July 12/Another raid on gold and silver/China’s state owned operations burning cash as they are all unprofitable/The Hague’s decision on the South China Sea’s goves against China: they decide to ignore ruling/Bankin g problems inside Italy escalating!/

Good evening Ladies and Gentlemen:

Gold:  $1,334.10 DOWN $20.90    (comex closing time)

Silver 20.13  DOWN 14 cents

In the access market 5:15 pm

Gold: 1333.00

Silver: 20.14


And now for the July contract month

For the July gold contract month,  we had 0 notices served upon for nil ounces.  The total number of notices filed so far for delivery:  4,065 for 406,500 oz or 12.643 tonnes

In silver we had 216 notices served upon for 1,080,000 oz.  The total number of notices filed so far this month for delivery:  1326 for 6,630,000 oz


The crooks will now do anything to orchestrate a sell off in our precious metals.  They are very concerned about silver as they lean on gold hoping to generate a waterfall in price.  The bankers are massively short comex paper and need lower prices so as to cover and ameliorate those losses.

If major players/and or sovereigns are reading this, tonight and tomorrow will be a great time to pick up cheap contracts and put those contracts to the crooks.(take delivery of physical metal)


It is interesting that we have a new all time high open interest in gold at 657,000 contracts.  The previous record level was set with gold at $1886.00 or a good $500 dollars below its zenith price. In silver we are again within spitting distance of its all time high of 218,000 contracts.  Before we surpassed the previous high OI, the price of silver at the time of the record high was $49.00 per oz.  It goes to show you the power of these banker crooks to manipulate price by supplying massive amounts of short paper.




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 301.43 tonnes for a loss of 1 1/2 tonnes over that period


In silver, the total open interest ROSE BY 1273 contracts UP to 213,146, AND STILL CLOSE TO AN  ALL TIME RECORD. THE OI ROSE IN SYMPATHY TO THE  PRICE OF SILVER RISING BY 21 CENTS IN YESTERDAY’S TRADING.In ounces, the OI is still represented by just over 1 BILLION oz i.e. 1.066 BILLION TO BE EXACT or 152% of annual global silver production (ex Russia &ex China).

In silver we had 216 notices served upon for 1,080,000 oz.

In gold, the total comex gold ROSE BY 1821 contracts despite gold’s FALL in price YESTERDAY to the tune of $1.60.The total gold OI stands at 657,776 contracts, A NEW ALL TIME RECORD SET TODAY:  (jULY 12: 657,776)


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


Surprisingly, we had no changes in gold inventory./

Total gold inventory rest tonight at: 981.20 tonnes


Not surprisingly we had a huge addition, a deposit of 1.94 million oz into the SILVER INVENTORY TO THE SLV (it was a paper addition)

Inventory rests at 343.393 million oz.

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

1. Today, we had the open interest in silver ROSE by 1273 contracts UP to 213,146 as the price of silver ROSE BY 21 cents with YESTERDAY’S trading. The gold open interest rose by 1821 contracts up to 657,776 DESPITE  the price of gold FALLING by $1.60  ON YESTERDAY. The comex gold OI is NOW AT AN ALL TIME RECORD OI

(report Harvey).


2 a) Gold/silver trading overnight Europe, Goldcore

(Mark OByrne/zerohedge


i)Late  MONDAY night/TUESDAY morning: Shanghai closed UP 54.46 POINTS OR 1.82%/ /Hang Sang closed UP 344.24 OR 1.65%. The Nikkei closed UP 386.83 POINTS OR 2.46% Australia’s all ordinaires  CLOSED UP 0.292% Chinese yuan (ONSHORE) closed UP at 6.6848 /Oil ROSE to 45.67 dollars per barrel for WTI and 47.75 for Brent. Stocks in Europe ALL IN THE GREEN. Offshore yuan trades  6.6983 yuan to the dollar vs 6.6848 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS QUITE A BIT AS USA DOLLARS LEAVE THEIR SHORES.



It is official: the clowns are about to unleash huge amounts of helicopter money on the economy in Japan

Good luck to them:

( zerohedge)


i)Soc Gen’s take is that the cross between the USA/CNY will rise to 7.10  (yuan falling)

They also claim that there is a risk to 7.5 -8.0 where Kyle Bass states is the probable area of equilibrium:

( zero hedge)


ii) China’s state owned operations are burning cash like there is no tomorrow. They no doubt will need another bailout.  In other interesting news, China’s “Warren Buffett, Guo,( owner of Fosun), worth an estimated 6-7 billlion USA has disappeared!

( zero hedge)

iii)A great reason for gold to be down this morning:  China does not accept the Hague’s decision on most of the South China Sea

( zero hedge)

iv)China not happy campers after they lash out at the USA led “farcical” decision of the Hague. Get China angry enough and they will stand for delivery on both gold and silver at the comex:

( zero hedge)



Tensions mount as North Korea threatens to retaliate if USA deploys missiles in South Korea: another great reason for the clowns to whack gold today!

( zero hedge)


i)The IMF warns of a global contagion from the Italian banking crisis.  They forecast a two decade long recession.  Lagarde has sided with Renzi in that a bailout if far better for everybody than a bail in

( zero hedge)


ii)What a terrific commentary on the dangers lurking behind the Italian banks.

In a nutshell, the Italian banks + foreign banks have bought 791 billion euros worth of Italian sovereign bonds. The French banks have bough 250 billion followed by the German banks at 83 billion euros worth of bonds. Italian banks have bought 240 billion euros worth of sovereign Italy bonds.

a must read..

(courtesy Don Quinones/WolfStreet)



Now we know who have been buying stocks all over the world:  central banks.  As mainstream investors bail out of equity funds, it is the central banks that have been buying.  This is not going to end well!  I would like to point out that as central banks are buying stocks they are shorting gold and silver physical like crazy!

( zero hedge)


Oil tumbles after a huge inventory build;

( zero hedge)


VENEZUELA seizes the local Kimberly Clark plant hours after they announced they were shuttering the operation.  Then Maduro seized the plant and stated that they would keep on producing. That will last a few months and it comes to a complete stop

( zero hedge)


i)Guess who is now lining the streets to guy gold:  Japanese citizens

( zero hedge)

ii)James Turk is impressed with the strength of silver despite the whacking of gold

( James Turk/kingworldnews)

iii)Ronan Manly correctly thinks that the Bank of England is quietly at work in the price management of gold at the GLD.  No doubt that leasing of other central bank’s gold is at work here.  No wonder Germany cannot get it’s gold back from the FRBNY as this gold is also compromised being hypothecated and rehypothecated several times over:

(courtesy Ronan Manly/GATA)

iv)HSBC are massive shorters of gold comex paper. No wonder they are leaving them alone:

( zero hedge)


i)What a joke!!  Seagate fires 6,500 workers or 14% of their entire workforce and the stock soars in after hours

( zero hedge)

ii)The all important Inventories to Sales: we are still at recession level 1.35

( zero hedge)

iii)Janet Yellen’s favourite release is the JOLTS survey.  Sorry to disappoint you Janet but jobs openings continue to tumble and the report shows the fewest hires since 2014,  The report definitely does not confirm the “great” jobs report released on Friday

(courtesy zero hedge/BLS/JOLTS)

iv)The largest bond fund lashes out at the Fed for focusing on the stock market and not enough on rising wages and to avoid flip flopping.  Also the bond king Gundlach is saying the same thing:

( Pimco./zerohedge)

Let us head over to the comex:

The total gold comex open interest ROSE TO AN OI level of 657,776 for a CONSIDERABLE GAIN of 1821 contracts DESPITE THE FACT THAT THE PRICE OF GOLD  FELL BY $1.60 with respect to YESTERDAY’S TRADING. We are now in the non active month of July. Somebody big is continually standing for the gold metal as July is generally a poor delivery month. The open interest for the front July contract stands at 1190 for a LOSS of 19 contracts. We had 18 notices filed on yesterday, so we LOST 1 contract or an additional 100 oz that will not stand for delivery in this non active month of July. We  are again witnessing the same scenario as in May and June whereby the front delivery month increases in OI standing for metal or a slight contraction.  The next big active contract month is August and here the OI fell by only 12,871 contracts down to 402,989  as this month starts its wind down until first day notice for the August contract, Friday,July 29/2016: less than 3 weeks away.  The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was  GOOD at 242,049. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was huge at 287,052 contracts.The comex is not in backwardation.
Today, we had 0 notices filed for nil oz in gold

And now for the wild silver comex results. Total silver OI ROSE by 1273 contracts from 211,873 UP TO 213,146.  We are still close to the new all time record high for silver open interest set on June 24. The front active delivery month is July and here the OI fell BY 27 contracts down to 1281. We had 55 notices served on YESTERDAY so we gained 28 contracts or 140,000 additional silver ounces that will stand for delivery.The next non active month of August saw it’s OI RISE by 11 contracts UP to 476. The next big active month is September and here the OI ROSE by 299 contracts UP to 154,954.   The volume on the comex today (just comex) came in at 74,550 which is HUGE. The confirmed volume ON FRIDAY (comex + globex) was HUGE at 79,887. Silver is not in backwardation . London is in backwardation for several months.
 We had 216 notices filed for 1,080,000 oz. in silver JULY contract month:INITIAL standings for JULY

July 12.
Withdrawals from Dealers Inventory in oz   nil OZ
Withdrawals from Customer Inventory in oz  nil
 79,527.161 oz
Deposits to the Dealer Inventory in oz 52,854.600 OZ



Deposits to the Customer Inventory, in oz 
177,747.134 OZ
HSBC, Delaware
(incl 3000 kilobars to HSBC)
No of oz served (contracts) today
0 notices 
NIL oz
No of oz to be served (notices)
1190 contracts
119,000 oz
Total monthly oz gold served (contracts) so far this month
4065 contracts (406,500 oz)
(12.643 tonnes)
Total accumulative withdrawals  of gold from the Dealers inventory this month   NIL
Total accumulative withdrawal of gold from the Customer inventory this month   114,780.4 OZ

Today we had 1 dealer DEPOSIT
i) Into Brinks; 52,854.600 oz or exactly 1644 kilobars
total dealer deposit:  52,854.600   0z
Today we had 0 dealer withdrawals:
total dealer withdrawals:  nil oz
Today we had 3 customer deposits:
i) Into Delaware; 1766.913 oz
ii) into HSBC: 96453.000 oz  (almost 3,000 kilobars)
iii) into JPMorgan: 79,527.161 oz  (from Manfra)
Total customer deposits; 177,747.134   OZ
Today we had 1 customer withdrawal:
i) out of Manfra: 59,527.161 oz
Total customer withdrawals:59,527.161  oz
Today we had 0  adjustments:
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 0 notices was stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the JULY contract month, we take the total number of notices filed so far for the month (4065) x 100 oz  or 406,500 oz , to which we  add the difference between the open interest for the front month of JULY (1190 CONTRACTS) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals 525,500 oz, the number of ounces standing in this active month. 
Thus the INITIAL standings for gold for the JULY. contract month:
No of notices served so far (4065) x 100 oz  or ounces + {OI for the front month (1190) minus the number of  notices served upon today (0) x 100 oz which equals 525,500 oz standing in this non   active delivery month of JULY  (16.345 tonnes).
We LOST 1 CONTRACT or an additional 100 oz of gold that will NOT  stand for delivery in this non active month of July.
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 now have partial evidence of gold settling for last months deliveries We now have  +  6.889 TONNES FOR MAY + 49.09 TONNES FOR JUNE +  16.345 TONNES FOR JULY + 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 -jUNE 4: .5044 ; june 10 -.0008 / June 22:0.48 tonnes /June 23: 0489 tonnes, June 24..018; june 29 .036 tonnes; JUNE 30 2.49 /july 1 17.78 tonnes = 46.200 tonnes still standing against 46.009 tonnes available.
 Total dealer inventor 1,479,207.322 tonnes or 47.605 tonnes
Total gold inventory (dealer and customer) =691,047.491 or 301.43 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 301.43 tonnes for a loss of 1 1/2 tonnes over that period. 



