JUNE 2/Surprisingly we had an increase in gold tonnage standing at the comex: 47.515 tonnes/mASSIVE MOVEMENTS OF GOLD AND SILVER INSIDE THE COMEX/China again provoking the USA in the South China sea/Texas health insurace to rise by 60% next year/

Good evening Ladies and Gentlemen:

Gold:  $1,209.60 DOWN $2.10    (comex closing time)

Silver 16.00  up 9 cents

In the access market 5:15 pm

Gold $1211.20

silver:  16.00

 

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. On day two, we had another huge number of gold notices filed at 2281 for 228100 oz or 7.09 tonnes of gold.On day 3, we had another whopper of 1969 notices for 196,900 oz or 6.12 tonnes.Thus in three days a total of 7758 notices have been filed for 775,800 oz or 24.13 tonnes. WHAT IS MORE FASCINATING WAS THE FRONT JUNE MONTH INCREASED IN NET OI BY 678 CONTRACTS TODAY. (67800 OZ) As I stated yesterday: “there is no question that the bankers have uttered these words to one another: “Houston, we have a problem in gold.”

Let us have a look at the data for today

.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 267.88 tonnes for a loss of 35 tonnes over that period

In silver, the total open interest FELL by  601 contracts DOWN to 197,571 AS THE PRICE OF SILVER WAS DOWN by 6 cents with respect to YESTERDAY’S trading.In ounces, the OI is still represented by just under 1 BILLION oz i.e. 0.987 BILLION TO BE EXACT or 141% of annual global silver production (ex Russia &ex China)

In silver we had 199 notices served upon for 995,000 oz.

In gold, the total comex gold OI FELL by a CONSIDERABLE 7,527 contracts DOWN to 486,794 as the price of gold was down $2.90 with YESTERDAY’S trading(at comex closing).

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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

We had a good size deposit in gold inventory at the GLD  at 2.08 tonnes. The inventory rests at 870.74 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 1554 contracts DOWN to 198,118 as the price of silver was DOWN by 6 cents with YESTERDAY’S trading. The gold open interest rose by 1,241 contracts up to 494,321 as gold was down $2.90 YESTERDAY.

(report Harvey).

 

2 a) Gold trading overnight, Goldcore

(Mark OByrne/off today

2b)  Gold trading earlier this morning;

(Mark O’byrne)

3c) FRBNY gold report on Germany’s repatriation of gold

repeat from yesterday

(Harvey)

3. ASIAN AFFAIRS

i)Late  WEDNESDAY night/ THURSDAY morning: Shanghai closed UP  BY 11.72 PTS OR 0.40%  /  Hang Sang closed UP 98.24 OR 0.47%. The Nikkei closed DOWN 393.18 POINTS OR 2.82% . Australia’s all ordinaires  CLOSED DOWN 0.83% Chinese yuan (ONSHORE) closed DOWN at 6.5822 .  Oil FELL to 49.00 dollars per barrel for WTI and 49.77 for Brent. Stocks in Europe ALL IN THE GREEN . Offshore yuan trades  6.5878 yuan to the dollar vs 6.5822 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS A BIT.

REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) REPORT ON JAPAN

A hawkish member of the Bank of Japan warns that the Japanese economy is very fragile and he even states that negative interest rates should be deemed tightening and not stimulating the economy.  No wonder that the USA/Yen crossed faltered badly last night (Yen rising)

(courtesy zero hedge)

b) REPORT ON CHINA

i)What a riot:  only 3 trades was enough to cash a flash crash in the Chinese stock Monday night.  The new government rules will not allow “hedging” account from holding more than 10 contracts a day.  Thus volume and liquidity are non existant.  Expect to have many flash crashes in the future>

(zero hedge)

 

ii)The following will certainly annoy the Americans:  Beijing ready to impose Air Defence Identification Zone to thwart USA provocation in the South China seas. The rehetoric between China and the USA is getting louder and louder.  This is why I believe that China trying to show that it has the upper hand on the global scene is the long taking delivery at the comex

( zero hedge)

4. EUROPEAN AFFAIRS

i)A good reason for voters in England to vote for a BREXIT: the boondoggle immigration plan of Juncker:  already 20 billion seed capital has been lost and they want to fund more capital in this failed policy of immigration:  by the way, England supplied most of the seed capital.

(/Mish Shedlock/ zero hedge)

 

ii)The clown Mario Draghi tells how wonderful Europe is with the ECB buying sovereign bonds as well as corporate bonds.  The fact that NIRP is rearing its ugly head and killing the EU banks:

(courtesy zero hedge)

5.RUSSIAN AND MIDDLE EASTERN AFFAIRS

none today

6.GLOBAL ISSUES

Bill Gross explains to the world why he is shorting credit: basically the carry trade is gone!

( Bill Gross/zero hedge)

7.OIL ISSUES

i)No freezing of oil production:  a foregone conclusion:

( zero hedge)

 

ii)Oil jumps after the DOE reports a much bigger inventory drawdown and another weekly production cut:

( zero hedge)
iii)Tankers off Singapore have now started to unload as gasoline goes into backwardation. Remember that these guys always need oil and gas to be in contango.

The fun begins!

(courtesy zero hedge)

8.EMERGING MARKETS

BRAZIL

Rioting on the streets in Brazil as protesters try and stomr the new President Temers office:

( zero hedge

9. PHYSICAL MARKETS

i)Gold seek radio interviews GATA chairman Bill Murphy:

( Murphy/Goldseek GATA)
ii) Mike Kosares describes the huge sales increase in silver bullion coins
(zero hedge)

iii)A terrific commentary from John Embry tonight as he describes the problems in the auto sector where falling used car prices will create havoc to the subprime lenders: maybe worse than the 2007 subprime housing collapse( John Embry/Kingworldnews)

iv)Lawrie Williams comments on the new poll results in England released two days ago showing BREXIT ahead of BREMAIN. Lawrie states that this is very good for gold:

( Lawrie Williams/Sharp’s Pixley)

USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER

i)More phony data, as initial jobless claims fall a bit despite huge losses in the ISM and PMI reports:

( zero hedge)

 

ii)The NY ISM purchasing managers survey collapsed from 57 down to 37.2 (very contractionary) in the biggest bloodbath since 2009.  Current employment and quantity of purchases both plunged to cycle lows.

( ISM/Purchasing managers survey)

 

iii)Another great commentary from David Stockman as to what is ailing the USA. Take particular care to the section on the auto sector:  used car prices are plummeting and that will cause nightmares to our sub prime loan bankers which funded this monstrosity!

( David Stockman/ContraCorner)
iv)Oh! Oh! this is going to hurt:  Texas health insurance costs are now set to soar by 60%

(courtesy zero hedge)

Let us head over to the comex:

The total gold comex open interest FELL to an OI level of 486,794 for a LOSS of 7527 contracts AS THE PRICE OF GOLD WAS DOWN $2.90 with respect to YESTERDAY’S TRADING.  WE HAVE ENTERED THE SECOND BIGGEST DELIVERY MONTH OF THE YEARTHAT IS 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. DURING THE MONTH WE DID WITNESS A GRADUAL RISE IN AMOUNT STANDING AND THE AMOUNT STANDING FINISHED AT ITS ZENITH..  IN JUNE, ON FIRST DAY NOTICE WE HAVE CERTAINLY WITNESSED THE FORMER, A HUGE LOSS OF TOTAL OPEN INTEREST CONTRACTS FOR THE ENTIRE GOLD COMEX COMPLEX . IN A VERY SURPRISING TURN OF EVENTS TODAY, THE JUNE OPEN INTEREST ROSE WHICH CERTAINLY SUGGESTS A MAJOR ENTITY IS STANDING AND MOSTLY LIKELY A SOVEREIGN LIKE CHINA

The FRONT gold contract month of June saw it’s OI fall to 9336 for a loss of 1603 contracts. We had 2281 notices filed yesterday, so we GAINED 678 contracts  ( 67,800 oz OR 2.10 TONNES  ) standing FOR METAL. The next active contract month is July and here we saw it’s OI FALL by 186 contracts DOWN to 2804. The next big active contract month is August and here the OI FELL by 6,642 contracts DOWN to 350,448. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 127,733.  The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 172,322 contracts. The comex is not in backwardation.

 

Today we had a another monstrous 1969 notices filed for 196,900 oz in gold.(6.124 tonnes)

 

And now for the wild silver comex results. Silver OI FELL by 601 contracts from 198,118 DOWN to 197,517 as  the price of silver was down BY 6 cents with YESTERDAY’S TRADING. The front month of June saw it’s OI fall by 1 contract down to 549. We had 0 notices filed yesterday, so we lost only 1  contract or 5,000 additional oz that will not stand for delivery. The next big delivery month is July and here the OI fell by 2510 contracts DOWN to 122,920. The volume on the comex today (just comex) came in at 38,342 which is  good. The confirmed volume YESTERAY (comex + globex) was EXCELLENT at 65,604. Silver is not in backwardation . London is in backwardation for several months.
 
We had 199 notices filed for 995,000 oz.
 

JUNE contract month:

INITIAL standings for JUNE

June 2.
Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  1402.77 oz

scotia

Deposits to the Dealer Inventory in oz 4799.885 OZ

BRINKS

Deposits to the Customer Inventory, in oz    82,713.877 OZ

BRINKS

HSBC

INCL. 75 KILOBARS)

No of oz served (contracts) today 1969 contracts
(196,900 oz)
No of oz to be served (notices) 7367 contracts

736,700 oz

Total monthly oz gold served (contracts) so far this month 7758 contracts (775,800 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month  11047.8 OZ
HUGE ACTIVITY INSIDE THE GOLD COMEX TODAY

Today we had 1 dealer deposit

I) INTO BRINKS;  4799.885 OZ

total dealer deposit:  4799.885 0z

Today we had 0 dealer withdrawals:

total dealer withdrawals:  nil oz

Today we had 2 customer deposits:

i) Into Brinks: 2411.75 oz (75 kilobars)

ii) Into HSBC: 80,302.627 oz  (legit.)

Total customer deposits;  82,713.877 OZ

Today we had 1 customer withdrawals:

I) OUT OF SCOTIA:  1402.77 OZ

total customer withdrawals: 1402.77 OZ

Today we had 3 adjustments and they were dandies!

First adjustment:

Out of the Brinks facility:

We had 4899.910 oz leave the customer and enter the dealer account at Brinks.

 

Out of the HSBC facility:

we had 224,554.713 oz leave the customer account and enter the dealer account at HSBC

Total amount entering the dealer:240,502.38 oz or 7.48 tonnes

 

Into the Scotia Facility:

We had 63,554.415 oz leave the dealer account and enter the customer account and this would no doubt be a settlement:

 

Into the Delaware Facility:

we had 4522.717 oz of gold leave the dealer account and enter the customer account of Delaware and this would be a settlement

total amount of gold leaving the dealer account and entering the customer: 68,077.132 oz  or 2.117 tonnes

Net to the dealer account:  7.48 tonnes- 2.117 tonnes = 5.37 tonnes

 

 

Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 1969 contracts of which 891 notices was stopped (received) by JPMorgan dealer and 450 notices 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 (7758) x 100 oz  or 775,800 oz , to which we  add the difference between the open interest for the front month of JUNE (9336 CONTRACTS) minus the number of notices served upon today (1969) x 100 oz   x 100 oz per contract equals 1,512,500 oz, the number of ounces standing in this active month.  This number is EXTREMELY huge for JUNE.  THE AMOUNT STANDING FOR GOLD IN MAY HELD THROUGHOUT THE MONTH AND ACTUALLY INCREASED AS THE MONTH PROCEEDED. AND IT SURE LOOKS LIKE IT WILL HAPPEN IN JUNE.  THE BANKERS JUST RECEIVED THEIR MINSKY MOMENT!! 
 
