May 31/ON First day notice in the gold contract, 3508 notices were served for 350800 oz or 10.9 tonnes./ The total no of gold tonnes standing for gold initially: 48.189 tonnes: absolutely huge!!/In England BREXIT surpasses BREMAIN!!/CEO of base commodity and oil company Noble, abruptly leaves the company/

Good evening Ladies and Gentlemen:

Gold:  $1,214.80 UP $1.10    (comex closing time)

Silver 15.97  down 28 cents

 

In the access market 5:15 pm

Gold $1216.00

silver:  15.99

 

i) the June gold contract is an active contract and the second biggest delivery month of the year following December. Friday night, the bankers first day delivery issuance to our longs to be settled on June 1 was huge: the number was  3,508 gold notices for 350,800 oz or 10.9 tonnes of gold.The number of open interest standing for gold, released at 1:30 pm this afternoon is astronomical at 15,493 contracts and thus 1,549,300 oz will be initially standing for gold in this active month of June  (48.189 tonnes)

In silver we have 555 contracts standing for 2,775,000 oz of silver which is huge for an off month.

 

Let us have a look at the data for today

.

At the gold comex today we had a MONSTER delivery day FOR FIRST DAY NOTICE, registering 3508 notices for 350,800 ounces for gold OR 10.9 TONNES,and for silver we had 3 notices for 15,000 oz for the non active JUNE delivery month.In June, open interest for gold has a whopping 15,493 contracts standing for 1,549,300 oz or 48.189 tonnes.

Silver has 555 contracts standing for 2.775,000 million oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 262.97 tonnes for a loss of 40 tonnes over that period

 

In silver, the total open interest FELL by 654 contracts DOWN to 199,672 DESPITE THE FACT THAT THE PRICE OF SILVER WAS DOWN by only 9 cents with respect to FRIDAY’S trading.In ounces, the OI is still represented by just under 1 BILLION oz i.e. 0.9985 BILLION TO BE EXACT or 142% of annual global silver production (ex Russia &ex China)

In silver we had 3 notices served upon for 15,000 oz.

In gold, the total comex gold OI fell by a CONSIDERABLE 14,880 contracts DOWN to 493,080 as the price of gold was DOWN $6.60 with FRIDAY’S trading(at comex closing). They certainly got the liquidation in gold but not silver.

Friday night I wrote the following:

“However what is surprising is the fact that we have still an extremely high OI for the front June contract month (active)”

And so it was.  The open interest for the Front June Contract Month is an unbelievable  15,493 contracts or 48.189 tonnes of gold.

 

Options expiry for the gold and silver contracts ended at 12 noon.  These are the LBMA and OTC contracts traded in London England.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

With respect to our two criminal funds, the GLD and the SLV:

We had no change in gold inventory at the GLD  The inventory rests at 868.66 tonnes. .

We had no change in silver inventory at the SLV/Inventory rests at 335.739 million oz

.

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

1. Today, we had the open interest in silver FALL by 654 contracts DOWN to 199,672 as the price of silver was DOWN by ONLY 9 cents with FRIDAY’S trading. The gold open interest FELL by 14,880 contracts down to 493,080 as gold was down $6.60 ON FRIDAY.  Our bankers have a lot of work cut out for them as the 48 tonnes of gold standing will break the bank i.e. the comex.

(report Harvey).

 

2 a) Gold trading overnight, Goldcore

(Mark OByrne/off today

2b)  Gold trading earlier this morning;

(Mark O’byrne)

3. ASIAN AFFAIRS

i)Late  MONDAY night/ TUESDAY morning: Shanghai closed UP  BY 94.17 PTS OR 3.34%  /  Hang Sang closed UP 185.70 OR 0.90%. The Nikkei closed UP 166.96 POINTS OR 0.98% . Australia’s all ordinaires  CLOSED DOWN 0.54% Chinese yuan (ONSHORE) closed DOWN at 6.5776 .  Oil ROSE to 49.52 dollars per barrel for WTI and 50.05 for Brent. Stocks in Europe ALL IN THE RED . Offshore yuan trades  6.5870 yuan to the dollar vs 6.5776 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS A BIT.

REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) REPORT ON JAPAN

Trouble ahead for Japan as Abe is set to warn that there is going to be another sales tax delay:  Why is this important?  A delay will certainly cause our rating agencies to lower the boom on Japan again.  Thus their debt will be downgraded  and that can present itself with trouble as nobody will want to purchase any Japanese bonds.

( zero hedge)

b) REPORT ON CHINA

i)Monday:

Late Sunday night early Monday morning, China sends another huge warning across the bow to Yellen.  The Yuan  (on shore) falls .5% down to 6.5794 and then crosses into the 6.5800 column hitting 6.5805 Monday morning.  The lower yuan and higher dollar is playing havoc around the world:  emerging markets are faltering due to lower commodity prices as we witness the head of Noble Industries abruptly leave office.  The lower yuan will spur dollars to immediately leave China.  Remember that 49% of Chinese FX reserves are short term speculative funds.  It is also interesting that the comex received the highest number of notices filed for the first day notice in over 5 years:

a must read….

( zero hedge)

 

ii)Late Monday night/Tuesday morning:

Flash crash eliminated quickly by the central authorities

( zero hedge)

4. EUROPEAN AFFAIRS

i)Martin Senn was the former CEO of the largest insurance company in the world Zurich Insurance.  He stepped down abruptly in Dec 2016. Today he committed suicide.  What is really strange is that this suicide occurred 3 yrs after the previous CFO hanged himself.  It sure looks like insurance companies cannot survive in a negative interest world

( zero hedge)

 

ii)The public unions are having a devastating effect on the economic climate in France as airports are blocked, gas stations are out of petrol and nuclear plants stretched to the limit.  Yesterday France passed a new law that it is illegal for your employer to send yo an email outside of work hours.  Give me a break!  All public  unions should be banned.

( zero hedge)

iii)wow!! this came out of nowhere:  BREXIT is now more likely than “BREMAIN:

THIS OUGHT TO BE VERY GOOD FOR GOLD!
( zero hedge)

5.RUSSIAN AND MIDDLE EASTERN AFFAIRS

i)Over the weekend:

This is not good as Putin vows retaliation over the employment of a Missile Shield on Russia’s doorstep.  Also Greece makes advances towards Russia:
( zero hedge)

ii)Sunday:

Again the West continues to annoy Putin as he must respond to the UK stockpiling tanks and heavy equipment close to Russia’s border
( zero hedge)
iii)The following illustrates how Sweden is becoming the rape capital of the world;( zero hedge)

6.GLOBAL ISSUES

A good summary as to how Nigeria will be the next Venezuela as the undergoing a huge meltdown.

( London’s Financial Times)

7.OIL ISSUES

Despite the highest oil production from OPEC, oil spikes close to 50 dollars due to turmoil in Libya and Nigeria:

( zero hedge)

8.EMERGING MARKETS

i  a)So what else is new:  the latest brand new anti corruption Minister quits after a leak which exposes his involvement in the corruption scandal:

( zero hedge)

 

1 b) Brazil now in a depression as investors flee the country

( zero hedge)

 

ii)How Venezuela with the world’s largest oil reserves in the ground, collapsed. The socialistic government expropriated all the major businesses in Venezuela and as such no proper mechanism in place as to what to produce.  This should be a lesson to all:

( zero hedge)

9. PHYSICAL MARKETS

i)We have highlighted this story last week as Venezuela’s gold reserves plunge by 1/3 as the repay their debt with gold.  They should run out by the end of the second quarter of 2016.

(zero hedge)

ii)A very big story:  the CEO of Noble Group, Asia’s largest commodity trader has unexpectedly resigns.  These guys are traders in base metals and oil and a default will cause huge derivative damage throughout the globe.( zero hedge)

 

iii)When Grant Williams speaks, you listen.  He explains why he accumulates gold and by the world will introduce a wealth tax:

( Grant Williams)

 

iv)The LBMA’s objective is to keep most of the us in ignorance as to the true nature of gold settlements, forwards etc.

( Ronan Manly/bullionstar)

v)The Libertarian platform is a failure with respect to gold:

( NY Sun/GATA)
vi)Today, Bill Holter catches what I have been telling you:( Bill Holter/Holter-Sinclair collaboration)

USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER

i)Personal spending spikes by 1% caused no doubt by the huge rise in oil prices and gas prices.  The higher spending causing savings to plummet:

( zero hedge)

 

ii)This morning we had two biggy reports:

The first was a huge slump in the national Chicago  mfg index back into contraction mode:
( zero hedge)

iii)The second report showed consumer confidence plunging to 10 month lows.

Remember that in the USA the consumer is 70% of GDP and Janet will not like this number:
( zero hedge)

iiib)The following is quite shocking:  a huge 6 sigma miss again on the Dallas Mfg Fed index plunging from 13.9 down to -20.8.  Even the higher price of oil is not helping the Dallas area manufacturing sector:

( zero hedge)

iv)David Stockman comments on how Main Street street is losing out to Wall Street

(part 3)

( David Stockman/ContraCorner)

 

v)The author goes into great detail on the durable goods orders and how in reality this number has been continually revised downwards.  Since 2012 the total revision is 440 billion USA.  Thus the economy has never grown at all:

( Alhambra Partners)

vi)Sam Zell dumps major holdings in the USA real estate market as he warns a crash in imminent:

( zero hedge)

 

vii)They never learn:  Wells Fargo is now giving mortgages to low income debt heavy individuals as the pipeline is drying up .  They are trying to find innovative ways to boost lending:
( Wells Fargo/zero hedge)

Let us head over to the comex:

 

The total gold comex open interest FELL to an OI level of 493,080 for a CONSIDERABLE LOSS of 14,880 contracts AS THE PRICE OF GOLD WAS DOWN $6.60 with respect to FRIDAY’S TRADING.  We have now finished the NON active delivery month of MAY AND ENTER THE SECOND BIGGEST DELIVERY MONTH OF THE YEAR, JUNE, A VERY ACTIVE MONTH. 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. IN THE MONTH OF MAY THE LATER HAD STOPPED. ACTUALLY WE DID WITNESS A GRADUAL RISE IN AMOUNT STANDING THROUGH THE MONTH. THUS AT FIRST CRACK, IN JUNE, WE HAVE CERTAINLY WITNESSED THE FORMER, THE LOSS OF A HUGE NUMBER OF OPEN INTEREST CONTRACTS FOR THE ENTIRE GOLD COMEX COMPLEX. WE NOW AWAIT TO SEE IF THE JUNE OI CONTRACTS THROUGHOUT THE MONTH I.E. IS IT SETTLED IN FIAT OR GOLD.

 The big active gold contract OF June FINALLY SETTLED UPON  a massive OI OF  15,493 , HAVING FALLEN BY  by 24,027 contracts.  The next on active month of July saw it’s OI fall by 229 contracts down to 2818. The next big contract month is August and here the OI fell by 9,200 contracts down to 354,368. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was excellent a 354,368.  The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was EXCELLENT at 274,810 contracts. The comex is not in backwardation.

Today we had 3,508 notices filed for 350800 oz in gold.(a monstrous 10.9 tonnes)

 

And now for the wild silver comex results. Silver OI FELL by 654 contracts from 200,326 DOWN to 199,672 despite the fact that the price of silver was down BY only 9 cents with FRIDAY’S TRADING. We now enter the non active month of June which saw its OI FALL by 20 contracts DOWN to 555 OI and this represents the initial amount standing for delivery in silver. The next big delivery month is July and here the OI fell by 1257 contracts DOWN to 128,698. The volume on the comex today (just comex) came in at 87,878 which is HUMONGOUS. The confirmed volume ON FRIDAY (comex + globex) was VERY GOOD at 41,436. Silver is not in backwardation . London is in backwardation for several months.
 
We had 3 notices filed for 15,000 oz.
 

JUNE contract month:

INITIAL standings for JUNE

May 31.
Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  9645.000 OZ

,SCOTIA

300 KILOBARS

Deposits to the Dealer Inventory in oz 2411.25 OZ

BRINKS

75 KILOBARS

Deposits to the Customer Inventory, in oz    nil
No of oz served (contracts) today 3508 contracts
(350800 oz)
No of oz to be served (notices)  

11,985 contracts

1,195,000 oz

Total monthly oz gold served (contracts) so far this month 3508 contracts (350,800 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month  9645.000 OZ

Today we had 1 dealer deposits

i) into the dealer Brinks:  2411.25 oz 75 KILOBARS

total dealer deposit:  2411.25 0z  75 KILOBARS

Today we had 0 dealer withdrawals:

total dealer withdrawals:  nil oz

Today we had 0 customer deposits:

 

 

Total customer deposits;  nil OZ

Today we had 1 customer withdrawals:

 

i) Out of Scotia: 9,645.00 oz  300 kilobars

total customer withdrawals: 9,645.000 OZ

Today we had 2 adjustments:

Out of HSBCs:

771.624 oz was adjusted into the customer account from the dealer account and I will deem that a settlement:  .0024 tonnes.

Out of Scotia: a whopping 229,461.725 oz was adjusted out of the customer and this landed into the dealer account of Scotia

 

 

Today, 0 notices was issued from JPMorgan dealer account and 640 notices were issued from their client or customer account. The total of all issuance by all participants equates to 3508 contracts of which 143 notices was stopped (received) by JPMorgan dealer and 369 notice was stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the JUNE contract month, we take the total number of notices filed so far for the month (3508) x 100 oz  or 350,800 oz , to which we  add the difference between the open interest for the front month of JUNE (15,493 CONTRACTS) minus the number of notices served upon today (3508) x 100 oz   x 100 oz per contract equals 1,549,300 oz, the number of ounces standing in this active month.  This number is huge for JUNE.  THE AMOUNT STANDING FOR GOLD IN MAY HELD THROUGHOUT THE MONTH AND ACTUALLY INCREASED AS THE MONTH PROCEEDED. LET US SEE WHAT HAPPENS TO OUR REMAINING LONGS IF THEY WILL SETTLE WITH FIAT OR GOLD.
 
Thus the INITIAL standings for gold for the JUNE. contract month:
No of notices served so far (3508) x 100 oz  or ounces + {OI for the front month (15,493) minus the number of  notices served upon today (3508) x 100 oz which equals 1,549,300 oz standing in this   active delivery month of JUNE (48.189 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 48.189 tonnes of gold standing for JUNE and 30.278 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 6.889 TONNES FOR MAY + 48.189 TONNES FOR JUNE + 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 – MAY 12  .0003- May 18: 1.5635 tonnes-May 19/   2.535 tonnes-May 27 .0185 – .024 TONNES MAY 31   = 65.381 tonnes still standing against 30.278 tonnes available.
 
Total dealer inventor 973,464.864 tonnes or 30.278 tonnes
Total gold inventory (dealer and customer) =8,452,707.909 or 262.914 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 262.914 tonnes for a loss of 40 tonnes over that period. 
 
JPMorgan has only 22.79 tonnes of gold total (both dealer and customer)
JPMorgan now has only .900 tonnes left in its dealer account.
 
 end
And now for silver
 

MAY FINAL standings

 May 31.2016

Silver
Ounces
Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory  nil

 

Deposits to the Dealer Inventory nil oz
Deposits to the Customer Inventory  300,649.300 oz

Brinks

No of oz served today (contracts) 3 CONTRACTS 

15,000 OZ

No of oz to be served (notices)  

552 contracts

 

2,760,000 oz

Total monthly oz silver served (contracts) 3 contracts (15,000 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  9,825,598.5 oz

today we had 0 deposit into the dealer account

total dealer deposit:nil oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 1 customer deposit:

 

Total customer deposits: 300,649.370 oz.

We had 0 customer withdrawals

 

:

total customer withdrawals:  nil oz

 
 

 

 we had 1 adjustment

i) Out of HSBC:  434,428.810 oz was adjusted out of the dealer and this landed into the customer account.  This no doubt is a settlement.

The total number of notices filed today for the JUNE contract month is represented by 3 contracts for 15,000 oz. To calculate the number of silver ounces that will stand for delivery in JUNE., we take the total number of notices filed for the month so far at (3) x 5,000 oz  = 15,000 oz to which we add the difference between the open interest for the front month of JUNE(555) and the number of notices served upon today (3) x 5000 oz equals the number of ounces standing 
 
Thus the initial standings for silver for the JUNE contract month:  3 (notices served so far)x 5000 oz +{555 OI for front month of JUNE ) -number of notices served upon today (3)x 5000 oz  equals  2,775,000 of silver standing for the JUNE contract month.
 
Total dealer silver:  29.689 million
Total number of dealer and customer silver:   153.897 million oz
The open interest on silver is NOW AT CLOSE an all time high with the record of 207,394 being set May 18.2016. The registered silver (dealer silver) is close to multi year lows as silver is being drawn out and heading to China and other destinations. The shear movement of silver into and out of the vaults signify that something is going on in silver.
end
And now the Gold inventory at the GLD
May 31/NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 868.66 TONNES
May 27/no change in gold inventory at the GLD/Inventory rests at 868.66 tonnes
May 26./no change at the GLD/Inventory rests at 868.66 tonnes
May 25./no change in gold inventory at the GLD/Inventory rests at 868.66 tonnes
MAY 24/ a good sized withdrawal of 3.86 tonnes of paper gold from the GLD/Inventory rests at 868.66 tonnes
May 23./this is rather impossible: another huge deposit of 3.26 tonnes into the GLD with the price of gold down again today?/inventory rests at 872.52 tonnes
May 20/what!!!A MONSTER DEPOSIT OF :8.92 TONNES OF GOLD INTO THE GLD INVENTORY/AND WITH GOLD DOWN $2.80??/INVENTORY RESTS AT 869.26
May 19/ANOTHER HUGE DEPOSIT OF 4.46 TONNES OF GOLD INTO THE GLD/iNVENTORY RESTS AT 860.34 TONNES
May 18 /no changes in inventory at the GLD/Inventory rests at 855.89 tonnes.
May 17/ we had a huge deposit of 4.76 tonnes of gold into the GLD/Inventory rests tonight at 855.89 tonnes/in the last two and 1/2 weeks we have added 50 tonnes of gold and this most likely was all paper gold addition..
May 16./ today we had no changes in inventory at the GLD/Inventory rests at 851.13 tonnes
May 13./another addition of 5.94 tonnes of gold into the GLD/Inventory rests at 851.13 tonnes
May 12/another huge deposit of 3.27 tonnes in gold inventory at the GLD/inventory rests at 845.19 tonnes
May 11/another huge deposit of 2.67 tonnes in gold inventory at the GLD/Inventory rests at 841.92 tonnes
May 10/Another huge deposit of 2.38 tonnes in gold inventory at the GLD/Inventory rests at 839.25 tonnes
May 9/Surprisingly we had another deposit of 2.68 tonnes of gold into the GLD with gold down!! Inventory 836.87 tonnes
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

May 31.:  inventory rests tonight at 868.52 tonnes

end

Now the SLV Inventory
May 31/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 335.739 MILLION OZ
May 27/no change in silver inventory at the SLV/Inventory rests at 335.739 million oz/
May 26./ no change in silver inventory at the SLV/Inventory rests at 335.739 million oz
May 25./no change in silver inventory at the SLV/Inventory rests at 335.739
MAY 24/no change in inventory at the SLV/Inventory rests at 335.739 million oz
May 23./we had a small withdrawal of 285,000 oz and that generally means payment of fees.Inventory rests at 335.739 million oz
May 20/WE HAD A GOOD SIZED DEPOSIT OF 951,000 OZ INTO THE SLV/INVENTORY RESTS AT 336.024 MILLION OZ
May 19/no changes in silver inventory at the SLV/Inventory rests at 335.073 million oz
May 18/no changes in silver inventory at the SLV/Inventory rests at 335.073 million oz/
May 17/no change in silver inventory at the SLV/Inventory rests at 335.073 million oz/
May 16./no changes in silver inventory at the SLV/Inventory rests at 335.073 million oz
May 13./no change in silver inventory at the SLV/inventory rests at 335.073 million oz
May 12/no change in silver inventory/rests tonight at 335.073 million oz/
 May 11.2016/no change in silver inventory/rests tonight at 335.073 million oz/
May 10.2016/we had a huge withdrawal of 1.046 million oz in silver leaving the SLV,no doubt for Shanghai which lately has been gobbling up whatever inventory it could lay its hands on/Inventory rests at 335.073 million oz.
May 9. no change in silver inventory/rests at 336.119 million oz.
.
May 31.2016: Inventory 335.739 million oz
end

NPV for Sprott and Central Fund of Canada

will update on this site later tonight/

1. Central Fund of Canada: traded at Negative 4.8 percent to NAV usa funds and Negative 5.1% to NAV for Cdn funds!!!!
Percentage of fund in gold 61.4%
Percentage of fund in silver:37.2%
cash .+1.4%( May 31/2016). /
2. Sprott silver fund (PSLV): Premium RISES to -0.19%!!!! NAV (MAY 31.2016) 
3. Sprott gold fund (PHYS): premium to NAV  rises TO +0.45% to NAV  ( MAY 31.2016)
Note: Sprott silver trust back  into NEGATIVE territory at -19% /Sprott physical gold trust is back into positive territory at +0.45%/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 -0.19%.  Remember that Eric is to get 75 million dollars worth of silver in a new offering.
 