And now for silver
JULY INITIAL standings
 July 12.2016
Withdrawals from Dealers Inventory NIL
Withdrawals from Customer Inventory
 61,315.170 OZ
Deposits to the Dealer Inventory
821,211.23 oz
Deposits to the Customer Inventory
 212,421,567 oz
No of oz served today (contracts)
(1,080,000 OZ)
No of oz to be served (notices)
1065 contracts
(5,325,000 oz)
Total monthly oz silver served (contracts) 1326 contracts (6,630,000 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  3,066,729.1 oz
today we had 1 deposit into the dealer account
i) Into CNT: 821,211.23 oz
total dealer deposit :821,211.23 oz
we had 0 dealer withdrawal:
total dealer withdrawals:  NIL oz
we had 1 customer deposit:
i) Into CNT: 212,421,567 oz
Total customer deposit: 212,421.567 oz
We had 0 customer withdrawals
total customer withdrawals: NIL  oz
 we had 2 adjustmentS
i) Out of CNT  19,426.948 oz was adjusted out of the customer and this landed into the dealer account of CNT
ii) Out of Delaware:  56,882.29 oz was adjusted out of the dealer and this landed into the customer account of Delaware
The total number of notices filed today for the JULY contract month is represented by 216 contracts for 1,080,000  oz. To calculate the number of silver ounces that will stand for delivery in JULY., we take the total number of notices filed for the month so far at (1326) x 5,000 oz  = 6,630,000,000 oz to which we add the difference between the open interest for the front month of JULY (1281) and the number of notices served upon today (216) x 5000 oz equals the number of ounces standing 
Thus the initial standings for silver for the JULY contract month:  1326 (notices served so far)x 5000 oz +{1281OI for front month of JULY ) -number of notices served upon today (216)x 5000 oz  equals  11,955,000 oz  of silver standing for the JULY contract month.
We gained 28 contracts or 140,000 oz that will  stand for delivery in this active month of July.
Total dealer silver:  25.835 million (close to record low inventory  
Total number of dealer and customer silver:   151.826 million oz (close to a record low)
The total open interest on silver is NOW NEAR its all time high with the record of 218,979 being set June 24.2016.  The registered silver (dealer silver) is NOW NEAR  multi year lows as silver is being drawn out at both dealer and customer levels 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.
And now the Gold inventory at the GLD
July 12/we had no changes in gold inventory at the GLD/Inventory rests at 981.20 tonnes
July 11/no changes in gold inventory at the GLS/Inventory rests at 981.20 tonnes
JULY 8/ A  good sized deposit of 2.91 tonnes into the GLD/Inventory rests at 981.20
July 7/a good sized withdrawal of 4.15 tonnes from the GLD/Inventory rests at 978.29 tonnes (this was nothing but a paper entry/no physical moved)
July 5/no change in inventory/rests tonight at 982.44
July 1/a huge change in the gold inventory/ a deposit of 3.86 tonnes/rests tonight at 953.91 tonnes
JUNE 30/no change in gold inventory /inventory rests tonight at 950.05 tonnes
June 29/ a good sized deposit of 2.67 tonnes/inventory rests at 950.05 tonnes
June 28/ a huge deposit of 13.067 tonnes into inventory/new inventory rests so far at 947.38 tonnes.  This was a paper addition
June 27/a huge deposit of 18.415 tonnes into the GLD inventory/the new inventory rests at 934.313 tonnes.  The addition was a paper addition and not physical
june 24./strange!! no additions to gold with its huge 58 dollar advance??
june 23/no change in gold inventory tonight/rests at 915.90 tonnese
June 22/with gold down badly again, we had another huge deposit of 3.57 tonnes into the GLD/Inventory rests at 915.90 tonnes
June 21/ with gold down badly, we had a huge deposit of 3.56 tonnes into the GLD/Inventory rests at 912.33 tonnes
June 20/we had one deposit of .890 tonnes of gold into the GLD inventory/Inventory.
rests at 908.77 tonnes.
July 12 / Inventory rests tonight at 981.20 tonnes


Now the SLV Inventory
July 12/ a huge addition of 1.94 million oz into silver inventory at the SLV/a “paper” addition/inventory rests at 343.393 million oz
July 11/no changes in silver inventory/rests tonight at 341.453 million oz
JULY 8/no change in silver inventory/rests tonight at 341.453 million oz
July 7./no change in silver inventory/inventory rests at 341.453 million oz
july 5/no change in silver inventory/inventory rests at 333.554 milllion oz
july 1/no change in silver inventory/inventory rests at 333.544 million oz
JUNE 30/no changes in silver inventory/inventory rests at 333.544 million oz
June 29/ a small deposit of 760,000 oz/Inventory rests tonight at 333.544 million oz/
June 28/no change in silver inventory/rests tonight at 332.784 million oz
June 27/ a small deposit of 570,000 oz in the SLV inventory/Inventory rests at 332.784 million oz
June 24/This makes no sense!! 855,000 oz of silver leaves the SLV headed straight to Shanghai/Inventory rests at 332.214 million oz
June 23/ no change in silver inventory/rests tonight at 333.069 million oz
June 22.2016/no change in inventory at the SLV/Inventory rests at 333.069 million oz/
June 21/ we had another 2.67 million oz of silver withdrawn from the SLV.  This no doubt is real silver leaving and heading straight to China/Inventory at 333.069 million oz
June 20/we had another 2.852 million oz of silver withdrawn from the SLV. Again this is probably real silver leaving and heading straight to China. Inventory rests at 334.495
July 12.2016: Inventory 343.393 million oz

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 4.3 percent to NAV usa funds and Negative 4,1% to NAV for Cdn funds!!!!  (the discount is starting to disappear)
Percentage of fund in gold 58.6%
Percentage of fund in silver:40.2%
cash .+1.2%( July 12/2016). 
2. Sprott silver fund (PSLV): Premium falls  to +0.00%!!!! NAV (July12/2016) 
3. Sprott gold fund (PHYS): premium to NAV  falls TO  0.28% to NAV  ( July 12/2016)
Note: Sprott silver trust back  into POSITIVE territory at +0.00% /Sprott physical gold trust is back into positive territory at +0.28%/Central fund of Canada’s is still in jail.


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

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

Britain has a new prime minister – here’s what that means for you

GoldCore's picture

Theresa May is set to become the Prime Minister of Great Britain in the next few days. Will the new PM bring a degree of stability back to turbulent markets in a post-Brexit Britain or what does the future hold under a new Conservative leadership.

Theresa May © Getty Images

MoneyWeek’s John Stepak takes a look at the implications for investors and identifies why financial markets are relieved and considers what might be next for the British Pound.

That was surprisingly quick and painless.

Britain is about to have a new prime minister: Andrea Leadsom pulled out of the race yesterday, and Theresa May is going to be the new boss.

The full report can be read here 


Gold and Silver Bullion – News and Prices

PRECIOUS-Gold steady after falling in the previous session (Reuters)

Gold miners expand hedge book by another 50 tonnes in first quarter: report (Reuters)

Citigroup Backs Commodities for ‘17 in ‘Especially Bullish’ Call (Bloomberg)

S&P 500 poised for fresh record as Alcoa spurs earnings optimism (Marketwatch)

Citigroup Is ‘S&P 500 Climbs to Record High as Dollar Rallies; Treasuries Drop (Bloomberg)

Gold Prices (LBMA AM)

12 July: USD 1,352.85, EUR 1,217.84 & GBP 1,029.11 per ounce
11 July: USD 1,358.25, EUR 1,231.66 & GBP 1,059.95 per ounce
08 July: USD 1,356.10, EUR 1,224.83 & GBP 1,047.45 per ounce
07 July: USD 1,367.10, EUR 1,233.40 & GBP 1,052.80 per ounce
06 July: USD 1,370.00, EUR 1,239.71 & GBP 1,059.01 per ounce
05 July: USD 1,344.75, EUR 1,207.05 & GBP 1,023.89 per ounce
04 July: USD 1,348.75, EUR 1,213.07 & GBP 1,016.42 per ounce

Silver Prices (LBMA)

12 July: USD 20.35, EUR 18.35 & GBP 15.47 per ounce
11 July: USD 20.47, EUR 18.53 & GBP 15.78 per ounce
08 July: USD 19.72, EUR 17.82 & GBP 15.20 per ounce
07 July: USD 19.95, EUR 18.00 & GBP 15.31 per ounce
06 July: USD 20.43, EUR 18.46 & GBP 15.75 per ounce
05 July: USD 19.73, EUR 17.69 & GBP 14.99 per ounce
04 July: USD 20.36, EUR 18.31 & GBP 15.36 per ounce

Recent Market Updates

– Metals Caught Between Global Gloom, U.S. Job Gains as Gold Slips
– Central Bank Resumes Monthly Gold Buying in Bid to Diversify Reserves
– Property Fund Turmoil in the UK has Eerie Echoes of Bear Stearns
– “In Gold We Trust” Annual Report – New Bull Market “Emerging”
– 3 Charts Show “How Precious Brexit Is” for Gold and Silver Bullion
– Gold, Silver Best Performing Assets In H1, 2016 – Up 26% & 38%
– Gold Surges to $1,313/oz – Fed Concerned Re Outlook, BREXIT and May “Consider Using Helicopter Money”
– Gold Prices Higher For 5th Session On BREXIT and FED

– Soros Buying Gold On BREXIT, EU “Collapse” Risk
– UK Gold Demand Rises On BREXIT “Nerves”
– Pensions Timebomb in “Slow Motion Detonation” In UK, EU, U.S.


Guess who is now lining the streets to guy gold:  Japanese citizens

(courtesy zero hedge)

Japanese Savers Flood Into Gold Fearing The Endgame Is Close

James Turk is impressed with the strength of silver despite the whacking of gold

(courtesy James Turk/kingworldnews)

Ronan Manly correctly thinks that the Bank of England is quietly at work in the price management of gold at the GLD.  No doubt that leasing of other central bank’s gold is at work here.  No wonder Germany cannot get it’s gold back from the FRBNY as this gold is also compromised being hypothecated and rehypothecated several times over:

(courtesy Ronan Manly/GATA)

Ronan Manly: ETF workings hint at Bank of England’s price management


7:58a ET Monday, July 11, 2016

Dear Friend of GATA and Gold:

Gold researcher Ronan Manly writes today that, at the prodding of the U.S. Securities and Exchange Commission, the Bank of England has been officially identified as a “subcustodian” for the gold exchange-traded fund GLD, and this supports suspicion that leased or swapped central bank gold is being used to manage the gold price. Manly adds that the refusal of central banks to provide identification for their gold bars indicates that they are striving to conceal their gold price management. Manly’s analysis is headlined “SPDR Gold Trust Gold Bars at the Bank of England Vaults” and it’s posted at Bullion Star here:


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


HSBC are massive shorters of gold comex paper. No wonder they are leaving them alone:

(courtesy zero hedge)

US Refused To Prosecute HSBC Over Fears Of “Global Financial Disaster”

What had previously only been hinted by the likes of former US attorney general Eric Holder who infamous said some banks are “too big to prosecute” shortly before resigning, became fact when a US Congressional report found that US officials refused to prosecute HSBC for money laundering in 2012because of concerns within the DOJ that it would cause a global financial disaster.”  The report also revealed that UK officials, including Chancellor George Osborne, added to pressure by warning the US it could lead to market turmoil. The report alleges the UK “hampered” the probe of the most systemically important UK bank, and “influenced” the outcome.

As BBC reminds us, some four years ago HSBC was accused of letting drug cartels use US banks to launder funds. The bank, which has its headquarters in London, paid a $1.92bn settlement but did not face criminal charges; likewise all top officials at HSBC avoided any charges.

According to the report “George Osborne, Chancellor of the Exchequer, the UK’s chief financial minister,intervened in the HSBC matter by sending a letter to Federal Reserve Chairman Ben Bernanke… to express the UK’s concerns regarding US enforcement actions against British banks.” The letter said that prosecuting HSBC could have “very serious implications for financial and economic stability, particularly in Europe and Asia”.

In other words, the US liasion who prevented justice at the time was not so much Eric Holder, who was merely doing as instructed, as the then-Fed chairman and resident helicopter money expert, Ben Shalom Bernanke.

Justice Department spokesman Peter Carr said a series of factors were considered when deciding how to resolve a case, including whether there may be “adverse consequences for innocent third parties, such as employees, customers, investors, pension holders and the public”. The report also accuses former US Attorney General Eric Holder of misleading Congress about the decision.

The report says Holder ignored the recommendations of more junior staff to prosecute HSBC because of the bank’s “systemic importance” to the financial markets.

“Rather than lacking adequate evidence to prove HSBC’s criminal conduct, internal Treasury documents show that DOJ [Department of Justice] leadership declined to pursue [the] recommendation to prosecute HSBC because senior DOJ leaders were concerned that prosecuting the bank ‘could result in a global financial disaster’,” the report said. Instead, the Department of Justice and HSBC reached the settlement, which some politicians criticised for being too lenient.

Testifying before Congress in 2013, Holder infamously said the size of some financial institutions can make it difficult to bring criminal charges. He later tried to clarify those remarks telling Congress: “If we find a bank or a financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought.”

That too was a lie.  Congress’s report deemed these comments to be misleading in light of emails from Treasury Department staff that recommended criminal charges.

Eric Holder is now writing a book, due out in 2018. We doubt this episode will be featured in it.

The 2012 settlement with HSBC detailed how the bank violated US sanctions by conducting business for customers in Iran, Libya, Sudan, Burma and Cuba.

HSBC accounts were also used by the Sinaloa drug cartel in Mexico and Norte del Valle cartel in Colombia to launder $881m. The settlement allowed the bank to avoid pleading guilty to any wrongdoing.

If HSBC had been proven guilty of criminal action, it could have lost its banking charter in the US.

As BBC concludes, both HSBC and US regulators declined to comment on the report. The UK Treasury has not commented either. They would both rather comment on the economic recovery by pointing out the stock market being at all time highs.


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




2 Nikkei closed UP 386.83 OR 2.46% /USA: YEN RISES TO 103.72

3. Europe stocks opened ALL IN THE GREEN   /USA dollar index DOWN to 96.22/Euro UP to 1.1096

3b Japan 10 year bond yield: FALLS TO -.270%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 102.47

3c Nikkei now WELL BELOW 17,000

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

3e WTI::  45.67  and Brent: 47.75

3f Gold DOWN  /Yen DOWN

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund RISES to -.126%   German bunds BASICALLY negative yields from  10+ years out

 Greece  sees its 2 year rate FALL to 7.54%/: 

3j Greek 10 year bond yield FALL to  : 7.84%   (YIELD CURVE NOW  FLAT)

3k Gold at $1348.25/silver $20.26(7:45 am est)   SILVER FINAL RESISTANCE AT $18.50 BROKEN 

3l USA vs Russian rouble; (Russian rouble UP 42/100 in  roubles/dollar) 63.83-

3m oil into the 45 dollar handle for WTI and 47 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/GOT a BIG DEvaluation DOWNWARD from POBC.


30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9822 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0897 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.


3r the 10 Year German bund now NEGATIVE territory with the 10 year RISES to  -.126%

/German 10+ year rate  negative%!!!