Thus the INITIAL standings for gold for the JUNE. contract month:
No of notices served so far (7758) x 100 oz  or ounces + {OI for the front month (9336) minus the number of  notices served upon today (1969) x 100 oz which equals 1,512,500 oz standing in this   active delivery month of JUNE (47.515 tonnes).
I would expect that we will have some paper players standing for fiat bonus on settlement early.  The fun will begin when these guys are all exhausted.
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 47.515 tonnes of gold standing for JUNE and 41.01 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 + 47.515 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   = 64.727 tonnes still standing against 41.01 tonnes available.
 
Total dealer inventor 1,318,540.157 tonnes or 41.01 tonnes
Total gold inventory (dealer and customer) =8,610,049.887 or 267.808 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 267.88 tonnes for a loss of 35 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
HUGE ACTIVITY INSIDE THE SILVER COMEX AS WELL
And now for silver
 

June initial standings

 June 2.2016

Silver
Ounces
Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory  61,255.872 oz

CNT,Scotia

Deposits to the Dealer Inventory 868126.63 oz

CNT

Deposits to the Customer Inventory  298,076.39 oz

CNT,SCOTIA

No of oz served today (contracts) 199 CONTRACTS 

995,000 OZ

No of oz to be served (notices) 350 contracts

1,750,000 oz

Total monthly oz silver served (contracts) 202 contracts (1,010,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month  11,087,755.4 oz

today we had 1 deposit into the dealer account

i) Into CNT:  868,126.630

total dealer deposit:868,126.630 oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

 

we had 2 customer deposits:

i) Into CNT:  148,287.520 oz

ii) Into Scotia: 149,788.870 oz

Total customer deposits: 298,076.390 oz.

We had 2 customer withdrawals

i) Out of  CNT: 51,001.682 oz

ii) Out of Scotia: 10,254.190 oz

 

:

total customer withdrawals:  61,255.872 oz

 
 

 

 we had 3 adjustments

i) Out of CNT:  116,473.65 oz was adjusted out of the customer and this landed into the dealer account of CNT.

ii) Out of Scotia;  78,236.04 oz was adjusted out of the dealer and this landed into the customer account of Scotia

this too no doubt is a settlement.

iii) Out of Delaware: 955,667.819 oz was adjusted out of the dealer side and this landed into the customer account and this is no doubt a settlement.

 

 

The total number of notices filed today for the JUNE contract month is represented by 199 contracts for 995,000 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 (202) x 5,000 oz  = 1,010,000 oz to which we add the difference between the open interest for the front month of JUNE (549) and the number of notices served upon today (199) x 5000 oz equals the number of ounces standing 
 
Thus the initial standings for silver for the JUNE contract month:  202 (notices served so far)x 5000 oz +{549 OI for front month of JUNE ) -number of notices served upon today (199)x 5000 oz  equals  2,760,000 of silver standing for the JUNE contract month.
We lost 1 contract or an additional 5,000 oz will not stand for delivery in this non active month of June.
 
Total dealer silver:  26.644 million
Total number of dealer and customer silver:   154.101 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
June 2/no change in gold inventory at the GLD.Inventory rests at 870.74 tonnes
June 1.2016/ a good sized deposit of 2.08 tonnes/Inventory rests at 870.74 tonnes
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

June 2.:  inventory rests tonight at 870.74 tonnes

end

Now the SLV Inventory
June 2/no change in silver inventory at the SLV/Inventory rests at 335.739 million oz
June 1/no change in silver inventory at hte SLV/inventory rests at 335.739  million oz
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.
.
June 2.2016: 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 3.7 percent to NAV usa funds and Negative 3.9% to NAV for Cdn funds!!!!
Percentage of fund in gold 61.9%
Percentage of fund in silver:36.7%
cash .+1.4%( June 2/2016). /
2. Sprott silver fund (PSLV): Premium RISES to -0.02%!!!! NAV (June 2.2016) 
3. Sprott gold fund (PHYS): premium to NAV  rises TO +1.26% to NAV  ( June 2.2016)
Note: Sprott silver trust back  into NEGATIVE territory at -02% /Sprott physical gold trust is back into positive territory at +1.26%/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 -0.02%.  Remember that Eric is to get 75 million dollars worth of silver in a new offering.
 
 
 

END

 

Federal Reserve Bank of New York Report on Earmarked Gold Transferred out of the Facility

(Harvey)

The Month of April saw a reading of 7,951 million dollars worth of gold valued at $42.22 per oz

The previous reading in March saw a reading of 7,981 million dollars worth of gold valued at $42.22/ oz

Thus we had a rather large 30 million dollars worth of gold (at 42.22 per oz) leave NY.

In ounces, we had 30 million /42.22 dollars = 710,563 oz leave or 22.10 tonnes

Since Germany is the only official nation that asked for its repatriation, then we are pretty sure that this gold belongs to them.  The previous month saw a little over 10 tonnes so Germany is quite anxious to get more of its gold onto its shores.

end.

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

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

Martin Wolf: There Will Be Another “Huge” Financial Crisis

Martin Wolf writing in the Financial Times has warned that there will be another financial crisis given the nature of the modern fractional reserve banking and financial system. Financial_Times_corporate_logo.svgWolf asks whether there will a “another huge financial crisis” and then answers his question by saying that there will be and warns that banks “are designed to fall. So fall they surely will.”

He warns that a system built on making promises it cannot keep is bound to crash, and crash again:

Will there be another huge financial crisis? As Hamlet said of the fall of a sparrow: “If it be now, ’tis not to come. If it be not to come, it will be now. If it be not now, yet it will come – the readiness is all.” So it is with banks. They are designed to fall. So fall they surely will.

A recent book explores not only this reality but also a radical and original solution. What makes attention to this suggestion even more justified is that its author was at the heart of the monetary establishment before and during the crisis. He is Lord Mervyn King, former governor of the Bank of England. His book is called The End of Alchemy.

The title is appropriate: alchemy lies at the heart of the financial system; moreover, banking was, like alchemy, a medieval idea, but one we have not as yet discarded. We must, argues Lord King, now do so.

As Lord King remarks, the alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”.

This is a confidence trick in two senses: it works if, and only if, confidence is strong; and it is fraudulent. Financial institutions make promises that, in likely states of the world, they cannot keep. In good times, this is a lucrative business. In bad times, the authorities have to come to the rescue. It is little wonder, then, that financial institutions have become so large and pay so well.

His solution to the dangerous alchemy of the current banking system is to make Central banks pawnbrokers of last resort. This seems somewhat more prudent than the more dangerous deflationary experiment of bail-ins and confiscating deposits, both individuals and families life savings and indeed SME and corporate deposits above a certain level, in order to bail out failing banks.

Wolf joins a long list of investment and finance experts and even the Prime Minister of Japan who are warning that another global financial crisis is coming. The question is not if, but when.

Read full FT article via Irish Times here

Recent Market Updates
– Silver Price To Surge 800% on Global Industrial and Technological Demand
– BREXIT Gold Diversification As Vote Fuels Market Uncertainty
– Gold Forecasts Revised Higher – Citi Says “Buy the Dip”
– Gold Should Rise Above $1,900/oz -“Get In Now!”
– 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”

Protecting-Your-Savings-In-The-Coming-Bail-In-EraMust Read Bail-In Guide Here

Breaking News and Commentary
Stocks, sterling roiled as ‘Brexit’ poll unnerves (CNBC)
Gold Sees Short-Covering, Bargain-Hunting Bounce (Bloomberg)
Gold steady after overnight losses; Fed in focus (Reuters)
Gold Traders Pay Most in Years to Keep Big Bullish Bets Alive (Bloomberg)

Global commodity assets rise to $220 billion in Aprill – PMs 50% of AUM (Reuters)
Gold and Silver Worst Performing Assets In May (Zero Hedge)
Disappearing Money and Opportunistic Candidates (Huffington Post)
Gold Isn’t A Hedge Against Monetary Disorder, It’s “An Investment In It” (Zero Hedge)
Read More Here

 

Gold Prices (LBMA AM)
02 June: USD 1,215.50, EUR 1,085.32 and GBP 842.10 per ounce
01 June: USD 1,216.25, EUR 1,090.00 and GBP 841.77 per ounce
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

Silver Prices (LBMA)
02 June: USD 15.98, EUR 14.27 and GBP 11.07 per ounce
01 June: USD 15.95, EUR 14.30 and GBP 11.04 per ounce
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

Mark O’Byrne
Executive Director
END
Gold seek radio interviews GATA chairman Bill Murphy:
(courtesy Murphy/Goldseek GATA)

GoldSeek Radio interviews GATA Chairman Bill Murphy

Section:

1:15p ET Wednesday, June 1, 2016

Dear Friend of GATA and Gold:

GoldSeek Radio’s Chris Waltzek today interviews GATA Chairman Bill Murphy about the changing dynamics of gold and silver trading. The interview is 11 minutes long and can be head at GoldSeek here:

http://radio.goldseek.com/nuggets/murphy.05.31.16.mp3

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

 

END

 

Huge silver cons ales recorded at all mints in 2015

(courtesy Mike Kosares)

 

 

Mike Kosares: Global mints report record silver coin sales for 2015

Section:

By Michael Kosares
USAGold.com, Centennial, Colorado
Wednesday, June 1, 2016

Global investors snapped up a record 89.6 million 1-ounce silver coins in 2015, according to USAGold’s annual survey of global bullion coin sales. The strong 2015 showing follows an equally impressive 2014 for silver coins at 77.9 million ounces and 2013 at 85.4 million ounces. Year over year, silver bullion coin demand was up 14 percent from 2014.

Last year was a banner year for gold bullion coin sales as well — the fifth best since 2002. National mints sold 2.75 million ounces in 2015, an impressive 30 percent increase over 2014. …

… For the remainder of the report:

http://www.usagold.com/cpmforum/2016/06/01/global-mints-report-record-si…

 

 

END

 

A terrific commentary from John Embry tonight as he describes the problems in the auto sector where falling used car prices will create havoc to the subprime lenders: maybe worse than the 2007 subprime housing collapse

(courtesy John Embry/Kingworldnews)

 

 


Auto, housing debt worsens as petrodollar fades, Embry tells KWN

Section:

6:25p ET Wednesday, June 1, 2016

Dear Friend of GATA and Gold:

Sprott Asset Management’s John Embry tells King World News today that auto loan debt in the United States has gotten junkier than mortgage debt, which is pretty junky itself, while the U.S. dollar is losing support from the oil trade. An excerpt from the interview is posted at KWN here:

http://kingworldnews.com/50-year-veteran-warns-we-are-headed-for-another…

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

 

 

END

 

Lawrie Williams comments on the new poll results in England released two days ago showing BREXIT ahead of BREMAIN. Lawrie states that this is very good for gold:

(courtesy Lawrie Williams/Sharp’s Pixley)

 

 

Brits and Europeans may find Gold attractive as Brexit possibility looks stronger

 

Here’s a lightly edited version of an article I published on the info.sharpspixley.comwebsite a day or so ago following the two Guardian opinion polls – one by telephone and one online – suggesting that a UK vote to leave the EU (the Brexit option) is a real possibility.  One suspects one result will be a redoubling of the Remain campaign in the 3 weeks up to the actual referendum and with most of the big guns supporting it, this may swing the final vote back to Remain.  But the Remain camp will now be much more nervous about the final result!