 
 

END

 

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

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

Smart Money Diversifying Into Gold As BREXIT Fuels Market Uncertainty

BREXIT gold diversification is taking place due to concerns about the BREXIT vote on June 23rd as “smart money” institutions, banks and investors diversify into non negative yielding gold.

BREXIT_gold
One of the oldest private banks in the world, Berenberg, established in 1590 and with assets under management of €40 billion said in an interview that demand for precious metals should see prices “rebound by as much as 40 percent in the next two years to a level last seen in October 2012” according to Bloomberg:

Joh. Berenberg Gossler & Co. plans to increase its holdings of gold and other precious metals, betting that demand will be lifted by uncertainty surrounding the outcome of the U.S. elections and the vote on the U.K.’s membership of the European Union.

Chief Investment Officer Manfred Schlumberger, who joined the Hamburg-based bank in January, expects gold, silver and platinum markets to rebound by as much as 40 percent in the next two years to a level last seen in October 2012. For that reason, Berenberg plans to double the share of precious metals in its investment portfolio to about 10 percent in the weeks ahead, he said. The company manages about 40 billion euros ($45 billion) of assets.

“People used to go for 10-year German government bonds or treasuries, but as they don’t offer any yield, more investors will consider buying bullion,” Schlumberger, 58, said in an interview. “It will be a segment that will benefit from political uncertainties like Brexit or a possible Donald Trump election victory.

Schlumberger is targeting an entry-level price of between $1,200 and 1,230 an ounce.”

Bloomberg article here

The smart money, large institutional money, who understands diversification and gold’s function as a store of value continues to diversify into gold. There is an awareness of gold’s benefit as a hedging instrument and safe haven asset but also an awareness that the outlook for prices at these still depressed levels is very positive.

This is seen in the view of Berenberg, which is in the fifth century of its existence and one of the oldest owner managed banks in the world, who see gold returning to  2012 levels at $1,900/oz per ounce.

The less informed money continues not to appreciate the risks that are again building in the system. Risk appetite remains high and there is a distinct lack of awareness regarding how risks, such as BREXIT, may impact financial markets and traditional assets such as stocks, bonds, property and indeed deposits.


Recent Market Updates
– Gold Forecasts Revised Higher – Citi Says “Buy the Dip”
– Global Financial Crisis Coming – Japan Warns of “Lehman-Scale” Crisis At G7
– Gold Should Rise Above $1,900/oz -“New Bull Market”
– World’s Largest Asset Manager Suggests “Perfect Time” For Gold
– Gold As “Extremely Low-Risk Asset” – Rogoff Advises Creditor Nations
– Silver – “Best Precious Metals Trade”
– Bank Bail-Ins Pose Risks To Depositors, Investors & Economies

7 Key Storage Must Haves - Copy (1)Learn the risks inherent in paper and digital gold


Gold and Silver News
Gold inches up but heading for biggest monthly decline in six (Reuters)
Gold hovers above $1,200-an-ounce after Yellen drops heavy hints on rate increases (Marketwatch)
As Brexit, Trump Multiply Global Risks, Gold Seen at $1,400 (Bloomberg)
Gold Nearing Oversold Level as Metal Approaches $1,200: Chart (Bloomberg)

British property market has peaked, estate agency boss says (Guardian)
Trump’s wild “helicopter money” idea may be here sooner than you’d think (Telegraph)
Why France must accept reform or face disaster  (Telegraph)
Former Morgan Stanley Chief Asia Economist: “World Economy Is In Real Trouble” (Zero Hedge)
Gold Is Near an All-Time Inflation-Adjusted Low (Casey Research)
Read More Here

Gold Prices (LBMA AM)
31 May: USD 1,210.50, EUR 1,087.39 and GBP 829.07 per ounce
30 May: No Fix as Spring Holiday in UK
27 May: USD 1,221.25, EUR 1,092.16 and GBP 833.50 per ounce
26 May: USD 1,226.65, EUR 1,097.24 and GBP 834.37 per ounce
25 May: USD 1,220.75, EUR 1,094.77 and GBP 834.63 per ounce

Silver Prices (LBMA)
31 May: USD 16.06, EUR 14.40 and GBP 10.99 per ounce
30 May: No Fix as Spring Holiday in UK
27 May: USD 16.30, EUR 14.58 and GBP 11.12 per ounce
26 May: USD 16.46, EUR 14.73 and GBP 11.20 per ounce
25 May: USD 16.21, EUR 14.54 and GBP 11.06 per ounce

Mark O’Byrne
Executive Dire
end
We have highlighted this story last week as Venezuela’s gold reserves plunge by 1/3 as the repay their debt with gold.  They should run out by the end of the second quarter of 2016.
(zero hedge)

Venezuela’s Gold Reserves Plunge To Lowest Ever As Maduro Repays Debt With Gold

Several months ago, as Venezuela’s hyperinflating, imploding economy was spinning in freefall, leading to the dramatic episodes of total social collapse such as those profiled in “Scenes From The Venezuela Apocalypse: “Countless Wounded” After 5,000 Loot Supermarket Looking For Food“, we wrote that the country which recently had “run out of money to print its own money” was preparing to liquidate its remaining gold holdings to pay coming debt maturities.

Then, courtesy of an analysis by our friends at Bullionstar, we found just how Venezuela was quietly exporting tons of its gold to Switzerland, as it prepared to conclude the transaction with whoever the end buyer of Venezuela’s bullion would end up being.

And now it’s official – the “gold for fiat” transaction has been officially concluded, and as the FT writes, Venezuela’s gold reserves have plunged to their lowest level on record after the country sold $1.7 billion of the precious metal in the first quarter of the year to repay debts. The country is grappling with an economic crisis that has left it struggling to feed its population.

The OPEC member’s gold reserves have dropped almost a third over the past year and it sold over 40 tonnes in February and March, according to IMF data. Gold now makes up almost 70% of the country’s total reserves, which fell to a low of $12.1 billion last week.

At this point it is only a matter of time before Maduro, scrambling to preserve his regime from both domestic political opposition and foreign creditors, sell all of the Venezuela gold which his late predecessor diligently scrambled to repatriate so it would avoid precisely this fate.  The late president Hugo Chávez had said he would free Venezuela from the “dictatorship of the dollar” and directed the central bank to ditch the US dollar and start amassing gold instead. In 2011, as a safeguard against market instability, Chávez brought most of the gold stored overseas back to Caracas.

It must be an double slap in the face of the impoverished local population to watch as Maduro undoes everything Chavez had achieved, if only when it comes to the country’s gold reserves.

Venezuela began selling its gold reserves in March 2015, according to IMF data. At roughly 367 tonnes, Venezuela has the world’s 16th-biggest gold reserves, according to the World Gold Council.

While Venezuela was selling, China and Russia were buying – perhaps from Maduro – and both have added to their gold holdings this year, the data show.

As a reminder, last year Venezuela’s central bank swapped part of its gold reserves for $1 bilion in cash through a complex agreement with Citi As the FT unnecessarily notes, the gold swap is another indication the country is desperate for cash… in case it was not obvious from the surge in murders, violence and general social unrest.

But the main reason why the gold liquidation will continue is that Venezuela and its national oil company PDVSA have some $6bn to repay in principal and interest payments this year. Amid fears of default, PDVSA is attempting to restructure some of its debt, sources say.

Seeking to reassure investors this month, Miguel Pérez Abad, Venezuela’s economic tsar, told news agencies that the country has reached a deal with its main financier China to extend loans, and that he would further cut imports, even if shortages of basic goods are ravaging the country. Which is notable because as we further reported recently, the main reason why China is being flooded with oil is because countries like Venezuela are sending far more oil to repay their debt which was issued when oil was trading at $100, and as a result Caracas has to ship out double or triple the amount of oil to Beijing to satisfy the terms of the loan.

“We have a cash flow problem, but we have sufficient assets for the short-term and will reprofile the debt levels in an intelligent manner. There are various scenarios, and all of the proposals are extraordinary for the bondholders. They have the absolute assurance that their securities are guaranteed,” Mr Pérez Abad told Bloomberg. Ecoanalítica, a Caracas-based consultancy, said in a note that “we consider that the payments of external debt is a priority for the executive.”

In other words, Venezuela, which is now effectively a failed state, will soon part with its last liquid reserve of worth, when it sells its remaining gold to repay its Developed nation lenders, while it continues to pump oil to keep Beijing happy as it repays its energy loans to China.

Finally, for those who need a quick and easy primer, here is a quick clip explaining in under 100 seconds how Venezuela’s sovereign default is just a question of when.

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A very big story:  the CEO of Noble Group, Asia’s largest commodity trader has unexpectedly resigns.  These guys are traders in base metals and oil and a default will cause huge derivative damage throughout the globe.

(courtesy zero hedge)

CEO Of Asia’s Largest Commodity Trader Unexpectedly Resigns

We have tracked the problems of recently junked Noble Group – Asia’s largest commodity trader – extensively over the past year (see “Noble Group’s Kurtosis Awakening Moment For The Commodity Markets“, “Junk Isn’t Very Noble: Asia’s Largest Commodity Trader Responds To Moody’s Downgrade“, “Noble Group’s Cliffhanger“, “Noble Group’s “Collateral Margin Call“, “Noble Group’s “Margin Call” Part II: The Enron Moment“).

And then moments ago things finally turned serious for the company, which just a few weeksago finalized a $3 billion credit facility in what according to some was an “all clear” moment. Apparently the only clarity was for long-time company CEO, and former Goldmanite Yusuf Alireza, that the time has come to exit stage left.

As the company announced moments ago on the Singapore stock exchange, not only is CEO Alireza resigning, to be replaced by William Randall and Jeff Frase as co-CEOs, but the company will also begin the sale process of its Noble Americas Energy Solutions, a deal that will generate “significant cash proceeds”, which is great since Nobel is desperately in need of cash; it also means that the company is losing one more of its star performing assets as it continues to asset strip itself of any potential future growth, and is merely scrambling to preserve solvency and liquidity.

Randall, based in Hong Kong, is currently President of Noble Group and an Executive Director and will retain his Board Seat. Frase, based in Stamford, Connecticut is currently President, Noble Americas and Head of Oil Liquids and will be invited to join the Board.

From the press release:

The Directors of Noble Group announce that they have accepted the resignation of Yusuf Alireza, Chief Executive Officer.

Mr. Alireza has helped guide Noble through a very challenging period, moving the company to an asset light, merchant focused model; he played a pivotal role in the successful sale of Noble Agri to a group of investors led by COFCO, and has also been instrumental in securing the recently announced re-financing, a crucial element in the process of giving the group a stable base from which to develop.

With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on. The Board wishes to thank Mr. Alireza for his dedication and commitment to the company over the last four years, and in particular for his huge commitment of time and energy over the past eighteen months, as Noble has navigated some of the most difficult market conditions ever seen in commodities markets.

The Board looks forward to working with Yusuf in the future should the opportunity arise.

A separate announcement will be made about succession to Mr. Alireza

And in a separate press release the company announced Alireza’s replacements, as well as the major corporate overhaul noted above:

The Board of Directors of Noble Group wishes to announce the appointment of Mr. William Randall and Mr. Jeff Frase as Co Chief Executive Officers. Will, based in Hong Kong, is currently President of Noble Group and an Executive Director and will retain his Board Seat. Jeff, based in Stamford, Connecticut is currently President, Noble Americas and Head of Oil Liquids and will be invited to join the Board.

In addition, the Board also confirmed today that Mr. Richard Elman will continue in his role as Chairman and Executive Director.

Richard Elman commented “I am delighted that Will and Jeff will be leading Noble Group’s operations as we embark on the Company’s next chapter. Their complementary commodities expertise and geographical focus will be hugely valuable as we position ourselves for the future.”

Will, having begun his career with Noble in Australia in February 1997, established Noble’s coal operations, mining and supply chain management businesses. He also served as a Director of Noble Energy Inc. prior to being appointed Global Head of Coal and Coke in 2006, and a member of the Noble Group internal Management Committee Board in 2008. He was appointed an Executive Director and Head of Hard Commodities in 2012, prior to which he had been Head of Energy Coal and Carbon Complex. He holds a Bachelor degree in Business from the Australian Catholic University majoring in international marketing and finance.

Jeff is based in Stamford, Connecticut and is currently President, Noble Americas and Head of Oil Liquids.

Jeff joined the Group from JP Morgan in New York where he was Managing Director and Global Head of Oil Trading. Prior to JP Morgan he spent 17 years at Goldman Sachs where he was a Managing Director and Global Head of Crude Oil and Derivatives Trading.

The Board expects to announce some further additional leadership appointments in due course as the business developments dictate.

In addition, the Board wishes to announce that it will shortly be starting the sale process for Noble Americas Energy Solutions, a transaction which is expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet. This is in addition to fund raising initiative previously announced. Full details will be released in the near future.

For a rather gloomy, pessimistic, and in light of this latest news, justified, take on how the Noble Group saga ends, please read the following note “The Big N, its Bankruptcy Risk and its Circularity with the Energy Commodity Prices.”

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The LBMA’s objective is to keep most of the us in ignorance as to the true nature of gold settlements, forwards etc
(courtesy Ronan Manly/bullionstar)

Ronan Manly: London precious metals clearing’s objective is ignorance

Section:

9:33a ET Monday, May 30, 2016

Dear Friend of GATA and Gold:

Gold researcher Ronan Manly today examines London Precious Metals Clearing Ltd., a conglomerate of the major gold-trading institutions in London, and concludes that its objective is to keep the world ignorant of the manipulation of the price of the monetary metal.

“Firstly,” Manly writes, “LPMCL keeps the entire pyramid of London’s unallocated precious metals trades spinning. By not reporting any trade information, the London Bullion Market Association and LPMCL keep the entire gold world in the dark about the extent of the London paper gold trading scheme.

“Secondly, LPMCL preserves opacity and prevents public reporting of precious metals trades, including central bank gold lending and gold swaps, and therefore keeps this major gold market trading activity out of focus, with the spotlight off the role of the Bank of England in the London gold market.”

Those involved with it, Manly asserts, “are merely helping to protect an entrenched system of opacity in which central banks, sovereign institutions, monetary authorities, the Bank for International Settlements, large bullion banks, and other large operators can move within the gold market without being concerned that any of their transactions and interventions will ever be noticed and reflected in gold price discovery. This is not an efficient market. Far from it. This is a protected and hidden physical trading system upon which is overlaid a massive pyramid of fractional-reserve paper gold trading.”

Manly’s study is headlined “Spotlight on LPMCL: London Precious Metals Clearing Limited” and it’s posted at Bullion Star here:

https://www.bullionstar.com/blogs/ronan-manly/spotlight-lpmcl-london-pre…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

end

 

When Grant Williams speaks, you listen.  He explains why he accumulates gold and by the world will introduce a wealth tax:

(courtesy Grant Williams)

Grant Williams Warns Of Looming ‘Wealth Tax’, Says “Own Physical Gold, Not ETFs”

Grant Williams, strategy advisor to Vulpes Investment Management and co-founder of Real Vision Television is always worth the read or listen, and he sat down for an interview during his time at this year’s Mauldin Strategic Investment Conference to discuss his views on gold, and why physical cash is being eliminated.

On the subject of gold, Williams is very quick to point out that he doesn’t buy gold for the price, he owns it for what it does. He goes on to say that once people realize the value of owning physical gold, ETF’s will no longer be what investors want to own.

I don’t buy gold, I own it. I don’t buy gold at $1,100 because I think it’s going to go to $1,200. I buy it for what it does, not what the price is, the price is the last consideration for me. I think the way the picture has been developing over the last eight years, it’s like when you take a polaroid, you take a picture and you sit there and you watch this thing and it slowly comes into focus, and that’s what it’s been like for me watching gold, we’re watching this picture slowly develop.”

“We’re getting to the point where people are going to be able to see the picture, and at that point gold is the answer. It’s not just an asset anymore it’s the answer to a lot of people’s questions. When that happens, I think the most important stage of this completes itself and that is the resolution between the paper price and the physical asset. I think when we get to that point where people want to own gold, ETF’s won’t suffice anymore. A promise to deliver three months hence is not going to be sufficient anymore, people are going to want to own the asset. At that point you realize that there are multiple hundreds of claims per ounce, and those claims won’t be worth anything anymore it’s going to be the asset, and that’s the end game.”

“The picture is becoming clearer, and everything the central banks are doing is bringing that day forward a little bit.”

When asked the question how to hedge the many risks that investors face today, Williams shifts the conversation to holding cash. As people hoard cash it negates what the central banks are trying to do so they’re discouraging holding cash, but he rightly points out that any time someone is telling you ‘you really shouldn’t do that, we’re going to discourage you from doing that’ often times that’s where people want to (and should) go.

The thing you’re being discouraged most to own is cash. If people hoard cash it negates what the Fed is trying to do; lower interest rates, get people spending, bring the velocity of money up. You can see, the results are all in the opposite direction. You look at the savings rate which bottomed in 2006, we had the sharp spike in ’08 which is a perfectly natural thing to do in a crisis, it came back a little bit but the trend is now such that the savings rate has tripled. That is not something that you would expect as a Federal Reserve governor to be the outcome of taking rates to zero, the idea is let’s make it unattractive to hold cash.”

“Any time someone is telling you, ‘you really shouldn’t do that, we’re going to discourage you from doing that’, often times that’s where people want to go and so I think holding cash, the optionality that you have inherent in owning cash now has certainly not been higher since going in to 2008.

