referendum on the country’s bailout.

Greece is already looking to implement spending cuts that will amount to 3% of the country’s gross domestic product or €5.4bn euros by 2018.

Third Bailout

Third Greek Bailout

Emergency Meeting

An Extraordinary Eurogroup Meeting has been called for May 9, conveniently timed to coincide with a Greek vote on pension reform.

Discussions will cover a comprehensive package of policy reforms as well as the sustainability of Greece’s public debt. Both elements need to be in place in order to finalise the programme’s first review and unlock further financial assistance to Greece.

Agreed Primary Surplus Path

  • -0.25% in 2015
  • +0.50% in 2016
  • +1.75% in 2017
  • +3.50% in 2018

Fairy Tale Math

Achievability of that path is such an amazing fairy that even the IMF recognizes the problem.

On May 6, I noted Showdown! In Leaked Letter IMF Tells Germany “Debt Relief for Greece or IMF Drops Out”.

Christine Lagarde’s letter was conveniently leaked to coincide with the convenient timing of the emergency meeting which in turn was conveniently timed for the same day of the pension vote.

Church Lady2

In the letter, Lagarde stated “Third, going forward, we do not expect Greece to be able to sustain a primary surplus of 3.5 per cent of GDP for decades to come.

Instead of conducting an emergency meeting, I suggest a meeting with the church lady.

Lagarde now proposes a primary surplus of 1.5%.

That is nearly as unlikely as a surplus of 3.5%. And at a rate of 1.5%, it will take decades longer for Greece to pay back the hundreds of billions of euros it owes in these programs.

Outright debt reductions or default is coming up. But don’t expect the eurogroup to come to that conclusion. Instead it will demand still more budget cuts as soon as the next set passes.

It’s the Debt, Stupid!

The budget cuts and reform are surely needed. The problem is over €300 billion in debt that Greece cannot possibly pay back.

Of the first two bailouts of €215.9 billion in Greek aid, only €9.7 billion went to Greece. The rest went to banks and other creditors.

For details, please see It’s the Debt, Stupid!

The third “bailout” adds another €86 billion plus bridge loans to the mix.

Default still looms and the totals keep ratcheting up.


Then much to the anger of protesters, the Greek Parliament passes further austerity hoping to unlock 4 billion euros of a bailout loan:

(courtesy zero hedge)

Greek Parliament Passes Further Austerity Measures To Unlock €4BN Bailout Loan

Update: Moments ago, in the latest European paradox, the two Greek political parties Syriza and Anel both of which were elected on an anti-austerity platform, voted through Greek parliament further austerity measures in the form of tax and pension reforms. The vote, which passed with 153 votes in support, is expected to unlock more international bailout money for the country, which has been unable to access a loan instalment of €5bn (£4bn).

Translation: after some pointless debate, Greece promised to do even more of what has not worked at all in the past 5 years just to access some more European “bailout” money, the bulk of which will promptly be used to repay (after some more posturing by the Eurogroup in the coming weeks) maturing debt, held by the ECB.

Before the vote, protesters in Athens threw petrol bombs at police, who responded with tear gas. On Monday, EU finance ministers will hold an extraordinary meeting aimed at averting a new crisis in the eurozone.

As BBC reported, the debate in Greece’s parliament lasted two days as MPs debated whether or not to install the unpopular pension and tax reforms. Thousands of people demonstrated, mostly peacefully, in Athens and in the country’s second-largest city, Thessaloniki. Labour unions called strikes in protest at the proposed measures, which include an overhaul of the pensions system and rises in social security contributions.
Prime Minister Alexis Tsipras of the leftist Syriza party secured enough votes to pass the measures.

The International Monetary Fund and other European partners are demanding that Greece implement further austerity measures to generate nearly €4bn in additional savings – contingency money in case Greece misses future budget targets. Meanwhile, the IMF has been vocal about demanding a Greek debt haircuts if it is to participate in the third Greek bailout, leaving few options before Angela Merkel.

After today’s vote, Eurogroup ministers will assess “a comprehensive package of policy reforms as well as the sustainability of Greece’s public debt” at their Monday meeting in Brussels, a statement says.

* * *



The EU want Erdogan to reform his “anti terrorist law”.  This law gives him the right to arrest journalists or whomever he wishes. Erdogan just stated he would not go along with the wishes of the EU.

Now we have a two fold problem:

i) 80 million Turks will have via free travel inside Europe

ii) How will they all deal with the migrant situation

dire indeed…

(courtesy Mish Shedlock)

Erdogan “Prince Of Europe” Rejects EU Demands To Reform Terrorist Law

Submitted by Mike Shedlock via,

Pretending Period is Over

The refugee crisis in Europe got more interesting this week.

Within hours of Brussels giving the green light on Merkel’s ill-advised deal with Turkey, Turkish president Recep Tayyip Erdogan sacked sacked Ahmet Davutoglu, the prime minister who negotiated the deal with German chancellor Angela Merkel.

For details see EU Approves Deal With Turkey (Then All Hell Breaks Loose).

On Friday, Erdogan announced he would not fully implement the deal Davutoglu negotiated with Merkel.

The EU can no longer pretend that Erdogan has any intention of reforming Turkey.

Does the EU have a choice? The Financial Times says no. I say yes.


Erdogan Rejects EU Demands

Please consider Recep Tayyip Erdogan Rejects EU Demands to Reform Terror Law.

Recep Tayyip Erdogan, Turkey’s president, has rejected Brussels’ demands for an overhaul of an anti-terror law, suggesting he is prepared to abandon a deal EU leaders credit with curbing the flow of migrants.

Brussels has requested that Ankara make the change before the EU delivers visa-free travel for 80m Turks, one of the biggest concessions of the migration deal.

But Mr Erdogan insisted on Friday the legislation was necessary at a time when his country is being targeted by Islamist and Kurdish militants and said he was not prepared to change it.

Merkel Bows to Erdogan “Prince of Europe”

The anti-terror law in question gives Erdogan the ability to label anyone a terrorist for the flimsiest of reasons.

Erdogan has arrested journalists and academics, essentially anyone who publicly disagrees with him.

But Merkel does not care. She is even willing to kiss Erdogan’s feet in his newly commissioned golden throne.

price of Europe

The Spectator explains How Recep Erdogan Became the Most Powerful Man in Europe.

Erdogan is a patient Islamist. He used his power to tighten his grip and consolidate power behind one party — and one man. He even commissioned a new golden throne to sit on. The putative caliph set about taking Turkey in an all too predictable direction — consolidating power around himself by taking it away from the military and judiciary and stifling domestic dissent whenever he could.

The extent to which Erdogan has been able to take Turkey backwards is a modern tragedy. When corruption allegations emerged around his immediate circle just over two years ago, he swiftly banned YouTube and Twitter, stuffed the ensuing investigatory-commission with members of his own party and dismissed the investigations as a ‘coup attempt’ by people serving ‘foreign powers’.

Didn’t Erdogan worry that his authoritarianism would disqualify him outright [from EU membership]?

He gambled that the EU, for all of its pious words, could be bought off later. In a single night in January 2014, he removed and replaced some 350 police officers. His party gave itself new powers permitting domestic espionage on banks and companies on matters relating to ‘foreign intelligence’.

By the end of 2013, Erdogan said he’d take no more lectures from Brussels and that he ‘sincerely expected the EU, which sharply criticises its member countries, should criticise itself and write its own progress report’. In March he seized control of Zaman, until then Turkey’s highest–circulation newspaper. And he has taken action against thousands of citizens for the offence of insulting the president. Last month, a Turkish man was arrested for insulting Erdogan by asking police for directions to the zoo.

When a late-night comedy show in Germany pointed to the absurdity of a German law forbidding insults against foreign leaders by attacking Erdogan, Turkey demanded that Berlin act. Erdogan was calling Angela Merkel to heel. And successfully: she approved prosecution of the offending comedian.

Turkey is home to 2.7 million Syrian refugees — a fact which Erdogan is treating like being in possession of a loaded gun.

And so the EU has accepted Turkey’s abominable treatment of Kurds. It has ignored the ongoing illegal occupation of north Cyprus. And it has ignored every single one of its own putative ‘criteria’. In trying to avoid millions more migrants, the EU has opened the doors to 75 million Turks.

In private, Erdogan must be amazed at just how much he can wrangle. The worse his behaviour, the greater his clout in Europe. He can send German police to arrest German comedians whose jokes he dislikes. He can instruct the EU to delay its ‘progress reports’ on Turkey to a time that better suits his electoral purposes. A few weeks ago, a leaked transcript of a conversation showed Jean-Claude Juncker, president of the European Commission, pleading Erdogan to consider that ‘we have treated you like a prince in Brussels’.