In recent weeks the majority of opinion polls in the U.K., and perhaps even more significantly the bookmakers, had been predicting that the U.K. electorate would be voting to Remain in the European Union by a comfortable margin rather than the Leave the EU option (Brexit).  Indeed some commentators had virtually written off the likelihood of Britain voting for Brexit.  The fear of the unknown in terms of the potential effects on the British economy, in particular, which has been highlighted by the Remain camp, almost ad nauseam, appeared to be winning the day.  True there had been the occasional outliers suggested by some online polls which were often disregarded as being less likely to be accurate than telephone polling which was consistently showing strong support for Remain.

But the latest polls for The Guardian newspaper by polling company ICM, which conducted simultaneous online and telephone polls, have really put the cat among the pigeons with both suggesting a 52%-48% Brexit lead, despite most of the country’s heavyweight politicians, including the leaders of the major political parties – Conservatives, Labour, Liberal Democrats and Scottish National Party – all being strongly in the Remain camp.  The only political party wholly in favour of a Brexit is UKIP, led by the charismatic Nigel Farage, which the mainstream supporters of a vote to leave have tried to sideline given the perceived make-up of  many of UKIP’s followers – seen in something of the same light as Marine Le Pen’s Front National in France.  The remain camp has been supported in its dire warnings of what an economic disaster it would be for the U.K. to leave the EU by such major global figures as U.S. President Barack Obama, German Chancellor Angela Merkel, IMF Head Christine Lagarde and a host of other global political and economic heavyweights.

The trouble is that a large sector of the British public is ever more distrustful of statements from major politicians and just doesn’t believe, or don’t care about, the figures being bandied about.  They are probably prepared to accept a limited downturn in the U.K. economy in exchange for winning on the arguments which may appeal most to the person-in-the-street.  These include regained Sovereignty (in other words getting away from U.K. laws being subject to override by EU ones, and the pre-eminence in the legal system of the European Court of Justice); fear of potential unlimited immigration by EU nationals (probably not a problem when the EU was much smaller only incorporating the most wealthy European nations, but now with a 28-nation EU, and the prospect of it being further enlarged as time goes, by including countries with some much poorer economies, it becomes a worry in terms of the nation finding it hard to cope with the demands of high immigration levels completely outside its control); and border security in terms of terrorists coming in via the EU open borders (which is an additional aspect of the same worry).

Perhaps the most interesting assessment of what would happen to the U.K. economy came from the well-respected Institute for Fiscal Studies (IFS), an independent think tank (if anyone in this argument can be truly seen as truly independent).  It assessed that leaving the EU would lead to two more years of austerity as the economy struggles to get back on track post a Brexit decision.  However it also suggested that some of the economic disaster figures being put about by the vote Leave campaign were somewhat exaggerated and the U.K economy would eventually recover, but that it could take some time.  It also assessed, on the other hand, that the economic predictions put out by the Brexit campaign were ‘absurd’.  No words minced there then!

Latest analysis from the OECD also confirms the opinion that the U.K.’s economy would be hit significantly in post Brexit years should there be a leave vote but that also there would be “substantial negative consequences for the United Kingdom, the European Union and the rest of the world”.

But it could be the sovereignty issue which wins the day.  The British, as an island nation, are inherently insular and while the populace largely accepts the country is part of Europe geographically, the idea of closer political union into a European Federal State – the avowed aim of many EU intellectuals – appals them.  And whatever the politicians say and promise, if Britain remains in the EU, there is a strong belief that there will indeed be an ultimate progression into absorption into a European mega-state – by then probably incorporating additional nations including the latest political football in this respect – Turkey.  Someone on the Brexit side gave an undoubtedly hugely exaggerated estimate that 12 million Turks would want to move to Britain if it became an EU member (and would have the right to do so through the EUs open borders policy).  This is undoubtedly a ludicrous figure, but such numbers stick in people’s minds.

So what does all this mean for gold?  The geo-economic uncertainty engendered by a Brexit vote would probably lead to a higher price.  However an immediate knee-jerk reaction would likely see a dive in the value of the pound sterling against the US dollar and a likely decline in the value of the euro too given the boost a Brexit would give to anti-EU sentiment in many other member states.  Given that the gold price is set in US dollars there would seem to be a strong logic for investors in the EU, and in the U.K. in particular, to add some gold to their portfolios as insurance – and an insurance which could well appreciate even more given that the yellow metal would likely react positively to a Brexit decision.

There is obviously a slight risk in this policy.  Should the Remain vote prevail – and believe me there will be a huge amount of effort by the big political guns and most of the media, which tends to be Remain supportive, to persuade the general public of doom and gloom should the electorate vote to leave – there would be a collective sigh of relief and the pound and euro would likely rise as a result and thus the gold price fall in the pound and euro.  But we feel any such surge would be shortlived and there would be a quick return to the status quo prevailing beforehand.  But the positive fundamental prospects for gold in the medium to long term would remain given doubts about physical gold supply availability in the light of still huge demand and some major global geopolitical uncertainties .  The downside risks are thus quite low, but the positive upside should Brexit happen would be strong.  Gold has always been a wealth protection insurance asset and this possible short term event, and its likely immediate effects, would seem to make this a very wise insurance policy to follow.  Indeed the positivity would likely be further advanced as there would be some significant destabilising global knock-on effects, as the OECD warns, which would also be likely gold price positive.

And looking only a few months further ahead there is also the possibility, growing by the day it seems, of a Trump Presidency in the USA.  Now what would that mean for gold?………..

Your early THURSDAY 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 6.5822 ( ANOTHER SMALLER DEVALUATION  /CHINA CONTINUES TO FIRE SHOTS ACROSS THE USA BOW/OFFSHORE YUAN NARROWS TO 6.5878) / Shanghai bourse  CLOSED UP 11.72 OR 0.40%  / HANG SANG CLOSED UP 98.24 OR 0.47%

2 Nikkei closed DOWN 393.18 OR 2.32% /USA: YEN RISES BIG TIME TO 108.99

3. Europe stocks opened ALL IN THE GREEN  /USA dollar index DOWN to 95.30/Euro UP to 1.1200

3b Japan 10 year bond yield: FALLS  TO -.110%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 108.99

3c Nikkei now WELL BELOW 17,000

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

3e WTI::  49.00  and Brent: 49.77

3f Gold UP  /Yen UP

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

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

3h Oil DOWN for WTI andDOWN for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS to 0.139%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate FALL to 7.32%/: 

3j Greek 10 year bond yield RISE to  : 7.48%   (YIELD CURVE NOW COMPLETELY FLAT)

3k Gold at $1216.25/silver $15.98(7:45 am est) BROKE RESISTANCE AT 16.52 

3l USA vs Russian rouble; (Russian rouble UP 15 in  roubles/dollar) 66.96-

3m oil into the 49 dollar handle for WTI and 49 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 .9868 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1051 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 FALLS to  + .139%

/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 1.833% early this morning. Thirty year rate  at 2.612% /POLICY ERROR)

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

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

Global Markets Flat, Coiled Ahead Of Today’s Risk Events: OPEC And The ECB

There are just two drivers setting the pace for today’s risk mood: the OPEC meeting in Vienna which started a few hours ago, and the ECB’s announcement as well as Mario Draghi’s press statement due out just one hour from now. Both are expected to not reveal any major surprises, with OPEC almost certainly unable to implement a production freeze while the ECB is expected to remain on hold and provide some more details on its corporate bond buying program, although there is some modest risk of upside surprise in either case. So while we await the outcome of both key events, European stocks rose, U.S. index futures declined, oil held near $49 a barrel, and the yen gained notably for the third day in a row. 

Crude hovered near a seven-month high as OPEC tries to find a way to push the price even higher even as every member can produce as much as they want, with Saudi Arabia’s energy minister saying he sees supply and demand coming into balance. European equities halted a two-day losing streak and the euro advanced as investors awaited ECB President Mario Draghi’s press briefing for indications of the central bank’s policy trajectory. The ruble rose for the first time in three days. The yen advanced against all of its Group of 10 peers and a sale of 10-year sovereign debt in Japan drew the strongest demand in almost two years. Similar-maturity Spanish bonds led losses in Europe.

As Bloomberg summarizes, global markets have started June tentatively, with the OPEC and ECB meetings Thursday setting the stage for a month that will also see the U.K. vote on whether to remain in the European Union and a possible interest-rate increase by the Federal Reserve. Wednesday data showed the U.S. manufacturing sector grew more than economists forecast last month and American employment figures this week will help shape expectations for the timing of the next rate hike. Fed Funds futures indicate a 22 percent chance of a move at the June 14-15 meeting.

European stocks rose as investors awaited the European Central Bank’s rate decision and President Mario Draghi’s remarks. Euro rises to 1-week high as ECB stimulus seen on hold again. “The ECB meeting and the upcoming Fed decision are correlated – if the Fed does something with the rates this month, the euro will weaken, which is in favor of the ECB plan,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. “The ECB is in a more of a wait-and-see position with regards to what the Fed will do. The inflation forecast Draghi gives will be the main focus. The forecast has to be adjusted in a way that the market knows this a goal that can be achieved.”

In Asia, Japan was in the spotlight after BOJ member Sato dampened prospects for further easing when he said the central bank’s 2% inflation target will not be reach on time, adding the BOJ should make asset purchase operation more flexible and explore flexible approaches to monetary base target; he also admitted that negative interest rate policy has effect of monetary tightening, rather than an effect of easing. As such the market interpreted the words as an indication that any additional stimulus will not be coming soon: “There’s now less chance of more Japanese monetary policy particularly when Abe said he’s thinking about doing more fiscal initiatives,” said Tony Farnham, a Sydney-based analyst at Patersons Securities Ltd. “That should have the U.S. dollar on the back foot for a period of time. There’s certainly nothing in the Beige Book to say the Fed is cowering away from a rate increase.”

On OPEC, while the downside case is said to be priced in, a negative outcome may impact oil prices: “The economic situation in America may be solid, but there are still fears that the rest of the world won’t be able to withstand higher U.S. interest rates,” said Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co. “If the OPEC meeting results in a negative outcome, we’ll see even more risk being taken off the table.”

The Stoxx Europe 600 Index added 0.3%, reversing a 0.2% loss, after capping its biggest two-day decline in four weeks. Banks and energy producers posted the best performances of the equity gauge’s 19 industry groups on Thursday.  Futures on the S&P 500 Index fell 0.1%. Stocks closed Wednesday little changed for a second session, as investors weighed better-than-expected factory data against sluggish global growth, and mulled the implications of a possible interest rate hike this month or next.  Japan’s Topix index tumbled 2.2 percent after Prime Minister Shinzo Abe held back a widely-expected fiscal stimulus package. He postponed a planned sales-tax hike until October 2019 and vowed to take “bold” economic steps in the autumn. Honda Motor Co. tumbled 4.2 percent and Toyota Motor Corp. dropped 1.5 percent after their U.S. sales fell last month by more than analysts estimated.