On the push to eliminate physical cash, Williams notes that it’s just the logical next step in a plan for the governments to be able to take from those that have money, and give to those who do not. He also accurately points out that the media is helping the government accomplish this task with its constant narrative that only drug dealers and other bad guys use cash.

“Having the ability through digital cash, for a government to reach into your bank account and take 10 percent 20 percent, whatever it may be, is what they need. They can see this coming, at some point they’re going to have to take money from the people who have it to fill the hole of the people who have spent it. This was a perfectly logical next step in that process.

* * *

end
The Libertarian platform is a failure with respect to gold:
(courtesy NY Sun/GATA)

New York Sun: Libertarians without gold

Section:

From the New York Sun
Monday, May 30, 2016

Two really excellent pieces have gone up on the Web this afternoon in respect of the Libertarian ticket of Governor Gary Johnson for president and Governor William Weld for vice president. The first one, by Ira Stoll, focuses on the Libertarian default in respect of foreign policy; the Wall Street Journal touches on that too, and both stress the choice the Johnson-Weld ticket represents in the face of Donald Trump and Hillary Clinton (or Bernard Sanders). We share both the Journal’s and Mr. Stoll’s concerns.

What we’d been hoping for from the Libertarians is a focus on monetary reform. This was a central plank of the one-time Libertarian candidate, Ron Paul, now retired. As a Republican, Paul brought his campaign for honest money to a head in the 2012 primaries, when, for a few moments, he was running neck and neck in the polls with the sitting president, Barack Obama. We don’t mind saying we’re disappointed in the failure of Messrs. Johnson and Weld on this head. …

… For the remainder of the commentary:

http://www.nysun.com/editorials/libertarians-without-gold/89604/

 

end

 

Today, Bill Holter catches what I have been telling you:

 

(courtesy Bill Holter/Holter-Sinclair collaboration)

How does COMEX fix this one? (Public article)

 

As you know, May COMEX gold which traditionally is a non event was anything but this year.  Last year, a total of 2,500 ounces stood for delivery, this year the number was 221,000 ounces.  The amount standing on April 30 was 5.6 tons which steadily grew throughout the month to 6.89 tons.  This “growth” throughout the month is something that has never happened before to my knowledge.
Now we get the first notice day for June and it’s a whopper!  15,493 contracts are standing for delivery which equates to 1.5493 million ounces or 48.193 tons (last year June had 26.3 tons stand for delivery which bled down during the month).  COMEX claims 23 tons of registered gold.  There appears to be 17 tons from prior months PLUS the 6.8 tons of May standing that this 23 tons will need to service.  The 48 tons for June is EXTREMELY heavy, what will happen if June copies May and the amount standing grows by 20%.  Where will this gold come from? 
  As I wrote last week, the “buyer(s)” seem to be different for the May expiration.  Rather than the amount standing bleeding down during the delivery period, it increased steadily all month.  In the past, it has been my and others’ contention that COMEX was paying premiums to make those standing for delivery go away.  It has made ZERO sense at all for longs to fully fund their accounts to make purchase and then mysteriously evaporate and go away.  The only thing that makes sense is premiums were offered and accepted.  This strategy appears to have failed miserably for May.  It is possible that those standing for June gold, saw what happened in May and now have queued up in fear.
  This bares watching very closely.  COMEX looks to be nearly 50 tons short of what needs to be delivered.  Can they entice “eligible” (stored customer) gold to move and serve delivery?  We will know shortly!  I might add on a separate topic, OPEC has a meeting this Thursday.  We have speculated Saudi Arabia would at some point announce they will accept yuan for oil settlement.  What would an announcement such as this do to a lopsided delivery for COMEX gold?

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@Hotmail.com 

Your early TUESDAY 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 6.5776 ( BIGGER DEVALUATION  /CHINA CONTINUES TO FIRE SHOTS ACROSS THE USA BOW/OFFSHORE YUAN WIDENS TO 6.5870) / Shanghai bourse  CLOSED UP 94.17 OR 3.34%  / HANG SANG CLOSED UP 185.70 OR 0.90%

2 Nikkei closed UP 166.96 OR 0.98% /USA: YEN FALLS TO 111.05

3. Europe stocks opened ALL IN THE RED  /USA dollar index UP to 95.62/Euro UP to 1.1152

3b Japan 10 year bond yield: RISES   TO -.110%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 111.05

3c Nikkei now WELL BELOW 17,000

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

3e WTI::  49.42  and Brent: 50.05

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 0.175%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate RISE to 7.62%/: 

3j Greek 10 year bond yield RISE to  : 7.31%   (YIELD CURVE NOW INVERTED)

3k Gold at $1212.50/silver $16.07(7:45 am est) BROKE RESISTANCE AT 16.52 

3l USA vs Russian rouble; (Russian rouble UP 40 in  roubles/dollar) 65.93-

3m oil into the 49 dollar handle for WTI and 50 handle for Brent/

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

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 109.08 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9900 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1042 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN IN LAST LEG OF ITS CAMPAIGN AS TO WHETHER EXIT THE EU.

3r the 8 Year German bund now  in negative territory with the 10 year RISES to  + .175%

/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 1.878% early this morning. Thirty year rate  at 2.663% /POLICY ERROR)

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

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

First brief Summary Monday:

Global Stocks Mostly Unchanged; US Futures Rise Above 2,100 As Traders Celebrate Memorial Day

With the US closed for Memorial Day and UK markets offline due to a bank holiday, overnight volumes have been weaker than normal on little newsflow.

The main story remains the stronger USD which not only led to the lowest Yuan fixing since February 2011

... but pushed the USDJPY almost as high as 111.50 overnight before paring gains, however it was enough to send the Nikkei 1.4% higher.

Elsewhere, Europe’s Stoxx 600 is unchanged on volume that is ~55% of the 30-day average, after earlier rising above the 200 DMA for the first time in 2016, with the autos and media sectors outperforming and the oil & gas and technology sectors underperforming. US equity futures were 0.2%, or 4 points higher, currently resting just above 2,101 with the last trading day of May tomorrow expected to push the cash market over 2,100 as well.

The stronger dollar also put oil modestly lower while gold bullion fell for a ninth day in its longest losing streak following Yellen’s comment on Friday that an interest-rate increase is likely in coming months. The dollar strengthened against all but four of its 16 major peers. Treasury 10-year futures slid the most in almost two weeks, German bunds declined and emerging-market currencies headed toward the worst month since August. European stocks swung between gains and losses, with trading volumes less than half the daily average amid market closures in the U.S. and U.K.

The BBG Dollar Spot Index was poised for its biggest monthly jump since
September 2014, having surged as Fed Funds futures showed the odds of a
U.S. interest-rate hike by July more than doubled to 54 percent.

“What Yellen said confirmed the Fed is open for a June rate increase, and it’s now data dependent,” said Carl Hammer, chief currency strategist at SEB A/B in Stockholm. “The Fed might be on hold next month due to Britain’s European Union referendum, but then make it explicit there will be an increase in July. Our view is that there’s more room to add to positive dollar bets.”

In FX, the yen fell as much as 1 percent to 111.45 per dollar after an aide to Prime Minister Shinzo Abe said a sales-tax increase will probably be delayed. Japan released retail sales figures on Monday showing that growth stalled in Asia’s second-biggest economy, bolstering the case for a planned sales-tax increase to be postponed. The MSCI Emerging Markets Currency Index declined 0.4 percent and is down 3 percent in May, snapping a three-month run of gains. South Korea’s won retreated 1 percent on Monday. For the month, South Africa’s rand led losses, sliding 9.9 percent.

The yuan dropped as much as 0.3 percent to a four-month low in Shanghai after the People’s Bank of China weakened its daily fixing by 0.45 percent. With the U.S. poised to raise interest rates and pressure building on China to ease monetary policy, cash outflows will accelerate, said Song Yu, China economist for Goldman Sachs/Gao Hua Securities Co. in Beijing.

In commodities, WTI crude fell 0.3% to $49.17 a barrel as Canadian producers moved to resume output after wildfires and before this week’s meeting of the Organization of Petroleum Exporting Countries. Total volume traded was about 50 percent below the 100-day average. Issues including a production freeze will be discussed at the June 2 talks, said Iraq’s Deputy Oil Minister Fayyad Al-Nima, who will head his ministry’s delegation. Oil was headed for fourth monthly gain, the longest winning streak since April 2011.

Gold for immediate delivery dropped as much as 1 percent to $1,199.80 an ounce, a level last seen in February, and is down 7 percent in May, the biggest monthly decline since June 2013. Money managers’ cut bullish bets on the metal by the most this year during the week ended May 24, according to U.S. Commodity Futures Trading Commission data. Silver slid 1.8 percent as of 10:54 a.m. in London, while platinum retreated 0.8 percent as the prospect of higher U.S. borrowing costs damped the appeal of non-interest-bearing assets. Copper futures slipped 0.9 percent in New York, snapping a four-day advance. The London Metal Exchange was closed on Monday.

 

end

 

And now Monday night, Tuesday morning:

ASIAN AFFAIRS

i)Late  MONDAY night/ TUESDAY morning: Shanghai closed UP  BY 94.17 PTS OR 3.34%  /  Hang Sang closed UP 185.70 OR 0.90%. The Nikkei closed UP 166.96 POINTS OR 0.98% . Australia’s all ordinaires  CLOSED DOWN 0.54% Chinese yuan (ONSHORE) closed DOWN at 6.5776 .  Oil ROSE to 49.52 dollars per barrel for WTI and 50.05 for Brent. Stocks in Europe ALL IN THE RED . Offshore yuan trades  6.5870 yuan to the dollar vs 6.5776 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS A BIT.

 

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

Trouble ahead for Japan as Abe is set to warn that there is going to be another sales tax delay:  Why is this important?  A delay will certainly cause our rating agencies to lower the boom on Japan again.  Thus their debt will be downgraded  and that can present itself with trouble as nobody will want to purchase any Japanese bonds.

(courtesy zero hedge)

Mizuho CEO Warns Japan Sales Tax Delay Is “Admission Abenomics Has Failed”

It has not been a good “second coming” for Shinzo Abe, whose first stint as prime minister of Japan ended in disgrace in 2007 after an allegedly crippling bout of explosive diarrhea forced the then-prime minister to resign. To say that Abenomics has been a dismal failure would be an understatement:  unable to boost inflation, unable to boost wages, plummeting trade with both exports and imports crashing to post crisis lows…

… and lately failing miserably to boost the stock market after Kuroda’s epic debacle with Japan’s NIRP lunacy, Kuroda had one loophole: a tiny fiscal stimulus in the form of delaying the once-already delayed sales tax.

The only problem: over the past few months, Kuroda had trapped himself when he said that the only conditions under which he would delay the sales tax would be only if “another global economic contraction or Lehman-style market shock jolted the Japanese economy.

That explains why Abe was desperate to get the G-7 to warn of the risk of a global economic crisis in the final communique issued as the summit wrapped up last Friday in Japan.

He failed. In fact, the final statement went the other way and declared that G-7 countries “have strengthened the resilience of our economies in order to avoid falling into another crisis. The global recovery continues, but growth remains moderate and uneven, and since we last met downside risks to the global outlook have increased,” the statement says. “Weak demand and unaddressed structural problems are the key factors weighing on actual and potential growth.”

Ironically, Abe is actually quite right, and the world remains in a state of post-Lehman shock: after all why would central banks need to engage in a “secret” Shanghai Accord more than 7 years after the global financial crisis to prevent markets from crashing? The answer: because nothing has been fixed and the entire world remains on edge day after day. However, as we also noted citing economist Glenn Maguire, “the G-7 is obviously aware of the ‘announcement effect’ the official communique has” and “in such a situation, warning of negative risks and sentiment can become self-fulfilling.

Hence, Abe was snubbed.

Unfortunately for the Japanese premier, there simply was no other choice, and as leaked repeatedly by virtually all Japanese media sources, Japan’s sales-tax hike scheduled to take place in early 2017 will be delayed after all, with or without a Lehman style shock: for Abe there simply is no other choice.

This is where the problems for Japan begin, because as the chief of Mizuho Financial Group said over the weekend, Japan risks a credit-rating downgrade if Prime Minister Shinzo Abe delays a scheduled sales-tax increase without explaining how the government plans to cut its deficit. Actually not if, but when; and as we know, the “when” is likely to be as soon as this week, when Abe admits fiscal failure and that Japan simply has no hope of ever containing its ridiculous debt load.

And here is why Abe was so desperate to get the G-7 to “validate” his worldview as one where things are on the brink: as otherwise it would mean Japan’s economy is in far more dire shape than realized, and it will need to incur much more debt in the coming years.

Quoted by the WSJ, Yasuhiro Sato, president of Mizuho, Japan’s second-largest bank by assets, said Abe’s framing of such a decision would determine whether it sparked concerns about the government’s credibility regarding its plans for fiscal consolidation.

“The worst scenario is [the government] will just announce a delay in the tax increase.  That could send a message that Abenomics has failed or Japan is heading for a fiscal danger zone and then it will harm Japanese government bonds’ credit ratings,” Sato said in an interview, referring to the prime minister’s growth program.

As the WSJ adds, Abe acknowledged for the first time Friday that he was considering delaying an increase in the sales tax to 10% from 8% scheduled to take effect in April next year. He said he would decide before an upper house election to be held in July, but Japanese media have reported that a decision could come this week.

Abe has delayed the tax increase once, after the rise to 8% in April 2014 derailed an economic recovery. Consumer spending has yet to fully rebound, and some economists say the prospect of another tax increase next year is already weighing on spending.

Sato acknowledged that raising the tax again would pose a risk to Japan’s economy, although the alternative – admission that Abenomics has failed – is just as bad, which is why Abe is now in a pickle, and why we anticipate his bathroom runs will become increasingly more frequent… just in case a rerun, pardon the pun, of 2007 is in the works and Abe has to quit due to some new scapegoat.

There will be a risk in either case of raising the tax or not, so as long as the government demonstrates a clear road map for fiscal reconstruction, Japanese credibility likely won’t be hurt so much,” Sato said, although sadly for Japan, there just is no such road map.

Some bankers say Japan could damage its international credibility if it fails to raise taxes on schedule. The tax increases are part of long-standing efforts to reach a primary government surplus by 2020. A primary surplus is a balanced budget excluding interest payments on government debt. Japan’s government debt, when including corporate and personal debt, is the largest in the world relative to the size of its economy, standing at over 400% of GDP.

Worse, a debt downgrade for Japan will be merely a formality once Abe delays the sales tax. Moody said in a March report that “postponing the next [sales-tax] increase regardless of the reason would pose a big fiscal burden for Japan.” Moody already downgraded Japan’s credit rating by one notch to A1 from Aa3, the same rating it has assigned to Israel and the Czech Republic, after Abe decided in November 2014 to delay the tax increase the first time. It will do so again.

Standard & Poor’s and Fitch Ratings have also lowered Japan’s credit rating in the past two years, but investors continue to accept near record-low yields on the government’s debt.

On Sunday, Yasufumi Tanahashi, a senior member of the ruling Liberal Democratic Party, explained why the tax increase might need to be delayed.

“If tax revenue doesn’t grow despite increasing the tax rate, then from a medium-to-long term perspective it’s necessary to respond flexibly,” he said during a political TV program. Mr. Tanahashi said a delay would require a law to be amended and debate within the ruling coalition to reach a consensus.

Back to Mizuho’s Sato, who didn’t take a position on whether the tax increase should proceed as scheduled, said Japanese banks’ dollar-funding costs could rise further if a credit-ratings firm downgrades them again.

“We’ve seen a rise in dollar-funding costs since the second half of 2014,” he said. “There is no way lending will boost our profitability.” To balance weakness in lending, Mizuho has focused on income from fees, including from its M&A advisory and underwriting businesses. Mizuho aims to increase its fee income from 54% to 60% of the total in the three years through March 2019.

Of course, downgrade or not, what is left unsaid is that as long as the BOJ continues to monetize all net issuance of JGBs, as it does now, yields on Japan’s Treasuries will remain record low, and mostly negative. However, if enough official red flags accumulate against the monetary lunatics in Tokyo – who are merely a decade ahead proxy for the rest of the world as Japan is a decade ahead of everyone in the global race to the bottom but also has the most deflationary demographics to boot – in the form of rating downgrades, not even the BOJ buying up all the Japanese bonds, stocks, REITs and ETFs will prevent a global revulsion to Japanese assets as the world finally realizes, and admits, that Japan is finished. That process could start as soon as this week with Abe’s sales tax delay announcement.

 END

b) REPORT ON CHINA

Monday:

 

Late Sunday night early Monday morning, China sends another huge warning across the bow to Yellen.  The Yuan  (on shore) falls .5% down to 6.5794 and then crosses into the 6.5800 column hitting 6.5805 Monday morning.  The lower yuan and higher dollar is playing havoc around the world:  emerging markets are faltering due to lower commodity prices as we witness the head of Noble Industries abruptly leave office.  The lower yuan will spur dollars to immediately leave China.  Remember that 49% of Chinese FX reserves are short term speculative funds.  It is also interesting that the comex received the highest number of notices filed for the first day notice in over 5 years:

a must read….

 

(courtesy zero hedge)

China Sends Yellen Another Warning, Fixes Yuan At Lowest In Over Five years

We got an early hint of what the PBOC would do tonight on Friday and Saturday, when as we reported, an unprecedented volume burst of bitcoin buying out of China, sent the digital currency soaring to the highest level since 2014.

To be sure, we had expected sailing would not be smooth for the FX market, when on Friday afternoon, after Yellen’s’ unexpectedly hawkish comments at Harvard, which sent the USD surging, we predicted a stormy sea for the Monday Yuan fix:

That is precisely what happened when moments ago the PBOC set the official exchange rate of the onshore Yuan lower by nearly 0.5%, from 6.5490 to 6.5794, the lowest fixing in more than 5 years, or February 2011.

Which brings us to a post we wrote last Wednesday, when according to Daiwa, “Round Two Of China Capital Outflows Is About To Begin.” The highlights:

As Kevin Lai, HK-based chief economist of Asia ex-Japan at Daiwa Capital Markets writes in note released overnight, round two of China capital outflows is about to begin, if second half last year was considered the first round. This is what he believes will happen next:

  • China’s FX reserves may fall below $2t in about a year
  • Downward pressure on FX reserves is most likely to be underestimated as short-term speculative flows are far more ready to leave than real flows
  • Based on estimates, about 49% of PBOC’s FX reserves are made up of flows which are speculative and short-term in nature
  • Expects decline in FX reserves to be more rapid in next 24 months at least
  • Look for further $500b decline to $2.7t by end-2016 and a further $900b decline to $1.7t by end-2017
  • If companies, especially SOEs, face trouble paying back creditors, central government would bail them out
  • Massive bailouts would require government’s monetary policy to turn a lot more aggressive, putting more pressure on yuan
  • Policymakers would have to seriously think about letting CNY slide gradually to a better equilibrium level

His conclusion: the USD/CNY will hit 7.50 by end-2016, some 15% higher than where it is now.

Then again, also today Goldman chimed in with a warning that “the end of a temporary sweet spot that China enjoyed with its exchange rate, strength versus the dollar and weakness against trading partners, will spur renewed capital outflows.”

Since Goldman has become the “Dennis Gartman” of investment banks, this “warning” may just be the confirmation that ongoing Chinese devaluation will not spook FX markets.