Is There a Choice?

The Financial Times view is Europe has Limited Options Over the Turkey Visa Deal.

Two months ago, the EU agreed to pay Ankara €6bn to help meet the cost of sheltering tens of thousands of additional migrants on its soil. Now, Brussels is offering Turkey a substantial political prize in the form of visa-free travel to Europe for its 80m citizens. Given the growing authoritarianism of Turkish president Recep Tayyip Erdogan, this proposal, which the European Commission unveiled on Wednesday, is controversial. But Europe’s pressing need to settle the migrant crisis means it has little choice but to sign this unpalatable deal.

Europe should hold its nose and sign up to the pact it has struck with Ankara. Whatever its faults, Turkey is at least meeting its side of the bargain, managing the numbers coming across the Aegean. After committing so many mistakes in this crisis, the EU has little alternative but to press on as best it can with its difficult eastern neighbour.

Crazy Proposal

One does not grant visa access to 75-80 million Turkish citizens hoping to stop the flow of a million refugees.

The Financial Times says “the visas will be granted to Turks for three months and there is no reason to believe that large numbers will overstay their welcome.”

What? How the hell could the Financial Times possibly know?

Turn Back the Boats

The EU should thank its lucky stars that Erdogan will not uphold his end of the deal and gratefully cancel it.

Coupled with the cancellation (for which the EU can blame Erdogan), the EU should announce an Australia-type plan forcing back all boats, while arresting and prosecuting smugglers.

Call out the military to enforce the borders. That’s what Australia did.

Please consider Tony Abbott is Right about Immigration – and Turning Back Boats.

For many years, Australia has been turning away boats filled with migrants. From a remove, this looks cold–hearted — a nation built by immigrants showing no compassion for others who want a better life. But it is precisely because Australia is an immigrant nation that it understands the situation: if you let the boats land, more people come. People traffickers will be encouraged, migrants will be swindled, and their bodies will wash up on your shores. Any country serious about immigration needs a more effective and robust approach.

Sensible Approach

Turning back the boats may be harder for the EU than it is for Australia, but it can be done.

Making a deal with the devil then letting the devil renege on a critical piece of his end is not a viable option.

Accepting Erdogan’s new demands would do four things, all unsavory.

  1. Open up Europe to 80 million Turkish citizens, all with an axe to grind.
  2. Make Erdogan the prince of Europe.
  3. Accept Erdogan’s role as dictator of Turkey.
  4. Subject the EU to further demands as Turkey could unleash the refugees at any point in the future.

Please pay particular attention to point number 4.

On March 7 I noted Devil Demands and Receives More Concessions from Merkel: In Bed with a Dictator.

Here we are again. The devil wants still more concessions. This time, the devil demands the EU accept Erdogan as the price of Europe and dictator of Turkey.

This is a deal the EU would be crazy to accept.

On Friday, we brought you a story that UK Regulators were investigating Deutsche bank on a sale of bonds to Italian investors.  It seems that Deutsche bank was dumping their bonds while promoting the worthiness of these Italian bonds.
Now we find out that the TTIP will protect megabanks from prosecution by investors.
This is why the TTIP must be defeated…
(courtesy Eric Zuesse)

Obama: TTIP Necessary So As To Protect Megabanks From Prosecution

Authored by Eric Zuesse,

On May 7th, Deutsche Wirtschafts Nachrichten, or German Economic News, headlined, “USA planen mit TTIP Frontal-Angriff auf Gerichte in Europa” or “U.S. Plans Frontal Attack on Europe’s Courts via TTIP,” and reported that, “America’s urgency to sign TTIP with Europe has solid reason: Megabanks must protect themselves from claims by European investors who allege that they were cheated during the debt crisis. … The U.S. Ambassador to Italy has now let the cat out of the bag on this — probably unintentionally.”

In this particular case, the megabank that’s being sued isn’t American but German, Deutsche Bank, which the U.S. Ambassador to Italy has cited as his example to defend, perhaps so as to appeal to Germans to protect their megabanks against lawsuits from foreign investors (such as Italians) who complain. In that case it was investors in the Italian city of Trani, population 53,000. The smallness of the city was an issue the Ambassador raised against the suit’s having been brought there.

Reuters headlined on May 6th, “Italian prosecutor investigates Deutsche Bank over 2011 bond sale”, and reported that, “An Italian prosecutor is investigating Deutsche Bank (DBKGn.DE) over its sale of 7 billion euros ($8 billion) of Italian government bonds five years ago, an investigative source told Reuters. A prosecutor in Trani, a town in southern Italy, is investigating because Deutsche Bank allegedly told clients in a research note in early 2011 that Italy’s public debt was no cause for concern, and then sold almost 90 percent of its own holding of the country’s bonds.” The U.S. bond-rating agencies are also subjects in this suit, because Trani had relied upon their ratings of those bonds.

The Obama Administration (through its Italian Ambassador) seems thus to be saying, in effect, that unless TTIP is passed into law, Europe’s megabanks (and the U.S. bond-rating agencies, S&P, Moody’s and Fitch) will be able successfully to be sued by cheated investors, just as has been happening with such American banks as JPMorgan/Chase and Goldman Sachs in the United States, which — since TTIP hasn’t yet been in force anywhere, including in the U.S. — were forced to pay billions to cheated investors. Apparently, Obama would be happier if those suits had been impossible in the U.S. The argument here, though only implicitly, seems to be that TTIP is the way to protect megabanks and the bond-rating firms. It concerns specifically the selling of sophisticated derivative investments.

If this is the argument behind the remarks by Obama’s Italian Ambassador, John Phillips, he’s obliquely warning Europeans that unless TTIP gets signed, their megabanks might similarly be forced to pay billions to investors who were cheated.As quoted by Reuters, he said that, in the U.S., it’s “highly unlikely that such a case would be brought outside the major financial centers, where prosecutors have both jurisdiction and expertise in securities fraud prosecutions,” and that megabanks need the protection that’s provided by such prosecutors, since they possess “expertise in securities fraud prosecutions.” Phillips was clearly implying that small-city prosecutors (such as are allowed to prosecute such cases in Europe) aren’t such “experts,” as are needed in order to protect the megabanks. Reuters characterizes Phillips’s argument as asserting, “Italy’s justice system was deterring investors.” However, no clarification of the meaning of that statement was provided by Reuters.

DWN alleges that under the TTIP such a court-issue would probably not even have been raised but would simply have ended before an arbitration panel, in which the aggrieved investors exert no influence and where it would be almost impossible for these investors’ rights to be protected.

Another example is cited, where the German city of Pforzheim successfully sued, at the Federal Court of Justice, the U.S. megabank JPMorgan/Chase, and where that court allowed Pforzheim to seek “accumulated damages of 57 million euros.”

Under TTIP, a megabank fined this way might in turn sue the nation’s taxpayers to restore the megabank’s ensuing loss of profits. If the cheated investors win, taxpayers might thus end up bearing the cheated investors’ losses. Under TTIP, the fined company would be arguing that the law under which it had been fined is in violation of TTIP and thus constitutes a violation of that treaty, so that the violating government is obliged to be paying the fine — the law against fraud would itself be violating the fined company’s rights. If the three-arbitrator TTIP panel rules in the megabank’s favor, the government would need to pay the fine it had assessed against the bank, and no appeals court exists for any of these arbitration-panels’ rulings — these rulings are final. Obama and other proponents of that system, which is called ISDS for Investor State Dispute Settlement, say that it’s a more efficient way of handling such disputes. In international commercial affairs, it not only eliminates appeals courts, it gradually eliminates democracy, by fining the government into ultimate submission to these three-person panels of international-corporate-accountable arbitrators.

On the same basic idea, Benito Mussolini was praised for “making the trains run on time.”

*  *  *

Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of  CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

Austria’s Chancellor Faymann resigns after losing support of his party, the Social Democratic Party.  The surge in popularity of the anti immigrant Freedom Party is having an powerful effect on Austrian politics:
(courtesy zero hedge)

The Latest Casualty From Europe’s Anti-Immigrant Surge: Austrian Chancellor Faymann Resigns

Two weeks after Austria’s dramatic result in its first round presidential elections which saw the right wing, anti-immigrant Freedom Party sweeping its competition, gathering over 35% of the vote and leaving the other five candidates far behind, moments ago Austria unveiled the latest casualty from Europe’s anti-refugee, right wing revulsion when the country’s Chancellor Werner Faymann resigned after losing the support of his colleagues in the Social Democratic party.