Market Snapshot

  • S&P 500 futures down than 0.1% to 2095
  • Stoxx 600 up 0.2% to 345
  • FTSE 100 up 0.3% to 6212
  • DAX up 0.2% to 10227
  • S&P GSCI Index up 0.3% to 372.8
  • MSCI Asia Pacific down 0.8% to 128
  • Nikkei 225 down 2.3% to 16563
  • Hang Seng up 0.5% to 20859
  • Shanghai Composite up 0.4% to 2925
  • S&P/ASX 200 down 0.8% to 5279
  • US 10-yr yield up less than 1bp to 1.84%
  • German 10Yr yield up 2bps to 0.16%
  • Italian 10Yr yield up 3bps to 1.41%
  • Spanish 10Yr yield up 4bps to 1.53%
  • Dollar Index down 0.17% to 95.29
  • WTI Crude futures up 0.3% to $49.17
  • Brent Futures up 0.4% to $49.90
  • Gold spot up 0.2% to $1,216
  • Silver spot up 0.2% to $16.00

Top Global News

  • Apple Gets Good News in Bid to Knock Out $533 Million Verdict: Two Smartflash patents in the case were found to be invalid
  • Uber Receives $3.5 Billion Investment From Saudi Wealth Fund: Funding gives Uber the same valuation of $62.5b
  • ALS Rejects A$2.67 Billion Takeover Offer From Bain, Advent: The A$5.30-per-share cash bid “significantly undervalues” the company, ALS said
  • Iran Resists Saudi Gesture for Unity as OPEC Fractures Reappear: Saudi minister wants to show that OPEC isn’t dead, people say, no indication OPEC is seeking to change current production
  • Weatherford Plans $1 Billion Bond Offering to Refinance Debt: Proceeds from the exchangeable notes will back a tender offer for four bonds maturing between 2017 and 2020
  • Alibaba Details Price for Buying Back Stock From SoftBank: Paying $74 a share to buy back $2b of its own stock from SoftBank; in total, SoftBank is selling $8.9b of its stake
  • Singapore Inc. Buys $1 Billion in Alibaba, Adding to China Bets
  • P&G CEO Taylor to Succeed A.G. Lafley as Chairman Next Month: CEO David Taylor will add the title of chairman next month, succeeding longtime company leader A.G. Lafley.
  • Sheryl Sandberg Removes Her Name From Disney CEO Speculation: Sandberg, Facebook’s chief operating officer, said she’s happy in her current position, speaks at Recode conference
  • Airline Earnings to Near $40 Billion as Oil Beats Slowing Demand: IATA raises 2016 earnings estimate to record level
  • Apple Returns to Aussie Debt Market With Two-Part Bond Offering: Marketing debt due in June 2020, January 2024, pricing expected Friday, follows A$1 billion Coca-Cola deal
  • Apple Said to Consider Issuing Bonds in Japan, Singapore: WSJ
  • Redstone Grandchild Plans to Take Legal Steps Against Shari: Keryn Redstone aims to work with Viacom directors in dispute; Redstone Ex-Girlfriend to Seek New Trial on Mental Capacity
  • Payday Lenders Accused of Abusing Consumers Face U.S. Crackdown: CFPB to propose tough restrictions on issuing new loans
  • Monsanto Said to Seal Deal With Argentina Over GMO Soybean Tests: Agreed to allow Argentina to help collect soybean royalty payments
  • Costco May Comparable Sales Miss Est.; U.S. Ex-Fuel Beat Est.
  • Google Raises About $219m Selling Lenovo Shares: Terms
  • Amazon Invests Additional $200 Million in India Unit, ET Says
  • Amazon to Open Fulfillment Centers in Illinois, Adds 1,000 Jobs
  • McDonald’s Nears Deal to Move Headquarters to Chicago: Crain’s
  • Nasdaq Sees Strong Chinese Interest for U.S. Listings: Reuters

Looking at regional markets, Asia traded mostly lower following a similar lead from Wall Street with sentiment cautious ahead of the ECB and OPEC meetings today, while Friday’s NFP also looms. Nikkei 225 (-2.3%) underperformed on further JPY strength following hawkish comments from BoJ’s Sato, while ASX 200 (-0.4%) was dampened by weaker commodities after WTI crude futures retreated back below USD 49/bbl. Shanghai Comp (+0.4%) and Hang Seng (+0.5%) outperformed on reports that the Shenzhen stock link will be announced in the near future. 10yr JGBs traded lower following hawkish comments from BoJ’s Sato, however losses were stemmed after a strong 10yr auction which saw a better b/c, a narrower tail in price and in which the lowest accepted price surpassed estimates.

Top Asia News

  • Japan’s Debt Burden Is Quietly Falling by the Most in the World: Govt debt is shifting from private hands to central bank
  • Bank of East Asia Closes Brokerage Outlets to Lower Expenses: Lender to shut all of securities unit’s retail branches
  • China Stocks in Focus as Investors Prepare for MSCI Index Revamp: A-share inclusion in main indexes key issue in June review
  • U.S. Closely Eyeing China’s Corporate Hacking Vow, Official Says: Russia, China both are seeking more state control of internet

Equities across Europe reside modestly in the green (Euro Stoxx 50 +0.3%), led by energy names amid the ongoing OPEC meeting dominating newsflow so far this morning. Elsewhere, defensive sectors Utilities and Healthcare names are among the worst performers. From a fixed income perspective, Bunds trade lower amid the upside in equities and head into the North American crossover around the 164.00 level. This morning saw supply from both Spain and France totalling -EUR 13b1n, while some participants remain on the side-lines ahead of the ECB meeting.

Top European News

  • Deutsche Bank Sees Capital Hit as Basel Adds to Legal Woes: Will probably set aside even more capital or shrink businesses as global regulators tighten rules for how lenders measure risk
  • European Banks Feel the Pinch From Draghi’s Negative Rates: A drop in net interest income, the first in 2 years, may worsen after the ECB lowered its deposit rate to minus 0.4% in March
  • Midea Touts Kuka Deal as Chinese Offer Hits German Barrier: Said its offer for Kuka is in the best interests of Kuka, as German politicians explore ways to block the Chinese co.’s deal
  • Bain Said Near Deal to Sell German Clutch Maker FTE to Valeo: French auto-parts maker could announce purchase this week
  • Draghi Wants ECB Easing Solo Joined by Europe Reform Chorus: ECB expected to leave rates unchanged at 1:45 p.m. in Vienna

In FX, the yen strengthened once again, rising 0.5% to just under 109 per dollar, after surging 1.4% in the last two trading sessions. “This move in the yen is maybe more about a risk-off move, than sort of a positive sentiment,” Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg TV. “People got a little bit ahead of themselves and were expecting some sort of announcement on a supplementary budget. When that didn’t come, I think there was a bit of a disappointment trade.” The Bloomberg Dollar Spot Index fell less than 0.1 percent, after sliding 0.4 percent in the last session. Investors are paying close attention to U.S. data after Fed officials indicated a potential interest-rate hike as soon as this summer was contingent on continued improvement in the economy.  The euro strengthened 0.1 percent, after climbing 0.5 percent on Wednesday, and the British pound rose 0.2 percent from near a two-week low. The U.K. currency sank around 1.5 percent over the last two days as polls indicated growing support for the country to leave the EU. The MSCI Emerging Markets Currency Index added 0.3 percent as the ruble advanced 0.6 percent, buoyed by oil’s gains. India’s rupee advanced 0.3 percent, strengthening for the first time in four days. The currency erased gains and bonds declined on Wednesday after a local-language newspaper reported central bank Governor Raghuram Rajan doesn’t want an extension of his term. The Reserve Bank of India, the Prime Minister’s Office and the Finance Ministry all had no comment on the report.

In commodities, brent added 0.5 percent to $49.98 while West Texas Intermediate crude halted a four-day slide, climbing 0.5 percent to $49.24. Saudi Arabia was discussing ideas with fellow OPEC members including restoring a production target scrapped in December, according to delegates familiar with the situation. Still, no formal proposal has yet been made and Iran resisted overtures from Saudi Arabia to restore a production target scrapped at the group’s last meeting in December. Gold rose 0.2 percent, after falling on 10 of the last 11 trading days. Zinc climbed 0.8 percent to the highest since July on the London Metal Exchange, while copper and nickel retreated. Soybeans for July rose to the highest for a most-active contract since July 2014 on the Chicago Board of Trade amid speculation hot and dry weather will hurt U.S. crops.

Bulletin Headline Summary From RanSquawk and Bloomberg

  • OPEC has grabbed the limelight so far with comments from a number of oil ministers giving participants plenty to digest, as focus appears to be on whether Saudi Arabia and Iran can cooperate
  • Equities trade higher led by energy names with Bunds in negative territory and trading around the 164.00 level
  • Looking ahead, highlights include the ECB rate decision, US ADP, weekly jobs, EIA nat. gas, DoE inventories, ECB’s Draghi, BoE’s Carney, Fed’s Kaplan and Powell
  • Treasuries mostly steady as global equities rally, oil mostly unchanged ahead of OPEC’s Vienna meeting and the ECB’s rate decision.
  • The ECB president will probably have little fresh monetary stimulus to offer and updated economic projections are likely to reinforce the perception that despite massive monetary easing the bank is still struggling to meet its inflation goal
  • The European Central Bank is set to leave monetary policy on hold when it meets in Vienna on Thursday. That’s not the only thing that will remain steady: most economists expect the ECB to keep its 2016-2018 inflation forecasts unchanged
  • The largest banks in the euro region earned less from lending in the first quarter as the European Central Bank’s experiment with negative interest rates compounded the pain of a trading slump and rising regulatory costs
  • A Bank of Japan board member expressed pessimism about the economy and the central bank’s strategy, saying in a speech Thursday that the BOJ won’t be able to reach its 2 percent inflation target as forecast and negative rates won’t work to boost investment
  • Iran resisted overtures from OPEC’s largest producer Saudi Arabia to restore a production target scrapped at the group’s last meeting in December
  • Mega-deals have propelled dollar and euro-denominated bond sales from developing nations to almost $120 billion in April and May. “The current spike in issuance is certainly down to borrowers trying to beat a likely Fed rate rise this summer,” said Mohammed Elmi, an emerging-market money manager at Federated Investors
  • China’s investors are piling into Hong Kong equities at the fastest rate in more than a year as they seek shelter against a weakening currency and a worsening economic outlook

DB’s Jim Reid Concludes the overnight wrap

The rollercoaster month of June kicks into gear today with an ECB and OPEC meeting likely to be the main focal points alongside the latest ADP which will be important ahead of tomorrow’s payrolls. The ECB should actually be a relatively dull affair as they are currently in ‘wait and see’ mode with regards to previous policy actions. However all new info on the CSPP will be gratefully received by corporate bond investors.

With regards to the OPEC meeting, the closed door talks are scheduled to take place in Vienna at 12pm local time with the press conference scheduled for a tentative 4pm local time (3pm BST). Yesterday was a fairly volatile session for Oil as a number of headlines did the rounds ahead of the meeting. WTI actually closed little changed around $49/bbl although it did bounce back from intraday lows of $47.75/bbl midway through the afternoon. It appears that the bounceback was driven by the various reports of a potential reintroduction of a ceiling on production after the previous ceiling was scrapped in December. Indeed the WSJ ran a story suggesting that the willingness is shared by Saudi Arabia as well as smaller producers in Nigeria, Qatar, Algeria and Venezuela. Like in previous talks, any outcome looks likely to hinge on the decision of Iran, whose Oil Minister was quoted last night as saying that he doesn’t believe that today’s meeting will reach an agreement. So all that to look forward to this afternoon.

Meanwhile, as a precursor to tomorrow’s payrolls number, market expectations for the ADP employment change reading today are 173k. Our US economists are a little lower than this at 160k which also reflects their below consensus payrolls forecast.