On the other hand, purely statistically, it is about time Goldman got something right, and if this is it, it means that the Fed’s June/July rate hike is about to be derailed, for the reasons laid out previously why with the domestic economy no longer a factor, the only thing influencing the Fed is China, and whether or not EM currencies are turmoiling.

For the answer keep an eye on the offshore Yuan:if the selling and shorting resumes in earnest without an intervention by the PBOC, the events from August and January are about to deja vu themselves, all over again.

And, of course, bitcoin. If the Chinese, who know the local financial situtation better than anyone, are openly rushing into the “safety” of a digital currency to avoid imminent devaluation, then we have our answer.

For now, the local commodity markets are displeased as China’s Iron-Ore futures slide to three month low, lowest since Feb. 22; now down 2.5% at 336.0 yuan/MT, while that other China carry currency, the AUDUSD, is down a comparable to the CNY 0.4%, to 0.7151, and is fast approaching a two month low.

end
Late Monday night/Tuesday morning:
Flash crash eliminated quickly by the central authorities
(courtesy zero hedge)

As Short Interest Soars To Record Highs, Chinese Stock Futures Flash-Crash 12.5%

Shortly after 1042am local, Chinese stock futures (CSI-300) flash-crashed over 12.5% on extreme heavy volume (while the cash CSI-300 remained unch). This move erased 3 months of gains but within 1 minute was back in the green with stocks up over 2.5%. The shocking collapse, exaggerated by a major lack of liquidity, was made more surprising by the fact that the last week has seen a record short position in the major Chinese stock ETF. Simply put, the heavy hand of market-central-planning has erased any and all depth in futures markets and positioning has become so tilted that price vacuums are likely to continue to occur.

As Bloomberg notes, the swing follows a similarly unexplained tumble in Hang Seng China Enterprises Index futures in Hong Kong on May 16, a move that added to nervousness over the prospects for Chinese stocks amid slowing economic growth and a weakening yuan. The CSI 300 has dropped 16 percent this year, versus a 2.2 percent gain in the MSCI Emerging Markets Index.

“It looks like a fat finger,” Fang Shisheng, Shanghai-based vice general manager at Orient Securities Futures Co., said by phone. “Liquidity in the market is really thin at the moment. So the market will very likely see big swings if a big order comes in. The order looks like it’s from a hedger.”

And for some context of what that move looks like longer term – it erased 3 months of gains instantly…

Still, positioning in Chinese Stock ETFs (FXI) has soared in the last week as volatility has been utterly suppressed in the major index…

The relative stability of the Chinese stock market in the last few weeks is oddly decoupled from the relative volatility in the Yuan and as Bloomberg notes, While the yuan’s losses have escalated in the past three weeks, the Shanghai Composite has been unmoved. The index has barely strayed from the 2,800 level amid speculation state-backed funds are preventing further losses, helping send 30-day volatility on the gauge to its lowest level since December 2014.

Some investors may be betting China’s domestic equities, known as A shares, will fall further if yuan losses deepen, according to Sam Chi Yung, senior strategist at South China Financial Holdings Ltd. in Hong Kong.

“Investors think there is some risk in A shares,” the strategist said. “If the yuan keeps falling that would affect the value of Chinese shares.”

But, as the following chart shows, this is a record level of relative short interest…

Seemingly creating the perfect opportunity for a plunge protection team to squeeze stocks higher… proving the Chinese economy is fixed once again (or is this time different, like in 2008 and 2015)

end
Wealth Management products  (WMP’s) in China total 3.6 trillion USA equivalent or 1.3 of total GDP. These products are bundled just like the USA’s mortgage fiasco in the 2006-2008 time zone. They offer yields of around 5-8% to rate hungry investors and these inventors are only paid by new entrants in this Ponzi scheme.We now go from the sublime to the ridiculous as now new Ponzi schemes are investing in older ones.
This ship is going down…
(courtesy zero hedge)

Beyond The Minsky Moment: China’s Ponzi Schemes Are Now Investing In Other Ponzi Schemes

The problem with China’s Wealth Management Products, or WMPs, is not new: we have covered this pillar of China’s shadow banking system on various occasions over the past three years, usually just before and after the time of the latest spectacular WMP fund blow up, which promptly becomes headline news and then fades again until the next such collapse.

“Wealth management products in China have come under the spotlight after a series of missed payments raised concerns over the shadow banking sector that often directs credit to firms shut out from bank lending or capital markets,” Reuters said last February, after reporting that China’s top brokerage, CITIC, was looking at ways to repay investors after the issuer of one of the wealth management products the broker sold missed a $1.12 million payment to investors.

Although wealth management products are often described as “murky” and “opaque”, the basic concept is fairly simple. WMPs are marketed to return-greedy investors (which in China is pretty much everyone these days) as a way to get more bang for their buck (er,  yuan) than they would with bank deposits. Funds from these investors are then invested at a higher rate. If the assets investors’ money is used to fund run into trouble, that’s not good news for WMP investors.Simple.

One such prominent WMP blow up took place last August when Hebei Financing Investment Guarantee, the largest loan guarantee company in the northern province of Hebei, wholly owned by the provincial regulator of state-owned assets, went apparently broke, which was bad news as it guaranteed CNY50 billion in loans made by dozens of trusts who in turn issued wealth management products to investors.

As we explained last summer, the core reason why the underling assets of WMP were going bad, fast, is because investor money was funneled into real estate development and other parts of the economy which generated high levered returns but are now struggling mightily as a result of the commodity collapse; in fact most WMPs can no longer generate nearly enough returns to satisfy investors; this means that absent finding new ways to generate historical returns, there is a latent threat of terminal withdrawals which in turn could topple the entire industry.

Even more important than the surge in bad assets was the sheer size of the WMP/shadow banking market: back in 2010, as regulators tried to rein in the explosion in bank credit resulting from the country’s 4 trillion yuan economic stimulus plan, banks turned to trusts to help them comply with lending controls. Since then WMPs have grown at an exponential pace and currently amount to about 24 trillion yuan, the equivalent of $3.6, or over a third of China’s GDP. Essentially trusts helped banks offload credit risk at the behest of the PBoC. Here’s the process whereby banks use trusts to get balance sheet relief:

And since WMP issuers are perpetually borrowing short to lend long with ever more leverage to provide the required return, it meant that WMP managers had to find greater and greater fools to provide these underlying financial products with funds just so they could repay existing investors.

In other words, a classic Ponzi scheme, which however had the added benefit that it was “too big to fail” – so many Chinese investors had parked cash with WMPs, the government was facing a revolt if it were to allow mass defaults within the shadow banking sector. Which is also why the abovementioned Hebei was ultimately bailed out.

But while through the government’s actions – call it the “Beijing Put” – any risk of investing in WMPs was gone and any investments in WMPs are now seen as having implicit backing by banks, as well as the local and state government, there was one major loose end: none of the traditional assets generated the types of returns WMPs had come to expect in recent years. There was another problem – potential WMP investors no longer rushed to their nearest, friendly neighborhood shadow financing Ponzi outlet, as they had found other more creative ways to lose money, whether investing in the stock market bubble, the bond market bubble, or, most recently, the steel and rebar bubble (if there is one thing China has at any given moment, it is bubbles).

Which brings us to the current state of the WMP market in China. As Bloomberg writes, the risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China.”

What Bloomberg means is that in its infinite financial engineering ingenuity, China has found a way to push beyond the conventional “Minsky Moment” envelope.  Recall that according to Minsky, the third and final stage before a financial regime hits its terminal collapse moment, is the so-called “Ponzi finance” stage, a regime in which borrowers have insufficient cash flows to pay either principal or interest and therefore must either borrow or sell assets to make interest payments.

China passed that stage over a year ago.  Instead, where China finds itself now is in that nebulous void between Ponzi Finance and Minsky Moment, where unable to find traditional investors, Chinese Ponzis are now investing in other Chinese Ponzis (and vice versa) just to kick the can longer for a few more months, weeks or days.

As Bloomberg writes, WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month.

As noted above, the main reason for this infernal loop is the lack of high yielding returns, something that has been a stable of the Chinese shadow banking system, where tens of trillions in Yuan slosh around every single day: “There’s abundant liquidity in the financial system, but a scarcity of high-yielding assets to invest in,” said Harrison Hu, the chief Greater China economist at Royal Bank of Scotland Plc in Singapore. “All the risks are accumulating in an overcrowded financial system.”

WMPs found a stop-gap solution: use all the excess funds from one Ponzi to bootstrap the returns of another Ponzi, in hopes the other Ponzi can generate a high enough return to attarct new investment at which point it can return the favor, and so on in a move that even America’s corrupt, incompetent regulators would find simply too much for popular consumption.

But not in China, where circular Ponzi investing is now all the rage.

As a result, the trend has China watchers very worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets. In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable – a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis.

Those concerns have become more pressing this year after at least 10 Chinese companies defaulted on onshore bonds, the Shanghai Composite Index sank 20 percent and China’s economy showed few signs of recovery from the weakest expansion in a quarter century.

Meanwhile, the growth in WMPs has been nothing short of exponential: from just over 4.5 trillion 5 years ago, the total outstanding value of WMP assets is now CNY24 trillion, or almost $4 trillion, and account for 35% of China’s GDP!

According to Bloomberg, an average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank Co. and China Everbright Bank Co., especially dependent on the products for funding.

But the scariest finding is the following: Interbank holdings of WMPs swelled to 3 trillion yuan as of December from 496 billion yuan just one year earlier, according to figures released by the clearing agency last month. As much as 85% of those products may have been bought by other WMPs, according to Autonomous Research, which based its estimate on lenders’ public disclosures and data on interbank transactions. The firm speculates that in some cases the products are being “churned” to generate fees for banks.

In short, what is happening China now is a carbon copy of the financial innovation that brought down the US financial system in 2005-2006.

“We’re starting to see layers of liabilities built upon the same underlying assets, much like we did with subprime asset-backed securities, collateralized debt obligations, and CDOs-squared in the U.S.,” Charlene Chu, a partner at Autonomous who rose to prominence in her former role at Fitch Ratings by warning of the risks of bad debt in China, said in an interview on May 17.

What is perhaps even scarier about China’s WMP products is the far greater asset-liability mismatch: most WMPs have a duration of less than six months and some can be as short as one month. A search of 1,300 products listed on the website of government-run Chinawealth.com.cn showed the highest annual yield on offer was 8 percent, compared with a one-year deposit rate of 1.5 percent. Typical yields range from 3 to 5 percent.

Not only is this not sustainable, but it means that once the selling avalanche begins, it will make the Lehman failure seems like a walk in the park.

Another question is what are these WMPs invested in? According to Bloomberg, while individual products don’t disclose their underlying assets, bonds represent the largest exposure for WMPs as a whole.

WMPs have become such big players that they are now the biggest investors in Chinese corporate debt, according to China International Capital Corp. And, as we reported late last year and in early 2016, China’s bond market market suffered its biggest losses in 16 months in April after a wave of defaults at state-owned enterprises spooked investors.

It is only going to get worse unless Beijing bails out absolutely everyone.

“My concern is that bond defaults might trigger some losses that will lead to WMP impairments or WMP investors being unwilling or unable to roll over the funding, which then leads the bank to take some of these assets back onto the balance sheet,” said Matthew Phan, credit analyst at CreditSights in Singapore. “If this happens in a large scale, it could cause some issues, given the mismatch between the duration of the WMPs and the bonds.”

Not if… when.

When will China’s finally move on to its Minsky moment? One possible answer is that once all possible profits from WMPs are exhausted. For now, many of these ponzi schemes are still profitable. As Bloomberg calculates,  a majority of WMPs have been profitable for both investors and the institutions who manage them. Chinese lenders earned 117 billion yuan from the products last year, according to the nation’s clearing agency. Demand for WMPs has remained buoyant after this year’s stock market crash and a wave of failures at peer-to-peer lenders made the products look safer by comparison, according to Shujin Chen, a banking analyst at DBS Vickers Hong Kong Ltd.

Which, of course, is ludicrous as by definition, a Ponzi scheme can only survive as long as it has at least one additional dollar in distributable capital, and at least one greater fool. In China both are rapidly shrinking.

As Bloomberg concludes, the industry’s ability to meet its return targets thus far may overstate its stability. The most common source of funds for repayment of WMPs is the issuance of new WMPs, Fitch analysts Jack Yuan and Grace Wu wrote in March. That leaves the products vulnerable to any sudden drop in demand, a risk alluded to in 2012 by Xiao Gang, then chairman of Bank of China Ltd., when he warned of “Ponzi scheme” dangers for the industry.

“The worst scenario will be if investors stop rolling over,” said Wu, who works for Fitch in Hong Kong. That “could cause a liquidity crunch for banks,” she said.

The good news for Chinese investors is that they have been thoroughly and extensively warned that the biggest source of return for investors is nothing but a Ponzi scheme. Whether or not anyone listens before the inevitable crash sweeps away trillions in “assets”, that is a different story entirely. The good news is that as long as central banks make conventional, stable investments such as government treasury bonds increasingly more repressed, there will remain demand for even the most sordid of Ponzi product.

As such, when the final bubble bursts look no further than to your friendly, local central bank to find the culprit who made this period of monetary insanity possible.

 

end

EUROPEAN AFFAIRS

Martin Senn was the former CEO of the largest insurance company in the world Zurich Insurance.  He stepped down abruptly in Dec 2016. Today he committed suicide.  What is really strange is that this suicide occurred 3 yrs after the previous CFO hanged himself.  It sure looks like insurance companies cannot survive in a negative interest world

(courtesy zero hedge)

Ex-CEO Of Largest Swiss Insurer Commits Suicide, Three Years After CFO Hanged Himself

In the latest tragic news from the world of finance, earlier today Zurich Insurance, the largest Swiss insurer which employs 55,000 people and provides general insurance and life insurance products in more than 170 countries, reported that Martin Senn, the company’s former chief executive officer who stepped down in a December reshuffle, has committed suicide. He was 59.

Senn had been a long-time employee of the insurer, serving as its chief executive for six years before stepping down in December.

The family informed Zurich Insurance that Senn had taken his own life on Friday, according to the statement. “We are profoundly shocked by the news of the sudden death,” the company said. According to Bloomberg, Senn was found in his holiday house in Klosters, a Swiss ski resort, Blick newspaper reported. The cantonal police of Grisons wouldn’t confirm the death but said officers had been deployed on Friday in connection with Senn.

Former Zurich Ins CEO Martin Senn

Senn started at Zurich in 2006 as CIO and became CEO in 2010. He joined from Switzerland’s biggest life insurer, Swiss Life Holding AG, and held several positions at Credit Suisse Group AG. When he was 26, Senn became treasurer of the Hong Kong branch of Schweizerischer Bankverein, today known as UBS Group AG.

During Senn’s five years as CEO, Zurich Insurance rose about 19 percent and paid out record dividends of 17 Swiss francs a share. In his biggest acquisition, he bought a 51 percent stake in Banco Santander SA’s insurance division for $1.67 billion in 2011.  Senn in December acknowledged “setbacks” in the months before his departure after higher-than-expected claims at the general-insurance unit forced the company to abandon a takeover bid for RSA Insurance Group Plc.

Senn said he was confident that Zurich was well positioned to meet its targets at the time of his resignation, but did acknowledge some “setbacks.” The company had been planning a large acquisition of the U.K. insurance firm RSA Group, but the deal was scuppered in September due to a “deterioration in the trading performance of Zurich’s general insurance business,” according to an RSA statement.

That part of the company’s business was under pressure after it was forced to pay out $275 million in claims related to last summer’s major port explosion in Tianjin, China. 

According to Bloomberg, Senn’s “conservative approach” helped Zurich Insurance perform well during the financial crisis, when he was the chief investment officer, said Andreas Schaefer, an analyst at Bankhaus Lampe. “Zurich’s asset side never caused any problems and the company did well compared with its peers,” he said. Schaefer has a hold rating on the stock.

Mario Greco, the former CEO of Italy’s Assicurazioni Generali SpA, assumed Senn’s role in March. UBS Group AG CEO Sergio Ermotti was set to take over as president of the chamber of commerce in June.

But what is most shocking about the news is that this is the second high profile suicide of an executive at the Swiss company. Recall that in 2013 Senn oversaw the suicide of none other than the firm’s former CFO, Pierre Wauthier, who hanged himself after a spat with then Chairman, and former Deutsche Bank CEO, Josef Ackermann, whom he accused of creating

An investigation by the Swiss Financial Market Supervisory Authority later found that Wauthier was under no “undue pressure.”

Wauthier’s note brought on an ugly episode in which his widow accused the company of creating an unbearably working environment.

As we reported over two years ago, the “widow of former Zurich Insurance CFO Pierre Wauthier said she and her family cannot accept Zurich’s claim that his death wasn’t brought on by undue stress. Switzerland’s biggest insurer said in November that no “undue pressure” was put on Wauthier, who said in a suicide note that then-Chairman Josef Ackermann had created an unbearable working environment. But, his wife is demanding to know why her husband’s former boss resigned if he had not accepted blame for the death, and why details of tensions at work were not made public. Her anger is clear, as she blasted “I am not worth talking to… or is it that I would raise unbecoming questions????

it is not clear who will be blamed for Senn’s suicide or if the former CEO left a note; however, one thing is clear – with Europe’s NIRP and increasingly more ludicrous monetary policies, many more insurance company CEOs will be departing in the coming years, hopefully in less tragic circumstances.

end
The public unions are having a devastating effect on the economic climate in France as airports are blocked, gas stations are out of petrol and nuclear plants stretched to the limit.  Yesterday France passed a new law that it is illegal for your employer to send yo an email outside of work hours.  Give me a break!  All public  unions should be banned.
(courtesy zero hedge)

Only In France…”The Right To Disconnect”

Vowing to intensify their action to overturn an unpopular labor law, striking French union workers have already left hundreds of thousands of tourists stranded, gas stations empty, and nuclear power plants stretched. However, as low-skilled American workers fall foul of minimum wage blowback, the French parliament – despite Prime Minister Valls insistence that“France must show that it’s capable of reforming” just passed new legislation making it illegal for your employer to send you an email outside of work hours.

As Valuewalk’s Brendan Byrne reports, we’ve all been there, you’re heading to bed and see an email from your boss asking you for something, and have you noticed how it’s always urgent. You either do it, or pretend you didn’t see the email (not guilty), but either way your night has been ruined. You lie there thinking about it and how to deal with the situation. People are finding it more and more difficult to get away from digital connectivity, and we are seeing the rapid rise of mindfulness‘.

Well this late night email situation can no longer happen with our French friends. Known for imposing the 37 hour week, truck drivers going on strike over literally anything, and general hard work, the French certainly are leading the charge for the much vaunted work life balance.

It has been termed ‘the right to disconnect‘, and was first tabled back in 2014.  Benoit Hamon of the French National Assembly told the BBC earlier in May, “All the studies show there is far more work-related stress today than there used to be, and that the stress is constant. Employees physically leave the office, but they do not leave their work. They remain attached by a kind of electronic leash— like a dog. The texts, the messages, the emails — they colonize the life of the individual to the point where he or she eventually breaks down.”

Unfortunately for some, it is not a catchall law. There is a caveat, if the company has less than 50 employees, the new law does not apply.