“I am thankful for seven and a half years and wish my successor much luck,” he said at a hastily arranged press conference, the news site reported. “I am standing down because I no longer have support in the party.”

As the Guardian notes, Austria has been braced for political turmoil ever since rightwing populist Norbert Hofer won a landslide victory in the first round of the country’s presidential elections last month.

Hofer, of the rightwing Freedom party, defied pollsters’ predictions to beat the Green party’s Alexander Van der Bellen into second place, gaining 36% of the vote. The two candidates will go head to head in a run-off ballot on 22 May.

Faymann faced calls to resign after the vote, saying at the time that the result was a “clear signal to the government that we have to cooperate more strongly”.

Many commentators say the crisis of the political establishment in Austria has much to do with the fact that the two centrist parties have governed the country in a “grand coalition” for the past 10 years.

Poland now refuses to accept any refugees as they pose a threat to security and they will not comply with the European “blackmail”
(courtesy zero hedge)

Poland Refuses To Accept Any Refugees “As They Pose A Threat To Security”, Will Not Comply With European “Blackmail”

Seemingly unfazed by the recent European Commission proposal to punish countries which refuse to comply with “fair” refugee allocation quotas with fines as high as €250,000 per asylum seeker, the head of Poland’s ruling Law and Justice party and former PM Jaroslaw Kaczynski said that no refugees will be accepted in Poland “as they pose a threat to security” adding that Poland will oppose any law forcing EU members to pay €250,000 per refused refugee.

“After recent events connected with acts of terror [Poland] will not accept refugees because there is no mechanism that would ensure security,” Law and Justice (PiS) chair Kaczynski said on Saturday, as quoted by Radio Poland. Needless to say, Poland is also vocally opposed to the abovementioned proposal, announced last week, which would force EU member states to pay €250,000 per refused refugee. The common complaint voiced not only by Poland, but all Eastern European nations who would suffer the most from Europe’s aggressive refugee reallocation proposal is that the goal of the EC is to redistribute the weight of the refugee crisis from countries such as Greece by introducing automatic asylum quotas for each EU member state.

Protesters hold flags as they gathers during anti-immigrant rally in Warsaw

Such a decision would abolish the sovereignty of EU member states – of course, the weaker ones. We don’t agree to that, we have to oppose that, because we are and we will be in charge in our own country,” Kaczynski said adding that “this is the position of the prime minister and the whole of PiS… From the beginning we felt that this issue should be resolved, assisting refugees outside the EU.”

Others agreed. The Polish Interior Minister Mariusz Blaszczak said last week that the quota system is “a bad system…it makes no sense.”

Poland has been very vocal in its opposition to accepting migrants. According to the European Commission proposal, Poland, which has an existing quota of 6,500, would have to pay over €1 billion ($1.1 billion) if it were to refuse to accept any refugees, according to Financial Times. Kaczynski also addressed the recent anti-government protest Warsaw, stressing that the demonstrators tried “to impose on us the forced acceptance of immigrants.”

Hungary and Slovakia have also lashed out at the European Commission’s quota system. “Regarding the fines proposed by the European Commission, it is blackmailing,” Hungarian Foreign Minister Peter Szijjarto said last week. Szijjarto called the quota system a “dead-end street” and asked the Commission not to follow through with it.

The Slovak Interior Minister Robert Kalinak also opined saying that the timing of the Commission’s proposal was difficult, given efforts to reach consensus on closing migrant routes and reaching a deal on refugees with Turkey. “In the middle of these very sensitive talks, a proposal is put on the table that sets us back nine months and does not reflect reality in some aspects,” he said.

What is surprising is the curious carrot-stick approach that has emerged in Europe: carrot when interacting with Turkey, by paying the country’s increasingly despotic leader Erdogan billions to keep as many refugees within Turkey’s borders, and stick when dealing with EU member states, threatening punishment if they refuse to offload some of the refugee burden borne by countries like Germany. The irony, of course, is that it was the insistence of Merkel in 2015 to open Europe up to millions of Syrian refugees in hopes this may end up boosting domestic economic growth, only to see a huge popular revulsion to the influx of immigrants which as we reported earlier today cost the Austrian Chancellor his job and has led to Germany’s AfD anti-Muslim party soaring to third place in the political polls.

As RT adds, solving the migration problem is a top priority for the EU, as it continues to face the worst refugee crisis since World War II. According to a February report compiled by the International Organization for Migration, more than 100,000 people have arrived in Greece, and 7,507 in Italy, since the beginning of the year. It is troubling that as part of the solution, Brussels is facing not only a collapse of the Schengen customs union, but even greater alienation between core European nations and the more recent, and far poorer, Eastern European entrants who rightfully see themselves as secondary actors in an increasingly unequal and crumbling “union” in which just a handful of top power countries call the shots.



China’s demand for iron ore and copper has crashed causing the Baltic Dry Index to collapse.  What we are witnessing is a total crash in demand for base metals and crude throughout the globe:

(courtesy Baltic Dry Index/zero hedge)

Iron Ore, Rebar Crash Into Bear Market, Baltic Dry Dead-Cat-Bounce Dies

Real demand for steel in China dropped at least 7% in April from the year before, according to Citigroup’s Tracy Liao estimates, so it should not be a total surprise that the frenzied speculative buying in Iron Ore, Rebar, and various other industrial metals in China has crashed back to reality as volumes plunge, dragging The Baltic Dry Freight Index with it as yet another government-manipulated ‘signal’ collapses into a miasma of malinvestment and unintended consequences.

As The Wall Street Journal reports, to the extent that China’s industrial recovery explains why iron ore and steel prices have jumped this year, China’s latest trade data served as a reminder of how brittle this reason is.

China’s steel net exports rose 8.8% in April from a year before and 9.4% between January and April from a year ago. That raises the question: Why are mills exporting more steel when Shanghai front-month futures prices for rebar steel rocketed 48% between January and April, and signaled a potential rise in demand? Shouldn’t mills be selling more of what they make at home? And steel production is weak, so it isn’t as if producers are churning out more steel available for exports.

The answer may be that there is no sustainable increase in Chinese steel demand.Steel use picked up around March, but this was seasonal, and even then it wasn’t so dramatic. Steel traders, whose job is to anticipate demand from property developers and the like, held lower inventories at the start of this construction season than last year, suggesting they saw limited real demand in the pipeline.

Real demand for steel in China dropped at least 7% in April from the year before, Citigroup’s Tracy Liao estimates, based on changes in exports and inventories. The drop was at least 5% between January and April from the year before.

That reinforces fears that easy money-fueled speculation is the prime mover of steel and iron ore prices today. That “Churn” is over…

Chinese futures prices in both commodities fell sharply again Monday.

With Iron Ore now down 22% from the meltup highs, entering a bear market…

And Steel Rebar down 25%, extending losses in the US session…

And The Baltic Dry Index now down 7 days in a row, down 14% from its “everything is fine in China” highs from 715 to 616 today…

Given that underlying demand isn’t there, don’t be surprised if these prices further crack.



The situation inside Venezuela is nothing but chaos. The leader of the opposition that is trying to overthrow Maduro was assassinated Sunday night, afte3r 1.8 million signatures petition to oust the President.

(courtesy zero hedge)

Venezuelan Opposition Leader Assassinated Days After 1.8 Million Sign Petition To Oust Maduro

The situation in hyperinflating socialist paradise Venezuela just moved one step closer to chaotic totalitarianism. With President Maduro clinging to power (thanks to his military ‘assistance’) amid growing social unrest (1.8 million signatures gathered seeking a referendum to remove him), FoxNews Latino reports German Mavare, leader of the opposition UNT party, died Friday after being shot in the head, asassinated in the western state of Lara, according to his organisation. Maduro has appeared on State TV tying Mavare to “armed groups” and suggested that more right-wing politicians are potential targets.

The Venezuelan people are growing increasingly angry at the nightmare of economic squallor Nicolas Maduro appears to have laid at their door (thanks in large part to an overly-generous socialist agenda runnining out of other people’s petrodollars)…

In less than a week, more than 1.8 million people in Venezuela signed petitions seeking a referendum to remove President Nicolas Maduro from office. That’s nine times the required 200,000 signatures.

The opposition said in a statement they delivered the petitions in 80 sealed boxes early Monday morning without notifying the media to avoid potential clashes with Maduro’s supporters.

Ousting Maduro will not be an easy task despite his approval rating plummeting amid triple-digit inflation, widespread food shortages and near-daily power blackouts. Recent polls suggest two-thirds of Venezuelans want him out.