Yesterday’s data flow was largely focused on the factory sector with the overall outcome being one which made for a fairly mixed assessment. The much anticipated ISM manufacturing print for May actually rose unexpectedly last month to 51.3 from 50.8 after expectations were for a 0.5pt decline. That said the details were a bit more mixed with new orders (-0.1pts to 55.7) down, employment (49.2) unchanged and backlog of orders (-3.5pts to 50.5) down sharply. That was however offset by an increase in prices paid (+4.5pts to 63.5) to the highest level in 2011 and new export orders remaining unchanged but at a solid 52.5. Meanwhile the manufacturing PMI was revised up 0.2pts at the final look to 50.7, however construction spending was weak in April (-1.8% mom vs. +0.6% expected) which had the Atlanta Fed revising down their Q2 GDP forecast to 2.5% from 2.9% as a result.

In terms of how markets responded, US equities – in a similar move to Tuesday – were initially on the back foot at the open with the S&P 500 down as much as -0.60% although recovered into the close with the moves in Oil to finish +0.11% on the day. The USD was hard hit however with the Dollar index down close to half a percent, although in contrast 2y yields were up 2bps by the end of play. That said they have held around that 0.900% level for a good 2 weeks now.

Refreshing our screens this morning, all of the focus is on the reaction in Japanese markets following the confirmation from PM Abe yesterday of the sales tax increase delay. The Yen has rallied 0.5% following a 1% rally yesterday and as a result the Nikkei and Topix have fallen -2.29% and -2.09% respectively. 10y JGB yields are up 1bp. Elsewhere in Asia moves have been more modest. The Hang Seng is +0.19% while the Shanghai Comp is unchanged and the Kospi +0.12%. The ASX (-0.80%) is down steeply again with banks and miners under pressure. Iron ore tumbled -3.49% yesterday and in dipping below $50/tn again, is at the lowest level in over 3 months.

Moving on. We’ve got another date for readers to add to what is already a very busy June. Fed Chair Yellen’s semi-annual testimony (previously known as the Humphrey Hawkins) has been scheduled for the 21st and 22nd of June which is unusually early given the event usually takes place midway through July. The timing is interesting however with the FOMC meeting due to conclude on the 15th and the UK EU referendum vote on the 23rd. So one would imagine that should the uncertainty surrounding the Brexit outcome weigh on the Fed Chief’s view at the FOMC meeting, then it’s likely little would change just a week later still pre-vote. A reminder that Yellen is due to speak this coming Monday evening also.

Back to markets yesterday, risk assets in Europe had a much weaker session than their US counterparts. Indeed the Stoxx 600 closed -0.96% for its second consecutive leg lower. European credit was under pressure too with Main a couple of basis points wider. It appeared to be a more peripheral led selloff however with Italian and Spanish equities down -1.19% and -1.30% (bond yields in these countries were also a couple of basis points higher while Bunds were flat on the day). The weakness appeared to stem from a poor session for Italian Banks with Italian press reports suggesting that the Bank of Italy may ask Italian lenders to inject an additional €1.5bn into Italy’s rescue fund.

Staying in Europe, the confirmation of the manufacturing PMI’s showed that weakness in the periphery which we’d expected last month. The final Euro area reading was unchanged at 51.5 while Germany was notched down to 52.1 (-0.3pts) but France revised up a touch to 48.4 (+0.1pts). In the periphery however there were notable monthly declines for Italy (-1.5pts to 52.4), Spain (-1.7pts to 51.8) and Greece (-1.3pts to 48.4). There was a more positive read-through for the UK where the PMI rose 0.7pts to 50.1 (vs. 49.6 expected) and back into growth territory again following that blip in April.

Wrapping up the data, the other release in the US yesterday was the latest vehicle sales numbers where total sales rose in May to an annualized rate of 17.37m (vs. 17.3m expected) from 17.32m in the month prior. Meanwhile, the Fed’s Beige Book didn’t offer a whole lot of new information. The main take away from the report showed that ‘employment grew modestly since the last report, but tight labour markets were widely noted’ and that ‘wages grew modestly, and price pressures grew slightly in most districts’.

END

ASIAN AFFAIRS

i)Late  WEDNESDAY night/ THURSDAY morning: Shanghai closed UP  BY 11.72 PTS OR 0.40%  /  Hang Sang closed UP 98.24 OR 0.47%. The Nikkei closed DOWN 393.18 POINTS OR 2.82% . Australia’s all ordinaires  CLOSED DOWN 0.83% Chinese yuan (ONSHORE) closed DOWN at 6.5822 .  Oil FELL to 49.00 dollars per barrel for WTI and 49.77 for Brent. Stocks in Europe ALL IN THE GREEN . Offshore yuan trades  6.5878 yuan to the dollar vs 6.5822 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS A BIT.

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

Hawk member of the Bank of Japan warns that the Japanese economy is very fragile and he even states that negative interest rates should be deemed tightening and not stimulating the economy.  No wonder that the USA/Yen crossed faltered badly last night (Yen rising)

(courtesy zero hedge)

BOJ Member Warns Japan Economy Is So Fragile, It Could Sink Into Recession Due To “Weather”

One of the reasons why the USDJPY tumbled overnight is because of a set of comments by one of the most hawkish BOJ board members, Takehiro Sato, expressed pessimism about the economy and the central bank’s strategy, saying in a speech Thursday that the BOJ won’t be able to reach its 2% inflation target as forecast and negative rates won’t work to boost investment. “I believe that it is desirable to aim to achieve the price stability target of 2% as a medium-to long-term goal and I expect that the road toward this goal will be long,” Takehiro Sato, one of nine BOJ board members, said in a speech in Kushiro, Hokkaido on Thursday.

This was immediately taken by the market as yet another confirmation that Abenomics will be stretched out, and that the probability for a substantial near-term easing by the BOJ has been notably delayed, leading to the steep drop in the USDJPY observed overnight. To be sure, Sato is a known hawk and dissented on the January decision to adopt a negative-rate policy and also in October 2014, when the BOJ expanded stimulus. That does not make him wrong.

“I believe that the challenge from now on is reforming the policy framework, which is intended to provide solutions in the short term, so as to adapt it to a long-term initiative,” he said Thursday. “The first thing the bank should do for that purpose would be to make the asset purchase operation more flexible.”

As Bloomberg notes, Sato’s concerns about reaching the 2 percent price target as forecast echo those of some investors as Governor Haruhiko Kuroda continues to buy bonds at a record pace and keeps expanding stimulus, yet inflation hovers near zero. Former Deputy Governor Kazumasa Iwata, who served on the board 2003-2008, has predicted that the BOJ will hit the wall in terms of asset purchases by the middle of 2017. “There are growing concerns about the sustainability of the BOJ’s easing,’’ said Daisuke Karakama, chief market economist in Tokyo at Mizuho Bank, a unit of the country’s third-biggest lender. “We can’t see when the BOJ is going to meet the price target and if you take Kuroda’s words at face value, he will have to keep adding stimulus.”

What is more remarkable, was Sato’s admission that instead of easing conditions, the BOJ is in fact tightening them: “I believe that the negative interest rate policy has the effect of monetary tightening, rather than an effect of easing. In addition, the negative interest rate policy could affect financial system stability.” He cited risks from a negative-rate policy adopted in January because it clashes with the expansion of monetary base target.

Perhaps Kuroda should have thought of that back in January.

Sato continues: “I expect that its growth is highly likely to remain sluggish in the future while being susceptible to developments in the global financial markets and overseas economies”

He then bashed QE: “From financial institutions’ recent move to purchase super-long-term bonds in pursuit of tiny positive yield, I detect a vulnerability similar to that seen before the so-called VaR shock in 2003” when Japan’s bond yields surged in the short term, Sato said. The BOJ has to buy about 120 trillion yen of bonds this year as some bonds mature, which is more than 90 percent of newly issued bonds in Japan’s market. The BOJ held 32 percent of government bonds at the end of December, according to the bank.

In other words, as we predicted in late 2014, the BOJ is now monetizing virtually all gross issuance, and is why Japan is scrambling to find an excuse to issue more debt.

But the punchline was the following: “Japan’s economy, with its potential growth rate of nearly 0%, is so fragile as to be liable to post negative growth even because of trivial external factors such as weather conditions.”

But of course we already knew that: recall that the US’ own BEA applied a second seasonal adjustment to last year’s Q1 GDP data to smooth out the “weather impact.” Which, however suggests that the US economy is just as bad as that of Japan, one where the weather alone can push the economy into a recession. At least Japan has not yet figured out that there is a seasonal adjustment for that.

end

b) REPORT ON CHINA

What a riot:  only 3 trades was enough to cash a flash crash in the Chinese stock Monday night.  The new government rules will not allow “hedging” account from holding more than 10 contracts a day.  Thus volume and liquidity are non existant.  Expect to have many flash crashes in the future>

(courtesy zero hedge)

Liquidity Panic? A $90 Million Sell Order Crashed China’s Futures Market

Seemingly missed by the mainstream media on Monday, Chinese equity futures crashed over 12.5% – the biggest drop since 1995 – only to soar back to unchanged within seconds. This was not a ‘fat-finger’ trade, and as one trader noted, “liquidity in the market is really thin right now,” which is borne out by the evidence. Thanks to government rules disabling “hedging” accounts from holding more than 10 contracts a day, volume (and liquidity) has become practically non-existent since September and so the 12.5% flash crash was driven by just 3 trades totalling just 646 contracts which means a mere $92 million sell order collapsed Chinese equity markets by the most on record.

A shocking move…

But when we zoom in it is apparent that just 3 trades were responsible for the plunge – the initial 398 contract sell, followed by a 107 contract order and a 141 sell all at 22:42:10

As background, we note that a hedging account is a designation for investors who use futures to offset risks from their holdings in the stock market. Such accounts are exempt from limits on opening more than 10 contracts in a day, according to CFFEX rules announced in September… so this could only be a hedging account.

In other words just 646 contracts – or ‘hedging’ around $92 million notional  – managed to crash the Chinese futures market by the most on record.

And here is why…  Chinese policy makers restricted activity in the futures market last year because selling the contracts is one of the easiest ways for investors to make large wagers against stocks. Volume shrank by more than 90 percent from its peak after officials raised margin requirements, tightened position limits and started a police probe into bearish wagers.

Yes that is the real volume chart.

Some international traders with negative views on Chinese stocks have shifted their wagers to offshore markets. As we noted previously, short interest in Chinese ETFs is now at record highs…

Which could be why Chinese stocks are stubbornly ignoring the collapse of the currency…

As Bloomberg notes, while sudden price swings are hardly unique to Chinese exchanges, the country’s markets have come under increased scrutiny in recent months as MSCI Inc. considers adding mainland shares to its international indexes. Recent measures to curb trading halts and clarify beneficial ownership rules have improved the country’s odds of inclusion to 70 percent, Goldman Sachs Group Inc. analysts wrote in a report on Tuesday, which was one of the factors behind the market’s rally. MSCI will announce its decision next month… and we are sure a record intra day crash in prices will have no impact on the political decision to bring Chinese equity volatility into the world’s biggest benchmarks.

end

 

The following will certainly annoy the Americans:  Beijing ready to impose Air Defence Identification Zone to thwart USA provocation in the South China seas. The rehetoric between China and the USA is getting louder and louder.  This is why I believe that China trying to show that it has the upper hand on the global scene is the long taking delivery at the comex

(courtesy zero hedge)

 

Beijing Ready To Impose Air Defence Identification Zone To Thwart US “Provocation”

The last time China set up an air defense identification zone, or ADIZ, was in late 2013, when tensions with Japan had escalated so far, many were speculating if the two nations would not engage in limited warfare. Back then, China set up its first ADIZ in the East China Sea in November 2013 to cover the Diaoyu Islands, which Japan calls the Senkakus. Both countries claim the uninhabited outcrops but Tokyo controls them. The ADIZ triggered a backlash from Japan, South Korea and the US.