One question the new law raises, is what about international firms with French employees. Can a US firm send an afternoon email to employees that will arrive after work hours for Jean-Louis, who is enjoying some cheese and fine wine in his local Parisian cafe?

The question remains how some of the world’s largest tech companies with offices in Paris but headquarters in California, such as Google and Facebook, will react to the news. The time difference between France and California is nine hours, which means all email from California will have to occur no later than 9am PST.

There is an increased awareness that our addiction to smartphones is affecting lives. South Korea, were the average person spends over four hours looking at phones and tablets per day, has introduced a ‘space-out’ competition were people sit in silence without looking for any digital stimulation.

The producitvity-sapping farce is completed as this legislation is ironically passed as French PM Valls said the government will not back down over labor reform, stating that “France must show that it’s capable of reforming.” As MishTalk’s Michael Shedlock explainshaving been previously fined by the French for daring to speak the truth about French banking fragility – things are about to get worse in France…

Already hundreds of thousands of tourists in France have had planes delayed or canceled over French union strikes.

Gas stations are running out of gas thanks to a strike at refineries. Nuclear power plants have been hit as well.

French unions vow to increase strikes. They will target trains and buses next.

Please consider French Transport Strikes to Intensify as Valls Digs In on Law.

French unions seeking to overturn an unpopular labor law are set to intensify their protests as the government shows no sign of giving in after a week of strikes and blockades caused gas stations in many regions of the country to run dry.

By the end of this week, the national railroad, the Paris metro, ports and air traffic controllers will all be on strike, though the degree to which the actions will be followed is unclear.

After a week in which many French gas stations faced shortages and some protests turned violent, Prime Minister Manuel Valls in a series of weekend interviews said the government will not back down on the labor law or the contentious article 2 that lets companies negotiate labor contracts outside industry-wide accords.

“France must show that it’s capable of reforming,” Valls said in an interview with Journal du Dimanche on Sunday. Valls said he spoke by phone on Saturday with union leaders including with Philippe Martinez, the head of the CGT, which has been leading the opposition to the labor law.

Trains, Planes

Four unions including the CGT have called for an unlimited strike at the national railroad SNCF starting Tuesday, the CGT has called for a stoppage at the RATP, which manages Paris’ metro and buses starting Thursday and the UNSA-INCA union of air traffic controllers has called for a strike June 3-5. The CGT has called for a 24-hour strike Thursday at France’s ports.

All the strikes are linked to labor disputes specific to those sectors, but are also aimed at forcing a withdrawal of the labor law. Another union, Force Ouvriere, has called for transport strikes to start June 10, the opening day of the European soccer championships that France is hosting.

According to a Ifop poll for Journal du Dimanche, 46 percent of the French want the law withdrawn, 40 percent want it modified, and only 13 percent want it to pass in its current form. The poll questioned 982 people on May 27 and 28. Meanwhile, Valls’s popularity in May fell six points to 24 percent, its lowest ever, a BVA poll said Saturday.

Unions, union rules, and French labor laws in general are literally strangling France, yet people still support those laws.

This is further escalation of my May 25 article, France Running Out of Gasoline; Strikes Now Spread to Nuclear Plants.

Carry on Dudes

Code du travail

By all means, carry on dudes. The massive “Code du Travail” (Labor Code) saysyou have rights.

“The Code du Travail is regarded by many in France as untouchable. Successive governments have chiselled away at its 10,000 articles – notably easing restrictions on layoffs and working hours – but without ever daring a comprehensive overhaul.”

PATCO Moment Needed

Ronald Reagan provided the precisely need solution for union insanity.Reagan fired them every PATCO (air traffic control union employee) who would not return to work when ordered.

I wrote about this once before, also in regards to France. Flashback October 12, 2010: French Unions On Strike Against Pension Reform, Disrupt Rail, Air Traffic.

The correct government response to this mess is to do what Reagan did to the PATCO workers, fire all the public union employees on strike and terminate their benefits.

Moreover, the French government should take this opportunity handed to them on a silver platter and go one step further to make a much needed change and dissolve all public unions. The same should happen in the US.

This would end the nonsense quickly and effectively. As in the US, there would be lines miles long to take those jobs at much lower wage and benefit levels.

Message From FDR

Inquiring minds are reading snips from a Letter from FDR Regarding Collective Bargaining of Public Unions written August 16, 1937.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees.

A strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.

FDR was correct.

As Shedlock concludes, Reagan was correct, but he did not go far enough. Reagan should have dissolved every public union.

Had he done so. We would not have the pension/state budget crisis we have today.

end
wow!! this came out of nowhere:  BREXIT is now more likely than “BREMAIN:
THIS OUGHT TO BE VERY GOOD FOR GOLD!
(courtesy zero hedge)

Stocks, Cable Slide On Brexit Poll Surprise

Confirming the trend in bookies’ bets, the latest polls (both telephonic and online) now point to ‘Brexit’ being more likely than ‘Bremain’. This sparked a 100 pip plunge in Cable and sent US and European stocks lower…

 

Which should not be a huge surprise, as we noted previously, while that has become the narrative for the mainstream, professionals have been hedging Sterling volatility at a record level…

As Bloomberg reports, investors are now paying a record premium to hedge against the pound’s fluctuations over the next month as risks surrounding the U.K. referendum on European Union membership persist. Sterling’s one-month implied volatility versus the dollar has surged to 7.83 percentage points relative to historical swings, from 2.56 yesterday.

And today’s Brexit-favoring polls…

  • Phone poll on U.K. referendum on EU shows 45% leave, 42% remain and 13% undecided, according to ICM poll released by Guardian on its website.
  • Online survey shows 47% leave, 44% remain, 9% undecided

 

Confirm what bookies had signalled – Ladbrokes noted a huge increase in the proportion of money being bet on Brexit…

And are moving the odds…

  • *WILLIAM HILL LENGTHEN EU REFERENDUM REMAIN ODDS TO 1/5 FROM 1/6
  • *WILLIAM HILL SHORTEN EU REFERENDUM LEAVE ODDS TO 10/3 FROM 7/2

Perhaps the latest fraud was enough to push The Brits past the tipping point, as if the lying fearmongering propaganda was not enough…

“The BOE is cynically exploiting its authority by claiming to detect Brexit-induced anxiety in the cloud of short-term data,” Mody, who’s now a visiting professor at Princeton University, wrote in an article published on the Independent News website. “More outrageous is the bank’s warning of mayhem if Britain votes to leave. The bank is, in effect, building a narrative of panic, which could become self-fulfilling. The central bank’s proper role is to reassure and stand by to stem panic.”

 

 

 end

RUSSIAN AND MIDDLE EASTERN AFFAIRS

Over the weekend:
This is not good as Putin vows retaliation over the employment of a Missile Shield on Russia’s doorstep.  Also Greece makes advances towards Russia:
(courtesy zero hedge)

Putin Vows Retaliation Over US Missile Shield; Warns Poland, Romania Now In The “Cross Hairs”

While Obama was in Hiroshima in a historic trip as the first standing president of the only nation to have ever used a nuclear weapon during wartime, and warning about the dangers of nuclear power without offering an apology to Japan, Russian president Putin was in Greece seeking to resume where he left off one year ago, ahead of the turbulent Greece “referendum” and capital controls, following which the Greek people have turned increasingly against remaining in the Eurogroup, a shift Putin certainly hopes to capitalize on.

Tsipras commented on twitter:

Greek-Russian relations are an important element of our active, multidimensional foreign policy. We have upgraded our political dialogue 1/2

His presence in Athens marks the strengthening of our relations during the past year. 2/2

But it wasn’t the latest Greek pivot toward Russia that was the highlight of Putin’s trip: it was his latest warning that the Russian response to the most recent NATO provocation in Europe will be significant.

Recall that on May 12, in a dramatic development for the global nuclear balance of power, the United States launched its European missile defense system dubbed Aegis Ashore at a remote airbase in the town of Deveselu, Romania, almost a decade after Washington proposed protecting NATO from Iranian rockets and despite repeated Russian warnings that the West is threatening the peace in central Europe.

As we noted at the time, the US move was a clear defection from the carefully established Game Theory equilibrium in the aftermath of the nuclear arms race, one which explicitly removed a Russian “first strike threat”, thereby pressuring Russia to implement further nuclear offensive and defensive measures: “the precarious nuclear balance of power in Europe has suddenly shifted, and quite dramatically: despite U.S. assurances, the Kremlin says the missile shield’s real aim is to neutralize Moscow’s nuclear arsenal long enough for the United States to make a first strike on Russia in the event of war.

And sure enough, making it very clear that this biggest yet provocation by the US and NATO is not forgotten, during a joint press conference with Tsipras in Greece, Putin warned Romania and Poland they could find themselves in the sights of Russian rockets because they are hosting elements of a U.S. missile shield that Moscow considers a threat to its security.

Putin, cited by Reuters,  issued his starkest warning yet over the missile shield, saying that Moscow had stated repeatedly that it would have to take retaliatory steps but that Washington and its allies had ignored the warnings.

“If yesterday in those areas of Romania people simply did not know what it means to be in the cross-hairs, then today we will be forced to carry out certain measures to ensure our security,” Putin told a joint news conference in Athens with Greek Prime Minister Alexis Tsipras. “It will be the same case with Poland,” he said.

“At the moment the interceptor missiles installed have a range of 500 kilometers, soon this will go up to 1000 kilometers, and worse than that, they can be rearmed with 2400km-range offensive missiles even today, and it can be done by simply switching the software, so that even the Romanians themselves won’t know.”

Putin did not specify what actions Russia would take, but he insisted that it was not making the first step, only responding to moves by Washington. “We won’t take any action until we see rockets in areas that neighbor us.

“We have the capability to respond. The whole world saw what our medium-range sea-based missiles are capable of [in Syria]. But we violate no agreements. And our ground-based Iskander missiles have also proven themselves as superb,” continued Putin.

Further undermining the Pentagon’s provocative narrative, the Russian president said the argument that the project was needed to defend against Iran made no sense because an international deal had been reached to curb Tehran’s nuclear program. The missiles that will form the shield can easily reach Russian cities, he said.

“How can that not create a threat for us?” Putin asked.

He voiced frustration that Russia’s complaints about the missile shield had not been heeded.“We’ve been repeating like a mantra that we will be forced to respond… Nobody wants to hear us. Nobody wants to conduct negotiations with us.”

And since nobody will negotiate with Russia, the Kremlin will have to take offensive measures into its own hands: we already know what the first one will be. Recall what then-president Dmitiry Medvedev said in November 2008: “Russia will deploy Iskander missile systems in its enclave in Kaliningrad to neutralize, if necessary, the anti-ballistic missile system in Europe.”

Once Russian SS-26 tactical missile systems are again to be found on the borders of a Europe which suddenly as facing not only a a nuclear-armed opponent on its borders, but an ongoing – and in many cases malicious – immigrant influx within, then all bets about the peaceful future of the European continent, the main stated reason behind the creation of the EU and the Eurozone, will once again be off.

But not before NATO and the Pentagon respond in symmetric fashion and deploy more nuclear weapons of their own to Europe’s eastern borders, and aim them squarely at Moscow, as the precarious post-cold war game theoretical equilibrium is completely destroyed. At that moment the new nuclear arms race will have fully returned.

END
Sunday:
Again the West continues to ananoy Putin as he must respond to the UK stockpiling tanks and heavy equipment close to Russia’s border
(courtesy zero hedge)

UK To Stockpile Tanks, Heavy Equipment Close To Russia’s Border

Following the May 12 launch of “Aegis Ashore“, the operational name of Washington’s European missile defense system based in Romania, which overnight swept away the tentative European nuclear arms race balance of power as it removed a Russian “first strike threat” thereby pressuring Russia to implement further nuclear offensive and defensive measures, Putin was livid, and as we reported yesterday, during his press conference with Greek PM Tsipras, the Russian president explicitly warned Poland and Romania that they are now in Russian first-strike crosshairs, and that Russia’s most likely response would be the deployment of SS-26 nuclear-capable tactical missiles.

“If yesterday in those areas of Romania people simply did not know what it means to be in the cross-hairs, then today we will be forced to carry out certain measures to ensure our security,” Putin told a joint news conference in Athens with Greek Prime Minister Alexis Tsipras. “It will be the same case with Poland,” he said.

“We have the capability to respond. The whole world saw what our medium-range sea-based missiles are capable of [in Syria]. But we violate no agreements. And our ground-based Iskander missiles have also proven themselves as superb,” continued Putin.

But what was most troubling, was Putin’s implicit warning that should NATO continue to escalate, and push ever more troops into countries neighboring Russia, the Kremlin would be unable to prevent a likewise escalatory response: “We’ve been repeating like a mantra that we will be forced to respond… Nobody wants to hear us. Nobody wants to conduct negotiations with us.

And then, as if on cue, NATO made it even more explicit that its primary prerogative remains to provoke Russia into an offensive move, when over the weekend the Times reported that the British military may soon start stockpiling tanks and other heavy equipment in Eastern Europe as part of NATO’s military beef up close to Russia’s border. The decision may come at the upcoming NATO summit in Warsaw in July.


Stock photo: British soldiers aboard tanks

Citing a threat to the Baltic States and Poland, the North-Atlantic alliance plans to deploy as many as 4,000 additional troops in those countries according to RT. The initial plan was for the US to provide half, with Germany and the UK shouldering the rest of the cost. However, last week the Wall Street Journal reported that Washington would only provide one 1,000-strong battalion and wanted the European members of the alliance to spend more on their own defense. To be sure, if Trump wins, NATO will be in even bigger dire straits as the real estate mogul has made it clear he wants to strip US contributions to NATO to a bare minimum, which would in turn force Europe to step up its own support of an organization whose sole purpose has always been deterring first the USSR and now Russia.

Britain’s plan, however, remains the same. It will provide an armored battle group, which usually consists of about 1,000 troops, backed by tanks and artillery, to be deployed in the Baltic, the Times reported. Britain’s other plans under consideration are to stockpile tanks and other military hardware across Eastern Europe and ramp up air defenses, the newspaper said.

As repeatedly documented on this website, Russia considers NATO’s new deployments a hostile move and says they violate the spirit of the agreement the alliance signed with Moscow in 1994. NATO pledged not to deploy ‘significant forces’ in Eastern Europe on a permanent basis. However, it has been circumventing its pledge by rotating troops, as is the case with the four planned battalions, and debating the meaning of the word ‘significant’ in the deal, which was not legally defined.

The alliance claims that its military buildup at the Russian border is needed to counter Russian aggression. It justified the stance using the Ukrainian crisis, during which its region Crimea opposed a coup-imposed government in Kiev and voted in a referendum to break up from Ukraine and rejoin Russia.

Moscow in turn, has said it used its military, which was stationed in Crimea under a treaty with Ukraine, to prevent violence during the transition period whlie accusing western powers, and especially the US State Department, of being behind the Ukraine presidential coup in early 2014. Kiev’s foreign sponsors say the move was an annexation through military force rather than an exercise in self-determination.

The three Baltic nations, which were parts of the Soviet Union, and Poland are the most vocal European proponents of escalating the tension between NATO and Russia. Hosting additional troops gives those countries a boost to their local economies, but also makes them a target for Russian military planners, who respond to the extra military presence there.

Moscow insists that it poses no military threat to any NATO member and accuses the alliance of warmongering aimed at justifying greater military spending by European nations. Meanwhile, NATO is doing the same to Russia.

Whatever the cause, neither defensive (and increasingly offensive) block is even remotely considering to pause the escalation and build up of armed forces – and soon nuclear weapons – and certainly does not want to appear weak and relent. Which means the suddenly military, and now nuclear, escalation will be a daily fact of life, just as dramatic political winds of change blow across Europe and threaten to topple an establishment that had been comfortably in power for decades.

All of which makes for a potent cocktail for rising geopolitical volatility and thus, in the centrally-planned new paranormal, new all time highs in the stock “market.”

 end
Europe:  you have been warned:  Erdogan states that contraception is treason and women are not equal to men:
(courtesy zero hedge)

NATO Ally Erdogan Says “Contraception Is Treason, Women Not Equal To Men, Muslims Must Multiply Descendants”

Submitted by Michael Shedlock via MishTalk.com,

In a stark warning as to what will happen if Chancellor Angela Merkel allows Turkish citizens visa-free travel throughout Europe, Turkish President Recep Tayyip Erdogan says “Contraception is Treason, Women Not Equal to Men, Muslims Must Multiply Descendants .”

Please consider Turkey’s Erdogan Warns Muslims Against Birth Control.

Turkish President Recep Tayyip Erdogan has called on Muslims to reject contraception and have more children.

 

In a speech broadcast live on TV, he said “no Muslim family” should consider birth control or family planning.

 

“We will multiply our descendants,” said Mr Erdogan, who became president in August 2014 after serving as prime minister for 12 years.

 

In Monday’s speech in Istanbul, the Turkish leader placed the onus on women, particularly on “well-educated future mothers”, to not use birth control and to ensure the continued growth of Turkey’s population.

 

Mr Erdogan himself is a father of four. He has previously spoken out against contraception, describing it as “treason” when speaking at a wedding ceremony in 2014.

 

He has also urged women to have at least three children, and has said women cannot be treated as equal to men.

 

Turkey’s fertility rate is one of the highest in Europe and the country’s relatively young population (compared with other European countries) is still growing. The population is just under 80 million.

turkish wedding

 

Not only is this a warning to Europe, it is fodder for the Donald Trump’s presidential campaign.

end

 

The following illustrates how Sweden is becoming the rape capital of the world;

(courtesy zero hedge)

 

Sweden’s Migrant Rape Epidemic Explained

How did peaceful Sweden go from being a quiet, low-crime country to being the country with the second-highest incidence of rape in the world? Why has Sweden experienced a 1,472% increase in the annual number of rapes?

Here is Ingrid Carlqvist of is Gatestone Institute to explain…

end

GLOBAL ISSUES

A good summary as to how Nigeria will be the next Venezuela as the undergoing a huge meltdown.

(courtesy London’s Financial Times)

May 30, 2016 2:46 pm

Nigeria: Running on empty

Maggie Fick

A worker rings a bell during a protest demanding that the government reinstate prices of fuel at 86.50 naira ($0.43, 0.38 euros) per litre in Lagos, on May 18, 2016. Nigeria's government on May 18 warned against "illegal strike action" after some union members vowed to press ahead with a national strike over petrol price rises despite a court injunction.   / AFP / PIUS UTOMI EKPEI (Photo credit should read PIUS UTOMI EKPEI/AFP/Getty Images)©AFP

In his former role as the managing director of one of Nigeria’s leading banks, Godwin Emefiele had a reputation for being soft-spoken and unassuming. In the year since he became governor of the central bank, he has stood out for the opposite.The change is being put down to one thing: the control he wields over the most scarce commodity in Africa’s biggest economy today: dollars. One businessman says Mr Emefiele has become so central to the running of the country that “no one can operate without him”.

“The economy was a mess anyway and Nigeria was heading for a hard fall, but . . . should the fall be this hard?” asks Kayode Akindele at TIA Capital, a Lagos-based investment firm.

That question is nagging at a growing section of the public, angered that Mr Buhari, the ascetic former military ruler elected on a wave of optimism last year, has not only failed to react fast enough to the changing climate but made matters worse by experimenting with outmoded remedies that have not stemmed the economy’s freefall. Supermarkets in Lagos are struggling to keep their shelves stocked, fuel is rationed and food prices have soared.