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 1.477% early this morning. Thirty year rate  at 2.203% /POLICY ERROR)

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

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


Global Stocks Surge On Rising Hopes Of Japan “Helicopter Money”

A quick headline search for the phrases “Japan stimulus” and “helicopter money” is all one needs to understand the very familiar reason for today latest overnight global stock rally, which has sent the USDJPY surging some more, in the process pushing the Nikkei higher by 2.5%, China up over 1% (with the help of some late FX intervention by the PBOC), European stocks up 1%, US equity futures up 0.5%, and so on, in what is a global wave of green on the back of the helicopter money which after Bernanke’s visit to Japan, market participants are now convinced is just a matter of time.

As Bloomberg puts it, “global stocks advanced for a fourth day and commodities rose, buoyed by the prospect of stimulus in major economies.”  And that is all there is to it.

While risk on assets soared, government bonds sank with the yen, which has now tumbled by over 300 pips since our warning to cover any USDJPY shorts last Thursday, when we previewed precisely these events warning that “something big” was coming. The MSCI All-Country World Index reached its strongest level since June 24, and the yen had its biggest two-day slide since 2014 after Japanese Prime Minister Shinzo Abe vowed to speed up efforts to defeat deflation. The pound rose for a third day as Home Secretary Theresa May prepared to take over as the U.K.’s next prime minister. Daimler AG led gains in European stocks and credit markets strengthened after earnings that beat analysts’ predictions. U.S. crude rebounded from a two month low.

In case it is still confusing what continues to drive the rally, here are some more hints:

“Risk remains very much on, as central banks around the world are turning more accommodative. That is trumping any fears investors may have concerning global growth,” Societe Generale strategists write in note.

“Risk appetite is in the ascendancy, and as a consequence we are seeing higher-yielding currencies rally and haven currencies including the yen decline,” said Jeremy Stretch at CIBC. It’s a case of hopes for additional Japanese fiscal stimulus.”

Oh and remember Brexit, and the doomsday warnings should it pass? Well, global equities are now back to where they were when the U.K. voted for Brexit. Since then, futures traders have cut wagers on higher interest rates from the Federal Reserve while Abe won an election and said he would order ministers to begin compiling fresh stimulus. The majority of economists expect the Bank of England to cut interest rates this week and traders are betting there will be further monetary easing in the euro area this year.

And since central banks are once again pushing equities higher, this means that the Stoxx Europe 600 Index rose 1 percent as of 10:58 a.m. London time, after surging 4.4 percent over the last three trading days. Japan’s Topix climbed 2.4 percent and the MSCI Asia Pacific Index gained 1.2 percent. The U.K.’s FTSE 100 Index reached its highest level since August 2015. Futures on the S&P 500 added 0.5%following the gauge’s 0.3 percent advance to an all-time high on Monday. Alcoa Inc. unofficially kicked off the U.S. earnings season after markets closed Monday, reporting profit for the second quarter that topped analysts’ estimates.

While stocks were propped up by central banks, bonds got spooked that there could be a surge in supply to finance the upcoming helicopter money paradrop. As a result, yields on 10Y Treasuries rose four basis points to 1.47%, after climbing seven basis points on Monday as an auction of three-year notes attracted the weakest demand since 2009. Gains last week week pushed 10- and 30-year yields to record lows. The U.S. is due to sell $20 billion of 10-year notes Tuesday, followed by $12 billion of 30-year bonds Wednesday. German 10-year bonds, perceived to be among the safest debt securities in the euro area, declined for a second day, pushing the yield up by three basis points to minus 0.14 percent. Yields on French securities with a similar due date increased three basis points to 0.15 percent.

Global Market Snapshot

  • S&P 500 futures up 0.5% to 2141
  • Stoxx 600 up 0.9% to 336
  • FTSE 100 up 0.1% to 6690
  • DAX up 1.3% to 9962
  • German 10Yr yield up 5bps to -0.12%
  • Italian 10Yr yield up less than 1bp to 1.21%
  • Spanish 10Yr yield up less than 1bp to 1.16%
  • S&P GSCI Index up 1.4% to 361
  • MSCI Asia Pacific up 1.3% to 132
  • Nikkei 225 up 2.5% to 16096
  • Hang Seng up 1.6% to 21225
  • Shanghai Composite up 1.8% to 3049
  • S&P/ASX 200 up 0.3% to 5353
  • US 10-yr yield up 5bps to 1.48%
  • Dollar Index down 0.46% to 96.12
  • WTI Crude futures up 1.8% to $45.57
  • Brent Futures up 2.1% to $47.24
  • Gold spot down less than 0.1% to $1,355
  • Silver spot up 0.9% to $20.46

Top Global Headlines

  • Xerox Said in Talks to Acquire, Then Split R.R. Donnelley: Xerox would be acquirer, merge R.R. Donnelley with spun units
  • Seagate Expands Job Cuts to 6,500 as PC-Component Market Suffers: Cuts jobs to 14% of workforce, seeks to reduce costs
  • Airbus, Boeing Get a Boost From Asia’s Appetite for Air Travel: China, Vietnam airlines order jets at Farnborough show; Boeing, Airbus Duel for $12 Billion Deal With India SpiceJet: Planemakers said to offer steep price cuts for discounter deal
  • Alcoa Tops Estimates as Parts Business Shines Ahead of Split: Investors cheer split plan
  • Lyft Is ‘Very Likely’ to Expand Outside U.S., Co-Founder Says: Global alliance includes China’s Didi Chuxing, India’s Ola and Southeast Asia’s Grab
  • Imperva Said to Be Working With Qatalyst to Explore a Sale: Cybersecurity firm targeted by activist Elliott last month
  • UBS’s Orcel Signals Halt to Years of Investment Bank Cuts: 2016 is going to be a tough year for everyone’ on pay
  • Holder’s DoJ Overruled Advice to Prosecute HSBC, Report Says: Republican lawmakers say Holder misled Congress in testimony
  • Adidas Sues Skechers, Says It Stole Shoe Design: Reuters: Co. says Skechers infringed two patents
  • Facebook to Announce Plans to Use Microsoft’s Office 365: WSJ: Plans to be announced Tuesday
  • SEC Investigating Tesla for Poss. Securities Law Breach: CNBC/DJ: Co. didn’t notify investors of autopilot accident

Looking at regional markets, another session of gains for Asian equities following a record close in the S&P 500 with risk on sentiment in full swing. Nikkei 225 (+2.5%) outperformed again amid a softer JPY following expectations of an imminent announcement of additional stimulus from PM Abe. ASX 200 (+0.3%) and Hang Seng (+1.6%) also extended on gains with the latter benefiting from upside in gaming names with analysts at UBS noting a strong start for July in Macau gaming revenue. Shanghai Comp (+1.8%) fluctuated between gains and losses before closing higher as participants await key data releases later in the week. JGBs fell following the improvement in risk sentiment while yields saw some upside across the curve, particularly in the long end following a lacklustre 30yr auction in which the b/c was lower than the prior announcement allied with a rise in the tail in price. Japan are to contemplate the size of economic stimulus for the time being and it is possible that they will issue construction bonds as a form of stimulus.

Top Asian News:

  • Yen Extends Biggest Decline Since 2014 Before Stimulus Details: Prime Minister Shinzo Abe said he planned to add fiscal stimulus
  • BYD Loses Bulk of $270 Million Electric Bus Order in China: Shenzhen Western Bus cancels buses after adjusting capacity
  • Sun Hung Kai Billionaire Kwok Freed on Bail Pending Appeal: Former Sun Hung Kai co-chairman had been in jail since 2014
  • Ground Zero of China’s Slowdown Leaves Locals Looking for Exit: China’s regions increasingly split between winners and losers

In Europe, equities trade in positive trade once again today, continuing the trend seen in both US and Asia, to see a high of 2908 in the EUROSTOXX (+1.7%), the best performer of the European bourses is the FTSE MIB which is currently up 2.1% as financials are leading the sectors in terms of performance. Also of note the automakers are performing well as Daimler (DAI GY) posted positive sales results and boosted guidance. After the solid performance in equities, fixed income has fallen of the back of strong risk appetite and as such, Bunds haver slipped back below the 166.00 level to trade at the lowest level since July 4th. Elsewhere, Gilts also trade lower but have been relatively steady alongside comments from BoE’s Carney during his appearance at the Treasury Select Committee.

Top European News

  • Daimler Rises as Profit Surprises and Mercedes Seals Sales Lead: Takata air-bag recalls cost almost EU500m, carmaker confident of reaching full-year operating-profit goal
  • Sanofi Sees Cure for Cancer Woes in Moving West for Acquisitions: French drugmaker seeks ready drugs as well as bolder pioneers
  • Covestro Cut Loose From Bayer Puts New Freedom to Work: Covestro stake could help Bayer get financing for Monsanto
  • Airbus Said Close to Winning Germania Order for 25 A320neo Jets: Order would be valued at $2.68b at list prices,
  • May Starts Work to Steady U.K. for Brexit After Promotion: Next U.K. leader best known to U.S. in fight against terrorism
  • EU Finance Chiefs Call for Accelerated Brexit With May Ascent: Britain needs to trigger Article 50 to start exit from bloc
  • Soapmaker Nirma Said to Plan $596 Million Bonds for Lafarge Deal: Nirma beats Indian billionaire Piramal, JSW in cement bidding

In FX, Japan’s currency fell 0.6 percent to 103.41 per dollar, adding to a 2.3 percent decline from the day before. Sunday’s election, which saw Abe’s ruling group score a convincing victory in the upper house, “opens up the scope for sweeping reforms,” said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. “The Bank of Japan is likely to add to the macroeconomic stimulus package by easing monetary policy along with a more supportive fiscal environment.” The pound rose 1 percent, its biggest gain since before the June 23 referendum, as May’s confirmation as the only remaining candidate to replace David Cameron removed a layer of political uncertainty. The Australian dollar rallied 1.3 percent, the best performance among 31 major currencies, as a report showed business confidence picked up last month and investors favored higher-yielding currencies. The MSCI Emerging Markets Currency Index added 0.1 percent. South Africa’s rand led gains, climbing 1 percent and Mexico’s peso advanced 0.7 percent.

In commodities, crude oil climbed 1.7 percent to $45.53 a barrel in New York before data forecast to show U.S. inventories fell for an eighth week. Nickel jumped 2.8 percent to $10,330 a metric ton in London amid speculation of supply cuts in the Philippines, the biggest ore producer, as the government threatens to close mines that don’t meet environment and safety standards. Goldman sees the price climbing to $12,000 over the next six months as the bank increased its price forecasts for most industrial metals through 2017. Copper, lead and zinc all gained more than 1 percent. Steel rebar jumped as much as 5.8 percent in Shanghai as the production hub of Tangshan city in China’s Hebei province was said to be restricting output before a memorial event. Iron ore climbed 5.9 percent in Singapore.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equities once again trade higher amid upbeat sentiment in Asia overnight and yesterday’s record close in the S&P 500
  • JPY continues to be swayed by ongoing stimulus expectations in Japan, although some momentum was taken out of the move after Japan failed to unveil any further details on the size of the package
  • Looking ahead, highlights include US Wholesale Inventories, JOLTS Job Openings, API Crude Oil Inventories and potential comments from Fed’s Bullard, Tarullo and Kashkari
  • Treasuries lower in overnight trading as global equities rally along with commodities amid rising hopes of more stimulus; auctions continue with $20b 10Y notes (reopen), WI 1.485%; last sold at 1.702% in June, lowest since Dec. 2012.
  • Theresa May is on a fast track to succeed David Cameron as prime minister and now has just two days rather than two months to build a team to rescue the U.K. from its worst political crisis in a generation and begin extricating it from the EU
  • Mark Carney defended the Bank of England against criticism that it undermined its independence by highlighting the risks of a British decision to quit the European Union in the run-up to the referendum
  • Banks’ demand for cash increased in the Bank of England’s third liquidity operation since the U.K. vote to leave the European Union sparked financial market turmoil
  • Japanese Prime Minister Shinzo Abe told former Federal Reserve Chairman Ben S. Bernanke at a meeting in Tokyo he wants to speed up the nation’s exit from deflation, underscoring his commitment to implementing fresh economic stimulus
  • The Bank of Japan will need to reduce the pace of its record purchases of government debt as it is approaching the limits of the bond market, said a former BOJ executive director
  • The global search for bond returns has pushed Ukrainian government debt to highs not seen since before the first bullets were fired amid anti-government protests on Kiev’s central Maidan square more than two years ago
  • China’s assertions to more than 80 percent of the disputed South China Sea have been dealt a blow with an international tribunal ruling it has no historic rights to the resources within a 1940s map detailing its claims
  • President Obama will send 560 more troops to Iraq to help retake Mosul, the largest city still controlled by the Islamic State. The additional troops are the latest escalation of the American military role in Iraq

DB’s Jim Reid concludes the overnight wrap

With a new PM (Theresa May) now suddenly in place in the UK – two months earlier than expected – the post Brexit policy agenda will soon be set. A combination of a new PM and Brexit is an opportunity for one country at least to embark on a major policy shift in a world where economic policy is in danger of going slowly down a col-de-sac. Obviously we may just have more of the same (loose monetary policy and fiscal straight jackets) but it’s possible that the UK might use Brexit as an excuse to loosen fiscal policy with the Bank of England there to support it. Indeed it wouldn’t be a surprise to see looser fiscal policy and more UK QE before year end and if that’s not officially called helicopter money it might as well be. So watch to see who the new UK chancellor is and what they say. Listening to Theresa May yesterday you get the sense she would move away from deficit reduction being at the centre of policy. However the favourite for the Chancellorship according to the press seems to be Phillip Hammond who is known to be a fiscal hawk. So a fair bit of intrigue ahead. It’s likely her cabinet will be in place by Thursday. One interesting comment May made recently was that Article 50 wouldn’t be triggered this year. Whether this changes given her unexpected early coronation will also be closely watched.