While the confrontation between Japan and China subsided, it was promptly replaced by another geopolitical tension, this time a few thousand kilometers to the Southwest, in the South China Sea, where tensions between China and neighbours Vietnam, Malaysia, Brunei and the Philippines have risen since Beijing ­embarked on major land reclamation work on disputed islands and reefs in the area. In recent months, the US has also gotten involved by sailing ships through contested wates, much to China’s anger; most recently a US spy plane was intercepted by two Chinese fighter jets over the area.

Which is probably why, as the SCMP reported yesterday, China is preparing another air defence identification zone, this time in the South China Sea, two years after it announced a similar one in the East China Sea. According to the SCMP, one source said the timing of any declaration would ­depend on security conditions in the region, particularly the United States’ military presence and diplomatic ties with neighbouring countries.

However, should the US continue engaging in what Beijing views as provocations, China will have no choice but to escalate: “If the US military keeps making provocative moves to challenge China’s sovereignty in the region, it will give Beijing a good opportunity to declare an ADIZ in the South China Sea,” the source said.

The revelation came ahead of the Shangri-La Dialogue in Singapore, a security forum attended by defense officials from various nations, including Admiral Sun ­Jianguo and US Secretary of ­Defence Ash Carter. Disputes in the South China Sea are expected to head the agenda of the three-day event, which starts on Friday. Top Chinese and US officials will also meet next week for their annual strategic and economic dialogue in Beijing.

As the SCMP adds, in a written response to the South China Morning Post on the zone, the defense ministry said it was “the right of a sovereign state” to designate an ADIZ.

“Regarding when to declare such a zone, it will depend on whether China is facing security threats from the air, and what the level of the air safety threat is,” the statement said. What the statement was envisioning was more incidents such as this one profiled two weeks ago when as we reported “Chinese Fighter Jets Fly Within 50 Feet Of US Spy Plane Near China.”

A report in Canada-based Kanwa Defence Review said Beijing had defined the area of the ADIZ in the South China Sea, and the timing of the announcement would be a political decision. The report said the new ADIZ would be based on the exclusive economic zone (EEZ) of Woody Island and China’s seven new artificial islands in Spratly chain, or 200 nautical miles stretches from the islands’ baseline. In other words, in addition to a naval zone, China will claim that the airspace above it belongs to China as well; and should any aircraft – namely belonging to the US  – fly above it, China would have a right to take measures.

“China’s new ADIZ will overlap with the EEZs of Vietnam, the Philippines and Malaysia, which are also planning their own ADIZs – with US backing – if China ­announced it,” Kanwa editor-in­-chief Andrei Chang said.

Ni Lexiong, a Shanghai-based military commentator, said the seven artificial islands in the Spratly chain had laid the foundations for China to establish its ­ADIZ in the South China Sea. But Beijing-based naval expert Li Jie said there were signs that ­regional tension would ease after Rodrigo Duterte became president of the Philippines.

And as a reminder, Duterte, who as we noted yesterday endorses the murder of “corrupt journalists” will likely be heavily supported by the US.

President Xi Jinping sent a congratulatory message to Duterte on Monday, saying China hoped “the two sides can work together to bring bilateral relations back on a healthy track.” They won’t.

end

EUROPEAN AFFAIRS

A good reason for voters in England to vote for a BREXIT: the boondoggle immigration plan of Juncker:  already 20 billion seed capital has been lost and they want to fund more capital in this failed policy of immigration:  by the way, England supplied most of the seed capital.

(courtesy/Mish Shedlock/ zero hedge)

Another Reason To Vote Brexit: UK Taxpayers Biggest Funders Of ‘Failed’ Juncker “Immigration” Plan

Submitted by Michael Shedlock via MishTalk.com,

British citizens seeking yet another reason to vote Brexit, have one in spades.

The roots of this reason go back to last year when European Commission president Jean Claude Juncker hatched a 3-year plan to leverage €20 billion in seed capital to produce a €300 billion gain in Eurozone investment.

As one might expected, the results are nonexistent even though Juncker has already used up the €20 billion in seed capital.

Juncker now wants to up the seed capital, make the plan permanent, and extend the plan outside the EU to immigration zones such as Syria and Africa!

Here’s the kicker. The UK ponied up the biggest share of this monstrous boondoggle so far.

 

 

 

UK Makes the Biggest Contribution to the Juncker Plan

Flashback July 17, 2015: EurActiv reports UK Makes the Biggest Contribution to the Juncker Plan.

The UK may be a Eurosceptic country, but it has made the biggest contribution to the flagship project of the Commission led by Jean-Claude Juncker – the €315 billion Investment Plan for Europe designed to stimulate the EU’s post-crisis economy.

The UK announced yesterday (16 July) it will contribute £6 billion (about €8.5 billion) to projects benefiting from finance by the European Fund for Strategic Investments (EFSI),better known as the Juncker Plan. This is in fact the biggest contribution so far.

The plan is based on a 15-fold leverage of a limited €21 billion of initial public money. As Juncker explained, the fund will be called European Fund for Strategic Investments (EFSI), guaranteed with public money from the EU budget and the European Investment Bank (EIB). The Fund will be able to mobilize €315 billion over the next three years.

The Commission has put up €8 billion from the EU budget. This backs up a €16 billion guarantee given to the Fund. Topped up by another €5 billion from the EIB, the sum totals €21 billion.

In addition, the European Investment Bank (EIB) can give out loans of €63 billion. But private investors will be pitching in the remaining €252 billion.

Juncker warned about national wish-lists, and said there was no guarantee how much they would profit from the fund, if they contribute to it.

Brussels Extends the “Juncker Plan” Beyond 2018 and Outside the EU

Flash Forward May 31, 2016: Brussels Extends the “Juncker Plan” Beyond 2018 and Outside the EU.

Via translation from El Pais …

The European Commission wants to give new impetus to the Juncker Plan, which aims to mobilize investments of over €300 billion by mid-2018. Brussels announced today that the project will be extended by at least two additional years, and aims to make it permanent. The executive arm of the EU will also seek to finance investments outside Europe, in conflict areas and projects related to immigration.

Juncker does not stop there: the head of the Commission shall submit a legislative proposal in autumn to expand the plan beyond the timeframe foreseen (mid-2018). According to sources, the idea is to extend the plan at least two more years, with firepower equivalent. And look for something more ambitious, even permanent, once the next EU budgets are negotiated.

The scheme bears the name “Juncker Plan” to make it easy to point blame if the plan fails.

A leverage ratio of 1/15 is high but not unusual in some projects the EIB, and the environment of current liquidity abundance favors private funding plan. Fund management itself will be a major challenge, as it involves decisions in a short time on the economic viability of many projects with significant distributional consequences between countries and sectors.

A final positive aspect not mentioned so far is the possibility that countries make additional contributions to the fund without being included in the deficit posted by Brussels in the stability and growth pact. This can be an escape route for France to carry out its desired fiscal expansion by the back door (Italy it is more difficult, since by its high debt is also controlled by markets). However, it is not clear whether these additional contributions can be directed implicitly makes the country, so it is not known whether it will be sufficient to increase the fund’s ability incentive.

Plan Failed Already

“So far it has not failed” said Juncker.

Juncker

Translation: The plan has failed and Juncker has his hands in every country’s pocket for more funding. The UK is already already the biggest contributor to this madness, having wasted €8.5 billion.

Juncker now wants more … for immigration projects!

Anyone on the Brexit fence reading this and not immediately knowing how to vote, likely has mad cow disease (or worse yet, mad Juncker disease).

 

END

 

The clown Mario Draghi tells how wonderful Europe is with the ECB buying sovereign bonds as well as corporate bonds.  The fact that NIRP is rearing its ugly head and killing the EU banks:

(courtesy zero hedge)

 

Mario Draghi Explains Why ‘Buying Corporate Bonds As Well’ Will Work This Time – ECB Press Conference Live Feed

 

END

 

GLOBAL ISSUES

Bill Gross explains to the world why he is shorting credit: basically the carry trade is gone!

(courtesy Bill Gross/zero hedge)

Bill Gross Explains Why He Is Now Shorting Credit

 

end

 

EMERGING MARKETS

BRAZIL

Rioting on the streets in Brazil as protesters try and stomr the new President Temers office:

(courtesy zero hedge)

Caught On Tape: Brazilian Police Fire Tear Gas, Rubber Bullets As Protesters Try To Storm New President’s Office

As expected, the peaceful transition period surrounding the new, and just as corrupt according to many, government of Brazil’s new president Michel Temer did not last even a month. Yesterday, clashes erupted in Brazil with police deploying tear gas and rubber bullets on protesters opposing to the country’s new interim government. Demonstrators hit the streets of Brazil’s largest city, Sao Paolo, for a rally calling for the removal of acting president Michel Temer.

The protesters were angry at the May suspension of President Dilma Rousseff, who now faces an impeachment trial. The move has been dubbed a coup by Rousseff’s supporters, and many claim Temer plotted her downfall to stifle a corruption investigation into Petrobras, Brazil’s state-owned oil enterprise.

Footage from the streets showed police forcing protesters to the ground and officers using batons against demonstrators.

Some activists tried to occupy the building where the leader’s regional office is situated.

As reported previously, despite holding office for less than a month, Temer’s presidency has been marred with scandal. Transparency minister Fabiano Silveira resigned on Monday, after a leaked tape suggested he tried to derail corruption investigations into Petrobras. Temer’s secretary is also accused of taking bribes.

Eduardo Cunha, the speaker of the lower house of Congress who spearheaded the impeachment campaign, was suspended after being accused of taking millions of dollars in bribes, using a New Zealand trust company to hide the money.

Meanwhile, Temer’s approval ratings are at rock bottom, with only 2% of the Brazilian population indicating they would vote for him if an election was held today. That’s compared to 13 percent for Rousseff, according to research company Datafolha.

Speaking to RT, Brazilian journalist Pepe Escobar said Temer’s presidency has been illegitimate from the beginning. “I have defined the Michel Temer interim government in the first two days, in fact, as a walking dead government. He was already illegitimate from the start,” Escobar said.

“People who follow the internet in Brazil and independent blogs… they know all these scandals in full detail and at the moment everything is paralyzed because of an illegal impeachment coup,” he continued.

Escobar also said that in addition to Temer’s government, the Brazilian people are also upset with the country’s economy. “The Sao Paolo stock exchange is not recovering like it was promised at the beginning of the Temer interim government, so it’s a standstill and it’s going down and down and down because more revelations are in store, because now this is part of an internal political battle in Brazil.”

Meanwhile, Rousseff awaits an impeachment trial in the Senate on charges of administrative misconduct, disregarding the federal budget, and corruption. Speaking RT last month, Rousseff called the impeachment a “coup” organized by the old Brazilian oligarchy. She vowed to fight the “coup” using all available means.

“Our constitution provides for an impeachment, but only if the president commits a crime against the Constitution and human rights,” Rousseff said. “We believe that it’s a coup, because no such crime has been committed. They put me on trial for additional loans [from state banks]. Every president before me has done it, and it has never been a crime. It won’t become a crime now.”

end

 

OIL ISSUES

No freezing of oil production:  a foregone conclusion:

(courtesy zero hedge)

Oil Drops After OPEC Fails To Reach Oil Freeze Agreement

 

The anticlimatic conclusion to today’s OPEC meeting came earlier courtesy of Bloomberg which moments ago reported that OPEC has failed to reach a new oil supply agreement, but that it has agreed to appoint a Nigerian candidate for new OPEC secretary general.