“The pain level is going up,” says Olisa Agbakoba, former head of the Nigerian Bar Association. “Everything is in short supply.”

‘Self-inflicted’ wounds

The fortunes of Africa’s most populous nation and leading oil producer have long ebbed and flowed with the price of oil, on which Nigeria depends for more than 90 per cent of hard currency earnings. But economists list several factors that make the current downturn markedly more worrying.

The structural change in the global oil industry since shale reserves were opened up by the development of new fracking techniques in the US makes it unlikely that major oil producers like Nigeria will see a significant price recovery any time soon.

In 2008, the last time crude prices crashed, Nigeria had savings to fall back on. This time it doesn’t: the administration of former president Goodluck Jonathan squandered the proceeds of the boom years in a bonanza of profligacy and corruption before he was voted out of office.

Chart: Nigeria data

Then there is what critics describe as the “self-inflicted” wounds — the currency policies and associated import controls set up to conserve hard currency by prioritising strategic imports when Mr Buhari took power 12 months ago. These have starved existing businesses of inputs, leading to a collapse in supplies of everything from medicines to spare parts, while incidents of price gouging have risen. The policies are also blamed for encouraging capital flight while forestalling fresh investment. Inflows dropped by nearly 75 per cent to $711m in the first four months of 2016.

“No one, even investors like us with a long-term view, is going to put money into Nigeria in the expectation of losing a third of the value of that investment,” says a senior partner in a UK-based private equity fund. He and other investors say that despite the president’s visceral opposition to devaluation, it appears inevitable.

The impact has been chilling. Nigeria’s economy, which grew annually at an average rate of 7 per cent in the decade to 2014, contracted by 0.36 per cent in the first quarter. According to most forecasts it is heading into recession.

The import controls and restrictions on foreign exchange have hit the manufacturing sector hard, eroding the credibility of the Buhari administration’s ambition to diversify the economy.

“Growing non-oil income is a key economic strategy of this government,” says Keith Richards, a veteran of Nigeria’s consumer goods industry who used to run a subsidiary in the country of Guinness, the brewer. “Blocking manufacturers manufacturing will have the opposite effect.”

More than half a million workers lost their jobs in the first four months of this year, according to official statistics. The livelihoods of tens of millions more people employed in the informal sector have been hit by inflation of nearly 14 per cent, spurred by escalating shortages of basic goods and the rapid devaluation of the naira on the parallel market, where most traders are now compelled to source their foreign exchange.

And while a new wave of militancy in the oil-producing Niger Delta has triggered a rally in the global price — it hit $50 per barrel last week for the first time in seven months — the violence is making matters worse at home, with any gains offset by production losses. In recent weeks, pipeline attacks have cut production to 1.45m barrels a day — far short of the 2.2m assumed in this year’s expansionary budget.

Oil revenues typically account for more than two-thirds of government income. Collapsing prices and falling production mean the government is now operating on about one-quarter of the $5bn in monthly revenues it had before the price fall began in mid-2014. Many state governments are now unable to pay salaries while power generation levels are at their lowest in years.

“Investors fear Nigeria is on a stagflationary road to Venezuelan-style multiple exchange rates and eventual meltdown,” says Charlie Robertson, chief economist at Renaissance Capital. “[But] we think reformists will help Nigeria swerve in time and avoid that car crash,” he said, after a government decision earlier this month to raise the price of fuel by 67 per cent in response to months of crippling shortages.

Chart: Nigeria data

The price rise was interpreted as the government accepting the reality of severe dollar scarcity. But it fell short of the deregulation of state-set fuel prices that has long been urged by economists seeking to ease the chronic distortions in the economy. It left many observers saying shortages will return unless the government loosens its grip on the price of both fuel and the naira.

In a speech on Sunday marking his first year in office, Mr Buhari said he had inherited a “state near collapse”, ill-equipped for the strain of low oil prices. Insecurity was widespread, “corruption and impunity were the order of the day” and the treasury had been emptied. The initial challenge for his government had been to block leakages and reconstruct “the spine of the Nigerian state”.

The central bank last week admitted that the exchange rate cap — defended by Mr Emefiele as a way of protecting strategic imports from the low oil price and shielding the poor from inflation — is failing and should be abandoned. The comments fuelled speculation of a policy switch. Mr Buhari, on Sunday, appeared defensive about the approach taken so far but acknowledged that he had been forced to listen to advice to change course. He said he supported the central bank’s new strategy “to ensure alignment between monetary policy and fiscal strategy”.

The president also hinted in a briefing with local media that he was open to considering his options. “The . . . economists come and talk things to me, and when I raise issues they talk over my head instead of inside my head,” he was quoted as saying in Nigeria’s ThisDay newspaper. “On the value of the naira, I’m still agonising over it . . . I need to be educated on this . . . I am under pressure and we’ll see how we can accommodate the economists.”

Mr Emefiele has been crucial to the president’s defence that tight currency controls are the best response to the economic crisis. The two men meet frequently at the presidential villa, according to one of Mr Buhari’s spokesmen, and statements on monetary policy by the two over the past year are virtually indistinguishable.

Business argues that a controlled devaluation would allow manufacturers and traders to make informed pricing decisions, less dependent on the central bank governor’s will. Despite the recent comments, however, companies are not holding their breath.

Others in the government insist that the new budget will kick-start the economy. External borrowing to finance it has yet to be secured, however, and business remains unconvinced that government spending alone will be enough.

“It’s a monumental waste of money to be trying to stimulate the economy on the one hand and slowing it down on the other,” says Oyin Anubi, an Africa economist at Bank of America in London.

Losing allies

The damage is not just economic. The country’s travails have overshadowed progress the president has made on the problems he most wanted to tackle: the Islamist insurgency of Boko Haram and pervasive corruption in government.

Most damaging though is the political impact that is beginning to cost Mr Buhari allies. His decision-making style appears, even to senior members of the administration, overly secretive. Some criticise him for failing to consult with his cabinet and view his refusal to listen to alternative points of view.

Obiageli Ezekwesili, who served as a minister in two previous administrations and once led the World Bank’s Africa division, recently criticised Mr Buhari’s economic policies as “opaque” and “archaic”, saying that something that “did not work in 1984 cannot possibly be a solution in a global economy that’s much more integrated”.

Advisers to the president say his original priority was to lift people out of poverty. It was not to please the wealthy business community and skittish foreign portfolio investors. But those close to the administration claim there are signs of a shift in ideology within government: from the unbridled crony capitalism of the past to a more state-driven vision for promoting industry and jobs.

Industrial revolution

Mr Buhari’s initial instinct, say advisers, was to batten down the hatches, and pursue capital and import controls similar to those pursued by China in the 1980s, while gradually building up export capacity in sectors beyond oil.

Chart: Nigeria data

The aim was to engineer the beginnings of an industrial revolution, create jobs and dedicate investment towards rebuilding infrastructure. Ethiopia, on the other side of the continent, has spurred the beginnings of an economic transformation using similar methods.

In Nigeria’s case, however, it could already be too late. The government’s ability to control the capital account — the deficit doubled to 3.7 per cent of GDP in 2015 — and restrict imports in a country rife with smuggling is questionable.

A Venezuela-style meltdown — once dismissed out of hand — now no longer seems such an outlandish prospect. Some observers argue that this doomsday scenario is forcing officials, including the president, to accept the need for a course correction.

“The bunker mentality has changed [in the past month] to a more open-to-discussion one” says Bismarck Rewane, chief executive of Financial Derivatives, a consultancy in Lagos. “Even if the change [in policy] is involuntary, the combination of inflation, slowing GDP, exchange rate pressure and the drop in oil production . . . will bring change.”

Oil fight: Delta violence hits output
Who are the Niger Delta Avengers? What do they want? How seriously should their threats to shut down Nigeria’s oil and gas sector be taken? The only question with an unequivocal answer is the third one.

Its leadership, backers and motivations remain unclear. But the devastating economic impact of the group’s sabotage campaign is plain to see. It has cut Nigeria’s crude exports by at least 850,000 barrels per day with attacks this year on pipelines and export terminals across the Niger Delta, home of the country’s oil industry, and no stranger to clashes over calls for a fairer distribution of oil revenues with the local community.

The shutdown in exports by the Avengers is not yet on a par with that of the militants of MEND at the height of the previous insurgency that ended with a ceasefire in 2009. But with state finances already severely strained by low oil prices, economists predict Nigeria will fall more quickly into recession unless the damage to energy infrastructure is repaired and the sabotage ends.

President Muhammadu Buhari has ordered army reinforcements to the Delta and threatened to treat the militants like the Boko Haram Islamists who have terrorised the north-east of the country. The comparison has angered many in the Delta who argue that, even if the sabotage damages the economy, it should be seen as a cry for attention.

“[Buhari] tends to see the Delta as a security issue . . . it’s about handling the ‘bad guys’,” says one western diplomat. “You hear almost nothing on the underlying grievances.”

The failure of the 2009 amnesty is one point over which the Buhari administration and many Deltans could find common ground.

“It was a bribe for peace,” says Charles Ekiyor, a former leader of the Ijaw Youth Council. The deal was supposed to include development of the impoverished region, he says. But under Mr Buhari’s predecessor, Goodluck Jonathan — who is from the Delta — it did not happen. Now the same grievances are being exploited by the Niger Delta Avengers.

END

EMERGING MARKETS

So what else is new:  the latest brand new anti corruption Minister quits after a leak which exposes his involvment in the corruption scandal:

(courtesy zero hedge)

 

Brazil’s New Anti-Corruption Minister Quits After Leak Exposes His Involvement In Corruption Scandal

Our prediction that the cabinet of Brazil’s new president Michel Temer would not last longreceived its first validation just 10 days after the impeachment of Dilma Rousseff, when a recording was leaked in which Brazil’s new Planning Minister under Temer, Romero Juca, was overheard explaining how the removal of Rousseff would “prevent the wide corruption probe dubbed Carwash from proceeding.” This prompted many to wonder if Rousseff was indeed correct all along claiming a silent, US-sponsored coup had taken place in Brazil, one in which the cost of sweeping the Carwash scandal under the rug was her own scalp.

Incidentally, Juca quit shortly thereafter to preserve the new president’s reputation as corruption-free as possible.

Then earlier today, things for the new, just as corrupt as his predecessor president, Michel Temer got particularly awkward, not to mention painfully ironic, when none other than Brazil’s Transparency and Anti-Corruption Minister, Fabiano Silveira resigned on Monday after leaked recordings suggested he tried to derail a sprawling corruption probe, the latest cabinet casualty impacting interim President Michel Temer’s administration.

No amount of commentary can do justice to the gruesome farce that Brazilian economics is quickly devolving into. That said, it was perfectly predictable. On May 12, the day Rousseff was removed from power, we asked if Temer can he avoid ouster himself“?

Among his documented transgressions, he signed off on some of the allegedly illegal budget measures that led to the impeachment drive against Rousseff and has been implicated, though never charged, in several corruption investigations.

The son of Lebanese immigrants, Temer is one of the country’s least popular politicians but has managed to climb his way to the top, in large part by building close relationships with fellow politicians as leader of the large but fractured Brazilian Democratic Movement Party.

Think Frank Underwood.

However, unlike Underwood, Temer may not last long, for the simple reason that the people who greeted him as a savior from Rousseff’s corruption may very soon turn on him just as fast.

Silveira, the man Temer tasked with fighting corruption since he took office on May 12, announced his plans to step down in a letter, according to the presidential palace’s media office. No replacement for Silveira has yet been named.

Silveira and Senate President Renan Calheiros became the latest officials ensnared by leaked recordings secretly made by a former oil industry executive as part of a plea bargain. The same tapes led to the resignation last week of the abovementioned Romero Juca, whom Temer had named as planning minister.

According to Reuters, in parts of the recordings, aired by TV Globo late on Sunday, Silveira criticizes prosecutors in the probe focused on state-controlled oil company Petróleo Brasileiro SA, known as Petrobras, which has already implicated dozens of politicians and led to the imprisonment of top executives.

In the conversation, recorded at Calheiros’ home three months before Silveira became a Cabinet minister, Silveira advises the Senate leader on how best to defend himself from the probe into Petrobras.

In the report, Globo TV also said some audio indicated that Silveira on several occasions spoke with prosecutors in charge of the Petrobras case to find out what information they might have on Calheiros, which he reported back to the Senate leader.   Silveira is heard saying prosecutors were “totally lost.”

For those still wondering if Brazil’s anti-corruption minister just resigned less than three weeks after taking the post becuase he was busted for corruption – on the record – the answer is yes.

Where it gets better is that nobody knows how many other members of the Temer cabinet will fall as a result of the ongoing leaks of phone recordings.

The former head of the transportation arm of Petrobras, Sergio Machado, who is under investigation as part of the graft probe and has turned state’s witness, recorded the meeting and conversations with other politicians to obtain leniency from prosecutors. Silveira was a counsellor on the National Justice Counsel, a judicial watchdog agency, at the time of the meeting.

The reaction was swift: on Monday, Ministry of Transparency staff marched to the presidential palace in Brasilia to demand Silveira’s ouster and restoration of the comptroller general’s office, which Temer renamed to show his commitment to fighting corruption.

That particular “commitment” is not working out too great.

All employees with management duties at the ministry resigned their posts to press their demands, according to union leader Rudinei Marques.

Protesting employees had earlier prevented Silveira from entering the ministry building. They then washed its facade with soap and water to symbolize Temer’s need to clean up his government.

The only problem is that the corruption in Temer’s government starts with Temer himself, who according to many is far more corrupt than Rousseff ever was.  Which is probably way Reuters adds that Temer will meet with Brazil’s prosecutor general later today to discuss the leaked recordings.

Several members of Temer’s cabinet are under investigation in the Petrobras probe. Rousseff, facing an impeachment trial in the Senate on charges of breaking budget laws, and others have said Temer plotted her downfall to stifle the investigation.

Temer has strongly denied the allegation, although with every new scandal and resignation, less and less people believe the false narrative.

As a result of the recordings, the new government could face declining support for Rousseff’s ouster by the Senate, which needs a two-thirds majority to convict her in a trial expected to last through August.The two-year probe into billions in graft at Petrobras has led to jail time for executives from Brazil’s top construction firms as well as investigations of dozens of politicians, including several members of Temer’s Brazilian Democratic Movement Party, or PMDB, and Rousseff’s Workers Party.

At the end of the day, everyone in Brazil’s political ruling class is corrupt: as such that is hardly grounds for dismissal as Brazil would simply have no politicians left. The question the people needs to answer is which politician is best suited to get the country out of the unprecedented economic depression it finds itself in less than two months before the Summer Olympics are set to begin in Rio.

Then again, the choice may already have been made: earlier today, Brazil’s FUP Oil Union, one of the two main oil labor unions in the country, said it plans a one-day national strike on June 10. It workers will protest against acting president Michel Temer, FUP said adding that Temer’s government lacks legitimacy. The FUP workers specifically are worried that they will lose benefits under the new administration, and Petrobras could be privatized.

The conclusion is that Temer’s honeymoon period has officially ran out, and at this point absent some dramatic shift in his administration, Temer himself may be impeached in very short notice. Perhaps it is not too late for the ambitious former vice president and current president to watch House of Cards from the beginning, just to reminds himself how these things are done… if only on Netflix.

END
Brazil now in a depression as investors flee the country
(courtesy zero hedge)

Investors Are Fleeing As Attention Returns To Brazil’s Depression

Now that the market’s fascinated dream with the regime of Brazil’s new president Michel Temer is quickly turning into a nightmare, following two immediate resignations of his closest ministers over the ongoing Carwash corruption scandal, including ironically that of the country’s anti-corruption minister, Fabiano Silveira, attention is gradually returning to what is truly the cause of Brazil’s woes: an unprecedented economic depression, although only for the people – certainly not for the political elite.

And unfortunately, Brazil’s depression – which is what we first defined it here all the way back in December 2014 – is getting worse with every passing month. The latest economic news metely confirm this. Here is Goldman’s take on today’s disastrous unemployment numbers

The labor market continues to deteriorate: The unemployment rate continues to climb and is now at 11.2% with the ranks of the unemployed reached 11.4 million (up from 8.0 mn a year ago).

 

 

Employment declined 1.7% yoy in the 3-month period ending in April, while the active labor force grew 1.8%. Average real wages declined 3.3% yoy. We expect labor market conditions to deteriorate further given the expectation that the economy will remain weak for the remainder of 2016.

The national unemployment rate printed at a higher than expected 11.2% in the 3-month period ending in April, up from 10.9% in March, 8.0% a year ago, and 7.1% two years ago. In seasonally adjusted terms the unemployment rate climbed to 10.8% in April from 10.4% in March and 7.6% a year ago.

Formal salaried employment in the private sector shrank 4.3% yoy, and employment in the informal sector dropped 0.6% yoy. On the other hand, self-employment grew 4.9% (a reflection of increasingly limited salaried employment opportunities). By sector of economic activity, industrial employment shrank by a large 11.8% yoy.

Average real wages declined 3.3% yoy in April, with average real wages of the self-employed and those working in the informal sector down 5.1% yoy and 1.4% yoy, respectively.

Here is a better representation of Brazil’s unemployment problem:

 

Goldman’s conclusion: “We expect the labor market to deteriorate further. Exigent credit conditions, weak consumer and business confidence, and restrictive overall financial conditions are expected to lead to rising unemployment in 2016 and negative real wage growth.

But while until recently the market could care less about Brazil’s economy, enthralled instead by the “bullish” political fight at the top which replaced one corrupt leader with another just as corrupt leader, this time investors – out of near-term catalysts – are once again paying attention. And the result, as Bloomberg writes, “this month marked a reversal of fortune for Brazilian stocks.”

The Ibovespa is the world’s worst performer in May as investors seek signs that acting President Michel Temer will be able to rescue the economy even as members of his administration get caught up in the same type of political turmoil that encircled Dilma Rousseff before she was removed from office to face impeachment proceedings. Brazil’s stock gauge was the third-best performer in the first four months of the year on optimism the new government would shore up the budget and restore growth.

 

“The market faced a reality check this month,” said Adeodato Volpi Netto, the head of capital markets at Eleven Financial Research in Sao Paulo. “The process of fixing the economy will be a bumpy road. I just hope that investors don’t go away.”

 

The Ibovespa has dropped 8.7 percent this month, its worst performance in more than a year and a half and the biggest decline among more than 90 gauges tracked worldwide by Bloomberg. It gained 0.4 percent to 49,140.63 at 11:23 a.m. in Sao Paulo on Tuesday after falling as much as 0.6 percent earlier in the day.

Which remind us of what we wrote back on May 12, namely that the time has come to exit Brazilian risk assets:

… if markets believe that the Brazilian political situation will stabilize following the Rousseff “coup” as she calls it, we would be sellers for one simple reason. As AP puts it, the man who may become Brazil’s next president is almost as unpopular as the leader facing impeachment now, and stained by scandals of his own.

In retrospect, we make have ticked the high Brazilian print for 2016.

 

And as investors are left with nothing but Brazil’s economic depression to look forward to, punctuated perhaps with the occasional bout of social violence and a disastrous bout of Summer Olympics to boot, the decline in Brazil assets is set to accelerate, unless somehow the narrative changes and now the return of Dilma Rousseff, suddenly looking all too possible, is spun as bullish.