Also under the spotlight right now is Japan where markets are on edge over the possibility of a hotly anticipated large fiscal stimulus package announcement. This comes following comments from PM Abe yesterday and the suggestion is that he is due to meet former Fed Chair Bernanke today after Bernanke met with BoJ Governor Kuroda yesterday. There’s been no announcement so far this morning but the story is dominating the wires. Our Japanese economists are noting that the market is expecting a package in the range of JPY10-20tn and the Nikkei newspaper also suggested that the government is considering issuing new debt for the first time in four years.

Japanese equity markets have rallied for a second consecutive day with the news. The Nikkei is +2.65% and the Topix +2.59%. The yen has weakened -0.30% although JGB’s are relatively little moved. Bourses elsewhere in Asia are firmer too. The Hang Seng (+0.60%), Shanghai Comp (+0.08%), Kospi (+0.05%) and ASX (+0.88%) in particular are all up.

The moves this morning come after markets yesterday continued to bask in the glow of Friday’s strong payrolls number. While moves were more modest by comparison, the S&P 500 managed to shrug off a stronger day for the Dollar closing up +0.34% and more notably at a new all time high when it passed the intraday record set back in May last year. The Nasdaq (+0.64%) also briefly passed the 5000 level for the first time this year and the Dow (+0.44%) is now within 90pts of its all time high made last year. The positive sentiment continued after the closing bell when Alcoa kicked off earnings season by reporting beats at both the earnings and revenue lines, sending shares up 4% in extended trading.

Markets in Europe were even more impressive yesterday with the Stoxx 600 closing up +1.64% and the DAX +2.12%. Meanwhile and in what feels fairly remarkable given the events of recent weeks, the FTSE 100 (+1.40%) has now entered a bull market having risen 21% from the February lows. Even the FTSE 250 surged +3.27% yesterday and has pared its post Brexit loss now to just 4%. The Euro Stoxx Banks index was up +1.50% too although that still has a fair way to go to get back to those pre-referendum levels with the index still down 18% in that time.

Just on the subject of banks, late last night the IMF weighed in on the Italian Bank debate, saying that ‘concerns related to the bail in of retail investors should be dealt with appropriately’. According to the FT the IMF mission chief for Italy said that ‘there is adequate flexibility within the existing state aid and BRRD framework to be able to deal with the problems’ and that ‘the framework exists and the framework is able to handle that’. This came after PM Renzi said earlier in the day that he sees an accord between Italy and the EU as ‘within reach’.

Where we did see a change in price action yesterday was in rates markets, where in contrast to the leg lower yields took post payrolls on Friday, sovereign bonds weakened for the most part yesterday. Indeed Treasuries stood out most with 10y yields there ending over 7bps higher at 1.431% and back to the highest in a week. 2y yields were also 5bps higher and at the highest post the UK referendum vote. Commentary attributed this partly to a weak 3y auction where demand was said to be the weakest since 2009 (based on the bid-to-cover ratio).

In terms of newsflow there wasn’t a huge amount to report outside of the latest UK political developments. We did hear from one of the most hawkish members at the Fed in Kansas City Fed President George who, having withdrawn her dissent for higher rates at the June FOMC meeting, said that the US economy is ‘at or near full employment’ and that while short term interest rates remain at historic lows, ‘keeping rates too low can also create risks’. George also said that the Fed has ‘largely achieved what it can on its dual mandate’ and that ‘I view the current level of Fed policy as too low’.

Away from this, in terms of the data that we got yesterday, in France the latest business sentiment reading in June came in unchanged at 97. Over in Italy the latest industrial production data was seen as disappointing (-0.6% mom vs. +0.1% expected) with the broader Euro area report looming tomorrow. Meanwhile in the US the lone data release yesterday came in the form of the June labour market conditions index (composed of 19 labour market indicators) which fell 1.9pts in June following a 3.6pt fall in May.

Looking now at the day ahead, this morning in Europe we’re kicking off shortly after this goes out in Germany where we’ll get the final revision to the June CPI report. Over in the US the early data release is the NFIB small business optimism survey for June which is expected to come in little changed relative to May. Following that, this afternoon we’ll get the JOLTS job openings report for May where the focus will be on the hiring and quits rates. That said given the rebound in payrolls for June this data may look a little stale. The other data due out this afternoon will be the wholesale inventories and trade sales report.



i)Late  MONDAY night/TUESDAY morning: Shanghai closed UP 54.46 POINTS OR 1.82%/ /Hang Sang closed UP 344.24 OR 1.65%. The Nikkei closed UP 386.83 POINTS OR 2.46% Australia’s all ordinaires  CLOSED UP 0.292% Chinese yuan (ONSHORE) closed UP at 6.6848 /Oil ROSE to 45.67 dollars per barrel for WTI and 47.75 for Brent. Stocks in Europe ALL IN THE GREEN. Offshore yuan trades  6.6983 yuan to the dollar vs 6.6848 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS QUITE A BIT AS USA DOLLARS LEAVE THEIR SHORES.



It is official: the clowns are about to unleash huge amounts of helicopter money on the economy in Japan

Good luck to them:

(courtesy zerohedge)

It’s Official: Bernanke Urges Japan To Unleash Helicopter Money

As previewed last week in “Something Big Is Coming: Bernanke To “Secretly” Meet With Kuroda; “Helicopter Money” On The Agenda“, the week’s key event, albeit behind closed doors, was the surprising meeting between Ben Bernanke and the BOJ’s Kuroda as well as Japan’s prime minister Abe. The outcome of the meeting has been, as we expected, nothing short of a whirlwind reaction in markets where speculation that Japan is set to become the first nation to openly espouse “helicopter money”, or central bank funded fiscal policy stimulus, has seng the Yen plunging (at least check the USDJPY was above 104), the Nikkei soaring and unleashed a global “risk on” wave.

But what was actually said? Since the meetings were held in private, nobody will ever know, although one can infer based on the upcoming actions by the BOJ and the Japanese Ministry of Finance, both of which are expected to boost monetary and fiscal stimulus, respectively, in the coming weeks, with Japan expected to unleash a new fiscal stimulus of around JPY 10 trillion or more. As such, we have to rely on heavily filtered and watered down official interpretations of what the Citadel analyst and Brookings blogger told the BOJ.

According to the WSJ, the former Federal Reserve Chairman Ben Bernanke rejected the notion that the Bank of Japan is short of ammunition when he met with Prime Minister Shinzo Abe Tuesday. Bernanke noted during the face-to-face meeting that Japan’s central bank still has a range of monetary easing measures at its disposal, according to Chief Cabinet Secretary Yoshihide Suga.

This contradicts BOJ executive director, Kazuo Momma, who just yesterday said that the Bank of Japan will need to reduce the pace of its record purchases of government debt as it is approaching the limits of the bond market. “Of course they can’t keep stacking up 80 trillion yen ($784 billion) of bonds forever,” said Kazuo Momma, who worked at the BOJ until the end of May. “They are aware they are nearing the limit, whether that is now or later.”

“With that awareness, it’s not impossible that they will increase the pace from 80 trillion yen to 100 trillion yen or 120 trillion yen, but it’s incredibly difficult,” he said in an interview on Monday in Tokyo. “Based on common sense, you’d think they’d start considering reducing the pace a little bit in the near future.”

Alas, common sense was never Bernanke’s strong suit who according to rumors urged the BOJ to do precisely the opposite, namely monetize even more debt, however since the BOJ is indeed running out of bonds to buy, it would need to government’s assistance and issue even more debt, ostensibly to fund “infrastructure projects”, which would then be promptly monetized by the central bank.

Sure enough, Bernanke recommended the BOJ coordinate its policy with fiscal measures aimed at shoring up Japan’s economic output to end over a decade of deflation, according to Mr. Suga.

Bernanke refused to speak to reporters following the talks at Mr. Abe’s office. The meeting lasted for a half-hour.

Brushing aside a view among Japanese economists that BOJ policy has reached its limit, Mr. Bernanke’s assessment added to speculation that Tokyo will unleash new rounds of fiscal and monetary stimulus to reboot Abenomics, Mr. Abe’s growth plan.

Mr. Bernanke visited Tokyo at a time of intense speculation that Mr. Abe may resort to so-called “helicopter money,” a radical form of monetary easing advocated by the former Fed chief. The strategy involves a central bank directly financing government spending or tax cuts. Japan once implemented the measure in the 1930s-40s and ended up stoking sky-high inflation.

But despite Bernanke’s insistence to keep his mouth shut about what transpired during his historic meeting, the answer leaked out anyway: Koichi Hamada, a close adviser of the prime minister, said Mr. Bernanke may have discussed helicopter money with Japanese officials he met with during his visit, including BOJ Gov. Haruhiko Kuroda and Ministry of Finance policy makers. Hamada, a Yale University professor, attended Tuesday’s meeting with Bernanke and Abe.

As a reminder, Mr. Bernanke said in a blog in April that monetization by a central bank could be the “best available alternative” under extreme circumstances, for example when demand is very weak but a central bank is out of ammunition and parliament is unwilling to rely on borrowed spending.

And just like that, the final phase of monetary policy – incidentally a very familiar one to the Weimar Republic – is about to begin, with helicopter money first coming to Japan, to be tried out as a trial balloon, and then everywhere else.



Soc Gen’s take is that the cross between the USA/CNY will rise to 7.10  (yuan falling)

They also claim that there is a risk to 7.5 -8.0 where Kyle Bass states is the probable area of equilibrium:

(courtesy zero hedge)

Kyle Bass Was Right: Here Is SocGen’s Primer How To Trade The Biggest Yuan “Depreciation Wave” Yet

For a few months in early 2016 it was cool to make fun of Kyle Bass’ career bet on Yuan devaluation; now that the Yuan is back to 6 year lows and sliding as China once again quietly loses control of its capital outflows, it is not so cool any more.

And with every passing day, it is only going to get worse because despite all the rhetoric, China’s economy is getting worse by the day.  As SocGen puts it, “there have been signs of reviving capital outflow pressure since early 2Q. If the deprecation continues apace, capital outflow pressure will build up further and potentially quite quickly. The fact that the PBoC keeps stepping up capital controls despite the innocuous official flow data seems to suggest that it is also expecting an uphill battle.

And speaking of SocGen’s outlook for China’s currency , this is what the French bank – which just cut its Yuan forecast from 6.80 to 7.10 – thinks will happen next.

A New Normal for the RMB

We revise our peak forecast for USD-CNY to 7.10 from 6.80. Similar to immediately following the August devaluation, consensus is too complacent on the ability and willingness of policymakers to arrest the nearly three-year-old depreciation trend.

The new normal in recent months is gradual RMB depreciation that doesn’t create a negative feedback loop to other currencies or broader market sentiment. This could embolden policymakers to keep pushing the limits of depreciation, especially if speculative positioning stays subdued. Implied volatility, risk reversal, forward points, and the forward curve have all been unresponsive to the recent RMB weakness. This is partly due to the reluctance of speculative investors to add exposure after being burned by the RMB depreciation trade in January, but also because intervention remains ongoing despite not showing up in headline reserves or the forward book.

The best solution remains for policymakers to let the RMB find its market clearing price. This is not an exact science and we can only guesstimate what the level would be – 6.80 was our previous assumption but 7.10 now seems more realistic. The recent depreciation at a time when the dollar has not been strengthening suggests policymakers are increasingly giving in to capital flow pressures and are willing to the test the limits of depreciation. Further depreciation could reinforce capital outflows in the short term but should eventually help capital flows reach equilibrium.

7.10 peak – our base case, 80% probability

The next wave of RMB depreciation will see USD-CNY trade up to 7.10 by mid-2017.Since USD-CNY bottomed in early 2014, there have been five waves of depreciation and each has followed a predictable pattern: three to five months of USD-CNY increasing (+3.5% on average), followed by modest gains (+1%) spanning an equivalent time span, before another round of depreciation ensues. The predictability is  suboptimal from a policy perspective, but it appears to be the PBoC’s standard playbook. While there could be some consolidation or modest strength after the current depreciation phase ends (3.6% since April), the ensuing wave and medium-term path should see USD-CNY reach 7.10 over the next year.

Cumulative depreciation of 6% over the next year would be similar to what has been experienced since October. This would not be an atypical base case for a country in a structural slowdown, with perceptible credit and banking sector risks, an imbalance in the supply-demand of capital, a tenuous reserve adequacy position, and local residents harbouring a strong desire for FX diversification.
We continue to believe that consensus is underestimating the chances of CNY depreciation, both from the ability and willingness of policymakers to prevent further depreciation. Consensus is at 6.80 in one year, which was our prior out-of-consensus call immediately following the August devaluation (back in late August consensus was at 6.50).

A gradual and controlled depreciation with periods of stability and bouts of accelerated weakness is still the most likely scenario (80% probability). A move to 7.10 may continue to be absorbed by investors without disturbances to broader market sentiment occurring, and as such we see no need to revise our EM forecasts, which currently entail modest spot depreciation that broadly matches the forwards.

Importantly, the USD-CNH trading pattern since 2014, of only retracing a portion of its gains and never revisiting the lows after an up move, should remain in place. Coupled with little fundamental justification for a stronger CNH over a 12-month horizon and fairly neutral speculative positioning, it is unlikely that USD-CNH will trade below the 6.50-6.55 area.

8.0 – the new risk scenario, 20% probability

Back in January (CNY7.50 World) we identified USD-CNY trading up to 7.50 as the risk scenario for the currency. Given ongoing capital outflows, the ability of the market to absorb recent depreciation without negative consequences, the policy decision to weaken the renminbi when the USD has been stable, and our new forecast of 7.10, the risk scenario for CNY is now much higher.