  • OPEC HASN’T REACHED NEW OIL SUPPLY AGREEMENT: DELEGATE
  • OPEC AGREES TO APPOINT NIGERIAN CANDIDATE FOR SEC-GEN: DELEGATE
  • OPEC MEETING ENDS!

As Bloomberg notes, OPEC will stick to its policy of unfettered oil production after members failed to agree on new output ceiling, according to a delegate at mtg in Vienna.

Nigeria’s Barkindo chosen as next secretary-general

 

Ministers will soon leave HQ building

 

Just before the formal session began, Saudi Arabia’s minister said OPEC’s current strategy was working and that group should reestablish a production ceiling “when necessary,” while Kuwait said a ceiling wasn’t necessary

 

Iran said an OPEC output ceiling without country quotas would be meaningless

While we would take such preliminary rumors with a grain of salt, the oil market is not happy and has dropped by 1.8%, even if it is still above the levels from yesterday when the rumors of an oil deal emerged.

As noted earlier, we would not be surprised if the algos, after taking out the low stops, end up ramping WTI to new highs.

end
Oil jumps after the DOE reports a much bigger inventory drawdown and another wekly production cut:
(courtesy zero hedge)

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

Euro/USA   1.1200 UP .0013 ( STILL REACTING TO USA FAILED POLICY

USA/JAPAN YEN 108.99  DOWN 0.474 (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 1.4427 UP.0019 (STILL THREAT OF BREXIT)

USA/CAN 1.3099 UP .0024

Early THIS THURSDAY morning in Europe, the Euro ROSE by 13 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 11.72 PTS OR 0.40% / Hang Sang CLOSED UP 98.24 OR  0.47%   / AUSTRALIA IS LOWER BY 0.83%/ ALL EUROPEAN BOURSES ARE IN THE GREEN  as they start their morning/

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

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

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

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

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

The NIKKEI: this THURSDAY morning: closed DOWN 494.18 OR 2.32% 

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

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 98.24 PTS OR 0.47% . ,Shanghai CLOSED UP 11.71 OR 0.40%/ Australia BOURSE IN THE RED: /Nikkei (Japan) CLOSED IN THE RED /India’s Sensex IN THE GREEN

Gold very early morning trading: $1216.60

silver:$15.99

Early THURSDAY morning USA 10 year bond yield: 1.833% !!! DOWN 1 in basis points from WEDNESDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield RISES to 2.612 PAR in basis points from WEDNESDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early THURSDAY morning: 95.30 DOWN 12 CENTS from WEDNESDAY’s close.(Now below resistance at a DXY of 100.)

This ends early morning numbers THURSDAY MORNING

END

And now your closing THURSDAY NUMBERS

Portuguese 10 year bond yield:  3.16% UP 4 in basis points from WEDNESDAY

JAPANESE BOND YIELD: -0.110% UP 1/3  in   basis points from WEDNESDAY

SPANISH 10 YR BOND YIELD:1.48%  DOWN 2 IN basis points from WEDNESDAY

ITALIAN 10 YR BOND YIELD: 1.37  DOWN 1 IN basis points from WEDNESDAY

the Italian 10 yr bond yield is trading 11 points lower than Spain.

GERMAN 10 YR BOND YIELD: .139% PAR  IN BASIS POINTS ON THE DAY

END

IMPORTANT CURRENCY CLOSES FOR THURSDAY

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

Euro/USA 1.1151 DOWN .0036 (Euro =DOWN 36 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/reacting to dovish YELLEN/ANOTHER FALL IN USA;YEN CROSS TODAY

USA/Japan: 108.87 DOWN .602 (Yen UP 62 basis points )

Great Britain/USA 1.4433 UP.0014 ( Pound UP 14 basis points/(HUGE BREXIT CONCERN)

USA/Canada 1.3103 UP 0.0029 (Canadian dollar DOWN 29 basis points with OIL FALLING a BIT(WTI AT $49.03).

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was DOWN by 36 basis points to trade at 1.1151

The Yen ROSE to 108.87 for a GAIN of 60 basis points as NIRP is STILL a big failure for the Japanese central bank/

The pound was UP 14 basis points, trading at 1.4433 ( BREXIT FEARS INCREASE )

The Canadian dollar FELL by 29 basis points to 1.3103, WITH WTI OIL AT:  $49.03

The USA/Yuan closed at 6.5815

the 10 yr Japanese bond yield closed at -.110% UP 1/3   IN BASIS  points in yield/

Your closing 10 yr USA bond yield: DOWN 3  IN basis points from WEDNESDAY at 1.809% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.5885 DOWN 3 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, 95.56 UP 14 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 THURSDAY

London:  CLOSED DOWN 6.32 OR 0.10%
German Dax :CLOSED UP 3.56 OR 0.03%
Paris Cac  CLOSED DOWN 9.39  OR 0.21%
Spain IBEX CLOSED UP 41.00 OR 0.46%
Italian MIB: CLOSED DOWN 43.55 OR 0.24% (STILL BANKING PROBLEMS)

The Dow was up 48.89.  points or 0.27%

NASDAQ UP 19.11 points or 0.39%
WTI Oil price; 49.04 at 4:30 pm;

Brent Oil: 49.84

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  67.07 (ROUBLE UP 4/100 ROUBLES PER DOLLAR FROM YESTERDAY) AS THE PRICE OF BRENT FELL AND WTI FELL

TODAY THE GERMAN YIELD LOWERS TO .11  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:49.03

BRENT: 49.92

USA 10 YR BOND YIELD: 1.799%

USA DOLLAR INDEX: 95.53 up 11 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

 

More phony data, as initial jobless claims fall a bit despite huge losses in the ISM and PMI reports:

(courtesy zero hedge)

 

Dear “Initial Jobless Claims”-Creator, Explain This

Initial jobless claims printed 267k – slightly better than expected and very slightly less than last week – which is odd because both ISM Manufacturing and ISM Service employment data suggests a very different picture indeed.

Everyone knows the manufacturing industry is losing jobs…

 

But don’t worry, the Services economy is doing great and generating jobs, right?…

Oh wait!!

 

So if jobs are piss poor in the manufacturing industry based on management’s perspectives and just as bad in Services, then where is the government creating all these jobs from that is keeping initial jobless claims so low?

Charts: Bloomberg

end

The NY ISM purchasing managers survey collapsed from 57 down to 37.2 (very contractionary) in the biggest bloodbath since 2009.  Current employment and quantity of purchases both plunged to cycle lows.

(courtesy ISM/Purchasing managers survey)

ISM New York Collapses To 7-Year Lows

 

ISM New York’s purchasing managers survey collapsed in May from 57.00 to 37.2 – the lowest since April 2009. The bloodbath is the biggest monthly drop since May 2007. While ‘hope’ rose rather stunningly from 56.0 to 68.0 – the highest in years, current employment and ‘quantity of purchases’ both plunged to cycle lows.

So much for that April bounce!

Note we have adjusted the chart by centring ISM NY 50 print at 0 which separates expansion from contraction.

Transitory?

\

 

end

 

Despite the lousy earnings and other horrific economic parameters, this boszo sates that it makes sense to hike rates;

 

July Odds Jump To Highest Ever As Fed’s Kaplan Fears “Distortions”, Says “Makes Sense To Hike”

end
Oh! Oh! this is going to hurt:  Texas health insurance costs are now set to soar by 60%
(courtesy zero hedge)

Thanks Obamacare: Texas Health Insurance Costs Are Set To Soar By 60%

 

When last week we showed how much the average health insurance premium proposal would rise in a 14 select states…

 

… but one state was missing: Texas, which is the health-care law’s third-largest market behind Florida and California. We now may have found the reason why.

According to the Houston Chronicle which cites federal regulator filings, Blue Cross and Blue Shield of Texas – the state’s largest insurer – has asked for rate hikes of nearly 60% for next year in three popular HMO plans. According to filings listed on healthcare.gov, Blue Cross and Blue Shield seeks increases between 57.33 percent and 59.35 percent for two of its Blue Advantage Plus plans. A Blue Advantage Health Maintenance Organization Plan is asking for a 58.6 percent hike.

The company, which is the only carrier to offer health coverage in all of Texas’ 254 counties, would not specify Wednesday what would happen if does not get the rate increase it says it needs. “No final decisions have been made regarding our 2017 Texas offerings,” spokesman Gustavo Bujanda said in a statement emailed to the Houston Chronicle.

“The rates we have submitted for review and approval are supported by strong actuarial principles, science and data,” the statement continued.

The company said in its request that the hike could affect nearly 603,000 Texans buying individual policies through the federal exchange mandated by the Affordable Care Act. It is not known what increases will be requested for employer-sponsored group policies. “The anticipated health risk of the people in any given market is the largest component of determining rate changes,” the company statement said.

Judging by the soaring premium, the “health risk” is likewise going through the roof: risk which it appears nobody had anticipated five years ago when the ACA tax was passed.

BlueCross is not alone: insurers across the nation have complained vigorously that they are losing money in the federal exchanges as some customers have proven more costly to cover than anticipated. Under the health-care law, an insurer can no longer deny coverage to someone based on her or his health status or pre-existing condition.

Texas Department of Insurance spokesman Ben Gonzalez confirmed his agency had received requests for rate hikes, but he said that because the insurer had marked them “confidential” he was unable to comment on the amounts. He said the department is “going to go back to ask more questions.”

To be sure, the Texas administrator is stumped by this soaring premium request: in Texas a rate request, especially one so large, must be deemed “not excessive, unfairly discriminatory and premiums must be reasonable in relations to the benefits provided,” Gonzalez said. In other words, he said, the agency will ask, “Is it justified, does the company need this?”

Something tells us that the answer is yes, and that this is only the start of even greater rate increases in coming years as the full impact of Obamacare on insurer top and bottom line is unveiled.

Even if Texas balks at the rate increase demand, it likely can do nothing about it. Stacey Pogue, a senior policy analyst at the Center for Public Policy Priorities in Austin, said Texas typically lacks the teeth in its insurance regulations to block a rate increase. “There’s not a process in Texas for it to be denied,” she said.

Ironically, the rate request may esclate all the way to the Federal level since Texas is one of five states that does not determine its own rate reviews for the federal exchange. Instead, any rate hike request is checked by the Insurance Department to make sure it complies with state law and is considered “actuarially justified.” The request then moves to the federal level, for the U.S. Health and Human Services Department to conduct the rate review for exchange plans. While HHS can ask for an adjustment, in practice the final rate increase is typically left up to the insurance company, Pogue said.

“Even if they find it unreasonable they can’t stop it,” she said.

* * *

Going back to the reason for the rate hike request, it is simple: the insruance company is spending far more than it is bringing in. Blue Cross and Blue Shield of Texas, for example, has said it lost $321 million last year in the individual market, both on and off the exchange, and that it spent $1.26 for every $1 it took in. The loss was also less than the $400 million loss it reported in 2014. It was due to those losses that the insurer said it was necessary to drop all preferred provider organization plans, typically favored by those with greater medical needs, across the state. Many of those who lost PPO coverage, including 88,000 in Houston, were shifted to HMO plans.