If the National Electoral Council verifies the signatures in the coming days, it would trigger a second petition drive during which 20 percent of the electorate, almost 4 million people, would have to sign before a referendum could be scheduled on removing Maduro before his term ends in 2019.

If a vote were held, the president would be removed only if the number of anti-Maduro votes exceeded the 7.6 million votes he received in the 2013 election. In December’s parliamentary elections, opposition candidates mustered only 7.7 million even though they won control of the legislature by a landslide.

President Maduro has recently dug in against what he calls opposition attempts to destabilize Venezuela…

“If the oligarchy were to do something against me and take this palace by one means or another, I order you, men and women of the working class, to declare yourselves in rebellion and undertake an indefinite strike.”

And now, it appears ‘someone’ has “rebelled”…Venezuelan politician German Mavare, leader of the opposition UNT party, died on Friday after being shot in the head, an assassination that occurred in the western state of Lara, his organization said.

“The board of the UNT expresses its deepest sorrow for the slaying of colleague German Mavare. We demand justice and an end to violence,”was the message posted on the Twitter account of the UNT party, headed by jailed ex-presidential candidate and former governor of Zulia state, Manuel Rosales.

The mayor of Iribarren in Lara state, Alfredo Ramos, said on his Twitter account minutes after the incident occurred before dawn Friday: “German Mavare, of the popular urbanization of Carucieña, a tireless fighter for social causes, has just been hit by a bullet in the head.”

For his part, Luis Florido, an opposition lawmaker of the Voluntad Popular party, said on Twitter: “German Mavare died. A red bullet ended his life. Politics today is high risk. We demand an investigation of the case #NoMoreViolence #Lara”.

The authorities have not yet issued a statement about the matter. Bloomberg reports that Maduro, speaking on on state television, said:

“The people we captured are talking and more than one far right-wing politician is mentioned.”

“Authorities this week killed leaders of armed groups with ties to paramilitaries.”

“Government is pursuing armed groups.”

In conclusion, things just went to 11 on the spinal tap amplifier of failed-state-ness, and we leave it to R. Evan Ellis to discuss what happens next,

The question for businessmen and governments with a stake in the deteriorating situation in Venezuela is no longer if the regime of Nicholas Maduro will come to a premature end, but under what circumstances.

This reality has little to do with the determination or sophistication of the Venezuelan opposition, nor of the resiliency of its almost completely compromised institutions. Rather, the Maduro regime has locked the country on a course of national self-destruction, responding to the deepening economic crisis with counterproductive, and simply bizarre measures, such as criminalizing the attempt of the market to respond to shortages, or reducing the federal work week, destroying the little productive capacity that remains in the country.

Similarly, in the face of the population’s demand for a change in course, evinced by the massive opposition victory in the December 2015 mid-term elections,Maduro’s intransigence increases the probability that the suffering and frustration of the Venezuelan people will eventually give rise to violence.

Brazilian stocks and the Brazilian real tumble after the Brazilian Hous Chief calls for an annulment on the procedure used to impeach Roussef.  The markets want all the corrupt actors out of government.  They must due a new vote:
(courtesy zero hedge)

Brazilian Stocks, Currency Tumble After Brazil House Chief Calls For Annulment, New Rousseff Impeachment Vote

Late last week, we shared what may be the most concise summary of the ongoing political theater involving the impeachment process of Dilma Rousseff, who as is well known has already been impeached, but where virtually every other actor is just as guilty of corruption and/or kickbacks. To wit:

A Brazilian Supreme Court justice ruled on Thursday that the powerful lawmaker who orchestrated the effort to impeach President Dilma Rousseff must step down as he faces graft charges, ratcheting up tensions in the country.

And in a further blow to Brazil’s scandal-plagued political establishment, Vice President Michel Temer, the man preparing to take control of the government from Ms. Rousseff, had his conviction on charges of violating limits on campaign financing upheld earlier this week, a ruling that makes him ineligible to run for elected office for eight years.

The rulings are not expected to save Ms. Rousseff’s presidency. Support for her ouster remains strong in the Senate, which is preparing to vote next week on whether to remove her from office and put her on trial over claims of budgetary manipulation. But the decisions reflect the potential for greater political turmoil in the country.

Today, the story of Rousseff’s impeachment took another unexpected, and sharp U-turn when moments ago, Bloomberg reported that the interim chief of Brazil’s lower house, Waldir Maranhao, accepted a request from the government’s attorney general to annul the procedure that approved the impeachment motion in the house, according to reports from Folha de S.Paulo newspaper and Epoca magazine. The stated reason: procedural flaws. Maranhao also called for a new vote on the impeachment of President Dilma Rousseff, in a very unexpected move that has led to a sharp selloff in Brazilian assets.

Waldir Maranho

More details from Reuters and Bloomberg:


Whether this means that Rouseff’s entire impeachment process has now been derailed (arguably as a lot of money has been transferred under the table) will be revealed shortly.

And while nobody expected Rousseff to exit without a fight, if this new twist in the Brazilian political soap opera is confirmed and is actually implemented – just three months before the Rio Summer Olympics – it would mark a dramatic anticlimax to a process that was supposed to conclude with the expulsion of Dilma from the presidential seat and unveil a new (if just as corrupt) government, which has been the catalyst for a 40%+ surge in Brazilian stocks YTD, even as Brazil’s economy has continued to deteriorate sharply.

The immediate result: a slump for both Brazilian stocks and the currency, both of which are sharply lower on the initial report.

Unwinding the BRL strength…

And sending Bovespa (and Brazil ETFs slamming lower)

And just like that, macro hedge funds around the globe saw their entire month of May blown up by just one headline.



A real shocker:  long time Finance minister Al Naimi of Saudi Arabia was fired by basically replaced by the 30 yr son of King Salman, Mohammed.You can bet that Saudi Arabia will be intent on breaking the shale business of the USA, and hurt weaker countries like Venezuela

(courtesy zero hedge)

Oil Shocker: Saudi Arabia Fires Powerful Oil Minister al-Naimi In Dramatic Power Reshuffle

For years, Ali al Naimi was the most important person in the world of oil: the former CEO of Saudi Aramco ascended to the post of Saudi oil minister in 1995, and over the past 21 years had the power to send the price of oil soaring or plunging with one word. To be sure, over the past two years it was mostly plunging because as is well-known, Saudi Arabia’s policy ever since the 2014 Thanksgiving OPEC meeting in which Saudi Arabia broke off from the rest of the petroleum cartel to pursue its intention of putting US shale and high cost OPEC production out of business.

Then things unexpected, and dramatically, changed in April when Bloomberg published a detailed interview on the present and future of Saudi oil policy, which however took place not with al Naimi but with a young man few had heard of: Deputy Crown Prince Mohammed bin Salman, barely 30 years old, who just happens to be the favored son of Saudi Arabia’s new King Salman who took control one year ago.

Suddenly not all was well in the top power echelons of oil, and less than three weeks later the FT wrote an extended profile of prince Mohammed bin Salman whom it dubbed “the unpredictable new voice of Saudi oil.” This is what it said:

As the fallout from collapsed oil talks in Doha reverberates, Saudi Arabia’s Mohammed bin Salman has emerged as the unpredictable new voice of the kingdom’s energy policy.

The 30-year-old deputy crown prince and favoured son of King Salman was not even in the Qatari capital, where many of the world’s biggest oil producers had gathered in hopes of brokering the first global output deal in 15 years in an effort to arrest a prolonged price slide.

Still, his message echoed through the marble halls of the Sheraton: there would be no production freeze without Iran.

Around 3am on Sunday morning — just hours before the talks were due to begin — Prince Mohammed called the Saudi delegation, according to people briefed on the matter, and ordered them to come home. The Saudis ultimately remained, but the talks were effectively dead.

For oil watchers Doha was not so much about OPEC oil production, but about a huge power move that had just taken place in Saudi Arabia, as a result of which al Naimi had become irrelevant overnight.

The FT confirmed as much:

the episode has left Ali al Naimi, the kingdom’s technocratic oil minister for the past 21 years, looking increasingly sidelined. While the Saudi royal family has always had the final say on oil policy, rarely has a member spoken so publicly — or freely — on its direction. Delegates from other countries had been assured Mr Naimi was there to deliver a deal. “Saudi Arabia’s oil policy is now firmly in the hands of Deputy Crown Prince Mohammed bin Salman,” said Sean Evers, managing partner of Gulf Intelligence in Doha.”