The new risk scenario for CNY is 8.0 (20% increase in USD-CNY). We assign 20%  probability to this scenario. The caveat is that the pain threshold for the market appears to be much higher than before and the implications for the global financial markets will primarily depend on the speed of depreciation. We believe that it would take significantly more pressure on capital flows than what we have seen over the past few years, or an economic hard landing, for our risk scenario to unfold. Note that we have a 30% probability of a hard landing of the Chinese economy. We think that an economic hard landing might not necessarily trigger a sharp devaluation, as the authorities would most likely respond with strict capital controls amid concerns over capital flight.

Within the risk scenario, the path to 8.0 could be abrupt (not likely), slow (more likely), or fast (most likely).  

  • Scenario 1: one-off devaluation (<10% probability): A one-off move (i.e. step devaluation) where the PBoC then chooses to defend the new level. There would be enormous political backlash with the  appearance of any active pursuit of devaluation. This would also be too risky for Beijing’s taste given that no one can say for sure how much depreciation is enough to equilibrate supply and demand. However,  we assign it a nonzero probability because the authorities might ultimately decide it is the best way to realign expectations and halt domestic capital outflows.
  • Scenario 2 (free float over the next year – >70% probability): The PBoC fast-tracks currency reforms through a big-bang approach to currency flexibility because either: a) capital outflows remain large and the depletion of FX reserves too great; or b) it deems the domestic and global financial markets able to absorb the shock.
  • Scenario 3 (slow and steady move – 20% probability): The current strategy of steady depreciation picks up pace and intervention is used to limit overly destabilising volatility. The risk to a steady creep higher in USD-CNY is a build-up in speculative pressures and resident outflows that creates a vicious cycle of depreciation.

Finally, here is SocGen with its best ways to trade the coming Yuan devaluation:

Long USD-CNH: In our view, over a one-year horizon, being long USD-CNH has attractive risk-return characteristics on a 6% spot move, 2.5% negative carry, and limited potential for CNH to strengthen on a sustained basis. However, the entry point is critical to achieving a favourable PnL outcome and it might be prudent to wait until CNH consolidates or strengthens modestly to enter long USD-CNH positions.

Vanilla calls or call spreads are too expensive: Both these structures are too expensive when considering the probability-weighted terminal value of CNH a year from now. For example, a one-year 25d USD-CNH call has a breakeven at 7.37 while a 25d/10d call spread needs to see a move to the 7.50 area for risk-return to be attractive.

Buy 1-year call spread (6.85/7.20 strikes) and sell 1y-year 6.55 put: Under the premise that USD-CNH only retraces a modest portion of the recent gains (similar to past experience) coupled with no strong arguments for sustained appreciation on fundamental grounds, selling downside optionality can cheapen the cost of the call spread quite significantly. For example, the indicative cost of a 6.85/7.20 call spread is 1.43%, compared with a cost of 0.42% in a structure that buys the same call spread and also sells a 6.55 put. The 70% cost reduction entails unlimited losses below 6.55 but the position can be delta-hedged.

But 1-year 6.85 USD-CNH call with a knock-out at 8.0: Owning a 1-year 6.85 call option is quite expensive (indicative cost of 3% of notional) and has a poor breakeven (7.05). Whereas owning a 1-year 6.85 call with a knock out at 8.0 (our risk scenario) entails a 60% cost reduction over the vanilla call. The risk is limited to the premium paid. Positive PnL at expiry accrues above 6.90, but if the barrier level (8.0) is hit at any point over the life of the trade the structure is knocked out and the premium is lost. The structure has risk-reward of 10-1.

Short RMB against an abridged CFETS basket: Whether the CNY stabilises against the USD, depreciates modestly in an orderly and controlled manner (our base case), or experiences stronger depreciation (our risk scenario), the trade-weighted basket will be at best stable and could continue to fall. To mitigate fluctuations in the USD-CNY exchange rate, investors can short the trade-weighted exchange rate. An abridged CFETS index that includes the USD (36% weight), EUR (325), JPY (13%) and AUD (19%) is able to track the larger thirteen currency CFETS index very closely (link). The abridged basket is highly liquid and has similar negative carry as being long USD-CNH (22bp/month).

And with that, good luck in catching up to Kyle Bass.


China’s state owned operations are burning cash like there is no tomorrow. They no doubt will need another bailout.  In other interesting news, China’s “Warren Buffett, Guo,( owner of Fosun), worth an estimated 6-7 billlion USA has disappeared!

(courtesy zero hedge)

The Chinese Will Need Another Bailout

Here we go again. China is primed for more bailouts as their corporations and State Owned Enterprises (SOE) continue burning through billions of yuan. At the turn of the month we learned Sinopec manipulated revenues. As Reuters reported at the time, some 12 subsidiaries of Sinopec had fake invoices among other faults. Chinese companies are loading up on debt and they are investing it terribly.

Reuters also said 10 state-owned firms had “huge losses” driven primarily from bad investment decisions. Sinopec subsidiaries blew cash on 14 unused chemical plants as well acquiring two dozen fuel stations illegally.

“China’s national audit department reviewed the financials of the 10 largest state-owned companies including Aluminium Corporation of China (CHALCO), Sinopec and China National Offshore Oil Corporation (CNOOC), exposing huge losses in these firms as a result of low efficiency and bad investment decisions. The auditing office also pointed to wasted investments Sinopec’s subsidiaries made, such as 14 unused chemical plants, and raised red flags on two dozen “illegally acquired” fuel stations.

Oh yeah, these guys are real winners when it comes to running business and making investments. As Citi pointed out, China’s SOE’s have Pre-tax Profit Margins and Liability-to-Asset ratios that do not appear to reflect wise decision making:

China’s corporations are horrible with investment. We are not shocked by this. We expect many more Chinese bailouts to come as the country’s money-gods lose total control of the monster they have unleashed through reckless monetary policy.

The investment decisions have become so bad that a source told Bloomberg that up to 10 SOE’s may require a bail out:

China is considering providing about 10 of its state-owned enterprises with an aid package, people familiar with the matter said. Sinosteel Corp. is among those that may receive help, one of the people said

In an effort to throw the kitchen sink plus more at the equity market, China will now be deferring a portion of a $300 billion pension fund into the Chinese market. A wise choice?  Perhaps not, especially since the Chinese have painted themselves into another bailout corner.

With malinvestment as we saw re: Sinopec, to China’s need to backstop at least 10 failing state-owned enterprises, and now the clear desperation of getting pension money exposed to the equity market, presumably ahead of more central bank stimulus, it’s becoming evident that the Chinese are running out of options. Once the entire nation is invested in stocks and the central bank is buying hand over fist, the Chinese market manipulation will have jumped the shark, because their explosive Debt-to-GDP didn’t seem to mark a turning point in the Chinese economic story as of yet:

But don’t worry, the National Council for Social Security Fund in China that will manage the pension fund investments has an appreciation from the Chinese people akin to what some believe American’s have for Warren Buffett, reportedly:

The NCSSF has “such a good reputation in being a value investor that if they take the lead, the signaling effect is actually quite strong,” said Hong, who had predicted the start and peak of China’s equity boom last year. “It’s almost like Warren Buffett saying he is buying a stock.”

Which is unique because frequent Zero Hedge readers may recall a different Chinese version of Warren Buffett:

On Thursday, we learn that yet another high profile businessman has apparently vanished and this time, it’s none other than “China’s Warren Buffett,” Guo Guangchang (worth some $7 billion at last count) whose conglomerate Fosun International is morphing into an insurance-focused investment group. Fosun spent more than $6 billion buying stakes in 18 overseas companies between February and July.

China just burning cash and it is amazing they have lasted this long.  How much longer will the cash pile burn? Maybe MOAR cash infusions is the answer…

(courtesy zero hedge)

China Has No Legal Claim to Most of South China Sea, UN Tribunal Finds

In a widely anticipated, though purely symbolic decision, just over an hour ago a UN tribunal, the Permanent Court of Arbitration in The Hague, ruled unanimously in favour of the Philippines in its case against China’s extensive claims in the South China Sea. It found that China’s claim to historic rights in most of the South China Sea has no legal basis, dealing a setback to Beijing which, as the WSJ adds, the U.S. fears could intensify Chinese efforts to establish its control by force. And, as was just as expected, China promptly announced it does not accept or recognize the ruling by tribunal, Xinhua reported moments after the decision.

The Philippines first brought the case to the International Tribunal for the Law of the Sea at The Hague in 2013, raising 15 instances in which it held China’s claims and activity in the South China Sea had violated international law, writes Hudson Lockett. In 2015 the tribunal decided it had jurisdiction on seven of those, though it said it was still considering the other eight. The tribunal at the Permanent Court of Arbitration in The Hague said China couldn’t claim historic rights to resources in the waters within a “nine-dash” line used by Beijing to delineate its South China Sea claims.

That was the most significant element of an unprecedented legal challenge to China’s claims that was brought in 2013 by the Philippines, one of five governments whose claims in the South China Sea overlap with China’s under the nine-dash line.

In a second blow for Beijing, the tribunal decided that China wasn’t entitled to an exclusive economic zone, or EEZ, extending up to 200 nautical miles from one island in the Spratlys archipelago, Itu Aba, which is claimed by China and currently controlled by Taiwan. The clearly politically-motivated decision, based on a U.N. convention on maritime law, comes after several years of escalating tension in the region as China has alarmed the U.S. and its allies by using its rapidly expanding naval and air power to assert territorial claims and challenge U.S. military supremacy in Asia.

The Philippines case is seen as a test of China’s commitment to a rules-based international order which the U.S. and its allies say has been undermined by Beijing’s recent military activities, including construction of seven fortified artificial islands in the South China Sea. The ruling on Itu Aba is important because the U.N. maritime convention allows countries to build artificial islands in their own EEZs, and all of the seven structures China has built lie within 200 nautical miles of Itu Aba, which Taiwan calls Taiping Island. It also means that China has no legal claim to an EEZ overlapping that of the Philippines.

In a statement published on a verified social media feed just before the ruling, China’s Ministry of Defense said the decision wouldn’t affect its approach in the South China Sea.

“No matter what the result of the arbitration, the Chinese military will unswervingly protect the nation’s sovereignty, security and maritime rights, resolutely protect the safety and stability of the region, and face down all manner of threats and challenges,” it said. After the ruling, the ministry referred to the comment as its official statement.

China didn’t take part in the tribunal, which it said had no jurisdiction on the case, and Chinese officials have said repeatedly in recent weeks that Beijing won’t comply with the ruling.

In a series of public statements after the ruling, Beijing made it very clear that it has no intention of abiding by the ruling, in the process making a confrontation even more probable:

NULL, VOID, NO BINDING FORCE. China neither accepts nor recognizes award of arbitrationpic.twitter.com/TF0g4BUHQD

Unilateral initiation of arbitration by the Philippines is out of bad faith, violates int’l law

Unilateral initiation of arbitration by the Philippines is out of bad faith, violates int’l law

China does not accept any means of third party dispute settlement or any solution imposed on China. https://twitter.com/XHNews/status/752805214650900480 

Most importantly, while the ruling is legally binding for China and the Philippines – and China has already said it won’t be bound – it can only be enforced through international pressure, and/or force.

As the WSJ adds, in the tense buildup to the ruling, a U.S. aircraft carrier strike group and other navy ships have been patrolling in the South China Sea, while China held military exercises in the area over the last seven days. The U.S. and its allies, including all of the Group of Seven large industrialized democracies and the 28 members of the European Union, have publicly expressed their support for the arbitration process.

In another damaging setback for Beijing, the tribunal ruled that China couldn’t claim 12 nautical miles of territorial seas around the two largest of the seven artificial islands that Beijing has built in the Spratlys. That means that U.S. and foreign naval ships can legally come within 12 nautical miles of those two structures, Mischief Reef and Subi Reef, which both have airstrips.

The tribunal ruled that China had violated the Philippines sovereignty in its EEZ by building artificial islands, interfering with Philippine fishing and oil exploration and failing to prevent Chinese fishing boats from operating there.

It said China had interfered with Philippine fishing boats exercising their traditional fishing rights around the disputed Scarborough Shoal. It said China hadn’t fulfilled its legal obligation to stop Chinese fishermen from harming the environment in the South China Sea.  And it said China’s island building had violated the obligations of a state during the dispute resolution process.

The Philippines welcomed the ruling. Foreign Secretary Perfecto Yasay called it a “milestone” in efforts to address regional disputes and called on “those concerned to exercise restraint and sobriety.”. The case was brought by the previous Philippine government. New Philippine President Rodrigo Duterte has taken a different stance, suggesting that he might be willing to negotiate directly with China.

China says dozens of countries—many of them small, developing nations—support its position, although only a handful of them have issued their own statements explicitly backing Beijing’s right to ignore the tribunal.

China’s foreign ministry issued the following statement moments ago in response to the ruling (excerpted):

Statement of the Ministry of Foreign Affairs of the People’s Republic of China on the Award of 12 July 2016 of the Arbitral Tribunal in the South China Sea Arbitration Established at the Request of the Republic of the Philippines

With regard to the award rendered on 12 July 2016 by the Arbitral Tribunal in the South China Sea arbitration established at the unilateral request of the Republic of the Philippines (hereinafter referred to as the “Arbitral Tribunal”), the Ministry of Foreign Affairs of the People’s Republic of China solemnly declares that the award is null and void and has no binding force. China neither accepts nor recognizes it.

The unilateral initiation of arbitration by the Philippines is out of bad faith. It aims not to resolve the relevant disputes between China and the Philippines, or to maintain peace and stability in the South China Sea, but to deny China’s territorial sovereignty and maritime rights and interests in the South China Sea.

China’s territorial sovereignty and maritime rights and interests in the South China Sea shall under no circumstances be affected by those awards. China opposes and will never accept any claim or action based on those awards.