Average:
How Venezuela with the world’s largest oil reserves in the ground, collapsed. The socialistic government expropriated all the major businesses in Venezuela and as such no proper mechanism in place as to what to produce.  This should be a lesson to all:
(courtesy zero hedge)

Will We Never Learn? The Economic Lessons From Venezuela’s Current Collapse

Shops are being looted as Venezuela’s citizens, who live on top of the world’s largest oil reserves, are literally starving and dying for lack of food and medicine; all while the country’s gold reserves are being sold to finance its debt. With 1.8 million signatures on a petition for a referendum on Nicolas Maduro’s presidency, the country is threatening to become a failed state.

Venezuela is in crisis…

So, Ricardo Hausmann, former minister of planning for Venezuela, explains (via Project Syndicate) how too much heteredoxy (read – monetary policy experimentation and central planning and control) can kill you…

Ever since the 2008 financial crisis, it has been common to chastise economists for not having predicted the disaster, for having offered the wrong prescriptions to prevent it, or for having failed to fix it after it happened. The call for new economic thinking has been persistent – and justified. But all that is new may not be good, and that all that is good may not be new.

The 50th anniversary of China’s Cultural Revolution is a reminder of what can happen when all orthodoxy is tossed out the window. Venezuela’s current catastrophe is another: A country that should be rich is suffering the world’s deepest recession, highest inflation, and worst deterioration of social indicators. Its citizens, who live on top of the world’s largest oil reserves, are literally starving and dying for lack of food and medicine.

While this disaster was brewing, Venezuela won accolades from the United Nations Food and Agricultural Organization, the Economic Commission for Latin America, British Labour Party leader Jeremy Corbyn, former Brazilian President Luiz Inácio Lula da Silva and the US Center for Economic Policy Research, among others.

So what should the world learn from the country’s descent into misery? In short, Venezuela is the poster child of the perils of rejecting economic fundamentals.

One of those fundamentals is the idea that, to achieve social goals, it is better to use – rather than repress – the market. After all, the market is essentially just a form of self-organization whereby everyone tries to earn a living by doing things that others find valuable. In most countries, people buy food, soap, and toilet paper without incurring a national policy nightmare, as has happened in Venezuela.

But suppose you do not like the outcome the market generates. Standard economic theory suggests that you can affect it by taxing some transactions – such as, say, greenhouse-gas emissions – or giving money to certain groups of people, while letting the market do its thing.

An alternative tradition, going back to Saint Thomas Aquinas, held that prices should be “just.”Economics has shown that this is a really bad idea, because prices are the information system that creates incentives for suppliers and customers to decide what and how much to make or buy. Making prices “just” nullifies this function, leaving the economy in perpetual shortage.

In Venezuela, the Law of Just Costs and Prices is one reason why farmers do not plant. For that reason, agro-processing firms shut down. More generally, price controls create incentives to flip goods into the black market. As a result, the country with the world’s most extensive system of price controls also has the highest inflation – as well as an ever-expanding police effort that jails retail managers for holding inventories and evencloses the borders to prevent smuggling.

Fixing prices is a short dead-end street. A longer one is subsidizing goods so that their price remains below cost.

These so-called indirect subsidies can quickly cause an immense economic mess. In Venezuela, subsidies for gasoline and electricity are larger than the budget for education and health care combined; exchange-rate subsidies are in a class of their own. With one daily minimum wage in Venezuela, you can buy barely a half-pound (227 grams) of beef or 12 eggs, or 1,000 liters (264 gallons) of gasoline or 5,100 kWh of electricity – enough to power a small town. With the proceeds of selling a dollar at the black market rate, you can buy over $100 at the strongest official rate.

Under these conditions, you are unlikely to find goods or dollars at official prices. Moreover, since the government is unable to pay providers the necessary subsidy to keep prices low, output collapses, as has happened with Venezuela’s electricity and health sectors, among others.

Indirect subsidies are also regressive, because the rich consume more than the poor – and hence appropriate more of the subsidy. This is what underpins the old orthodox wisdom that if you want to change market outcomes, it is better to subsidize people directly with cash.

Another bit of conventional wisdom is that creating the right incentive structure and securing the necessary know-how to run state-owned enterprises is very difficult. So the state should have only a few firms in strategic sectors or in activities that are rife with market failures.

Venezuela disregarded that wisdom and went on an expropriation binge.In particular, after former President Hugo Chávez was reelected in 2006, he expropriated farms, supermarkets, banks, telecoms, power companies, oil production and service firms, and manufacturing companies producing steelcement, coffee, yogurt, detergent, and evenglass bottles. Productivity collapsed in all of them.

Governments often struggle to balance their books, leading to over-indebtedness and financial trouble. Yet fiscal prudence is one of the most frequently attacked principles of economic orthodoxy. But Venezuela shows what happens when prudence is frowned upon and fiscal information is treated as a state secret.

Venezuela used the 2004-2013 oil boom to quintuple its external public debt, instead of saving up for a rainy day. By 2013, Venezuela’s extravagant borrowing led international capital markets to shut it out, leading the authorities to print money. This caused the currency to lose 98% of its value in the last three years. By the time oil prices fell in 2014, the country was in no position to take the hit, with collapsing domestic production and capacity to import, leading to the current disaster.

Orthodoxy reflects history’s painfully acquired lessons – the sum of what we regard to be true. But not all of it is true. Progress requires identifying errors, which in turn calls for heterodox thinking. But learning becomes difficult when there are long delays between action and consequences, as when we try to regulate the water temperature while in the shower. When reaction times are slow, exploring the heterodox is necessary, but should be done with care. When all orthodoxy is thrown out the window, you get the disaster that was the Chinese Cultural Revolution – and that is today’s Venezuela.

*  *  *

So what should the world learn from the country’s descent into misery? In short, Venezuela is the poster child of the perils of rejecting economic fundamentals.

end

OIL ISSUES

Despite the highest oil production from OPEC, oil spikes close to 50 dollars due to turmoil in Libya and Nigeria:

(courtesy zero hedge)

 

Oil Spikes Near $50 On Libya Turmoil Despite Highest OPEC Production Since 2008

In its ubiquitous manner, crude futures decided to try and run the stops at the US equity open but were unable to get to $50 (49.984 in July WTI) before fading back a little. Ths driver – according to the narrative-du-jour – is turmoil in Libya and ongoing Nigeria and France disruptions, which are both offsetting a surge in OPEC production to its highest level since 2008 in the minds of the machines. “The market is pretty much on hold until we get all this information,” says Deutsche Bank’s Jens Pedersen of the data dump and OPEC meetings this week. “We need to get that out of the way to see if there is a reason for oil to go higher.”

OPEC production rose to 32.575m bbl/day – its highest since 2008…

 

And the result – a machine-driven meltup, which however failed to tag $50 stops for now…

 

As Bloomberg reporets, key stories shaping mkt today: Libya guards take control of town linked to 2 oil ports from Islamic State militants. French refinery strikes continue; potential for strike action seen in Norway, Brazil

Libya’s Petroleum Facilities Guard captures town of Bin Jawad after clashes w/ Islamic State: spokesman

  • Bin Jawad is a crossing point to oil ports of Es Sider and Ras Lanuf, which have been closed since Dec. 2014
  • Petroleum Guards seize Nofaliyeh town from IS

French Refinery Strike…

  • Exxon’s Gravenchon, Fos Refineries in France operating normally: spokeswoman
  • Total says 216 French gas stations completely out of stock, another 337 stations partially out of gasoline out of a total of 2,200
  • La Mede refinery operating at 75% of capacity while 4 others are halted; Total operates 5 of France’s 8 refineries

Potential Strike Action…

  • Norway oil industry faces risk of strikes after talks between oil cos., Industry Energy union broke down in less than a minute
  • “The differences were so obvious so early on that it was just as well to make an appointment with the National Mediator right away rather than sit here for two days,” says union leader Leif Sande
  • Brazil FUP oil union plans 1-day national strike on June 10 to protest against acting president Michel Temer
  • Says workers will lose benefits under new administration, Petrobras could be privatized

Other Headlines…

  • Russia said to export 28 cargoes of ESPO crude for July, up from 23 in June: 4 people w/ knowledge
  • Japan crude imports rise 3.4% y/y to 16.54m kls in April: METI
  • Oman crude official price for July set at $44.31, highest this yr; up from $39.40 in June: DME
end

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

Euro/USA   1.1152 UP .0005 ( STILL REACTING TO USA FAILED POLICY

USA/JAPAN YEN 111.05  UP 0.219 (Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER

GBP/USA 1.4619 DOWN.0015 (LESS OF A THREAT OF BREXIT)

USA/CAN 1.3053 UP .0012

Early THIS TUESDAY morning in Europe, the Euro ROSE by 5 basis points, trading now WELL above the important 1.08 level FALLING to 1.1367; 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 UP BY 94.17 PTS OR 3.34% / Hang Sang CLOSED UP 185.70 OR  0.90%   / AUSTRALIA IS LOWER BY 0.54%/ ALL EUROPEAN BOURSES ARE IN THE RED  as they start their morning/

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

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

2, the Nikkei average vs gold carry trade ( 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 TUESDAY morning: closed UP 166.96 OR 0.98% 

Trading from Europe and Asia:
1. Europe stocks ALL IN THE RED AS  THEY START THEIR DAY

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 185.70PTS OR 0.90% . ,Shanghai CLOSED UP 94.17 OR 3.34%/ Australia BOURSE IN THE RED: /Nikkei (Japan) CLOSED IN THE GREEN /India’s Sensex IN THE RED

Gold very early morning trading: $1211.50

silver:$16.07

Early TUESDAY morning USA 10 year bond yield: 1.878% !!! UP 3 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 RISES to 2.663 UP 2 in basis points from FRIDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early TUESDAY morning: 95.62 UP 10 CENTS from FRIDAY’s close.(Now below resistance at a DXY of 100.)

This ends early morning numbers TUESDAY MORNING

END

And now your closing TUESDAY NUMBERS

Portuguese 10 year bond yield:  3.06% UP 2 in basis points from FRIDAY

JAPANESE BOND YIELD: -0.1050% DOWN 1 AND 1/2 in   basis points from FRIDAY

SPANISH 10 YR BOND YIELD:1.47%  DOWN 1 IN basis points from FRIDAY

ITALIAN 10 YR BOND YIELD: 1.36  UP 1 IN basis points from FRIDAY

the Italian 10 yr bond yield is trading 9 points lower than Spain.

GERMAN 10 YR BOND YIELD: .139% UP 1/10  IN BASIS POINTS ON THE DAY

 

END

IMPORTANT CURRENCY CLOSES FOR TUESDAY

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

 

 

Euro/USA 1.1132 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: 110.54 DOWN 0.293 (Yen UP 29 basis points )

Great Britain/USA 1.4474 down.0157 Pound down 157 basis points/(HUGE BREXIT CONCERN)

USA/Canada 1.3124 UP 0.0082 (Canadian dollar DOWN 82 basis points with OIL FALLING a BIT(WTI AT $48.85).

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was DOWN by 15 basis points to trade at 1.1132

The Yen ROSE to 110.54 for a GAIN of 29 basis points as NIRP is STILL a big failure for the Japanese central bank/

 

The pound was DOWN 157 basis points, trading at 1.4474 ( BREXIT FEARS INCREASE DRAMATICALLY)

The Canadian dollar FELL by 85 basis points to 1.3124, WITH WTI OIL AT:  $48.83

The USA/Yuan closed at 6.5775

the 10 yr Japanese bond yield closed at -.105% DOWN 1  1/2 IN BASIS  points in yield/

Your closing 10 yr USA bond yield: DOWN 2  IN basis points from FRIDAY at 1.835% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.628 DOWN 2 in basis points on the day ( HUGE POLICY ERROR)

BANKS NEED THE LONGER BOND HIGHER IN YIELD: INSTEAD THE SPREAD LESSENS.

Your closing USA dollar index, 95.87 UP 17 IN 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 TUESDAY

London:  CLOSED DOWN 40.00 OR 0.64%
German Dax :CLOSED DOWN 70.49 OR 0.68%
Paris Cac  CLOSED DOWN 23.78  OR 0.53%
Spain IBEX CLOSED DOWN 82.90 OR 0.91%
Italian MIB: CLOSED DOWN 266.13 OR 1.45% (STILL BANKING PROBLEMS)

The Dow was DOWN 86.02.  points or 0.48%

NASDAQ UP 14.55 points or 0.29%
WTI Oil price; 48.96 at 4:30 pm;

Brent Oil: 49.57

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  66.78 (ROUBLE DOWN  1  AND 24/100 ROUBLES PER DOLLAR FROM YESTERDAY) AS THE PRICE OF BRENT FELL AND WTI FELL

TODAY THE GERMAN YIELD ROSE TO .139  FOR THE 10 YR BOND

.

END

 

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

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

WTI CRUDE OIL PRICE 5 PM:48.83

BRENT: 49.53

USA 10 YR BOND YIELD: 1.845%

USA DOLLAR INDEX: 95.84 UP 14 cents

END

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

Trading Today in Graph form;  VERY IMPORTANT FOR YOU TO VIEW ALL THE CHARTS TODAY

end

 

Personal spending spikes by 1% caused no doubt by the huge rise in oil prices and gas prices.  The higher spending causing savings to plummet:

 

(courtesy zero hedge)

 

Personal Spending Spikes Most Since Aug 2009 As Fuel Costs Surge

Having disappointed in March (just +0.1% MoM), expectations for April’s personal spending were sky high at +0.7% MoM, despite expectations of a 0.4% rise in incomes. Analysts were not disappointed as theheadline spending print was a 7-year high +1.0% MoM spike driven by a 3.8% MoM surge in Energy spending. With income rising as expected at 0.4% MoM, and thanks to revisions, the savings rate tumbled to its lowest since 2015.

Sustainable? The 2nd biggest spike in spending since 2005…

 

Thanks to the biggest monthly spike in energy spending since September 2005…

 

With spending spiking and income rising only modestly – and thanks to revisions – the savings rate plunged in April…

 

So last month’s 5.4% savings rate – which was already the highest since 2012 – was revised to 5.9%, and it plunged back to 5.4% from there.

 

 

Charts: Bloomberg

end
This morning we had two biggy reports:
The first was a huge slump in the national Chicago  mfg index back into contraction mode:
(courtesy zero hedge)

Chicago PMI Slumps Back Into Contraction; Election Blamed

Having wavered around the magical ’50’ level for much of the last year, bouncing off December plunge lows, Chicago PMI printed below expectations of 50.5 at a contractionary 49.3 – the 6th month of contraction in the last 12 months. With weakness in new orders (lowest since Dec 2015) and production (both back into contraction), MNI notes that on the heels of April’s decline, the latest results show activity stumbling in the second quarter, following only moderate growth in Q1.

The 8th month of contraction in th elast 14..

As MNI reports, barring a solid revival in June, Q2 could be the weakest outturn since the fourth quarter of 2015 as the April-May Barometer average stood at just 49.9.

Stocks of finished goods fell deeper into contraction to the lowest since November 2009, and the seventh consecutive month in contraction. While a rebuilding over the coming months could support output, the underlying message appears to be that businesses are not confident about the outlook for growth, which makes some averse to stock building.

This lack of confidence was underlined by the answer to this month’s special question which showed that68.7% of panellists did not plan to increase business investment over the next six months.

The persistence of weak business conditions was blamed partly on efforts to keep businesses lean headed into the November US Presidential election. Others cited slowing in China and India and a reluctance to build inventories. Moreover, a mismatch between sales and operational planning was reported at some companies.

Charts: Bloomberg

 

end

The second report showed consumer confidence plunging to 10 month lows.
Remember that in the USA the consumer is 70% of GDP and Janet will not like this number:
(courtesy zero hedge)

Consumer Confidence Plunges To 10-Month Lows As Job ‘Hope’ Fades

The Conference Board’s consumer confidence measure has hovered around the 95 level for the last 6 months (as gas prices dipped and ripped, as stock prices dipped and ripped, and as political chaos reigned). This ‘stability’ is in stark contrast to other surveys of confidence such as Bloomberg’s and Gallup’s which are both at multi-month lows… until today. Consumer Confidence plunged to 92.6 (missing expectations of 96.1 by the most since November). May’s dismal print (a 3 sigma miss) is below the lowest of 68 economist estimates as expectations slipped modestly but Present Situation tumbled with optimism on jobs sliding to 6-month lows.

Finally, government confidence data declines to other survey’s realities…

Consumers’ assessment of current conditions weakened in May. The percentage stating business conditions are “good” improved from 24.2 percent to 25.9 percent. However, those saying business conditions are “bad” also increased, from 18.2 percent to 21.6 percent. Consumers’ appraisal of the labor market was less favorable. The proportion claiming jobs are “plentiful” was virtually unchanged at 24.3 percent, however those claiming jobs are “hard to get” increased from 22.8 percent to 24.4 percent.

Consumers were less optimistic about the short-term outlook than last month. Those expecting business conditions to improve over the next six months increased from 13.8 percent to 15.1 percent, butthose expecting business conditions to worsen also rose, from 10.8 percent to 11.6 percent.

Consumers’ outlook for the labor market was less favorable. Those anticipating more jobs in the months ahead was virtually unchanged at 12.8 percent, but those anticipating fewer jobs increased from 16.7 percent to 18.1 percent.

“Consumer confidence declined slightly in May, primarily due to consumers rating current conditions less favorably than in April,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

 

Expectations declined further, as consumers remain cautious about the outlook for business and labor market conditions. Thus, they continue to expect little change in economic activity in the months ahead.”

end
The following is quite shocking:  a huge 6 sigma miss again on the Dallas Mfg Fed index plunging from 13.9 down to -20.8.  Even the higher price of oil is not helping the Dallas area manufacturing sector:
(courtesy zero hedge)

Dallas Fed Tumbles (Again) – 17th Consecutive Month Of Contraction

This is the 17th month in a row of contraction for Dallas Fed’s manufacturing survey as the headline print plunged to -20.8 from -13.9 (missing expectations of a hopeful bounce to -8.0 by 6 standard deviations). Despite the unequivocally good rebound in oil prices, sentiment in Dallas remains dismal with new orders crashing as even ‘hope’ has now given way to realism as the 6-month outlook tumbles back into negative territory.

 

 

This is a 6 standard deviation miss…

 

It appears higher oil prices are not helping…

 

As The Dallas Fed reports,

Texas factory activity declined in May after two months of increases, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 5.8 to -13.1, hitting its lowest reading in a year.

 

Other measures of current manufacturing activity also reflected contraction this month. The new orders index fell more than 20 points to -14.9 after pushing into positive territory last month. The growth rate of orders index has been negative since late 2014 and fell to -14.7 in May after climbing to near zero in April. The capacity utilization and shipments indexes returned to negative territory after two months of positive readings, coming in at yearlong lows of -11.0 and -11.5, respectively.

 

Perceptions of broader business conditions were more pessimistic this month. The general business activity index declined from -13.9 to -20.8, and the company outlook index fell 10 points to -16.1.

 

Latest readings on employment and workweek length indicated a fifth consecutive month of contraction in May. The employment index moved down three points to -6.7. Sixteen percent of firms noted net hiring, and 22 percent noted net layoffs in May. The hours worked index posted a double-digit decline from its April reading, coming in at -11.8.