Other insurers won’t even bother asking for rate hikes. Instead companies such as America’s largest insurer, UnitedHealthcare, has said it plans to leave the exchanges in 2017 in Texas and most other states, has predicted it will lose about $650 million in the Affordable Care Act marketplace this year. Humana warned earlier this month it plans “a number of changes … to address the significant risk selection issues we have and continue to face.” The company reported a 46 percent loss in the first quarter of 2016, but analysts have said some that is due to expenses involved in a takeover bid by Aetna. Cigna has called its participation in the exchanges “contingent upon future market conditions and approval of our regulatory filings,” according to a previous email to the Chronicle.

To be sure, this won’t be Blue Cross and Blue Shield’s first rate hike request. Last year Blue Cross and Blue Shield of New Mexico, a division of the same parent company of Blue Cross and Blue Shield of Texas, asked for a 51 percent rate increase for its exchange plans. When New Mexico insurance officials refused, the company withdrew all individual plans from the state.

Withdrawing from Texas, which is the health-care law’s third-largest market behind Florida and California, may be more problematic for all involved..

Meanwhile, the government, realizing it has made a big mistake, is putting the onus on “the people” to push back:

Wichita Falls insurance broker Kelly Fristoe told the Associated Press that people in rural areas of Texas will be the hardest hit by the rate increase because Blue Cross and Blue Shield is often the only option in remote areas. Pogue said insurance regulators in many other states are more aggressive against large rate increases. “We need people who can push back in Texas,” she said.

Yes, the people – many of whom can not afford a 60% surge in their insurance costs – will push back, and it will be the only way they can: with their wallet. Which means either billions in disposable income will be removed from other sector of the economy (leaving economists stumped why retail spending is plunging) or will be forced spend much more on Obamacare. The silver lining: healthcare spending is on pace to surpass housing as the single biggest contributor to GDP. A few more quarters of Obamacare and it will be there.

 

end

 

Another great commentary from David Stockman as to what is ailing the USA. Take particular care to the section on the auto sector:  used car prices are plummeting and that will cause nightmares to our sub prime loan bankers which funded this monstrosity!
(courtesy David Stockman/ContraCorner)

Losing Ground In Flyover America——Wanting For Work, Buried In Debt, Part 4

The flyover zones of America are wanting for work and buried in debt. That’s the legacy of three decades of Washington/Wall Street Bubble Finance. The latter has exported jobs, crushed the purchasing power of main street wages and showered the bicoastal elites with the windfalls of financialization.

The graph below depicts the main street side of this great societal swindle at work. There are currently 126 million prime working age persons in the US between 25 and 54 years of age. That’s up from 121 million at the beginning of 2000.

Yet even as this business cycle is rolling over, the 77.1 million employed full-time from that pool is still 1.2 million below its turn of the century level and accounts for only 61% of the population. On top of that, average real hourly wages have fallen by 7% (based on the Flyover CPI), as well.

It might be wondered, therefore, as to how real consumption expenditures rose by $3.1 trillion or 38% during the same 16-year period?

The short answer is transfer payments and debt, and those troublesome realities go right to the economic blind spots of our Keynesian monetary suzerains. These paint-by-the-numbers economic plumbers care only about the great aggregates of spending and whether or not the bathtub of so-called “full employment GDP” is being filled to the brim.

As a consequence, the ideas of quality, sustainability, efficiency, discipline, prudence or, for that matter, even economic justice and equity, never enter the narrative. It matters not a wit whether the considerable expansion of PCE depicted above originated in disability checks, second mortgages, car loans at 120% loan-to-value—-or even if it was deposited by a passing comet.

What counts is the incremental gains in GDP compared to last quarter and proxies for demand such as job counts and housing starts versus prior month. And when the business cycle eventually ends, there is always a scape-goat to blame, such as an oil price shock or Wall Street meltdown.

By contrast, no Fed head ever asked whether real PCE growth of nearly two-fifths during a period when the number of prime-age full-time workers went down and real wage rates dropped was healthy or sustainable.

Likewise, the powered-obsessed denizens of the Eccles Building never question their inflation short stick (the PCE deflator less food and energy). After all, it gives them the green light to keep on pumping money into Wall Street on the misbegotten theory that this will indirectly stimulate main street (i.e. the wealth effect).

But as we have shown, the actual cost of living inflation faced by main street households has averaged 3.1% per year since 2000, meaning that the purchasing power of hourly wages has dropped by 7%. And average weekly hours have fallen, too, owing to the declining quality of the jobs mix.

Real Average Hourly Earnings (SA) 1987-2016

Yes, the number of part time workers has rising modestly and, as we have shown, the participation rate of Wal-Mart greeters among the over 65 cohort has risen steadily. But the fact remains that on the margin the 38% real gain in consumer spending shown above was funded from sources other than pay envelopes.

Not surprisingly, government transfer payments played a major role in funding the nation’s shopping cart, even as wages and salaries lagged. But this represented a double-edged sword that is completely ignored by the Wall Street/Washington peddlers of consumption based economics.

During the last 16 years, in fact, government transfer payments have grown at 6.2% annually or by nearly 2X the 3.3% growth of nominal wage and salary disbursements. As shown in the chart, transfer payments soared by$1.7 trillion during the period—-a figure which amounted to nearly 50% of the growth of wages and salaries.

As a result, transfer payments went from 21.5% of wage and salary income at the turn of the century to 33.2% during April 2016. The point, of course, is that this huge incremental fiscal burden must be funded with higher taxes today or increased public debt, which amounts to higher taxes tomorrow.

Nor can obliviousness to the supply-side impact of the Fed’s consumptionist economic model be dismissed as a problem for the distant future—– even if stealing from unborn generations was an appropriate public policy.  The fact is, jobs and living standards in the flyover zones are already being crushed by what might be termed the “pincer economics” of the Fed’s inflationist policies.

One the one hand, financial repression, cheap debt and the Fed’s 2% inflation target have forced-up the domestic price level, pushing nominal wages far higher than would have been the case under sound money and market set interest rates. Accordingly, domestic production and jobs on the margin have been lost to the China Price for goods and the India Price for services.

At the same time, heavy payroll and income tax withholdings from these inflated wage levels has further depressed employer competitiveness and the real purchasing power of after-tax paychecks.

In sum, Wall Street loves financial repression because it inflates financial asset values and fuels debt-funded gambling in the casinos. But it’s the opposite of what’s needed in flyover America.

Unless Trump wants to build an economic Wall around the entirety of the US economy, what is actually needed on main street is a falling CPI and taxes on consumption, not today’s burdensome levies on payrolls and production.

Needless to say, our monetary central planners are not concerned with supply-side impediments to growth. Nor are they bothered by the implications of an open economy for nominal wages rates in a world where the labor supply curve has been shifted drastically lower.

Their Keynesian economic model, in effect, holds that any spending will do. In fact, the whole purpose of interest rate repression is to induce households and businesses to leverage-up and spend at rates higher than warranted by current incomes and cash flows.

Accordingly, another big share of the income/spending gap has been back-filled with debt—especially prior to the financial crisis. During the two decades after 1987, household debt erupted by nearly 7X. Even after the year 2000, household debt grew by nearly $7.5 trillion or more than double the $3.4 trillion gain in nominal personal consumption expenditure.

Total Household Debt

To be sure, total household debt has plateaued since the financial crisis owing to the arrival of Peak Debt. But that has not completely closed all the doors to debt funded consumption. As suggested by the above chart, in fact,  the operative theory of Fed policy is that no balance sheet space should go unleveraged.

Accordingly, the trillion dollar reduction in mortgage debt since 2007 has been backfilled by an upsurge in student loans and auto credit. And in the case of the latter, the strong rebound in auto sales since the mid-2010 cyclical bottom has been all about debt.

Since then, retail motor vehicle sales have risen from $740 billion to an annualized rate of about $1.1 trillion in the most recent month. But there is no mystery about the funding source for this rebound. To wit, the $360 billion gain in auto sales over the last six years is matched almost exactly by a $350 billion rise in auto loans outstanding.

Stated differently, almost anyone who can fog a rearview mirror has now gotten a car loan or lease. Yet never once has the FOMC cautioned that automotive sector production and jobs are actually being put in harm’s way by its ultra-cheap debt policy.

But here is a data point far more significant than the trivialities about short-run economic conditions that populate the Fed’s meeting statements. To wit, nearly one-third of vehicle trade-ins are now carrying negative equity.

That means that prospective new car buyers are having to stump-up increasing amounts of cash to pay-off old loans, which, in turn, is pressuring volume-hungry lenders and dealers to extend loan-to-value ratios to even more absurd heights than the 120% level now prevalent. That’s kicking the metal down the road with a vengeance.

US-auto-loans-negative-equity-trade-ins-2011-2016

In fact, outstanding subprime auto debt is nearly 3X higher than it was on the eve of the financial crisis and average loan terms at nearly 70 months are a ticking time bomb. That’s because cars depreciate faster than loan balances can be paid down over that extended duration, meaning more and more of outstanding auto credit will be under water in the future.

And that’s the skunk in the woodpile. With today’s technology auto loans are supposed to be inherently low-risk. If push-comes-to-shove the repo man can find cars anywhere in America and tow them back to the lender for re-sale.

But this assumes that used car prices will remain at current levels, and that’s the catch. The coming tidal wave of vehicles coming off lease is fixing to send the used car market and the whole trillion dollar auto financing system into a tailspin during the next four years.

Needless to say, ground zero for the great auto repo rampage ahead will be the flyover zones of America.

Indeed, payback time is already peeking just around the corner. The virtuous cycle of declining used car generation and rising used car prices has exhausted itself. Yet that was crucial to the debt financed car-buying spree because it meant rising trade-in prices and therefore enhanced capacity to make down payments and loan terms.

Thus, in the run-up to the new auto sales crash in 2008-2009, used car prices plunged by 20% and new light vehicle sales fell from an 18 million annual rate to barely 10 million at the bottom of the cycle.

By contrast, during the first three years of the post-June 2009 recovery, used car prices soared by 24%, enabling the credit fueled recovery of new vehicle sales shown in the graph.

The worm is now fixing to turn because the used car market is facing an unprecedented tsunami of used vehicles coming off loans, leases, rental fleets and repossessions. As shown above, used vehicle prices have been weakening for the last several years, but between 2016 and 2018 upwards of 21 million vehicles will hit the used car market compared to just 15 million during the last three years.

This means used car prices are likely to enter another swoon like 2006-2008, causing trade-in values to plummet and thereby draining the pool of qualified new car borrowers. When the cycle turns down, fogging a rearview mirror is never enough.

To be sure, there is nothing very profound about the certainty that an auto credit boom always creates a morning after hangover, and that the amplitudes of these cycles is getting increasingly violent owing to the underlying deterioration of auto credit. Currently, credit scores are dropping rapidly and upwards of 80% of new retail auto sales are loan or lease financed.

Moreover, the race to the bottom is happening once again in the lease market. That is, monthly lease rates have gotten so ridiculously cheap that the implied residual values are at all time highs. This means that when the used car pricing down-cycle sets in during the flood of vehicles ahead, massive losses will be generated, causing a sharp contraction of the leasing market, as well.

Stated differently, the auto sales piece of retail sales has virtually nothing to do with a rebounding consumer. Its a reflection of an artificially bloated and unstable credit cycle that is about ready to take the plunge, and thereby deliver another blow to the faltering economics of the flyover zones.

end

Well that is all for today

I will see you tomorrow night

h.

 

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  1. […] Massive Movements of Gold and Silver Inside COMEX (Harvey Organ) […]

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