The Chinese government reiterates that, regarding territorial issues and maritime delimitation disputes, China does not accept any means of third party dispute settlement or any solution imposed on China. The Chinese government will continue to abide by international law and basic norms governing international relations as enshrined in the Charter of the United Nations, including the principles of respecting state sovereignty and territorial integrity and peaceful settlement of disputes, and continue to work with states directly concerned to resolve the relevant disputes in the South China Sea through negotiations and consultations on the basis of respecting historical facts and in accordance with international law, so as to maintain peace and stability in the South China Sea.

More here.

Ironically, in attempting to stem China’s territorial expansions in the region, the tribunal will likely just provoke Beijing even more: U.S. officials have warned that China could respond to the ruling by starting land reclamation at another disputed reef near the Philippines, or declaring an air defense identification zone over the South China Sea. China hasn’t announced any such plans, but says it has the right to do both.


China not happy campers after they lash out at the USA led “farcical” decision of the Hague. Get China angry enough and they will stand for delivery on both gold and silver at the comex:

(courtesy zero hedge)

China Lashes Out At “Washington-led Conspiracy” After Hague Decision “Farce”

Following The Hague’s ruling that China has no legal claim to most of The South China Sea, authorities have taken to the media to proclaim their disdain for the decision. Editor-in-Chief Wang Xiaohui of The China People’s Daily (quasi-official mouthpiece of the China Communist Party) unleashed a sniping rebuke proclaiming: “South China Sea arbitration: A US-led conspiracy behind the farce.”

Since U.S. President Barack Obama took office, “Pivot to Asia” has become one of Washington’s political pursuits and military strategies. The disputes between China and the Philippines over the South China Sea, which was provoked by former Philippine President Aquino III, came just in time as it offered Washington a good excuse and easy approach to return to the region.

In January 2013, the Philippines unilaterally initiated arbitral proceedings on the South China Sea issue. To circumvent the law, it secretly changed relative concepts, deliberately separated the Nansha Islands, and asked the tribunal to issue an award over the legal status and maritime claims of some of the islands and reefs that belong to the Nansha Islands as a whole.

What Aquino III did was a clear violation of international law. However, Washington chose to ignore the facts and the law, giving full support to its flunkey in Asia without hesitation.

So, we can tell that Washington has taken sides from the very beginning. What has it done before and behind the curtain then? Generally, it took four kinds of actions.

First, colluding with its allies to rubbish China.

Regarding the South China Sea arbitration, U.S. government officials and media have expressed many negative opinions of China, so as to portray Beijing as a “violator” of international order. U.S. Secretary of Defense Ash Carter used to say in public that China’s activity in the South China Sea could lead to a “great wall of self-isolation.” Japan, as an ally of Washington, was also active and enthusiastic in helping the U.S. to suppress China.

Second, showing off military force and putting pressure on China.

The U.S. has been stepping up military actions in the South China Sea recently. Particularly, in the middle of June, two U.S. aircraft carriers, the USS John C. Stennis and USS Ronald Reagan, launched joint operations in the South China Sea, staging a show of force aimed at China.

In the meantime, Japan also launched joint military exercises with the Philippines and conducted arms sales with the latter, which is meant to put pressure on China. On July 8, Washington and Seoul jointly announced the deployment of the THAAD (Terminal High Altitude Area Defense) systems in South Korea, and the ulterior motive behind it was obvious enough.

Third, playing China and ASEAN countries off each other.

Chu Yin, a research fellow at the Center for China and Globalization said that “the U.S. escalates the tensions in the South China Sea with an essential purpose of containing China.” For the U.S., sabotaging the relations between China and ASEAN countries is an effective way to hinder China’s development, apart from being a best solution with low cost and high efficiency to increase Southeast Asian countries’ dependence on it.

Fourth, manipulating the international arbitration tribunal and complicating the South China Sea issues into a “dead knot.”

Once the arbitration tribunal makes a verdict against China, it will amount to fulfilling the U.S. purpose, putting an end to the tranquility in the South China Sea. In that case, the prospects for China-Philippine disputes to get resolved peacefully will be reduced.

In addition, the United States has been calculating the timing and progress of the arbitration. Initially, the U.S. had the press leak the message that the arbitration result would be announced on July 7, making all involved parties tense. Later on June 29, the secretariat of arbitration tribunal said July 12 would be the date when the verdict on the concrete issues of the Philippine-led arbitration on the South China Sea would be made public.

The timing of the announcement totally reflected the U.S. calculations as June 30 was the date that the new Philippine President Rodrigo Duterte was to be sworn in. Picking this date to announce the verdict represents no more than a backing up of the new Philippine government, a move that the U.S. hopes will minimize the possible improvement between China-Philippine relations.

The U.S. actions near China, particularly those on the South China Sea issues, are part of its Asia-Pacific Rebalance strategies. Its intentions are no more than containing China to preserve its interests in the Asia-Pacific region and its global hegemony.

The U.S. motives are apparent to the world, especially to the Chinese people. The current China is nothing like the country it was one hundred years ago. Any act that tries to violate China’s territorial sovereignty will fail.


Tensions mount as North Korea threatens to retaliate if USA deploys missiles in South Korea: another great reason for gold to be whacked today!

(courtesy zero hedge)

North Korea Threatens To Retaliate “Physically” If US Deploys THAAD On Peninsula

North Korea on Monday threatened to take a “physical counter-action” if the United States follows through with plans to deploy an advanced missile defense system in the South.

As we detailed previously, Obama described the North Korean regime as “a massive challenge.”

“Our first priority is to protect the American people and our allies, the Republic of Korea, Japan, that are vulnerable to the provocative actions that North Korea is engaging in,” Mr. Obama said.

He said North Korea is “erratic enough” and the country’s leader, Kim Jong Un, is “irresponsible enough that we don’t want them getting close.”

“But it’s not something that lends itself to an easy solution,” Mr. Obama said. “We could, obviously, destroy North Korea with our arsenals. But aside from the humanitarian costs of that, they are right next door to our vital ally, Republic of Korea.”

So how is Obama preparing to fend off threats from North Korea? It appears that the US will set up a missile defense system to surround North Korea and shoot down any future flying nuisances.

“One of the things that we have been doing is spending a lot more time positioning our missile defense systems, so that even as we try to resolve the underlying problem of nuclear development inside of North Korea, we’re also setting up a shield that can at least block the relatively low-level threats that they’re posing right now,” Obama said.

Which has apparently upset Kim and his buddies… As Military.com’s Kim Gamel reports,

The warning came three days after Washington and Seoul agreed to establish a Terminal High-Altitude Area Defense system, known as THAAD, on the divided peninsula to guard against missiles being developed by the North.

North Korea vowed to “take a physical counter-action to thoroughly control THAAD, aggression means of the U.S. for world domination, from the moment its location and place have been confirmed in South Korea,” according to the state-run Korean Central News Agency.

The report cited the Artillery Bureau of the General Staff for the Korean People’s Army.

“The U.S. had better understand that the more massively it introduces war weapons to South Korea and its vicinity, the closer they will come into the firing range of the KPA and the more miserable end the U.S. will meet without even a moment to make a shrill cry,” it said.

KCNA also criticized South Korea for allowing the system to be deployed on its territory. The two countries are technically still at war after the 1950-53 conflict ended in an armistice instead of a peace treaty. About 28,500 U.S. service members are stationed in the South.

“We once again warn the enemies that it is the steadfast will of the KPA to make merciless retaliatory strikes to reduce South Korea to a sea in flames, debris once an order is issued,” the report said.

South Korea’s Ministry of Defense said it was ready to respond in kind.

“North Korea needs to clearly see who is responsible for putting the Korean peninsula’s peace and security at risk before criticizing the THAAD deployment decision,” ministry spokesman Moon Sang-gyun said in a press briefing.

“If North Korea continues its groundless claims and rash actions in defiance of our warnings, it will have to face our military’s stringent retaliation,” he added.

South Korean officials have said a joint working group is close to announcing the best site for THAAD, although the actual location will be kept secret for security reasons. The South Koreans expressed hope the system will be in operation by the end of next year.

China, a traditional Pyongyang ally, also has strongly objected to the decision to deploy THAAD on the peninsula. Beijing fears the radar system could be used to track its military movements.

South Korean President Park Geun-hye insisted it is a “purely defensive measure, according to the Yonhap news agency.

“THAAD will not target any country other than North Korea and will not encroach upon the security interests of any third country. We have no reason to do so,” she was quoted as saying Monday during a meeting with her senior secretaries.

North Korea has defiantly continued its nuclear weapons program despite international condemnation and toughened U.N. sanctions.

It fired a missile from a submarine on Saturday, although South Korean officials said it failed in the early stages of flight. That was the latest in a series of missile launches as tensions have risen after the North staged its fourth underground atomic test in January.

The U.S. also slapped new sanctions on North Korean leader Kim Jong Un and other top officials last week for alleged human rights abuses. Pyongyang responded by calling the move “an open declaration of war.”

Of course, Obama’s THAAD move is surprising considering North Korea has no chance of ever launching a fully functioning ICBM, let alone one which can reach the US.

So what is the unsaid impetus for this move? Perhaps it is simply to deploy even more ships and military equipment in the region where recent diplomatic posturing between the US and China over various contested islands in the South China Sea has been the biggest geopolitical threat in recent years.

“How aggressive do you see the action in the South China Sea? And do you worry that they will cross some line, in which you’ll have to respond more aggressively?” Rose asked the president.

“I’ve been consistent, since I’ve been president, in believing that a productive, candid relationship between the United States and China is vital, not just to our two countries, but to world peace and security,” Mr. Obama said.

It’s not a zero-sum game, Mr. Obama added.

“What is true, though, is that they have a tendency to view some of the immediate regional issues or disputes as a zero-sum game,” he said. “So with respect to the South China Sea, rather than operate under international norms and rules, their attitude is, ‘We’re the biggest kids around here. And we’re gonna push aside the Philippines or the Vietnamese.’ … But it doesn’t mean that we’re trying to act against China. We just want them to be partners with us. And where they break out of international rules and norms, we’re going to hold them to account.”



The IMF warns of a global contagion from the Italian banking crisis.  They forecast a two decade long recession.  Lagarde has sided with Renzi in that a bailout if far better for everybody than a bail in

(courtesy zero hedge)

IMF Warns Of “Global Contagion” From Italy’s Bank Crisis; Forecasts Two-Decade Long Recession

Piling on to Italy’s growing mountain of worries, this evening the IMF itself warned that Europe’s third largest economy would grow by less than 1% this year and only marginally faster in 2017, slashing its previous forecasts of 1.1% and 1.25% growth for the next two years, mostly as a result of the most convenient scapegoat available in Europe at the moment: Brexit (which has become to Europe as “cold weather” has been to the US for the past two years).

Christine Lagarde’s organization said Italy was “recovering gradually from a deep and protracted recession”, but said the healing process was likely to be “prolonged and subject to risks”. It used its article IV consultation – an annual economic and financial health check – to stress that Italy was vulnerable to a cocktail of threats that could have knock-on effects for the rest of Europe and the world.

The IMF dour outlook may be overly generous. While economists have been racing to downgrade Italy’s outlook since the British referendum, Italy’s own employers’ lobby Confindustria now sees growth of just 0.8% this year dropping further to 0.6% in 2017.  Italy, long one of Europe’s most sluggish economies, will struggle to close the gap with its peers even if recent reforms are fully implemented, the IMF report said.

The punchline: only by around 2025 will Italian output return to its 2008 peak before the global financial crisis, according to the IMF. In the same period, growth among Italy’s euro zone partners is expected to rise by 20–25% above their pre-crisis levels. In other words, Italy is now in the middle of what will end up being a two-decade recession.

“The authorities thus face a monumental challenge. The recovery needs to be strengthened to reduce high unemployment faster and buffers need to be built, including by repairing strained bank balance sheets and decisively lowering the very high public debt,” the report said.

“Downside risks arise from delays in addressing bank asset quality, intensified global financial market volatility – including from Brexit, the global trade slowdown weighing on exports, and the refugee influx and security threats that could further complicate policymaking,” said the IMF. “If downside risks were to materialise, regional and global spillovers could be significant, given Italy’s systemic weight.”

And speaking of Italy’s weakest links, the banks, the IMF said that “risks are tilted to the downside,” listing a raft of issues including the poor asset quality of Italy’s banks, financial market volatility and the impact of a global trade slowdown on exports.

“If downside risks were to materialize, regional and global spillovers could be significant given Italy’s systemic weight,” it said.

In an assessment that will hardly help Italian bank stocks, the IMF said that the country’s banks, which are saddled with some 360 billion euros of bad loans and whose share prices have fallen by more than 50 percent this year, are a particular threat to the economic outlook, the IMF said. “Unless asset quality and profitability problems are addressed in a timely manner, lingering problems of weaker banks can eventually weigh on the rest of the system,” it warned.

Finally, in keeping with the tradition of having political involvement, Lagarde sided with the side of Renzi and against Merkel and Dijsselbloem, both of whom have denied Italy’s repeated pleas for a bailout, saying that If EU-wide stress tests show that financial stability is at risk, there is scope for Italy to use public money to recapitalize its banks, the head of the IMF’s mission to Italy, Rishi Goyal, said in a conference call.

To what extent this could be done without triggering losses to investors under newly adopted “bail-in” rules would depend on negotiations between Italy and the EU, Goyal said.

It was also unclear just who would determine what conditions would define a financial system under stress.

Italy’s public debt, the highest in the euro zone after Greece’s, will not fall this year as targeted by the government of Prime Minister Matteo Renzi, the IMF said. In a forecast made before the UK referendum, the IMF said Italy’s debt would edge up to a new all-time peak of 132.9 percent of gross domestic product from 132.7 percent last year.