This is all came to a stunning culmination moments ago, when Al Arabiya reported the shocking, if inevitable news, that Saudi Arabia has fired long-serving oil minister Ali al-Naimi, on Saturday. According to the WSJ, Naimi would be replaced with Khalid al-Falih, chairman of state oil company Aramco.

The royal decree, announced via state media, is part of a wider government reshuffle that includes a restructuring of the oil ministry, which has been renamed the Ministry of Energy, Industry and Mineral Resources, but the ultimate target is al Naimi who after 21 years at the helm of Saudi oil policy is gone, replaced effectively by bin Salman himself.

Who is al-Falih? Recall that shortly after the new Saudi King Salman bin Abdulaziz took power in 2015, he promptly shook up the nation’s energy industry on Wednesday, after he appointed Khalid al-Falih as the new chairman of Saudi Aramco and the country’s health minister (al Naimi had also been CEO of Aramco before he was elected to oil minister). Previously al-Falih was CEO of Aramco since 2009.

Even then the WSJ reported, that “the elevation of Mr. al-Falih from chief executive to chairman of the state-owned company raised questions about the tenure of the nation’s long-time oil minister, Ali al-Naimi, an influential figure in the world’s oil markets who has said he wants to retire soon.”  When Falih replaced al-Naimi as Aramco chairman, it was widely expected that he had become a contender to eventually take over the oil ministry.

What else do we know about al-Falih? Not much: he sits on the Board of Directors of U.S.-Saudi Arabian Business Council and also serves as a member of the JP Morgan International Council.

But ultimately this is not about the new oil minister: this is about Prince Mohammed taking full control over Saudi oil.

So the question everyone now wants answered is “what does this mean for oil?

While nobody knows the answer, what is clear is that over the past 2 months, Prince Mohammed has had a far more hawkish outlook on oil prices. As noted above, it was Mohammed who effectively scuttled the Doha oil deal which was “this close” to reaching a conclusion before a last minute collapse as the crown prince intervened, overriding al Naimi’s proposal.

Furthermore, as the FT reported at the time, “there were other signs that Saudi Arabia’s oil ministry was preparing for a deal. Between January and March the country held its oil output at around 10.2m barrels per day — a level consistent with the proposed freeze.” Then a few weeks ago, Prince Mohammed once again poured cold water over any expectations that Saudi Arabia would permit higher oil prices when he said last week said “the country’s production could immediately rise to 11.5m b/d — if there was demand.

In other words, on the margin al Naimi’s termination and Prince Mohammed’s official ascent to the top of the Saudi oil chain of command is likely bearish in the short term, as Saudi Arabia reverts to its 2014 strategy of pushing oil prices low enough to put marginal producers out of business, a process that due to relentless hedging and generous banks, has taken way too long.

In summary, it is likely the slow fruition of Saudi plans to put high cost producers out of business, coupled with Saudi Arabia’s own economic deterioration that forced the king to take this drastic measure.

As for the real impact on the price of oil, we will have to wait until Monday, although we can’t wait to see what happens if Saudi Arabia’s intentions are to push oil far lower once again to shock the complacent marginal producers and put them out of business once (or maybe twice) and for all, while algos and central banks continue to do everything in their power to push it higher.

Now that showdown will be worth the price of a barrel of oil or two.

* * *

Also, in addition to replacing al Naimi, Saudi King Salman also appointed Ahmed al-Kholifey –currently an IMF executive director – Saudi Arabian Monetary Authority Governor, promoting him from vice governor and replacing Fahd al-Mubarak in charge of the kingdom’s central bank. He also appointed Yasir al-Rumayyan, an adviser to the Royal Court and secretary general of the Public Investment Fund, and former SAMA governor Mohammed al-Jasser as advisers to the General Secretariat of the Cabinet.

The oil fires are out of control in Canada.  The city of Fort McKay has been evacuated.
(courtesy zero hedge)

“Out Of Control” Canada Wildfire Could Double In Size Today: Fort McKay Evacuated

Since we first reported on the massive fire (and the fallout) that was burning in Canada’s oil sands gateway, Fort McMurray, things have gone from bad to worse. Today we learn that the fire that has already devastated 600 square miles, growing an additional 50% in less than 24 hours, is out of control, and could double in size by the end of the day.

As of late Saturday night, the fire had grown to 156,000 hectares and was heading toward the Saskatchewan border. Officials said winds up to 40 kilometres an hour will blow Saturday and warm temperatures mean it could add another 100,000 hectares to the fire by the end of the day. “We need heavy rain,” said Chad Morrison, senior wildfire manager, giving an update with Notley at noon Saturday according to the EdJournal.

This remains a big, out of control, dangerous fire” Public Safety Minister Ralph Goodale said. “There is one prediction, that if it continues to grow a the present pace, it could double today” Goodale added.

The map above shows the fire as of 11 a.m. Saturday. The smaller fire in the northeast corner of the map is expected to join the major fire today and continue growing. There are serious concerns it will reach the Saskatchewan border

Alberta’s government crisis cell warned that the fire conditions remained extreme in the province due to low humidity, high temperatures, and gusty winds.

“It looks like the weather in and around Fort McMurray will still be, sadly, very conducive to serious burning conditions. The situation remains unpredictable and dangerous.” Goodale continued.

People that fled to the north of the city are now being evacuated again due to changing wind conditions. The plan now is to move people south to other evacuee staging grounds, and eventually to Edmonton, 250 miles to the south.

Meanwhile, oil producers continue to hunker down, and earlier today Syncrude said it would shut its Mildred Lake units, shortly after Huksy said it would shut down its sunrise oil sands complex completely.  Suncor started a voluntary evacuation of non-essential personal as the fire burns close.

And as the raging fire spreads, the latest update is that the neighboring northern town of Fort McKay has also been put under a voluntary evacuation order, Premier Rachel Notley announced Saturday morning as the Fort McMurray fire continued to grow and move to the northeast.


Sunday night:  OIl jumps on news of a new Saudi oil Minister:

(courtesy zero hedge)

WTI Crude Jumps At Open, Nears $46

Following modest strength in Middle East stocks…

It appears the Sunday night algos are currently positive on a new Saudi Oil Minister.June WTI crude has run Friday’s highs stops and pushed up around 2.5% at the open on decent volume…

One wonders what happens when $46 or the Thursday highs are taken out…

Large Cushing build causes oil to tumble into the 43 dollar handle for WTI
(courtesy zero hedge)

WTI Crude Tumbles To $43 Handle After Large Cushing Build

On the heels of downward price momentum from positive headlines out of Alberta with regard the wildfires, Genscape has just reported a forecast 1.4 million barrel build at Cushing – significantly above expectations and recent activity. This has pushed WTI crude further below the pre-Saudi oil minister levels and back to a $43 handle…


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




USA/CAN 1.2925 UP .0019

Early THIS  MONDAY morning in Europe, the Euro FELL by 17 basis points, trading now WELL above the important 1.08 level RISING to 1.1417; 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  CLOSED DOWN SHARPLY BY 81.14 PTS OR 2.79% / Hang Sang CLOSED UP 46.94 OR  0.23%   / AUSTRALIA IS HIGHER BY 0.54% / ALL EUROPEAN BOURSES ARE ALL IN THE GREEN  as they start their morning/

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

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

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

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

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

The NIKKEI: this MONDAY morning: closed UP 109.31 OR .68% 

Trading from Europe and Asia:

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 46.84 PTS OR 0.23% . ,Shanghai CLOSED  DOWN 81.14 OR 2.79%/ Australia BOURSE IN THE GREEN: /Nikkei (Japan) CLOSED IN THE GREEN/India’s Sensex IN THE GREEN

Gold very early morning trading: $1274.30.


Early MONDAY morning USA 10 year bond yield: 1.775% !!! PAR in basis points from FRIDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.636 PAR in basis points from FRIDAY night.

USA dollar index early MONDAY morning: 93.99 UP 9 cents from FRIDAY’s close.(Now below resistance at a DXY of 100.)

This ends early morning numbers MONDAY MORNING


And now your closing MONDAY NUMBERS

Portuguese 10 year bond yield:  3.30% DOWN 2 in basis points from FRIDAY

JAPANESE BOND YIELD: -0.095% DOWN 1 in   basis points from FRIDAY

SPANISH 10 YR BOND YIELD:1.58% DOWN 1 IN basis points from FRIDAY

ITALIAN 10 YR BOND YIELD: 1.46  DOWN 3 IN basis points from FRIDAY

the Italian 10 yr bond yield is trading 12 points lower than Spain.