Charts: Bloomberg

end

David Stockman comments on how Main Street street is losing out to Wall Street

(part 3)

(courtesy David Stockman/ContraCorner)

Losing Ground In Flyover America, Part 3

As we indicated in Part 2, the Fed’s crusade to pump-up inflation toward its 2.00% target by hammering-down interest rates to the so-called zero bound is economically lethal. The former destroys the purchasing power of main street wages while the latter strip mines capital from business and channels it into Wall Street financial engineering and the inflation of stock prices.

In the case of America’s 80 million working age adults (25 or over) with a high school education or less, the Fed’s double whammy has been catastrophic. As we demonstrated yesterday, the employment-to-population ratio for this group has plummeted from 60% prior to the great recession to about 54% today.

In round terms this means that the number of job holders in that pool of the less educated has shrunk from 49.4 million to 43.5 million since early 2007.That’s nearly 6 million workers gone missing or 12% of the total from just nine years ago.

And as we documented yesterday this plunge is not due to aging demographics. The MSM meme that its all about the baby boom hanging up their spikes doesn’t wash; the labor force participation rate of persons over 65 has actually increased sharply in recent years.

Shrinking Pool Of Workers With High School Education Or Less

But even those who have managed to stay employed have suffered a devastating reduction in purchasing power. In fact, based on our Flyover CPI, each dollar of wages would buy 3.1% lessannually or a cumulative 70% less since 1999.

And that assumes just 65% of the budgets of these low wage households are consumed by the four horsemen of inflation—-food, energy, medical and housing. There can be little doubt that they actually spend a materially greater share on these necessities than we have allocated to them in our index.

Flyover CPI Since 1999

By contrast, nominal wages rates for the high school and under workers have risen by less than 50% over the same period. That means drastic purchasing power compression.

In fact, flyover America’s vast cohort of less educated workers has experienced an approximate 1.1% decline in their real weekly wages every year this century. In 2015 dollars of purchasing power, average pay has declined from $475 per week to $397 per week.

That’s right. When viewed on an annualized basis, households which were scrapping by on $24,700 per year in 2000 have seen the purchasing power of their pay checks drop to $20,600 today or by nearly 17%.

Yet the house of academic fools in the Eccles Building keep insisting that we have insufficient inflation!

Likewise, the all knowing pundits of the Acela Corridor (Washington/Wall Street) can’t figure out why Donald Trump has come roaring out of nowhere.

Real Weekly Wages- High School Graduates, No College

That gets us to the Wall Street/Keynesian cult of consumer spending. The latter holds that Americans who “shop until they drop” are the mainspring of the economy based on the silly observation that personal consumption expenditures (PCE) comprise 70% of the GDP accounts, which themselves are a Keynesian construct.

Then again, no one told them that fully $3.5 trillion or 28% of total PCE consists of imputed housing consumption and health care costs heavily funded by third-parties such government entitlements and employer-based health insurance plans.  No one “shopped” to fund either of these huge PCE components, but self evidently someone worked to pay the taxes and premiums.

That is, real capitalist growth and prosperity stems from the supply-side ingredients of labor, enterprise, capital and production, not the hoary myth that consumer spending is the fount of wealth.

Yet even within the framework of our Keynesian monetary central planners, how did real PCE grow so strongly during the last two decades when real income for a huge share of the work force were falling so sharply?

In a word, debt. The flip-side of the Greenspan/Bernanke/Yellen wage crushing operation was a national LBO in the household sector.

During the 21 years between Greenspan’s arrival at the Fed in August 1987 and the early 2008 peak, household debt erupted from $2.7 trillion to $14.3 trillion or by 5.3X.

To be sure, nearly $12 trillion of extra debt, representing an annual growth rate of nearly 8.5%, speaks for itself in terms of the implied monumental excess. But our Keynesian witch doctors have a way of attempting to minimize the import of it by what we call the “inflation lockstep fallacy”.

That is to say, there is purportedly not so much to see here because much of this huge gain represents inflation; and, of course, wages and incomes were inflating over this 21 year period, too. What counts, or so claim our Keynesian bettors, is “real dollar” amounts as computed by their bulimic inflation indices.

Au contraire!

Wages in the Chinese export factories were not being set by the PCE deflator less food and energy as confected and tabulated by some GS-16s in the BLS’ statistical puzzle palace. On the margin, wages in the world’s labor market were less than $1 per hour equivalent during most of that time.

And that’s a full stop. Constant dollar statistical deflators had nothing to do with it.

The Fed’s policy of systematically and massively inflating the domestic cost of living and household debt, therefore, resulted in a giant economic deformation—-one even greater than that implied by the parabolic debt gains through 2008 shown above.

Indeed, the full import can only be grasped by considering the sound money contrafactual case. To wit, as we demonstrated in an earlier post on this topic the CPI would have declined by 1-2% per year under a sound money regime after the early 1990’s when China’s export machine took off.

That means that even under a scenario of 3% labor productivity growth and constant household leverage ratios (i.e. debt-to income), total household debt would have grown by perhaps 2% per annum.

So by 2008 outstanding household debt would have been in the range of $4trillion, not $14 trillion.

That’s right. Thanks to the utterly wrong-head monetary policies of Greenspan and his successors, US households ended up with $10 trillion of extra debt to lug around. And in the bargain, they got bloated nominal wage rates, which resulted in the massive off-shoring of their jobs, and shrinking purchasing power, which lowered the living standard of the less educated flyover zone work force by 17% just since the turn of the century.

The extent of this destructive household sector LBO is hinted at in the graph below. Historically, the ratio of household debt—-mortgages, credit cads, car loans and the rest—–was under 80% of wage and salary income.

After Nixon pulled the props out from the last vestiges of sound money at Camp David in August 1971 and turned the Fed loose to print at will, however, the ratio began to creep steadily higher.

Yet it was only after the arrival of Greenspan in the Eccles Building that the household leverage ratio went virtually parabolic, climbing from about 100% of wages and salaries to nearly 225% by the early 2008 peak.

We have called this a one-time parlor trick of monetary policy because while the leverage ratio was rising, it did permit households to supplement spending from their current wages and salaries with the proceeds of incremental borrowings. Undoubtedly, this artificial goosing of living standards by the central bank money printers did help flyover America from feeling the full brunt of its shrinking job opportunities and  the deflating purchasing power of its pay checks.

No more. The household LBO is over and done, but the slightly declining leverage ratio shown in the chart is not a measure of progress; it’s an indicator of the distress being felt by households that have been forced to cut their consumption expenditures to the level of current earnings, which, in turn, are not rising nearly as fast as the 3.1% inflation rate afflicting flyover America.

Household Leverage Ratio

There is no secret or mystery as to how America’s working households were led into this appalling debt trap. The fact is, the befuddled Greenspan actually bragged about it when he celebrated the higher consumption levels that were being funded by MEW or mortgage equity withdrawal.

That was just Fedspeak for the fact that under its interest rate repression policies, American families were being massively incentivized and encouraged day and night by cash-out mortgage financing ads ( e.g “Lost another one to Ditech!”) to hock their homes to the mortgage man and splurge on the proceeds. This reached nearly a $1 trillion annual rate and 9% of disposable personal income at the peak just before 2008.

That Greenspan took great pains to track the data and publish the above chart is a measure of how far the Fed had descended into “something for nothing” economics.

Did they think that the leverage ratchet would never stop rising? Did they not recognized the fundamental economic fact of this era? Namely, that there is a massive 80-million strong baby-boom generation heading for retirement and that for better or worse, home equity accumulation owing to the deductibility of interest has been its primary vehicle of savings?

Well, apparently not in the slightest. Here is what was happened behind the screen under Greenspan’s spurious MEW. American households were strip-mining the equity from their homes and burying themselves in mortgage debt.

Total mortgage debt outstanding soared from $1.8 trillion to $10.7 trillion or by nearly 6X during this 21 year period. And even though housing prices more than doubled, the ratio of equity to owner-occupied housing asset value plunged from 67% to 37% over the period.

Here’s the thing. The MEW party ended nine years ago, but virtually all of Greenspan’s MEW is still there. Flyover America may not know exactly how it got buried in such massive debts, but it knows that the current Washington/Wall Street Bubble Finance regime has left it high and dry, suffering a relentless shrinkage of living standards even as these contractual debt obligations chase the huge cohort of baby-boomers right into their retirement golden years.

The only thing that is worse than the MEW legacy plaguing seniors is happening on the other end of the demographic curve. Among student age Americans, the degree of debt enslavement has become even more draconian.

In the last decade alone, total student loans outstanding have nearly tripled, rising from $500 billion in 2006 to $1.34 trillion at present. And for reason laid out below, the disproportionate brunt of this massive student loan burden is being shouldered by flyover America.

(to be continued in Part 4)

 

end

The author goes into great detail on the durable goods orders and how in reality this number has been continually revised downwards.  Since 2012 the total revision is 440 billion USA.  Thus the economy has never grown at all:

(courtesy Alhambra Partners)

Janet…….We Shrunk The Recovery! Durable Goods Shipments Since 2012 Revised Down By $440 Billion

As if something out of bad dream, the economy continues to shrink. Actually, the economy has been shrunken this whole time, it is only the full recovery narrative that has shriveled as each drastic data revision blasts apart what little is left of the positivity. We are made to believe that government data providers go out into the economy and actually count what is going, leaving us forever confident that the numbers and the numbers. In reality, these are all stochastic processes that are nothing more than chained monthly modeled variations and thus are subject to all manner of interpretations.

Benchmark revisions act as a check on the accuracy and validity of the “high frequency” models of those variations. Every five years, the Census Bureau conducts a full-scale Economic Census with which to complete a comprehensive review. Because of its exhaustive size and scope, it takes years before the data can be incorporated into each of these economic accounts. The earliest touch of the 2012 Economic Census didn’t start until late 2014, but it really didn’t start to reveal the rampant over-estimation until last year.

That means that until these past few years, the stochastic estimations of monthly variance were based upon the 2007 Economic Census, with pre-crisis conditions as the most basic assumption of how the data “should” behave. I have referred to these before, the latest being Industrial Production especially of consumer goods. Last year, there were also massive revisions to everything from retail and wholesale sales to durable and capital goods. At the May 2015 benchmark revision for durable goods, I wrote:

Given the benchmark changes in retail sales, none of these changes are a surprise except perhaps the degree to which they were carried out in 2013. What that accomplishes is an after-the-fact agreement that the recovery got much worse after 2012, not better, and it further highlights the now-enormous dichotomy between spending and employment figures. Just as the rebound in 2013 disappeared, there is little to suggest that the 2014 version was anything other than a statistical mirage. Why would companies suddenly start hiring at a multi-decade high suddenly in 2014 when 2013 was really rather atrocious? [emphasis added]

So much of the economic surety during this “rising dollar” period has been based upon 2014, yet it was always shaky to begin with. There wasnever any income growth to suggest what the payroll reports were reporting. Even in accounts like durable goods, there was only marginal improvement in activity that could at best plausibly suggest an economic rebound was coming. Just as I suspected last year, however, the latest benchmark revision largely erased it; leaving 2014 just as barren as the rest of the 2012 slowdown.

ABOOK May 2016 Durable Goods New OrdersABOOK May 2016 Durable Goods Shipments ttm

The numbers are simply staggering, though not unexpected given the preview provided in the benchmark revisions of Industrial Production for consumer goods. As you can plainly see above, there is so little left of 2014’s “bump” that it doesn’t qualify for anything other than confirmation that the 2012 slowdown was indeed a permanent alteration in trajectory; a black hole of economic gravity from which there never was any possible escape. There is nothing of Yellen’s economy left in it.

In just the latest benchmark change from last year’s update, durable goods shipments have been shorn of another almost quarter trillion in activity dating back to the start of 2012 – with almost all of that disappearance contained within the past two years.

ABOOK May 2016 Durable Goods Benchmarks Latest

Combined with last year’s downward revisions, the difference between the durable goods estimates that tried to buoy Yellen and what we find now is beyond description – amounting to a cumulative $346 billion just through March 2015. The downward revisions after that point total another $93 billion (April 2015 through March 2016), meaning that since 2012 there were almost half a trillion dollars less in durable goods shipments than originally estimated; again, with most of that reduction for the past two years.

ABOOK May 2016 Durable Goods Benchmarks Both

The effect of these revisions on growth rates is to surrender all thoughts of acceleration out of the 2012/13 slump.

ABOOK May 2016 Durable Goods Shipments YY

What remains is a small, insignificant improvement in growth rates varied across the components of the durable goods reports; the revision to new orders was somewhat less striking, while revisions to capital goods were actually even more of a (negative) change.

ABOOK May 2016 Durable Goods New Orders YYABOOK May 2016 Durable Goods Cap Goods Shipments YYABOOK May 2016 Durable Goods Cap Goods New Orders YY

What appeared to be acceleration was only a statistical shadow very likely of trend-cycle over-estimation. The various stochastic processes took what was perhaps a slightly better environment in 2014 and turned it toward the long-sought recovery. That should never have occurred as trend-cycle should have been rethought long before the 2012 Census; there has been every reason to suspect this economy now is not like any prior cycle, or even perhaps a cycle at all. From that view, what little positive difference there may have been between 2012-13 and 2014 would have been seen for what it was, a continuation in the uneven nature of the unsurprisingly durable slowdown.

Instead, with trend-cycle pegged to the 2007 Census the chained monthly variations were looking for a more conforming recovery cycle, which apparently caused them to greatly overstate that small shift. As again with IP in consumer goods, we find durable goods (ex transportation) that once appeared to indicate a slow but consistent recovery turning more positive in 2014 instead being revised to an altogether unrecognizable form.

ABOOK May 2016 Durable Goods Shipments ttm LongerABOOK May 2016 Revised Consumer Goods IP Recent

That means that the recovery didn’t disappear, it was never there to begin with, rather it is the narrative that has or at least a great deal of data formerly supporting it (however loosely). Since this is mostly related to consumer spending and really lack of income (but not limited to it, since capital goods are included in these revisions) it casts even more suspicion on whatever stochastic regressions exist within the payroll figures that have so far somehow resisted any benchmark revisions at all. Instead, durable goods with this current benchmark adds further weight to the common sense proposition that there is something very wrong in an economy that “loses” 14 or 15 million people from the labor force.

The unemployment rate for a time seemed to suggest (to the mainstream, anyway) that the participation problem would only be a matter of degree for an actual cycle, but these more complete overhauls show that was always backward. A seriously shrunken labor force would never suggest the speed of any cycle, rather it can only indicate something much worse than cycle in the first place. Economists have tried to ignore the fact of the denominator in the unemployment rate, but more comprehensive data sources show yet again that the economy itself was never going to be able to do so.

If this is all correct, and there is only more data pointing in that direction with each successive updated benchmark, then it leaves us with a very uncomfortable question: now what? Unfortunately, as these statistics are finding out, there is no precedence for this kind of slowdown, stagnation, or elongation of weakness. It means all options should be considered. We could see a slowdown that just keeps on slowing and contracting for however many more years, or worse an actual recession that like the Great Recession only leaves the economy still more withered after it.

ABOOK May 2016 Revised Consumer Goods IPABOOK May 2016 IP Revisions IP Labor Potential

This is a syndicated repost courtesy of Alhambra Investment Partners – We Are Different.. To view original, click here.

end

Sam Zell dumps major holdings in the USA real estate market as he warns a crash in imminent:

(courtesy zero hedge)

Another Real Estate Crash Looms: Sam Zell Dumps Holdings, Warns “The Fed’s Deferred Reality For Too Long”

Submitted by Mac Slavo via SHTFPlan.com,

If you haven’t heard yet, median home prices in the United States are on a tear havingreached all-time highs in April. To boot, rental prices have gone insane, showing a year-over-year inflationary increase of 8%. On top of that, stock markets are rocketing back to their own all time highs based on the premise that the U.S. economy is seeing healthy growth. By all official accounts, it appears that we’re back on track.

real-estate-easy-money

But appearances can be deceiving and highly acclaimed investment guru Sam Zell isn’t buying the hype. In fact, he’s taking this opportunity to sell… in a very big way.

Wolf Richter explains:

And he has been selling. Back in 2007, he once again proved his sense of market timing. As the commercial property bubble was already teetering, he soldEquity Office Properties Trust to Blackstone for $23 billion, not including $16 billion in debt. Then prices crashed, and commercial property defaults hit the banks. As the dust was settling at the end of the Great Recession, he went on a shopping spree.

Now he’s selling again, unloading multifamily properties at peak prices on a massive scale just when a multi-year construction boom is flooding the market with new supply.

So when Sam Zell speaks, our ears perk up.

Read the full report at Wolf Street

In a recent interview with CNBC Zell noted that zero interest rate policies are removing the risk of borrowing, making it easy for big banks and finance companies to keep pushing supply onto the market.

Easy credit. What could possibly go wrong?

A lot, according to Zell:

“Overall we’ve come off this extraordinary period of liquidity and this extraordinary period of low interest rates… I think we’re unlikely to see a repeat of that going forward, and I think we’re going to see more supply in what had been pretty tight markets.”

“In the most simplistic terminology, I would ask you the question, if something is free, is it valued? Is it appropriately risked?”

“We have distorted markets. Maybe we have bubbles.”

“The problem is I think the Fed should have raised interest rates two years ago, and therefore today would be able to make a much more rational decision as to what to do. The problem is that they’ve so deferred reality for so long that I think they have a serious credibility problem if they don’t raise rates.”

Everything seems to be booming again – easy money, easy lending, rising prices, and a bread and circused populous.

Never mind the nearly 50 million Americans on food stamps, the six million millennials living in their parents’ basements, or the massive spike in business debt delinquencies.

Should Americans be preparing for another collapse?

Probably not, because despite all of the market distortions, there is really no need for concern. This time it really is different.

end
They never learn:  Wells Fargo is now giving mortgages to low income debt heavy individuals as the pipeline is drying up .  They are trying to find innovative ways to boost lending:
(courtesy Wells Fargo/zero hedge)

Here We Go Again: Wells Fargo Is Trying To Give Mortgages To Low-Income, Debt-Heavy Millennials Living At Home

Just last week we reported that Wells Fargo was reintroducing 3% down mortgages on its own, without going through the FHA. The reason we said, was that due to Wells’ mortgage origination pipeline drying up, the bank was desperate to find new and innovative ways to boost lending.

Now we have direct confirmation that indeed Wells Fargo is desperate, and the plan to boost mortgage lending is to… drum roll… lure millennials out of the comfort of their parents home and into a house of their own.

The fact that millennials don’t make much money and are drowning in debt apparently doesn’t bother Franklin Codel, head of home lending for the bank.

Codel said Wells Fargo is now in a position to capitalize on the “very important” trend of millennials who have been unable or unwilling to buy property. “Demographics, ultimately, will win out and many of these folks will start families and want to become homeowners.” said Codel, according to the Financial Times.

The target for Codel is understandable, with more millennials living at home today than at any other point in time since the great depression it’s easy to see what would drive that discussion.

However, what shouldn’t be forgotten is the fact that there is a reason thatmillennials are living at home, often times rent free. Millennials are making less money than prior generations, and student loan debt is so burdensome that it doesn’t make it feasible to do otherwise.

Self-Help Ventures Fund decided to partner with Wells Fargo on insuring the 3% down mortgage program – let’s hope $1.6 billion in assets is enough to cover what the bank is about to get into, otherwise another taxpayer bailout is going to be needed.

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