Italy’s finance minister, Pier Carlo Padoan, vows there is not banking crisis.

Still, all of this may be moot if various unconfirmed rumors of Italian cashless ATMs end up being true. What is most troubling, however, if past is prologue is the desperate plea by Italy’s finance minister, Pier Carlo Padoan, to restore some confidence in Italy’s banks, to wit:


Traditionally, it is such “political” (and futile) statements such as that one – especially when everyone knows they are false – which do precisely the opposite of their intended goal, and emerge just days before the worst case scenario becomes a reality.


What a terrific commentary on the dangers lurking behind the Italian banks.

In a nutshell, the Italian banks + foreign banks have bought 791 billion euros worth of Italian sovereign bonds. The French banks have bough 250 billion followed by the German banks at 83 billion euros worth of bonds. Italian banks have bought 240 billion euros worth of sovereign Italy bonds.

a must read..


(courtesy Don Quinones/WolfStreet)

Who’s Most Afraid Of Contagion From Italy’s Bank Meltdown?

French and German banks.

Contagion is the reason Italy’s banking crisis is all of a sudden Europe’s biggest existential threat. Greece’s intractable problems are out of sight, out of mind; Brexit momentarily spooked investors and bankers; but Italy’s banking woes have the potential to wipe out investors and undo over 60 years of supranational state-building in Europe.

The last few days have seen growing calls for taxpayer-funded state intervention, a practice that was supposed to have been consigned to the annals of history by Europe’s enactment of new bail-in rules on Jan 1, 2016. The idea behind the new legislation was simple: never again would taxpayers be left exclusively holding the tab for European banks’ insolvency issues while bondholders were getting bailed out. But even before the new rules have been tried out, they are about to be broken, or at least bent beyond all recognition.

A loophole has already been found in the rules that would allow the Italian government and European authorities to raid European taxpayers in order to prop-up Italy’s third largest publicly traded bank, Monte Dei Paschi, while leaving bank bondholders and creditors whole, as Reuters reported a few days ago:

The rules, which have been in force since January, allow a state to directly acquire a stake in a bank thatfails a stress test and cannot raise capital in the markets because of “a serious disturbance” in the domestic economy.

Oh, and no bank is officially allowed to pass or fail the European Central Bank’s 2016 stress tests, as wereported a few months ago, after a number of banks, including nine Italian banks, failed the test in 2014.Clearly, those at the top of the financial pecking order — banks and their bondholders — are protected once again from the disastrous consequences of another market meltdown, one that in many ways they precipitated.

The fact that in Italy, thanks in part to a quirk of the tax code, some €200 billion of bank bonds are held by retail investors adds an extra political dimension to the mix, as The Economistpoints out:

If the bail-in rules are applied rigidly in Italy, the outcry from savers will both damage confidence and leave the door to power open for the Five Star Movement, a grouping that blames Italy’s economic troubles on the single currency.

But it is the direct contagion effect that has Europe’s policymakers and central bankers most concerned. Contagion is a particularly acute problem in the Eurozone due to the so-called “doom loop” that exists between sovereigns and their banks, thanks in large part to the ECB’s tireless efforts to underpin both Europe’s biggest banks (by providing them with an endless supply of free money) and its bond markets (by doing “whatever it takes” to make European sovereign bonds virtually risk-free).

As a result, banks have been able to make a tidy margin by simply buying government bonds at officially zero risk.Another consequence, whether intended or not, has been to create a very dangerous relationship of mutual dependence between governments and banks. When banks invest heavily in government debt, they become dependent on the government’s good performance, which is clearly not a given, especially in the Eurozone. Meanwhile, the governments depend on the banks to continue purchasing their debt, which for the moment is a given. However, if either one falters, the consequences can be dire for both.

Despite pressure from fiscally hawkish Eurozone countries such as Germany, the Netherlands, and Finland to put an end to the doom loop by removing the risk-free status of certain sovereign bonds, to the barely concealed horror of Italian and Spanish politicians and bankers, recent figures from Standard & Poor’s show that banks across the EU have been investing more heavily than ever in government debt, increasing their exposure to €791 billion. The total amount that international banks have lent to Italy alone is €550 billion.

So which country’s banks are most exposed to Italian sovereign debt (apart from Italy itself)?

France — and by a long shot!

As Die Welt reports, the total exposure of French banks to Italian debt exceeds €250 billion. That’s triple the amount of exposure of the second most exposed European nation, Germany, whose banks hold €83.2 billion worth of Italian bonds. Deutsche bank alone has over €11.76 billion worth of Italian bonds on its books. The other banking sectors most at risk of contagion are Spain (€44.6 billion), the U.S. (€42.3 billion) the UK (€29.77 billion) and Japan (€27.6 billion).

These elevated levels of exposure help to explain why no matter how much Angela Merkel would love for the Eurozone’s new bail-in rules to be universally applied to the letter — for her own political survival, if nothing else — the risk of contagion, including for the already deeply distressed Deutsche Bank, is simply too great to be ignored. If Italian banks began falling like flies, it would only be a matter of time before investors began selling (or shorting) Italian bonds en masse, by which point the Doom Loop would be in full flow. And once it starts, it’s very hard to stop.

“The whole banking market is under pressure,” former ECB executive board member Lorenzo Bini Smaghitold Bloomberg. “We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.”

In other words, European taxpayers, get your wallets out, again. Your banks need you!

Oh, and Smaghi, besides being a former central banker, is also the current chairman of Société Générale, one of France’s biggest banks, presumably heavily exposed to Italian banks and sovereign debt, and as such a large potential beneficiary of a massive taxpayer-funded bailout of Italian banks.

It didn’t take long before David Folkerts-Landau, Chief Economist at Deutsche Bank – whose shareholders have gotten crushed and whose bondholders are getting restless – picked up the baton and told the Welt am Sonntag that a US TARP-like European bank bailout of €150 billion was needed to “recapitalize the banks.”This is code for using taxpayer money to bail out bondholders and stockholders, along with executive compensation, including his own. By Don Quijones, Raging Bull-Shit.

So the European banking crisis is coming into full bloom. Deutsche Bank in February tried a ludicrous ruse: buying back its own bonds. But even that miracle-nonsense has now flopped and its shares and CoCo bonds have plunged. Read…  I’m in Awe at How Fast Deutsche Bank is Coming Unglued





Now we know who have been buying stocks all over the world:  central banks.  As mainstream investors bail out of equity funds, it is the central banks that have been buying.  This is not going to end well!  I would like to point out that as central banks are buying stocks they are shorting gold and silver physical like crazy!

free markets anyone?

(courtesy zero hedge)

The “Mystery” Of Who Is Pushing Stocks To All Time Highs Has Been Solved

One conundrum stumping investors in recent months has been how, with investors pulling money out of equity funds (at last check for 17 consecutive weeks) at a pace that suggests a full-on flight to safety, as can be seen in the chart below which shows record fund outflows in the first half of the year – the fastest pace of withdrawals for any first half on record…

… are these same markets trading at all time highs?  We now have the answer.

Recall at the end of January when global markets were keeling over, that Citi’s Matt King showed that despite aggressive attempts by the ECB and BOJ to inject constant central bank liquidity into the gunfible global markets, it was the EM drain via reserve liquidations, that was causing a shock to the system, as net liquidity was being withdrawn, and in the process stocks were sliding.

Fast forward six months when Matt King reports that “many clients have been asking for an update of our usual central bank liquidity metrics.”

What the update reveals is “a surge in net global central bank asset purchases to their highest since 2013.”

And just like that the mystery of who has been buying stocks as everyone else has been selling has been revealed.

But wait, there’s more because as King suggests “credit and equities should rally even more strongly than they have done already.”

More observations from King:

The underlying drivers are an acceleration in the pace of ECB and BoJ purchases, coupled with a reversal in the previous decline of EMFX reserves. Other indicators also point to the potential for a further squeeze in global risk assets: a broadening out of mutual fund inflows from IG to HY, EM and equities; the second lowest level of positions in our credit survey (after February) since 2008; and prospects of further stimulus from the BoE and perhaps the BoJ.

His conclusion:

While we remain deeply skeptical of the durability of such a policy-induced rally, unless there is a follow-through in terms of fundamentals, and in credit had already started to emphasize relative value over absolute, we suspect those with bearish longer-term inclinations may nevertheless feel now is not the time to position for them.

And some words of consolation for those who find themselves once again fighting not just the Fed but all central banks:

The problems investors face are those we have referred to many times: markets being driven more by momentum than by value, and most negatives being extremely long-term in nature (the need for deleveraging; political trends towards deglobalization; a steady erosion of confidence in central banks). Against these, the combination of UK political fudge (and perhaps Italian tiramisu), a lack of near-term catalysts, and overwhelming central bank liquidity risks proving overwhelming – albeit only temporarily.

Why have central banks now completely turned their backs on the long-run just to provide some further near-term comfort? Simple: as Keynes said, in the long-run we are all dead.



VENEZUELA seizes the local Kimberly Clark plant hours after they announced they were shuttering the operation.  Then Maduro seized the plant and stated that they would keep on producing. That will last a few months and it comes to a complete stop

(courtesy zero hedge)

Venezuela Seizes Local Kimberly-Clark Factory

Just hours after Kimberly-Clark, the consumer-products giant that owns Kleenex and Huggies, said it will shutter its Venezuela operations after years of grappling with soaring inflation and a shortage of hard currency and raw materials, Venezuela retaliated by announcing it would seize the factory.

Over the weekend, Kimberly-Clark said that the South American nation’s deteriorating economic situation had made “it impossible to continue our business at this time.”  The company had made a number of hard-to-find staples in Venezuela such as diapers and face tissues.

As Bloomberg adds, the decision will likely to add to shortages that have gripped Venezuela for the past few years after the ruling socialists capped the price on many consumer basics below production costs.” As we have documented repeatedly, desperate shoppers now routinely spend long hours in front of stores to purchase essential products ranging from toilet paper to rice. At the same time, companies face hefty losses on price-controlled goods, while the products are often flipped on the black market for many times their sticker price.

So in retaliation, Venezuela’s government announced it had seized the factory.  Labor Minister Owaldo Vera said Monday that the socialist government took the action at the request of the 971 workers at the factory that the company decided to shutter. The seizure follows a similar takeover from 2014 when Clorox announced it was closing its doors.

“Kimberly-Clark will continue producing for all of the Venezuelans,” Vera said in a televised statement from the factory surrounded by workers chanting pro-government slogans. That statement was not exactly true: former workers of the company would continue producing under the observation of government management. We doubt this “forced restructring” will survive more than a few months.

Maduro’s socialist government accused Kimberly-Clark of failing to properly notify the government of its plans. The Irving, Texas-based company did not comment Monday about Venezuela’s actions.

Kimberly-Clark joins Bridgestone, General Mills, Procter & Gamble and other multinational corporations in scaling back operations in Venezuela amid its economic crisis. More will follow.

Oil tumbles after a huge inventory build;

(courtesy zero hedge)


Oil Price Tumbles After Biggest Inventory Build In 10 Weeks

Against expectations of a 3mm draw for Crude (and 900k draw for Cushing), API followed last week’s surprisingly large draw (later dismissed by DOE) with an even more surprising build (2.2mm) this week – the biggest build in 10 weeks. Cushing saw a smaller than expected draw but Gasoline and Distillates saw major builds. Crude had rallied aggressively all day into the print (though remained below API’s print level last week) and immediately started to give it back when the data hit.



  • Crude +2.2mm (-3mm exp)
  • Cushing -166k (-900k exp)
  • Gasoline +1.5mm
  • Distillates +2.6mm

The biggest build in crude stocks in 10 weeks… And Distillates build was yuuge…


And WTI Prices are sliding having never made it back to last week’s pre-API levels…



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

Euro/USA   1.1097 UP .0039 (STILL  REACTING TO BREXIT)



USA/CAN 1.3028 DOWN .0092

Early THIS TUESDAY morning in Europe, the Euro ROSE by 39 basis points, trading now JUST above the important 1.08 level RISING to 1.1045; Europe is still reacting to BREXIT,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 54.46 POINTS OR 1.82%   / Hang Sang CLOSED UP 344.24 OR 1.65%/AUSTRALIA IS HIGHER BY 0.29%/ EUROPEAN BOURSES ARE ALL DEEPLY 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 FRIDAY morning: closed UP 386.83 POINTS OR 2.46% 

Trading from Europe and Asia:

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 344.24 OR 1.65%  ,Shanghai CLOSED UP 386.83 OR 2.46%   / Australia BOURSE IN THE GREEN: /Nikkei (Japan) CLOSED IN THE GREEN/India’s Sensex IN THE GREEN  

Gold very early morning trading: $1351.80


Early TUESDAY morning USA 10 year bond yield: 1.477% !!! UP  4 in basis points from MONDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.203 UP 5 in basis points from MONDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early TUESDAY morning: 96.22 DOWN 35 CENTS from MONDAY’s close.

This ends early morning numbers TUESDAY MORNING


And now your closing TUESDAY NUMBERS

Portuguese 10 year bond yield:  3.13% UP 2 in basis points from MONDAY  (does not buy the rally)

JAPANESE BOND YIELD: -0.207% DOWN 1/3  in   basis points from MONDAY

SPANISH 10 YR BOND YIELD: 1.18%  UP 3 IN basis points from MONDAY( this is totally nuts!!/AND THE MARKETS GO UP???)

ITALIAN 10 YR BOND YIELD: 1.23 UP 3 IN basis points from MONDAY (again totally nuts/AND MARKETS GO UP???)

the Italian 10 yr bond yield is trading 5 points HIGHER than Spain.