Closing currency crosses for MONDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM


Euro/USA 1.1387 DOWN .0015 (Euro =DOWN 15  basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/reacting to dovish YELLEN/ANOTHER FALL IN USA;YEN CROSS TODAY

USA/Japan: 108.42 UP 1.343 (Yen DOWN 134 basis points )

Great Britain/USA 1.4409  down .0009 Pound down 9 basis points/

USA/Canada 1.2967 UP 0.0061 (Canadian dollar DOWN 61 basis points with OIL FALLING a bit(WTI AT $43.42.  CANADA IS GETTING KILLED BY THAT HUGE FIRE IN ALBERTA)


This afternoon, the Euro was DOWN by 15 basis points to trade at 1.1387

The Yen FELL to 108.42 for a LOSS of 134 basis points as NIRP is STILL a big failure for the Japanese central bank/

The pound was DOWN 9 basis points, trading at 1.4409

The Canadian dollar FELL by 61 basis points to 1.2967, WITH WTI OIL AT:  $43.40

The USA/Yuan closed at 6.5140

the 10 yr Japanese bond yield closed at -.095% DOWN 2 IN BASIS  points in yield/

Your closing 10 yr USA bond yield: DOWN 3  basis points from FRIDAY at 1.75% //trading well below the resistance level of 2.27-2.32%) HUGE policy error

USA 30 yr bond yield: 2.615 DOWN 1/2 in basis points on the day ( HUGE POLICY ERROR)

Your closing USA dollar index, 94.13 UP 22 CENTS ON THE DAY/4 PM

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

London:  CLOSED  DOWN 10.89 OR 0.18%
German Dax :CLOSED UP 110.54 OR 1.12%
Paris Cac  CLOSED UP 21.57  OR 0.50%
Spain IBEX CLOSED DOWN 41.30 OR 0.47%

The Dow was DOWN 34.72  points or 0.20%

NASDAQ up 14.06 points or 0.30%
WTI Oil price; 43.40 at 4:30 pm;

Brent Oil: 43.42






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

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


BRENT: 43.55

USA 10 YR BOND YIELD: 1.747%




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

Trading Today in Graph form

Biotech-Buying Spree Helps Stocks Shrug Off China Crash, Commodity Collapse, & Credit Crunch

There is some serious turmoil going on in credit, commodities, and FX.. but stocks shurugged it all off because jobs were shitty enough to warrant a bid??


China stocks crashed…biggest 2-day drop in 3 months…


China Commodities collapsed….With Iron Ore now down 22% from the meltup highs, entering a bear market…


And Steel Rebar down 25%, extending losses in the US session…


Stocks were caught between a rallying JPY carry trade and a tumbling crude correlation…


And traded in a very narrow range around VWAP all day…


Dow ended the day red and Trannies cluing to unch at the close…Seems like the momnent Europe closed everything was awesome…


And VIX was slammed to keep S&P off the redline for 2016…VIX selling has been non-stop since Payrolls dats


Credit markets continue to weaken (HYG down 6 days in a row), decoupling from stocks once again…


Investors sought the safe haven of Biotech stocks…best day in a month…


As LendingClubbed like a baby seal…


Treasury yields dropped, decoupling lower from stocks…


The USD Index rose for the day in a row, driven by JPY’s tumble (3rd biggest drop of the year)…


Despite the modest USD gains, commodities were monkey-hammered as China contagion spreads…


  • Gold’s worst day in 6 weeks
  • Silver’s worst day in 6 weeks

  • Copper’s worst day in 4 weeks (down 6 days in a row)
  • Crude’s worst day in 4 weeks

Finally, crude gave back all its Saudi headlines gains and stalled at what appears a key band of support…


Charts: Bloomberg

Bonus Chart: US remains the most expensive equity market by at least 1.7x turns…


The judge hearing the case whether to cut pension payouts is very troublesome.  The fund pays out more than it takes in and will be bust in 10 yrs.  However UPS gets a sigh of relief as it does not have to give extra funds to the Central States Pension Fund. It would have owed 3.8 billion USA:

(courtesy zero hedge)

The Next Big Bailout? Treasury Rejects Proposal To Cut Pension Benefits

UPS, and roughly 270,000 retired truck drivers, construction workers, and other service workers can breathe a collective sigh of relief… for now. As we previously reported, the Central States Pension Fund had submitted a plan to Treasury that if approved would have cut member benefits, and triggered UPS to take an estimated $3.8 billion charge.

As the WSJ reports, Kenneth Feinberg (who was appointed by the Treasury to review all such applications) rejected the plan presented by the CSPF. Feinberg cited a few reasons for his decision, one being that it imposed cuts in a disproportionate manner, another was that the notifications sent to participants were too technical to be understood, but namely Feinberg didn’t agree with the assumption that the fund would achieve 7.5% yearly investment returns going forward. Those returns “were too optimistic and unreasonable” Feinberg said.

“You get to breathe again, you get to exhale. Our life was on hold.” said Bill Orms, a 69 year-old retired truck driver from Akron, Ohio who would have seen his $2,400 a month benefit cut in half had the proposal been accepted.

Absent an injection of funds or benefit cuts, the fund which pays out $2.8 billion in benefits a year will be insolvent within ten years according to Thomas Nyhan, the plan’s executive director. Nyhan added that he was “disappointed” by the Treasury’s decision. According to the WSJ, the fund currently has $16.8 billion in assets against $35 billion in liabilities, and has roughly one active worker contributing to the fund for every four retirees that draw from it.

So we’re now back to where we started. The Central States Pension Fund will by its own estimates be insolvent within ten years, and the government safety net, the Pension Benefit Guaranty Corp cannot be counted on to pick up the benefits because it too is well on its way to insolvency.

If the Treasury won’t allow any pension cuts, and the government created safety net won’t be there to keep the benefits flowing, how will the cash continue to flow to members? With the precedent now set by the Treasury that no cuts will be allowed, the answer will likely come in the form of a massive bailout.

The Clinton foundation has took in 140 million dollars in grants and has just spent 9 million in direct aid.  The rest went for salaries to Clinton family members and friends”
(courtesy Mike Krieger/Liberty Blitzkrieg blog)

Wall Street ‘Whistleblower’ Analyst Exposes Clinton Foundation As “Charity Fraud”

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The Clinton Foundation’s finances are so messy that the nation’s most influential charity watchdog put it on its “watch list” of problematic nonprofits last month.

The Clinton family’s mega-charity took in more than $140 million in grants and pledges in 2013 but spent just $9 million on direct aid.

The group spent the bulk of its windfall on administration, travel, and salaries and bonuses, with the fattest payouts going to family friends.

“It seems like the Clinton Foundation operates as a slush fund for the Clintons,” said Bill Allison, a senior fellow at the Sunlight Foundation, a government watchdog group where progressive Democrat and Fordham Law professor Zephyr Teachout was once an organizing director.

– From last year’s post: Senior Fellow at Sunlight Foundation Calls the Clinton Foundation “A Slush Fund”

Thanks to Charles Ortel, it’s time to prepare ourselves for some more Clinton Foundation revelations.

The Washington Free Beacon reports:

The Wall Street analyst who uncovered financial discrepancies at General Electric before its stock crashed in 2008 claims the Bill, Hillary, and Chelsea Clinton Foundation has a number of irregularities in its tax records and could be violating state laws.

Charles Ortel, a longtime financial adviser, said he has spent the past 15 months digging into the Clinton Foundation’s public records, federal and state-level tax filings, and donor disclosures. That includes records from the foundation’s many offshoots—including the Clinton Health Access Initiative and the Clinton Global Initiative—as well as its foreign subsidiaries.

This week, Ortel is starting to release his findings in the first of a series of up to 40 planned reports on his websiteHis allegation: “this is a charity fraud.”

The Sunday Times of London described Ortel as “one of the finest analysts of financial statements on the planet” in a 2009 story detailing the troubles at AIG.

“Where you or I see pages of numbers, [Ortel] sees a narrative,” wrote Sunday Times reporter Tim Rayment. “Sometimes the theme is a company’s potential for growth. Sometimes it is the prospect of self-destruction. And at times the story does not make sense, because the figures are hiding a fraud.”

Ortel turned his attention to the Clinton Foundation in February 2015. To learn more about the charity, he decided to take it apart and see how it worked.

“I decided, as I did with GE, let’s pick one that’s complicated,” said Ortel. “The Clinton Foundation is complicated, but it’s really very small compared to GE.”

When Ortel tried to match up the Clinton Foundation’s tax filings with the disclosure reports from its major donors, he said he started to find problems.

“I decided it would be fun to cross-check what their donors thought they did when they donated to the Clinton Foundation, and that’s when I got really irritated,” he said. “There are massive discrepancies between what some of the major donors say they gave to the Clinton Foundation to do, and what the Clinton Foundation said what they got from the donors and what they did with it.”

Last year, the Clinton Foundation was forced to issue corrected tax filings for several years to correct donation errors. But Ortel said many of the discrepancies remain.

“I’m against charity fraud. I think people in both parties are against charity fraud, and this is a charity fraud,” he said.

A spokesperson for the Clinton Foundation did not comment on the claims.

I covered the Clinton Foundation and all its shadiness repeatedly last year. Here are a few highlights:

Exposed – The Clinton Foundation is Running a $20 Million Private Equity Firm in Colombia

How the Clinton Foundation Paid Sidney Blumenthal $10K per Month as He Gave Horrible Libya Advice to the State Dept.

How Donations to the Clinton Foundation Led to Tens of Billions in Weapons Sales to Autocratic Regimes

What Difference Does it Make? 1,100 Foreign Donors to Clinton Foundation Never Disclosed and Remain Secret

Senior Fellow at Sunlight Foundation Calls the Clinton Foundation “A Slush Fund”

More Clinton Foundation Cronyism – The Deal to Sell Uranium Interests to Russia While Hillary was Secretary of State

More Hillary Cronyism Revealed – How Cisco Used Clinton Foundation Donations to Cover-up Human Rights Abuse in China

This is How Hillary Does Business – An Oil Company, Human Rights Abuses in Colombia and the Clinton Foundation

Clinton Foundation’s Deep Financial Ties to Ukrainian Oligarch Who Pushed for Closer Ties to EU Revealed

Hillary Clinton Exposed Part 2 – Clinton Foundation Took Millions From Countries That Also Fund ISIS

David Stockman in round 3 advocates the elimination of payroll taxes and the elimination of corporate taxes in favour of a 15% value added tax on goods:
(courtesy David Stockman/ContraCorner)


Trumped! Why It Happened And What Comes Next, Part 3 (The Jobs Deal)

by  • May 7, 2016

Donald Trump’s patented phrase “we aren’t winning anymore” lies beneath the tidal wave of anti-establishment sentiment propelling his campaign and, to some considerable degree, that of Bernie Sanders, too.

As we demonstrated in Part 1, what’s winning is Washington, Wall Street and the bicoastal elites. The latter prosper from finance, the LA and SF branches of entertainment ( movies/TV and social media, respectively) and the great rackets of the Imperial City—including the military/industrial/surveillance complex, the health and education cartels, the plaintiffs and patent bar, the tax loophole farmers and the endless lesser K-Street racketeers.

But most of America’s vast flyover zone has been left behind. Thus, the bottom 90% of families have no more real net worth today than they had 30 years ago and earn lower real household incomes and wages than they did 25 years ago.

Needless to say, the lack of good jobs lies at the bottom of the wealth and income drought on main street, and this week’s April jobs report provided still another reminder.

During the last three months goods-producing jobs have been shrinking again, even as the next recession knocks on the door. These manufacturing, construction and energy/mining jobs are the highest paying in the US economy and average about $56,000 per year in cash wages. Yet it appears that the 30 year pattern shown in the graph below——lower lows and lower highs with each business cycle—-is playing out once again.

So even as the broadest measure of the stock market—-the Wilshire 5000—–stands at 11X  its 1989 level, there are actually 22% fewer goods producing jobs in the US than there were way back then.

This begs the question, therefore, as to the rationale for the Jobs Deal we referenced in Part 1, and why Donald Trump should embrace a massive swap of the existing corporate and payroll taxes for new levies on consumption and imports.

The short answer is that Greenspan made a giant policy mistake 25 years ago that has left main street households buried in debt and stranded with a simultaneous plague of stagnant real incomes and uncompetitively high nominal wages. It happened because at the time that Mr. Deng launched China’s great mercantilist export machine during the early 1990s, Alan Greenspan was more interested in being the toast of Washington than he was in adhering to his lifelong convictions about the requisites of sound money.

Indeed, he apparently checked his gold standard monetary princples in the cloak room when he entered the Eccles Building in August 1987. Not only did he never reclaim the check, but, instead, embraced the self-serving institutional anti-deflationism of the central bank.

This drastic betrayal and error resulted in a lethal cocktail of free trade and what amounted to free money. It resulted in the hollowing out of the American economy because it prevented American capitalism from adjusting to the tsunami of cheap manufactures coming out of China and its east Asian supply chain.

So what would have happened in response to the so-called “china price” under a regime of sound money in the US?

The Fed’s Keynesian economists and their Wall Street megaphones would never breath a word of it, of course, because they have a vested interest in perpetuating inflation. It gives inflation targeting central bankers the pretext for massive intrusion in the financial markets and Wall Street speculators endless bubble finance windfalls.

But the truth is, sound money would have led to falling consumer prices, high interest rates and an upsurge of household savings in response to strong rewards for deferring current consumption. From that enhanced flow of honest domestic savings the supply side of the American economy could have been rebuilt with capital and technology designed to shrink costs and catalyze productivity.

But instead of consumer price deflation and a savings-based era of supply side reinvestment, the Greenspan Fed opted for a comprehensive Inflation Regime. That is, sustained inflation of consumer prices and nominal wages, massive inflation of household debt and stupendous inflation of financial assets.

To be sure, the double-talking Greenspan actually bragged about his prowess in generating something he called “disinflation”. But that’s a weasel word. What he meant, in fact, was that the purchasing power of increasingly uncompetitive nominal American wages was being reduced slightly less rapidly than it had been in the 1980s.

Still, the consumer price level has more than doubled since 1987, meaning that prices of goods and services have risen at 2.5% per year on average. Notwithstanding all the Fed’s palaver about “low-flation” and undershooting its phony 2% target, American workers have had to push their nominal wages higher and higher just to keep up with the cost of living.

But in a free trade economy the wage-price inflation treadmill of the Greenspan/Fed was catastrophic. It drove a wider and wider wedge between US wage rates and the marginal source of goods and services supply in the global economy.

That is, US production was originally off-shored owing to the China Price with respect to manufactured goods. But with the passage of time and spread of the central bank driven global credit boom, goods and services were off-shored to places all over the EM. The high nominal price of US labor enabled the India Price, for example, to capture massive amounts of call center activity, engineering and architectural support services, financial company back office activity and much more.

At the end of the day, it was the Greenspan Fed which hollowed out the American economy. Without the massive and continuous inflation it injected into the US economy, nominal wages would have been far lower, and on the margin far more competitive with the off-shore.

That’s because there is a significant cost per labor hour premium for off-shoring in terms of a 12,000 mile pipeline of transportation charges, logistics control and complexity, increased inventory carry in the supply chain, quality control and reputation protection expenses, average productivity per worker, product delivery and interruption risk and much more.

In a sound money economy of falling nominal wages and even more rapidly falling consumer prices, American workers would have had a fighting chance to remain competitive, given this significant off-shoring premium. But the demand-side Keynesians running policy at the Fed and US treasury didn’t even notice that their wage and price inflation policy functioned to override the off-shoring premium, and to thereby send American production and jobs fleeing abroad.

Indeed, they actually managed to twist this heavy outflow of goods and services production into what they claimed to be an economic welfare gain in the form of higher corporate profits and lower consumer costs.

Needless to say, the basic law of economics—-Say’s Law of Supply—-says societal welfare and wealth arise from production; spending and demand follow output and income.

By contrast, our Keynesian central bankers claim prosperity flows from spending, and they had a ready solution for the gap in spending that initially resulted when jobs and incomes were sent off-shore.

The de facto solution of the Greenspan Fed was to supplant the organic spending power of lost production and wages with a simulacrum of demand issuing from an immense and contiunuous run-up of household debt. Accordingly, what had been a steady 75-80% ratio of household debt to wage and salary income before 1980 erupted to 220% by the time of Peak Debt in 2007.

The nexus between household debt inflation and the explosion of Chinese imports is hard to miss. Today monthly Chinese imports are 75X larger than the were when Greenspan took office in August 1987.

At the same time, American households have buried themselves in debt, which has rising from $2.7 trillion or about 80% of wage and salary income to $14.2 trillion. Even after the financial crisis and supposed resulting deleveraging, the household leverage ratio is still in the nosebleed section of history at 180% of wage and salary earnings.