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


Euro/USA 1.1067 UP .0010 (Euro =UP 10 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 104.87 UP 2.385(Yen DOWN 239 basis points/HELICOPTER MONEY )


USA/Canada 1.3011-DOWN 0.01086 (Canadian dollar UP 109 basis points  AS OIL ROSE (WTI AT $46.71).


This afternoon, the Euro was UP by 10 basis points to trade at 1.1056

The Yen FELL to 104.87 for a LOSS of 279 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY TO COMMENCE

The POUND was UP 279 basis points, trading at 1.3260

The Canadian dollar ROSE by 109 basis points to 1.3011, WITH WTI OIL AT:  $46.69

The USA/Yuan closed at 6.6860

the 10 yr Japanese bond yield closed at -.27% DOWN 1/3  IN BASIS  points in yield/

Your closing 10 yr USA bond yield: UP 8  IN basis points from MONDAY at 1.519% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.233 UP 8  in basis points on the day 


Your closing USA dollar index, 96.47 DOWN 9 CENTS  ON THE DAY/4 PM 

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

London:  CLOSED DOWN  2.17 OR 0.03%
German Dax :CLOSED UP  130.66 OR  1.33%
Paris Cac  CLOSED UP 66.85  OR 1.57%
Spain IBEX CLOSED UP 200.90 OR 2.42%
Italian MIB: CLOSED UP 460.36 OR 2.83%

The Dow was UP 120.74  points or 0.66%

NASDAQ UP 34.18 points or 0.69%
WTI Oil price; 46.70 at 4:30 pm;

Brent Oil: 48.34




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

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


BRENT: 48.22

USA 10 YR BOND YIELD: 1.51% 

USA DOLLAR INDEX: 96.51 DOWN 4 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.3237 UP .025558 or 255 basis pts.

German 10 yr bond yield at 5 pm: -.091%



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


“Greatest Short Squeeze Ever” Sends Stocks To Record Highs

Seemed appropriate…

The Dow Industrials joined The S&P 500 at all-time intrday highs today..along with S&P SmallCap 600.

Note The Dow lost the Intraday high in the close BUT ended at a closing high…


Everything is now green year-to-date…

As JPMorgan noted ironically, on Fri stocks rallied because of low bond yields and this week they are extending those gains because yields are higher.

Post-Brexit, Gold and Bonds still lead…


Post-Brexit, Trannies, Small Caps, and Nasdaq are all tightly grouped outperforming S&P and Dow (who are glued togather)…


As the Short-Squeeze continues… 9 days of the last 10!!


This is the biggest short-squeeze in history… Up over 15% in 10 days is a bigger squeeze thanb QE1 and QE2 announcements

(Most Shorted stocks are at their highest since Nov 2015)

Additionally note that today saw Negative Momentum stocks soar back into the green post-Brexit…


Financials gapped higher once again at the open and have scrambled back to pre-Brexit close levels…


But remain decoupled from the curve once again…


Trannies and Small Caps outperformed again today (squeeze)


But VIX was higher for the 2nd day as it seems not everyone is buying the breakout exuberance…


Rate-Hike odds have risen for September and Decmber but remain neglibile for this month…


10Y Yields are up 21bps from last week’s lows (and up 16bps from yesterday’s lows), as the entire curve surges back towards pre-Brexit levels


This has been the biggest 2-day surge in yields since 2011…


Here’s some context for the move in bonds…


The massive weakness in JPY and strngth in GBP is clear in today’s FX moves…


making this the biggest single-day move in GBPJPY since Lehman…


Commodity land was absolute chaos today with copper and crude soaring and PMs dumping…


Gold and Silver were sold this afternoon…


Oil started to catch up to stocks (after OPEC chatter of tighter H2) ahead of tonght’s API data…


Finally, we note for those who appreciate irony that a CNBC anchor asked a guest today, given 2 days of bond weakness and equity strength “is this the start of the great rotation?” You’re welcome.


Charts: Bloomberg

Bonus Chart: March-June correlation breaks down… then accelerates lower…



What a joke!!  Seagate fires 6,500 workers or 14% of their entire workforce and the stock soars in after hours


(courtesy zero hedge)

Seagate Fires 6,500, Or 14% Of Workforce, Stock Soars

Moments ago computer-memory specialist Seagate, in a preliminary financial report, announced that its Q4 revenue would be $2.65 billion, beating expectations of $2.34 billion, and up from the $2.3 billion guidance given previously. The company also reported gross margin of 25% and non-GAAP gross margin of approximately 25.8% for the fiscal fourth quarter 2016, up from the previous 23% forecast.

Good news, and the stock is up 12% after hours as a result.

The only problem is that when companies preannounce good news up front, there is usually some not so good news hidden toward the back. And sure enough, for a company which is guiding higher, the narrative promptly fell apart when we read that for STX management the future is so bright that it just had to lay off 14% of it workforce, or some 6,500 people. This too was a “beat” to expectations: in late June, the company announced it planned to cut “only” 1,600 jobs as a cost-saving measure.

The Company announced today an additional restructuring plan for continued consolidation of its global footprint across Asia, EMEA and the Americas. The plan includes reducing the Company’s global headcount by approximately 6,500 employees, or 14% of its global headcount by the end of fiscal year 2017. The total pretax charges for the plan will be approximately $164 million in fiscal year 2017. The restructuring activities and global footprint consolidation underway should enable the Company to be operating within its targeted Non-GAAP product gross margin range of 27-32% by the December 2016 quarter.

Judging by the 12% jump in the stock on the news, perhaps if STX had not stopped there and had instead fired 50%, or maybe all employees, it may have even doubled in after hours trading.

And in other news, and perhaps explaining why the added layoffs, Gartner reported that worldwide PC shipments fell by 5.2% to 64.3 million in Q2. This was the seventh straight quarter of PC shipment declines. The scapegoat? The strengthening dollar, which supposedly has made PCs more expensive in certain markets. What is ignored is that for much of Q2 the dollar was actually weaker than one year ago, but who cares about details…


The all important Inventories to Sales: we are still at recession level 1.35

(courtesy zero hedge)

Wholesale Inventories-To-Sales Holds At Recessionary Highs

Janet Yellen’s favourite release is the JOLTS survey.  Sorry to disappoint you Janet but jobs openings continue to tumble and the report shows the fewest hires since 2014,  The report definitely does not confirm the “great” jobs report released on Friday

(courtesy zero hedge/BLS/JOLTS)

Labor Market Continues To Deteriorate: Job Openings Tumble, Fewest Hires Since 2014

While many will be quick to ignore the May JOLTS report, due to its one-month delay behind the payrolls data and coinciding with an abysmal month when the US added only 11K seasonally-adjusted jobs, it does reveal several troubling points. First and foremost is that while Wall Street – which was already aware of the June payrolls number  – was expecting the number of job openings to decline modestly from 5.788MM, the drop was far steeper, albeit from an upward revised 5.845MM, sliding to 5.5MM, the lowest number of job openings since February, and the biggest monthly drop since October.

It wasn’t just job opening which disappointed in May: so did the far more important, in our opinion, number of hires. In May, the BLS reported that the number of total hires was only 5.036MM, the third month in a row of declines, and the lowest print since November 2014 as suddenly employers clamped down on new (seasonally-adjusted) hiring.

The Hires series is important because historically it has been a good concurrent indicator of the trend in cumulative annual total payroll changes, although in this cycle something has broken, as the char below shows. That something is the Beveridge curve, shown below. However, no matter the breach in correlation, the recent slide in hiring is hardly a favorable outcome for the US jobs market.

Naturally, the flipside to reduced hiring at a time when overall payrolls are still rising, is a reduction in separations, and indeed in May, the number of total separations dropped from 5.015MM to 4.952MM, which meant that the Net Turnover between additions and separations was +84K in May, well above the total payrolls increase reported in the month of May of only 11K.

And then there is the “quits” series, or as Nick Colas from Convergex puts it, the “take this job and shove it” indicator. This too showed a troubling decline, and at just 2.895MM in people quitting in May, this was the lowest monthly print since January, suggesting that workers had less confidence in their ability to find a job, and thus prompted them to quit in smaller numbers.

Finally we conclude with our favorite chart which encapsulates all the trends revealed in the JOLTS report, namely the Beveridge Curve, which sadly continues to be broken. This is the BLS’ explanation:

  • The graph plots the job openings rate against the unemployment rate. This graphical representation is known as the Beveridge Curve, named after the British economist William Henry Beveridge (1879-1963). The economy’s position on the downward sloping Beveridge Curve reflects the state of the business cycle.
  • During an expansion, the unemployment rate is low and the job openings rate is high. Conversely, during a contraction, the unemployment rate is high and the job openings rate is low. The position of the curve is determined by the efficiency of the labor market. For example, a greater mismatch between available jobs and the unemployed in terms of skills or location would cause the curve to shift outward (up and toward the right).
  • From the start of the most recent recession in December 2007 through the end of 2009, the series trended lower and further to the right as the job openings rate declined and the unemployment rate rose. From 2010 to the present, the series has been trending up and to the left as the job openings rate increased and the unemployment rate decreased.
  • I6, the unemployment rate was 4.7 percent and the job openings rate was 3.7 percent. This job openings rate corresponds to a higher unemployment rate than it did before the most recent recession.

Source: BLS


The largest bond fund lashes out at the Fed for focusing on the stock market and not enough on rising wages and to avoid flip flopping.  Also the bond king Gundlach is saying the same thing:

(courtesy Pimco./zerohedge)

PIMCO Lashes Out At “Flip-Flopping” Fed: ‘Stop Focusing On The Stock Market’

We truly live in interesting times: what was once tinfoil conspiracy theory, namely that the Fed is entirely focused on propping up the stock market, has become not only mainstream thought, but overnight in a scathing essay by prominent PIMCO economists, including Mihir Worah, PIMCO blasted the Fed for constantly “flip-flopping”, and telling Janet Yellen that “the Fed should focus on rising wages, not the stock market.

Of course, the Fed’s traditional response is a well-rehearsed one: record stock prices will eventually “trickle down” into higher wages. Yes, it has not happened so far in the past 7 years of unorthodox monetary policies, but the Fed is absolutely confident it will eventually… just not yet.

But going back to the punchline, what is most amazing is that we now live in a day and age, when the world’s biggest bond fund managers is telling the Fed to stop reacting to every downtick in the market, and actually regain some of its credibility. To wit:

The Fed’s periodic hinting at possible hikes followed by no hikes (with one exception) has many market observers believing the Fed has become myopically focused on the vagaries of the stock market, almost to the point where it ignores most other indicators of economic health. So with a strong payroll number today and the S&P 500 modestly higher on the year, people fear the Fed will once again start talking up the likelihood of a rate hike. Most bond market participants agree this would be a hawkish mistake; hence short-term Treasury yields have moved higher, while the 30-year is moving lower.

The good news for “market observers” is that they are allowed to do just that: observe. To everyone else who can participate in a centrally-planned economy in which the planner no longer knows how to communicate or has any idea if it is responding to the economy or the market, good luck.

Here is Pimco’s full note:

Will The Fed Flip-Flop Again On Economic Data?

The U.S. Treasury yield curve had an interesting reaction to today’s blockbuster payrolls data. June saw 287,000 U.S. jobs created, more than making up for May’s dismal 38,000 number and leaving the six-month average at 172,000 jobs created per month. Normally one would expect data like today’s to steepen the yield curve with longer rates selling off more than shorter rates as inflation expectations rise and term premium comes back into a yield curve that is too flat by most historical measures. Instead two-year rates have moved higher and 30-year rates have moved lower! In addition to the oft-cited global factors, we feel there are two related reasons for this unusual price action:

  1. The yield curve is so flat in the first place because the market discounts the Federal Reserve’s desire to reach its inflation target of 2.0% for the PCE index. (Personal Consumption Expenditures is the Fed’s preferred inflation measure; 2.0% PCE corresponds to about 2.35% CPI (Consumer Price Index.)) U.S. inflation has been persistently below target, and yet, since 2013 and the quantitative easing “taper tantrum,” the Fed has been periodically threatening to raise rates, then backing away. As we have repeatedly argued regarding inflation targeting, the Fed needs to be credible in its desire to raise inflation and inflation expectations – otherwise we run the very real risk of the U.S. economy getting into a Japan-like situation in which the Fed tries to raise inflation expectations, even by raising its inflation target, and people just ignore it.
  2. The Fed’s periodic hinting at possible hikes followed by no hikes (with one exception) has many market observers believing the Fed has become myopically focused on the vagaries of the stock market, almost to the point where it ignores most other indicators of economic health. So with a strong payroll number today and the S&P 500 modestly higher on the year, people fear the Fed will once again start talking up the likelihood of a rate hike. Most bond market participants agree this would be a hawkish mistake; hence short-term Treasury yields have moved higher, while the 30-year is moving lower.

The Fed should measure U.S. economic success not in terms of a higher stock market, which benefits mostly the wealthy, but in rising wages. One market indicator of this would be a re-steepening of the yield curve as term premiums and inflation expectations move toward normal levels. The futures market anticipates overnight rates for this cycle peaking at 2% or even lower; a healthier environment would have rates peaking at 3% in line with the Fed’s own expectations. Similarly, 30-year inflation expectations (as signaled by the Treasury Inflation-Protected Securities (TIPS) market) above 2.0%, rather than the current 1.6%, would indicate the Fed is regaining its credibility in terms of reaching its target, despite being below that target for most of the last 10 years.

The Fed needs to be clear and consistent on its objectives (and its desire to meet both aspects of its dual job and price stability mandate), rather than reacting to every twist and turn of the stock markets and high frequency data.

And just to address Pimco’s (rhetorical?) question, the answer is: yes.


This is ominous!  I thought that there was a huge shortage of 10 yr USA bond paper?

something is u!

(courtesy zero hedge)


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