Stated differently, had the household leverage ratio not been levitated in the nearly parabolic fashion shown below, total household debt at the time of the financial crisis would have been $6 trillion, not $14 trillion. In effect, the inflationary policies of the Greenspan Fed and its successors created a giant hole in the supply side of the US economy, and then filled it with $8 trillionof incremental debt which remains an albatross on the main street economy to this day.

Then again, digging holes and refilling them is the essence of Keynesian economics.

Household Leverage Ratio - Click to enlarge

At the end of the day, the only policy compatible with Greenspan’s inflationary monetary regime was reversion to completely managed trade and a shift to historically high tariffs on imported goods and services. That would have dramatically slowed the off-shoring of production, and actually also would have remained faithful to the Great Thinker’s economics. After all, in 1931 Keynes turned into a vociferous protectionist and even wrote an ode to the virtues of “homespun goods”.

Alas, inflation in one country behind protective trade barriers doesn’t work either, as was demonstrated during the inflationary spiral of the late 1960s and 1970s. That’s because easy money does lead to a spiral of rising domestic wages and prices owing to too much credit based spending; and this spiral eventually soars out of control in the absence of the discipline imposed by lower-priced foreign goods and services.

In perverse fashion, therefore, the Greenspan Fed operated a bread and circuses economy. Unlimited imports massively displaced domestic production and incomes—even as they imposed an upper boundary on the rate of CPI gains.

The China Price for goods and India Price for services, in effect, throttled domestic inflation and prevented a runaway inflationary spiral. In the face of ever increasing credit-funded US household demand, there was virtually unlimited labor and production supply available from the rice paddies and agricultural villages of the EM.

Free trade also permitted many companies to fatten their profits by arbitraging the wedge between Greenspan’s inflated wages in the US and the rice paddy wages of the EM. Indeed, the alliance of the Business Roundtable and the Keynesian Fed in behalf of free money and free trade is one of history’s most destructive arrangements of convenience.

In any event, the graph below nails the story. During the 29 years since Greenspan took office, the nominal wages of domestic production workers have soared, rising from $9.22 per hour in August 1987 to $21.26 per hour at present. It was this 2.3X leap in nominal wages, of course, that sent jobs packing for China, India and the EM.

At the same time, the inflation-adjusted wages of domestic workers who did retain there jobs went nowhere at all.

That’s right. There were tens of millions of jobs off-shored, but in constant dollars of purchasing power, the average production worker wage of$383 per week in mid-1987 has ended up at $380 per week 29 years later

During the span of that 29 year period the Fed’s balance sheet grew from$200 billion to $4.5 trillion. That’s a 23X gain during less than an average working lifetime. Greenspan claimed he was the nation’s savior for getting the CPI inflation rate down to around 2% during his tenure; and Bernanke and Yellen have postured as would be saviors owing to their strenuous money pumping efforts to keep it from failing the target from below.

But 2% inflation is a fundamental Keynesian fallacy, and the massive central bank balance sheet explosion which fueled it is the greatest monetary travesty in history. Dunderheads like Bernanke and Yellen say 2% inflation is just fine because under their benign monetary management everything comes out in the wash at the end——-wages, prices, rents, profits, living costs and indexed social benefits all march higher together with tolerable leads and lags.

No they don’t. Jobs in their millions march away to the off-shore world when nominal wages double and the purchasing power of the dollar is cut in half over 29 years.

These academic fools apparently believe they live in Keynes’ imaginary homespun economy of 1931!

The evident economic distress in the flyover zone of America and the Trump voters now arising from it in their tens of millions are telling establishment policy makers that they are full of it; that they have had enough of free trade and free money.

What can be done now?

The solution lies in the contra-factual to the Greenspan/Fed Inflation Regime. Under sound money, the balance sheet of the Fed would still be $200 billion, household debt would be a fraction of its current level, the CPI would have shrunk 1-2% per year rather than the opposite and nominal wages would have shrunk by slightly less.

For instance, if the CPI had shrunk by 1.5% annually since 1987 and nominal wages by 0.5%, the average nominal production wage today would be $8 per hour, meaning that American labor would be dramatically more competitive in the world economy versus the EM Price than it currently is at $22 per hour.

But real wages would be far higher at $500 per week compared to the actual of $380 per week shown above. At the same time, solid breadwinner jobs in both goods and services would be far more plentiful than reported last Friday by the BLS.

Needless to say, the clock cannot be turned back, and a resort to Keynes’ out-and-out protectionism in the context of an economy that suckles on nearly $3 trillion of annual goods and services imports is a non-starter. It would wreak havoc beyond imagination.

But it is not too late to attempt the second best in the face of the giant historical detour from sound money that has soured the practice of free trade. To wit, public policy can undo some of the damage by sharply lowering the nominal price of domestic wages and salaries in order to reduce the cost wedge versus the rest of the world.

It is currently estimated that during 2016 social insurance levies on employers and employees will add a staggering $1.8 trillion to the US wage bill. Most of that represents social security and medicare payroll taxes at the Federal level, along with state unemployment insurance taxes that are induced by Federal policy.

The single greatest things that could be done to shrink the Greenspan/Fed nominal wage wedge, therefore, is to rapidly phase out all payroll taxes, and thereby dramatically improve the terms of US labor trade with China and the rest of the EM world.  Given that the nation’s total wage bill (including benefit costs) is about $10 trillion, elimination of Federal payroll taxes would amount to a 11% cut in the cost of US labor.

On the one hand, such a bold move would also dramatically elevate actual main street take-home pay owing to the fact that half of the payroll tax levy is extracted from worker pay packets in advance.

Moreover, elimination of payroll taxes would be far more efficacious from a political point of view in Trump’s flyover zone constituencies. That’s because nearly 160 million Americans pay social insurance taxes compared to less than 50 million who actually pay any net Federal income taxes after deductions and credits.

At the same time, elimination of Federal payroll taxes would reduce the direct cost of labor to domestic business by upwards of $575 billion per year. And as we have proposed in the Jobs Deal, the simultaneous elimination of the corporate income tax would reduce the burden on business by another $350 billion annually.

Zeroing-out the corporate income tax happens to be completely appropriate and rational in today’s globalized economy in its own right. The corporate tax has always posed an insuperable challenge to match business income and expense during any arbitrary tax period, anyway. But in a globalized economy in which capital is infinitely mobile on paper as well as in fact, the attempt to collect corporate profits taxes in one country is pointless and impossible.

It simply gives rise to massive accounting and legal maneuvers such as the headline grapping tax inversions of recent years. Yet notwithstanding 75,000 pages of IRS code and multiples more of that in tax rulings and litigation, corporate tax departments will always remain one step ahead of the IRS. That is, the corporate tax generates immense deadweight economic costs and dislocation—including a huge boost to off-shoring of production to low tax havens——while generating a meager harvest of actual revenues.

Last year, for example, corporate tax collections amounted to just 1.8% of GDP compared to upwards of 9% during the heyday of the American industrial economy during the 1950s.

Needless to say, you don’t have to be a believer in supply side miracles to agree that a nearly $1 trillion tax cut on American business from the elimination of payroll and corporate income taxes would amount to the mother of all jobs stimulus programs! 

Self-evidently, the approximate $1.5 trillion revenue loss at the Federal level from eliminating these taxes would need to be replaced. We are not advocating any Laffer Curve miracles here——although over time the re-shoring of jobs that would result from this 11% labor tax cut  would surely generate a higher rate of growth than the anemic 1.3% annual GDP growth rate the nation has experienced since the turn of the century.

In the next section we will delve deeper into the tax swap proposed here. But suffice it to say that with $3 trillion of imported goods and services and $10 trillion of total household consumption, the thing to tax would be exactly what we have too much of and which is the invalid fruit of inflationary monetary policy in the first place.

To wit, foregone payroll and corporate tax revenue should be extracted from imports, consumption and foreign oil. An approximate 15% value added tax and a variable levy designed to peg landed crude prices at $75 per barrel would more than do the job. And revive the US shale patch, too.


Well that about does it for tonight

I will see you tomorrow night

And I would like to wish all our mothers out there a belated happy Mother’s Day




  1. “Germany on the underhand”? Brilliant! Another top 10 typo! The cliche expression would be “on the other hand.” If there were a James Joyce Award for depth communication, I would nominate you. Very unfortunately, there isn’t. I’m guessing that these are not intentional, that they are brilliance from the dark side. However… whatever…intentional or not…keep it up.


  2. Agnes · · Reply

    AND ANOTHER! “Total dealer inventor 583,614.083 tonnes or 18.308 tonnes.” Inventor or inventory? Good one, Harvey.


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